Originally Posted by bobvc

Currently, credit card companies and other nonairline companies who reward customers with airline miles pay a transportation tax on the purchase of those airline miles. Per the Internal Revenue Code, the excise tax is only required on those miles redeemed for air travel within the US. That means, miles redeemed for international travel, magazines, gift cards, and other nontravel awards are exempt from the excise tax. So, the companies that purchase the miles to reward their customers currently must apply for a credit for taxes paid on miles redeemed on the awards exempt from the excise tax.

According to Notice 2015-76 issued by the IRS, they are exploring a different method of separating the miles used for taxable air travel and nontaxable awards. The method they are considering is to allow each airline to discount the excise tax based on the proportion of miles redeemed for taxable air travel and the nontaxable awards during the previous April to March period rather than require airline mile purchasers to file for a tax credit.

Anyone who wishes to provide comment to the IRS, the instructions are listed at the end of the notice.

to request public comments about how to exclude excise tax on those miles redeemed for those awards that are exempt. From what I can tell, the IRS is looking for a better way to separate out miles exempt from the excise tax.