For those of you who think you own your AA miles, you DON'T!!!
Here is a direct quote from the AA T&Cs:
"...Accrued mileage credit and award tickets do not constitute property of the member..."
If you don't own the miles how can Citi issue a 1099 for the miles? I think Citi is run by a bunch of idiots who can't read. If they coulod they would know what the IRS 2002-18 said. The IRS has no qualms if the miles are valued at zero.
Here is an example of what the IRS would face in valuing AA miles (similar problems with other programs).
Assume in 2011 that you opened a Citi bank account and received 25,000 AA miles from Citi. You also took a trip around the world and paid cash for that trip. You received 25,000 AA miles for that trip from American Airlines. You now have 50,000 miles in your account but you only received a 1099-MISC for $625 from Citi. No other 1099s received. What is the value of the other miles in your account? That value is zero because the miles received for that trip around the world is a discount on the cash price you paid for the ticket. So you now have a mileage account with 50,000 miles and they are valued at...
That is just one of many reasons that the IRS doesn't want to get into a valuation of airline miles.
Citi is the culprit in that 1099-MISCs should never have been issued. Probably some idiot who was unfamiliar with IRS 2002-18 started this and it has snowballed.
I personally would dispute any 1099-MISC received from Citi. I would call Citi and the IRS as mentioned above. Attach a copy of IRS 2002-18 to my tax return along with a copy of the T&Cs that states that you don't own the miles and cannot sell or barter them.
I don't think the IRS wants to deal with airline miles much the same as Congress just punted on SOPA/PIPA. Airline miles valuation is a can of worms.
Easy for me to say since I don't have a 1099-MISC from Citi.