EsquireFlyer

FYI, while you can say what Andy said, the IRS does not have to accept your characterization of the transaction as a gift if they believe that in substance it was a sale. And they can still come after you for taxes and/or penalties. (But you might have a better chance withstanding an IRS challenge if you characterized the payments as gifts, rather than simply admitting that it was a sale you didn't pay taxes on.)

Also, as long as the miles were earned from credit cards (under the "rebate" theory), it seems to me that the income from selling the tickets would most likely not be taxable, unless you sold the ticket for more than the miles were worth. (Which is an odd proposition because how can the miles be worth less than the ticket you exchanged them for? Unless, of course, you sold the ticket for more than the cash price of a comparable ticket.)

For example, if my credit card paid me a 1% cashback rebate on a $5000 purchase, and I used that $50 rebate to buy a baseball ticket (to bracket the issue of non-transferrability of airline tickets for the moment), and sold the baseball ticket to someone else for $50, I don't think I would have any taxable income on the sale. On the other hand, if I resold the ticket for $90, then I would have $40 of taxabale income.

With a plane ticket, I would hypothesize that your basis in the ticket is the FMV of the miles that you redeemed to obtain the ticket, so a sale of the ticket would only be taxable to the extent that the sale price exceeded your basis (although I really can't say whether the IRS would agree with me on this or not).