Originally Posted by DennyO
The IRS will take the position that FMV is what a reasonable person would pay for the miles not what you can sell them for.
But that's just it, a
reasonable person wouldn't pay anything for the miles because in a non-clandestine transaction, AA would void the miles immediate because the sale violated their program rules. Accordingly, the purchaser would not receive any value for the miles.
Originally Posted by mahasamatman
I may be wrong, but I don't think it matters if you can sell them. The one known fact is that AA can sell them, and $1250 is what they charge for 50,000 miles.
But AA is a monopolistic seller. They could charge $5.00 per mile and probably find some idiots to buy them. That doesn't mean that they have a value of $5.00.
I am kind of just playing the anti-IRS advocate here because I hate taxes.... but it still makes you think.
On a more serious note that the OP may want to consider in his challenge to the IRS: AA can and does sell miles for 2.5¢ per mile.
But, I have to believe that they typically sell those miles to people wanting to top off their accounts for awards. Someone may be willing to pay $25 (forget about the processing fee for now) for 1,000 miles to get to 70,000 for 2 coach tickets to Hawaii. But, that same person would not be likely to purchase 70,000 miles for $1,750 for the same award tickets.
So, while there may be some transaction history at AA to suggest that 1 mile is worth 2.5¢, I'm betting there isn't much transaction history to suggest that 50,000 miles can be sold for $1,250.