Again, I'm not a tax attorney, but if the recipient agrees to the valuation presented, that's gonna be it. So theoretically, if AA calls miles worth 2.5c each and you accept it, that's the value. What does a mile cost AA? It's impossible for them to determine the actual cost until that mile gets used, and no one is ever going to tell us what the average is. So they value it at what they sell it for on the buymiles portal, which is the value they use on the 100K miles prize. The fact that they rounded down to $597, on a 30k prize in order to save putting out a 1099 only serves to illustrate that they put whatever value a) is convenient to them and b) they can get away with. How they get away with it, when they sell billions of miles to Citi for less than 0.01, is by calling it "retail". If those valuations were rock solid, you wouldn't be able to argue fair value with the IRS.

There's every advantage to inflating amounts, if you get away with it. I'm sure they have a whole tax department that finagles this daily. (same as GE ).