Originally Posted by
itsme
...It would be rather anomalous, wouldn't it, if the elite traveling on a 25K domestic saver award could take deduct only half as much for using 25K of his miles to travel on business with a domestic saver award. The miles would, however, be equally valuable in the hands of a broker, though, who would be indifferent to whether they came faster to an elite or slower to a non-elite.
You are limited to deducting the
lesser of i) adjusted basis (usually cost) and ii) fair market value. So, for that reason the elite might have a lower cost per mile than the non-elite.
Originally Posted by
itsme
... if they are carried on the airlines books at some very low value, perhaps <$.001 (see story on AC FFP when it was spun off), then why shouldn't the IRS take that as the "official value" rather than what you think a ticket broker would pay for your miles.
The IRS wouldn't take that view because they understand financial statements. The low value of miles carried on the books of airlines historically is their
liability for the miles' redemption, which has nothing to do with fair market vaule. Essentially, airlines treated that liability as the trivial increase in cost of carrying an extra passenger.
Interestingly, United has departed from that accounting approach:
Frequent Flyer Accounting. In accordance with fresh-start reporting, the Company revalued its frequent flyer obligation to estimated fair value at the Effective Date, which resulted in a $2.4 billion increase to the frequent flyer obligation. The Successor Company also has elected to change its accounting policy for its Mileage Plus frequent flyer program to a deferred revenue model. The Company believes that accounting for frequent flyer miles using a deferred revenue model is preferable, as it establishes a consistent valuation methodology for both miles earned by frequent flyers and miles sold to non-airline business partners.
Before the Effective Date, the Predecessor Company had used the historical industry practice of accounting for frequent flyer miles earned on United flights on an incremental cost basis as an accrued liability and as advertising expense, while miles sold to non-airline business partners were accounted for on a deferred revenue basis. As of the Effective Date, the deferred revenue value of all frequent flyer miles are measured using equivalent ticket value as described below, and all associated adjustments are made to passenger revenues.
(United's most recent 10-K at p. 53, available at
http://www.sec.gov/Archives/edgar/da...25698_210k.htm )
Originally Posted by
itsme
...a purchase that never in fact takes place, then how about some decided cases supporting that interpretation?
The purchase did take place. For an airfare, I got travel and miles. I've already cited the IRS publication on allocating basis, so there no need for cases holding that you allocate basis to the components of a lump sum purchase.
Originally Posted by
itsme
...(Maybe a CPA or tax lawyer will come along and give us the "answer," along with the reasoning and citations to support it.)
If you think there's an "answer" to this question, you are ignoring the implications of how no case, statute, regulation or IRS publication addresses it directly. In such a situation, you have arguments, some better than others. You have no "answer".