nsx

Here's one for the new Thank You Rewards forum whenever it opens:

The Tax Court said yesterday that a taxpayer was not entitled to omit $668 of 1099-MISC income from redemption of 50k Thank You points:

(bottom of page 13) We proceed on the assumption that we are dealing here with a premium for making a deposit into, or maintaining a balance in, a bank account. In other words, something given in exchange for the use (deposit) of Mr. Shankar's money; i.e., something in the nature of interest. In general, the receipt of interest constitutes the receipt of an item of gross income. See sec. 61(a)(4). Receipt of the airline ticket constituted receipt of an item of gross income, and petitioners have failed to show that it was worth any less than $668, which Citibank, which had purchased the ticket, said was its fair market value.2

2Neither party has addressed, nor do we consider, whether award of the
thank you points, itself, may have been the taxable event.

I also note that the taxpayer did not make any attempt to dispute the $668 valuation. That was a tactical error IMHO, but this case involved other larger disputes.

tuphat

See link below to recent decision by Tax Court.

IMPORTANT: Strictly speaking, this case involves only the points earned upon opening an account, which were reported by Citi on a Form 1099-MISC. It does NOT involve points earned through spending, the non-taxability of which the court defers to a previous IRS ruling holding same.

Basic facts: Taxpayer received 1099-MISC for $668, for redemption of 50k Thank You Points for an airline ticket. Taxpayer omitted income from his return.
Court held that (i) Citi's issuance of the 1099 outweighed, from an evidentiary perspective, taxpayer's argument that nothing of value was received, and (ii) that the item should be treated as noncash award for opening a bank account and therefore be treated as gross income.

https://www.ustaxcourt.gov/InOpHisto...ern.TC.WPD.pdf

[duplicate of what I also posted on FW]

Andy2

I hate these pro se cases. The taxpayers did not make any of the arguments regarding value, or "coupons" with basis reduction, or anything that has been raised in the various threads. The taxpayer representing himself said he did not remember getting any dang airline ticket, his wife did not show up, and the judge went with what was reflected on the 1099 as the judge decides questions, the judge does not raise them. I am not convinced this case, which involves Thank You points instead of miles, means much.

mike814

NOT LEGAL OR TAX ADVICE

This also specially says it is a bank account and the court equated the points to "interest" earned in exchange for allowing the bank to hold money.

gustav316

If you are subject to the AMT, you can probably afford an attorney to assist...

itchyfeet123

Are Thank You points likely to be different than UR or Arrival points in terms of taxability? Or is it simply that Citi sends the 1099 whereas Chase and Barclay don't?

nall

Chase does not give UR solely for banking.

hwest

1. What the heck Citibank (or, why on earth didn't you say "oops, our bad, we don't actually view TY points as taxable income and mistakenly sent a 1099-MISC")? Do you not want people to open bank accounts with you anymore?
2. Sounds like the petitioner was probably... not very nice to the examiner. He has another pending case, too.
3. Can anyone get a copy of the affidavit Citi provided? Looks like someone may have to go to the Clerk's office to get it.

patrick.barnes

Banking TYP have always been taxable. Not sure if something new is being surfaced in this case?

dhuey

Yeah, I don't see much to get excited about with this. This was a form of interest on a bank account. I think we're still quite safe with credit card bonuses.

It would have been noteworthy if there had been a dispute over the proper valuation of the points, but the taxpayer didn't raise that issue.

roki

Will be interesting to see if I get hit with a tax bill for a 73K point redemption (for ~$1160 in airfare). At least half of those points came from monthly banking points (not new account bonuses, but monthly points from banking relationship). Also, if they do, what value the 1099 would have, since not all of them were banking.

Andy2

The case does not discuss whether the redemption of the points occurred in the same year that they were earned. Citi frustratingly calculates the income from the redemption of TY points in the year of redemption, instead of the year they were awarded as "interest". It would appear more correct, if it is income from the opening of the account, for the taxable year to be the year they are awarded. Since only one year was before the court, it would have been good for him to make that argument and force the IRS to see if the prior year could still be opened. Plus it would have irritated Citi.

rgAAFT

Not really sure but I think the point of this thread was to provide proof that the IRS DOES in fact want taxes collected on rewards earned through checking account sign up bonuses ,which it considers a "taxable prize" vs a "rebate on spending" This is why we thankfully don't have to pay taxes for new credit card sign up bonuses.
The thing I don't get though is,
Wasn't it the IRS also that said that it was generally against the citi policy of claiming that bank points/ AA miles were taxable? (because that's just it, really miles and points don't have much monetary "real" value. For the IRS to go back on their word regarding this, or have a double standard between airline miles and that of bank points is just plain wrong IMO. What's next?

Breaking news,
By order of the IRS,
From this day onwards, the agency will apply different tax rates on different loyalty program currencies based on the amount value they give to the end user
Therefore, Hilton points shall be exempt from taxation because you can't get jack with them vs SPG or Hyatt points shall be taxed out the wazoo.

BobH

There's a plain English summary at

http://www.forbes.com/sites/kellyphi...d-by-citibank/

Bob H

Andy2

Plain, English and misleading.

Every one of us knows that Thank You points function differently than frequent flier miles, but she treated them exactly the same in the article and referenced the awarding of AA miles as exactly the same situation, when it is not.

Citi "values" the Thank You Points earned from banking in the year of redemption and measures the value based on a known redemption. A person "buys" a $500 airline ticket with 50,000 Thank You points, and the measurement is done at that time. A 1099 is sent for $500 in the year of redemption if the TY points were earned from banking.

The same person receiving 50,000 AA miles for banking is left with a completely different valuation question, made even worse when the issuer of the miles issues a Form 1099 "valuing" the miles - as Citi did one year. From a tax law standpoint, Citi should be placing a value on the TY points in the year they are awarded (if they have value), not the year of redemption. And this court case sheds no light on the appropriate way to place a value (if any) on the frequent flier miles, which are different than TY points (even though the author does not seem to understand this).