I'm a novice compared to most here, but here is how I am closing out my CO account:

1. topping it off to 5000 increments with iDine.

2. Then transfer to HH.

For USAir, I will top off to an award level then redeem the ticket.

Basically, to close an account you have to find a way to transfer the miles out without taking too much of a hair cut or a way to redeem the miles for something useful. In order to redeem, you usually have to spend some effort to top off your account. Another trick is to take advantage of reduced mileage awards--many airlines have 20,000 domestic awards, and CO frequently has (or did have--havent' paid attention in a while) discounted awards. For example, I flew to Rio for only 17,500 points! Another strategy is to redeem the points for merchandise like magazines, luggage, etc., although the exchange rates are not usually that great.

As for taxes, you can't deduct the gift since you never paid tax on the realiziation of the income. If you did, then your deduction would net against the income and you would have zero. Same thing for the airline--if they deduct the value of the ticket, then they also have to recognize income on the ticket equal to its value less maybe some other deductible expenses like overhead.