<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by TxLobo:
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.
[snip}
SOUNDS TOO COMPLICATED and that is the reason for the ruling...... 
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Not really all that complicated. The IRS has never really proposed having an individual determine tax liability by sorting out FF miles. What they have proposed from time to time is treating the FF miles as a rebate to the business, and taxing the business (giving the business the possbility of passing the cost on to the employee via a Form 1099).
Businesses are much easier to tax than individuals.
Right now there is no clear guideline on taxing employee benefits. Some employee benefits are deductible by the employer and not taxed to the employee: (health care in general); some benefits are fully taxed to the employee (ordinary income); and some partly taxed (social security).
The solution is for Congress to decide where to put FF miles. But with business and business travellers both happy with the present state, I am not looking for many changes soon.
Bruce McAlister