Originally Posted by ananthar
To get a low valuation why not use the valuation airlines themselves use on their financial statements, which is about 0.1c/mile (actually about $23 per 25,000 miles for Delta) ?
I would argue that since the IRS allows only $0.001/mile as a liability for the airline tax return, they should not tax you at a higher valuation....
This will not work. The question is what's the fair market value (i.e., what someone would pay for it in an arms-length transaction)? That is quite different than the liability the same miles represent to the airline. For liability purposes, the airline must record its estimated marginal cost of delivery of transportation for those miles.
Since putting an extra person on a flight results in almost no additional costs for the airline, the miles represent a very low financial liability (note the real opportunity cost for the airline, though, when someone uses miles rather than cash). Again, that really has little to do with how the market values those same miles.