I found this analysis on actual IRS rulings and cases regarding rewards taxation really interesting: https://www.twrblog.com/2021/05/maki...-card-rewards/

To summarize what this summary seems to be saying:

1. Based on IRS Announcement 2002-18, frequent flyer rewards earned from business travel are not considered taxable. That's why flying to earn redeemable miles doesn't result in a 1099.
2. Based on Revenue Ruling 76-96, rewards earned based on making a purchase are considered a rebate on that purchase. That's why a SUB is not taxable when it has a spending requirement higher than the value of the SUB.
   1. This ruling was also clarified by Revenue Ruling 2008-26, to make it clear that the reduction in basis can have implications. The example used in the ruling describes a customer buying a car for $24k and receiving a $2k rebate. The rebate is not taxable. However, the basis for the car is then $22k. Therefore if the customer then sells the car for more than $22k, a profit is realized.
   2. I think it would be easy for the IRS to make the argument that if you receive a reward on a legitimate business purchase that you then go on to deduct from your business tax return, the basis in the item deducted should be reduced by the amount of the rebate. For example, if you buy some office supplies for your legitimate business for $100, and receive 5% cash back, the case could be made that your deduction for your taxes should only be $95. Similarly for cash back on a charitable deduction.
   3. The article also discusses a case where the Tax Court suggested that manufactured spending might be taxable. The situation involved someone buying Visa Gift Cards for 5% cash back, then using those gift cards to buy money orders. The Tax Court suggested that the IRS could make an argument like this: You spend $505.95 for a $500 Visa Gift Card. You get back $25.30 in cash back. You then buy a money order for $500 using the gift card. The suggestion is that $25.30 - $5.95 = $19.35 is taxable, if the IRS decides to pursue it.
3. Based on the case Shankar v. Commissioner, rewards earned as an incentive not tied to a purchase are definitely taxable. In that case, the taxpayer earned 50k ThankYou points from a bank account signup. He then redeemed for a $668 plane ticket. Citi sent him a 1099 for $668. The IRS accepted that valuation and required the taxpayer to report it as income, since it was not originally awarded as a reduction in the basis of a purchase. This also suggests that the IRS would accept a valuation of whatever the retail price was of what you redeemed for.