Here is a link to an article about this decision:
http://www.forbes.com/sites/kellyphi...d-by-citibank/
My reading of this is that when Citi decided to send 1099s for "Thank you points" they basically made the decision that this was income. The failure to report the income from a 1099 is what most likely caused this issue.
Sure but they can "basically make the decision" that card points should be income as well and the IRS is likely to back them. A grey area thus becomes rather black and white. There are many voices that are pushing for that (for good reasons) and others that are pushing against it (for good reasons).