codybear

I am also a recipient of a $1000 1099 which is going to cost me $400. Has anyone had success in getting a corrected 1099 MISC with a lower amount if not zero? If so, please tell us the method on how you obtained that.

Andy2

Here is the blog post that I remembered that had a good description of how to enter a description and negative amount on the tax return, if the taxpayer believes that this treatment is warranted:

http://travel.usatoday.com/alliance/...e-IRS/139872/1

all168

did anyone received 1099 because you applied for AA credit card bonus only(2x75K or 3x75k)? Not banking account like checking and saving. My friend call me and he said he received a 1099 from citi and he only apply for CC, no banking account.

Counsellor

Based on the old rulings that the value of the toaster the bank gave you for opening an account is reportable as interest, it would certainly seem that the IRS would have a strong argument as you say.

It may be that the banks are valuing the miles at a very low rate, as some others suggest. Or it may be that the ABA hypothesis set out below is being relied on:

But to me that interpretation's silly (although others may not agree with this opinion).

The IRS "ruling" on personal use of frequent flyer benefits earned on flights paid for by one's employer was not based on valuation difficulties of frequent flyer miles themselves, but rather in a situational context. Additionally (although not explicitly mentioned) is the issue that a particular passenger may or may not collect the miles on the business flight, and whether he does or not has no cost impact on the price the employer is paying for the ticket. In such case, it's sort of hard to say this is a part of remuneration. (If an employee likes traveling to a particular city because he enjoys that city and is getting there free of personal cost while his co-worker positively hates the city and his time there, is the first employee "paid" more by his employer than the second employee because of the side benefit of enjoyment?)

The IRS has no problem valuing miles for purposes of excise taxes (the type of tax car rental companies pass on to you for the frequent flyer miles they give you for renting their vehicles) or when the miles are won in a contest.

Oh, there is some room for movement when a taxpayer contests the valuation of miles won, but most of those disagreements turn on individual facts ("I used my SkyMiles to pay for tickets at 1 cent per mile credit against the cost of the ticket, so a valuation of 2 cents per mile is too high." or "I used my points to get a "free" hotel room, but I would have stayed at a cheaper hotel if I were paying out of pocket so you can't use the hotel's rack rate to value the points I spent.").

The point is that the IRS has plenty of rules of thumb to value miles, much as divorce courts do. Difficulty in precise vaulation does not mean "no value can be determined" or that the IRS doesn't tax at all, it simply means there's more latitude in reaching a valuation on a case-by-case basis.

However, I do not advise the IRS, so it's up to them and their advisors (initially, at least) what they do.

CherylD

That is not the way it worked for DH. He received a 1099-INT for the actual interest earned on the savings account. He also received a 1099-MISC for $1000 for 40,000 miles (20K Checking + 20K Savings)

dhuey

Indeed, and I think the key part of that context is the enormous administrative difficulty it would pose to treat employee-earned miles as taxable compensation. As you know, so many people seem to believe that the IRS concluded that miles have no value. The IRS did no such thing, and in other contexts, the IRS quite clearly takes the position that miles have value (and really, of course they have value!).

ss

I, for one, do agree.

Yes indeed.

But note that the various valuations chosen by Citi are always unreasonably high. As other posts have noted, neither you nor the IRS are bound by Citi's valuation.

JATR4

Here is the way that Proseries (the top tax program) would handle getting an inflated 1099-MISC from Citi.

This from the Proseries instructions:

"If you won a noncash prize, only the fair market value of the prize is taxable to you. For example. you receive a 1099-MISC that shows $1000 in box 3 for a television set you won in a contest. That amount will show as Other Income on your tax return. But you know a discount store sells the same make and model for $750.

Since the FMV of the television is $750, you can enter $250 as a negative adjustment on line 17 (as other miscellaneous income not reported elsewhere) with the description PRIZE FMV ADJUSTMENT. This way, you're only paying tax on what the prize is really worth. It's a good idea to document your adjustments with cutouts of adds or similar backup, and keep them with your other tax documents in case you're ever asked about them."

Don't be confused by the reference to line 17. That is a line on the Proseries breakout of Other Income. The statement would be attached to the tax return and would show the $1000 from the 1099-MISC as well as the AWARD FMV adjustment resulting in an entry of $750 on line 21 (Other Income) of the 1040.

My recommendation would be to read the article referenced by Andy2 in post #152. That means contacting Citi and requesting an amended 1099-MISC. Probably won't get satisfaction but document the call and then call the IRS. Document this call also.

For someone preparing their own returns this shouldn't be too complicated. For those paying someone else to do their return make sure they don't charge you more for the negative FMV adjustment than it is worth.

Last night I did an exercise to determine how I would value AA miles if I had received a 1099-MISC from Citi. I checked the price in both dollars and AA miles of a trip from GSO (Greensboro) to SAN (San Diego) through DFW departing at 12:30 on 11 Sep and returning at 7:10 on 18 Sep. The price was $411 or 100,000 miles. If I were preparing my own return and had a 1099-MISC from Citi for $1000 (40,000 miles) I would make the FMV adjustment of -$836 (40,000 x 0.00411 = $164) as described above. I would make screen shots of both and keep them for reference.

I don't have any 1099s from Citi and don't expect any.

Hope this helps.

ss

Or in the case of a 1099-INT, the $1000 would be included on Schedule B so line 21 would show -$250.

dhuey

If you're going to report a lower amount for a 1099-MISC item, I would add a statement at end of your return explaining exactly what you are doing and your justification for it. If it's a lower FMV you are claiming than what was reported on the 1099-MISC, I would state exactly why the figure is inflated and why it should be a lower amount.

In the case of airline miles, I have taken the position that the underworld market of mileage brokers is the closest thing we have to a free market to establish the FMV of miles. Yes, the whole market operates in violation of the program rules, but it's still a real market with arms-length purchases and sales. With reference to that market, I have valued miles I acquired via personal travel (i.e., my personal property) at 1.5 cents per for calculating my cost for business travel when I used personal miles for business trips. My statements at the end of my returns have explained this; the IRS has never said a peep about it. I kinda wish they would challenge it -- it'd be a fun case.

JATR4

It is difficult for anyone to put a value on airline miles. There are "jillions" of miles that have been awarded but the majority will never be used. Is there any value to miles that are not used or expire? Probably not.

The people on this board are exceptions in that they intend to use their miles if at all possible. But most frequent fliers never use their miles. The actual value might be the total value of award tickets issued in a year divided by the total award miles issued in a year. It is possible that the value might calculate to less than $0.001 per mile. That would make the value negligible.

JATR4

Has anyone received a 1099-INT for miles or are they all 1099-MISCs?

I would probably include any FMV interest adjustment on schedule B. Proseries has a worksheet for schedule B adjustments such as OID, etc. But I think the 1099s are all 1099-MISCs.

samdori

I got a 1099-Misc today reporting $750 of income for the 30,000 miles I got with the Citigold account. After plugging it in to my income tax on line 21 of the 1040, it is costing me $113 in federal taxes and $46 in state taxes. I'm still glad I did it. $159 is not bad for 30,000 miles plus I paid one $30 maintenance fee. But it was a lot of time and effort dealing with the hassle of opening the account and satisfying the requirements. I would definitely stay away if I was in a higher tax bracket.

Andy2

Two points. The way that the IRS computer system works now it is very important that the gross amount show up, otherwise a matching notice will be generated. If someone receives a 1099-MISC for $1,000, it is important that the $1,000 be entered separately from any negative adjustment. That is why tax prep. software instructions would advise someone to enter a line for the $1,000 of gross income and another line for the $250 negative adjustment, rather than just entering $750 and explaining it in a statement that can't be read by the IRS computer scanner. While a statement is fine to explain the two separate lines, it is getting harder to include explanatory statements in the age of e-filing. So a detailed description on the line containing the negative adjustment might be preferable to an explanatory statement for some people.

JATR4

Have you considered doing a FMV adjustment?