[Consolidated] 1099s for miles & cash rewards from all banks
Jan 30, 2012, 3:04 pm
#361
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Jan 30, 2012, 4:55 pm
#362
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As Mr. Brown's letter is a public communique and not copyrighted, and too many URLs in this thread have gone "404" after a promo expired or a page died, here is Mr. Brown's letter to Mr. Pandit in its entirety:
I think I am not going to sweat this too much, as my last card app required a certain purchase to trigger miles bonuses.
Code:
January 30, 2012
Mr. Vikram Pandit
Citibank
399 Park Avenue
New York, NY 10043
Dear Mr. Pandit:
As Chairman of the Senate Banking Subcommittee on Financial
Institutions and Consumer Protection, I write to express my
concern regarding recent reports that Citibank is sending 1099
tax forms to customers who received frequent-flier miles as a
reward for opening a checking or savings account.
During these challenging economic times, middle-class families
are pinching pennies to help pay for the cost of a flight to fly
home from college, visit an ailing relative, or see friends.
To some, signing up for a bank account in exchange for
frequent-flier miles to help make a trip more affordable is an
offer that is too good to resist. However, your actions are
leaving working families with the seemingly incorrect
impression that when they rack up miles, they are hiking
up their taxes, too.
Citibank arbitrarily calculates the value of each frequent
flier mile as 2.5 cents of taxable income. Based upon its
incorrect interpretation of a rule requiring individuals to
report rewards and prizes as taxable income, Citibank
has been sending its customers 1099 tax forms to
report their frequent-flier miles. A spokesperson
stated that the bank is following instructions from
the 2012 Internal Revenue Code, and that income
tax must be paid if at least $600 in “prizes and awards”
is received. These miles are neither a prize nor an award.
Furthermore, the Internal Revenue Service (IRS) has made
clear that frequent-flier miles are not taxable income.
In a ruling made in 2002 – which still stands – the IRS
highlighted that frequent-flier miles are not subject to
income tax due to the “numerous technical and
administrative issues relating to these benefits.”
Furthermore, the IRS stated that it “will not assert
that any taxpayer has understated his federal tax
liability by reason of the receipt or personal use of
frequent-flier miles or other in-kind promotional benefits
attributable to the taxpayer’s business or official travel.”
Most importantly, given the IRS’s ruling, why is Citibank
sending its customers 1099 tax forms? Reporting
frequent-flier miles as taxable income is inconvenient
to consumers, raises their anxiety unnecessarily, and
is not required by law.
I urge Citibank to halt this practice. The last thing
Citibank should be doing is creating baseless fear in
middle class families, or placing a nonexistent tax
burden on the backs of families who are already
struggling to make ends meet.
Thank you for your consideration of this matter.
Sincerely,
Sherrod Brown
United States Senator
Jan 30, 2012, 5:26 pm
#363
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I think you may be over-estimating the degree of Sen. Brown's concerns. Do you realize how many issues a typical Senator expresses "concerns" about every day? I doubt this is high on the priority list.
Jan 30, 2012, 5:28 pm
#364
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This is the only "concern" that Sen. Brown issued a press release about today.
Jan 30, 2012, 6:24 pm
#365
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This, however, was a press release and a letter to the CEO of Citibank. And it was quickly met with what I think is a seriously dismissive response by the IRS spokeswoman. She sorta said "we don't take you seriously, Senator." That's a dangerous move for a bureaucrat in Washington.
Jan 30, 2012, 7:12 pm
#366
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If it were farm land and the farmer lost income because he couldn't grow crops on the easement, then his taxable income is automatically lowered. The land itself has a FMV, and its appraisal would reflect any impact (for tax purposes or any other reason) of the easement.
As you probably know, the EPA and the equivalent state agencies are above the law anyway, so the term "fair" is not in their lexicon.
Jan 30, 2012, 7:53 pm
#367
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At the very least the Senator has given us all the address to send our letter to the Citibank CEO. I'll be sending a letter to that office tomorrow. At least his secretary will be pissed the bank is sending these 1099s out.
And Google lists the CEO's work email address.
And Google lists the CEO's work email address.
Last edited by Milezjunkie; Jan 30, 2012 at 8:05 pm
Jan 30, 2012, 8:42 pm
#368
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LA Times (1/30/2012): "IRS clarifies its stand on whether airline miles are taxable"
Jan 30, 2012, 9:05 pm
#369
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Alright then, let me ask you again: can you point to any tax law authorities -- statutes, regs, rulings, announcements, publications, forms or anything else -- to support the idea that if there is no active market for something, its FMV is zero?
Jan 30, 2012, 10:16 pm
#370
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Cliff notes:
"Rewards and airline miles that are provided in connection with a purchase on a credit card are routinely not subject to individual income tax reporting," said Sean Kevelighan, a Citi spokesman. "When a customer receives a gift for opening a bank account — whether cash, a toaster or airline miles — the value of that gift is generally treated as income and subject to reporting.
"This is separate and distinct from miles or points earned by our credit card customers for their purchases."
That's the big question. And the IRS has stepped up with an answer.
"When frequent-flier miles are provided as a premium for opening a financial account, it can be a taxable situation subject to reporting under current law," said Michelle Eldridge, an IRS spokeswoman.
Jan 30, 2012, 10:26 pm
#371
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cash value would be a more intelligent way for citi to value points. If i can redeem 40,000 points for $400 in gift cards, said miles are worth .01 each.
Points of course have a sliding scale of value but on what is in essence a cash out, they are worth .01.
Points of course have a sliding scale of value but on what is in essence a cash out, they are worth .01.
Jan 30, 2012, 10:33 pm
#372
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Other posts on same topic
Time Magazine article: http://moneyland.time.com/2012/01/30...-a-high-price/
My Blog Post (shameless self-promotion) - see comments: http://boardingarea.com/blogs/unroad...miles-awarded/
My Blog Post (shameless self-promotion) - see comments: http://boardingarea.com/blogs/unroad...miles-awarded/
Jan 30, 2012, 11:04 pm
#373
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"This is separate and distinct from miles or points earned by our credit card customers for their purchases."
That's the big question. And the IRS has stepped up with an answer.
"When frequent-flier miles are provided as a premium for opening a financial account, it can be a taxable situation subject to reporting under current law," said Michelle Eldridge, an IRS spokeswoman.
That's the big question. And the IRS has stepped up with an answer.
"When frequent-flier miles are provided as a premium for opening a financial account, it can be a taxable situation subject to reporting under current law," said Michelle Eldridge, an IRS spokeswoman.
Jan 31, 2012, 5:59 am
#374
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Why couldn't I argue that the miles receiived from opening a bank account at Citi a rebate off the significant opportunity cost of banking with them?
Why couldn't I argue that the miles receiived from opening a bank account at Citi a rebate off the significant opportunity cost of banking with them?
Last edited by hotelmotel; Jan 31, 2012 at 6:00 am
Jan 31, 2012, 6:12 am
#375
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Two very interesting things from the Time article.
One is just poor customer relations. The Citi spokesperson calls it a gift for opening the account. The receipt of a gift is not subject to income tax; this is one of the most common layman questions that is asked of accountants and attorneys and is sure to cause confusion. If Citi is considering it a taxable promotion, call it that - don't call it a gift.
Second, and more importantly, the article says this offer was only available to Citi credit card customers. Just where do we call an end to the exception from taxable income under the rebate rule? We seem to all agree that credit card sign-up bonuses and points from spending are nontaxable. Presumably their offers to cardholders for discounted show tickets are nontaxable under the rebate rule. Why isn't the ability to get AA miles for opening a bank account under an offer that was available only to credit card holders a nontaxable rebate attributable to the rebate rule that is applicable to a personal credit card?
The argument against that theory is that the miles were disguised investment income for the amount deposited into the bank account. But that must not be true. The miles were not assigned any value by Citi in calculating the annual percentage yield for the account and the same number of miles were paid regardless of the level of deposit (provided a minimum deposit occurred), and Citi issued a 1099-MISC instead of a 1099-INT.
One is just poor customer relations. The Citi spokesperson calls it a gift for opening the account. The receipt of a gift is not subject to income tax; this is one of the most common layman questions that is asked of accountants and attorneys and is sure to cause confusion. If Citi is considering it a taxable promotion, call it that - don't call it a gift.
Second, and more importantly, the article says this offer was only available to Citi credit card customers. Just where do we call an end to the exception from taxable income under the rebate rule? We seem to all agree that credit card sign-up bonuses and points from spending are nontaxable. Presumably their offers to cardholders for discounted show tickets are nontaxable under the rebate rule. Why isn't the ability to get AA miles for opening a bank account under an offer that was available only to credit card holders a nontaxable rebate attributable to the rebate rule that is applicable to a personal credit card?
The argument against that theory is that the miles were disguised investment income for the amount deposited into the bank account. But that must not be true. The miles were not assigned any value by Citi in calculating the annual percentage yield for the account and the same number of miles were paid regardless of the level of deposit (provided a minimum deposit occurred), and Citi issued a 1099-MISC instead of a 1099-INT.