EsquireFlyer

First, I think the conclusion "If they are properly complying with the tax laws, they must be valuing the miles at $0.00 per mile" is internally self-contradictory. I don't think valuing miles at $0.00 per mile can constitute properly complying with tax laws. Even in the case of credit cards, whose frequent flier miles are not taxed, the IRS's position is not that the miles are valued at $0.00, but that the miles' value is considered a rebate on the purchase price (which would be a meaningless position if the value was $0.00).

If a big bank were to make a conscious policy decision on the proper valuation of a mile, they would probably first try to get an opinion from tax counsel so that they could rely on it in the event of an IRS audit. And I think it is highly unlikely that an experienced tax attorney would be willing to issue an opinion that the proper value of a mile is $0.00, especially in the case of miles like AA miles which can be sold back to the airline, within the program's rules (via their partner points.com), at a cash value of $0.004 per mile. And it's unlikely that a major financial institution would take such an aggressive tax position without receiving an opinion letter from tax counsel stating that it was at least "more likely than not" that the tax position would be accepted by the IRS.

On the other hand, there are many other possible explanations for why these other banks did not send out 1099s, which makes it not safe to assume that it must be because they value miles at $0.00. Some possibilities include:

1. They may value miles at above than $0.00, but lower than the amount necessary to trigger 1099 reporting.
2. Related to #1, they may, like Citibank apparently is, be confusing the 1099-INT with the 1099-MISC, and be applying the wrong threshold. The reason that some people have speculated for Citi's use of the 1099-MISC (have to try out a service) is not convincing to me as a legal justification. I think it was just a mistake.
3. They may be assuming, as Senator Brown did, that the IRS has stated that it will not seek to tax any miles, even though they have value, because of the administrative burden. (Whereas the IRS has only actually said that with respect to miles earned on business travel when the tickets are paid for by the employer but the miles are accrued by the employee.)
4. Or, and I think this is the most likely, the thought may have simply never crossed their minds, just like it apparently did not cross the minds of many of their clients, until Citi started making headlines with it (possibly pursuant to advice that Citi received privately from its tax advisors). This could just be an "oops" on the part of Fidelity, TD Ameritrade, or BankDirect; and if so, it's a really small "oops" in comparison to the other mistakes other big banks have made, leading up to the recent U.S. financial crisis. Perhaps the bank executives just had a lot of other things on their mind which took precedence over issuing 1099s for frequent filer miles.

I can't say for sure that any of the above is definitely the reason, but the fact that there are so many other possibilities makes it unsafe to assume that the fact that these banks did not issue 1099s for account-opening miles must have been because they consciously decided to value miles at $0.00.

This one is easier to explain. In designing the bonus program, Fidelity's target audience probably was not "the churners" (who actually cost Fidelity a lot more $$ than just the hassle of printing out a tax form), so even if they did make a tax decision regarding the reporting of miles, they probably did not anticipate the need to add up multiple mileage bonuses across accounts for the churners.

The tax approach Fidelity took could have been any of #1 to #4 above (or something else), rather than specifically deciding, "The maximum amount a churner could get from us each year is 120,000 miles, and we value miles at $0.00, so the total is worth 120,000 x $0.00 = $0, and so we do not need to issue a 1099."

I don't think it's clear that Fidelity has even considered the tax implications of the award-opening miles, but if they did, it is more likely that they considered the typical customer, and less likely that they specifically considered the tax implications with respect to the small subset of their customers that engages in "churning."

It's definitely possible that the banks have taken this, of course--I just don't think it's anywhere near certain. And so I don't think it's safe or accurate to say something like "Unlike Citi, these three other banks have decided to value miles at $0.00" without any proof that they consciously made such a decision. For the reasons I stated above, I don't think the failure to issue a 1099, without more, constitutes proof of that conscious decision.