Since the IRS cannot determine which miles are from personal air travel, personal credit cards, personal hotel stays etc.....

The conversion of FF miles into cash will be impossible to determine taxability.

I.E.

Much the same as taking a coupon to your grocery store, its not taxable and the cash reductions from similar transactions are just rebates or reductions in your cost of Personal activity. This has been a long held IRS position.

Basically it boils down......

if the miles are from PERSONAL activities its NON-TAXABLE,

however

if the miles are BUSINESS related they might be taxable.

This is the reason that the IRS finally threw up their hands and said its not taxable. Which agent would want to go through all your miles and determine which were taxable and which were not, and then determine was it the taxable ones you sold or the NON-TAXABLE ones.

SOUNDS TOO COMPLICATED and that is the reason for the ruling......

http://www.taxplanet.com/taxnews/irs...ia2002-18.html

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AA member since 1981