Andy2

The $125 figure would actually be a half-cent per mile.

Don't forget that if 1099-MISC is the correct form, it should only be filed by Citi for amounts over $600. Last year when they finally gave me a corrected 1099-MISC showing $0.00 it was in response to a letter mentioning that their previous correction from $750 to $500 was nonsensical due to the $600 threshold.

If Citi could be convinced by their own document that the 25,000 miles are worth less than $600, and they gave everyone a corrected 1099-MISC showing $0.00 (since it shouldn't have been issued at all), then the question of what, if anything, to report on the tax return for FMV would be between the taxpayer and the IRS.

Imagine the confusion, though, if Citi did this and sent a letter indicating that even though the 1099-MISC says $0, there might still be taxable income, depending on the customers opinion of FMV.

EsquireFlyer

Good point, thanks. trissb now has an even better argument to make to Citi and/or the IRS.

I think you got lucky, because I do not believe that this is a correct statement of the law. The $600 threshold is the threshold above which the payor must issue a 1099-MISC to the payee, not the minimum amount for which the payor may issue a 1099-MISC. There is nothing wrong or nonsensical about issuing a 1099 for a $500 payment. But of course, many people typically will not file IRS forms that they are not legally required to file.

If you win a contest and receive a $200 cash prize, the prize is generally taxable as income, even though the contest organizer is not required to issue you a 1099. It's just that it is easy to evade taxes on the $200 because the IRS will not receive any documentation of it. But if the IRS audits your return (for some other reason) and in the process, discovers your unreported $200 income, you would be liable for back taxes and interest.

And if the contest organizer was very meticulous and/or anal about taxes, and did issue you a 1099 for $200, you would not be able to convince the organizer or the IRS that the FMV of $200 is $0, on the grounds that $200 is below the $600 filing threshold for 1099s.

JATR4

I'll bet you can't give proof that someone EVER issued a 1099-MISC for under the required $600 amount.

Can you? Not much sense in talking about something that has never happened or most probably will NEVER happen.

Andy2

That is even better. It means they must have agreed with the portion of my letter last year arguing that the FMV of a mile is $0.00! So they issued the 1099-MISC to reflect that $0.00 FMV, rather than use $0.00 because the amount was less than $600. Now I wish they would do the same for all of the other recipients in 2011.

I do remember looking at the law and being unable to find anything prohibiting the issuance of a 1099-MISC for less than $600, so I argued unfairness rather than law. Every computer software system I have seen won't print out a Form 1099-MISC if a user enters less than $600 as the income amount (unless the user manually forces it to print) so I have never actually seen one be issued.

EsquireFlyer

Sure, I'll take you up on that. How much, or what, would you like to bet?
Just don't disappear into the night now that I've accepted your challenge.

(If I wanted to apply your own standard to yourself, I could respond by saying, "I'll bet you can't give proof that NO ONE EVER issued a 1099-MISC for under the $600 required amount." But I decided not to do that.)

JATR4

Good luck. I await your proof.

EsquireFlyer

OK! To review, the challenge was:

So, here's the proof I've found in about 5 minutes on Google:

1. In this thread, Andy2 has already confirmed that Citi issued him a 1099-MISC for $0.00 last year.

2. Example of 1099-MISC issued for $515: http://answers.yahoo.com/question/in...8082553AA3xe6H

3. Example of 1099-MISC issued for under $600: http://answers.yahoo.com/question/in...1163903AAlstGy

4. Example of 1099-MISC issued for $294: http://www.webanswers.com/taxes/1099...for-294-ced8e1

5. Explanation that some businesses issue 1099s for all amounts, because their accounting system is set up to issue 1099s on a periodic basis (such as quarterly), and they may not know in advance whether the recipient will get more or less than $600 over the course of the year: http://www.taxqueries.com/questions/...-less-than-600

6. Advice from a CPA to play it safe and issue a 1099-MISC for $300, because when the $300 payment was combined with other payments made to the recipient (even though the other payments were separately reported on a different form already filed with the IRS), the total amount exceeded $600: http://www.longcriercpas.com/form-1099-misc-qa/

So, what do I win? If I can choose my prize, then I choose, on behalf of myserlf and future FlyerTalkers, that you not be so fast to call people out for not making sense by "talking about something that has never happened or most probably will NEVER happen." At least not without at least checking the facts first.

(And, if there is an IRS Revenue Agent reading this, please let me state my good-faith belief that the above prize has no FMV, as it cannot be sold or transferred and provides me with no financial benefit of any kind. Accordingly, I will not be reporting this as taxable income, and JATR4 should not have to issue me a 1099-MISC. )

JATR4

Congratulations.

Andy2

I asked this question over in the Fidelity Bonus thread and two posters indicated that the funds deposited with Fidelity are placed in an account that pays a small amount of cash interest. I assume the same is true for TD Ameritrade. I know that the customer does not need to do anything other than wait a specified period of time (and maintain the minimum balance) in order to get the miles from Fidelity and TD Ameritrade (unlike Citi which required me to utilize a product like BillPay).

I simply can't think of why Fidelity and TD Ameritrade would not be required to issue a Form 1099-INT instead of a Form 1099-MISC if the miles have any value. The IRS letter ruling I referenced earlier was issued to an actual mutual fund company. Although the actual mutual fund company was directed to have its customers use the rebate rule and decrease the cost basis of mutual fund shares by the value of the miles, that rule would not seem workable for a mere broker of mutual funds and stocks. Not all of the Fidelity and TD Ameritrade depositors purchase stocks or mutual funds.

So it seems to me that Fidelity and TD Ameritrade can be added to the list that includes Bank Direct that must be valuing the miles at $0.00 per mile. If a 1099-INT is required for amounts over $10, almost any value that is assigned to a mile would cause the total to exceed $10.

Perhaps I am the only one that finds this relevant, but when I don't know what the value of something is, I turn to people smarter than me (and I find a lot of those people). If the tax departments of Fidelity, TD Ameritrade and Bank Direct value the miles at $0.00 per mile, that is a lot of brainpower.

They of course have some guidance in valuing the miles at $0.00 when issued from their interest-bearing accounts. The American Banking Association instructs them to use this value when calculating the annual percentage yield used in their disclosures.

EsquireFlyer

Well, there is some logic to this, but we should keep in mind that just because a big organization with lots of lawyers does something doesn't guarantee that it's OK to do.

Just ask Enron, Arthur Andersen, or the Lehman Brothers.

sunk818

So, has there been any effort in terms of figuring out what a point or mile costs the business? I also read that many points and miles expire, so in the example of the $125 or 25,000 AA Miles... shouldn't the valuation of 0.5 cents per point be something lower like 0.4 cents per point?

EsquireFlyer

I don't think so. In the choice between $125 or 25,000 AA miles, the equivalence of 0.5 cpm likely takes into account the fact that the miles may expire.

Andy2

Did anyone ever invest in the American Beacon mutual funds that provided AA miles to investors?

I'm pretty sure that is the mutual fund that received the IRS letter ruling in which the IRS held that the rebate rule should be used and instructed the mutual fund to provide the investor with the FMV of the miles awarded so the investor could reduce his basis in the mutual fund.

I can't find any evidence of any other mutual fund awarding miles for investing, so I am guessing it was American Beacon. I remember that it wasn't an enormously popular mutual fund and the AA mileage feature has now been eliminated. There used to be a link to it on the AA website.

If they were the recipient of the letter ruling there may have been some back and forth with the IRS on the FMV issue and it would be interesting to see what value they used in correspondence with customers. It would be even more interesting if they didn't provide a FMV of the miles.

chasbondy

There is no one on the planet that could convince me that the interest rate charged by Citi doesnt include a factor for FF miles. But, Citi has taken hundreds of $$ Billions from Obama bailouts and I'd be willing to bet money that the tax aspect of FF miles was included in the small print of the program.

Plus many computer programs will take the number you input into MiscIncome and tack on the SocSec and Medicare ponzi tax

chasbondy

The reason Citibank valued them at 2.5 cents it because they dont report 1099's under $600 and alot of their cards are 25,000 bonus miles --- ie just over $600. The whole thing is a sham