sun_aa

If you check the terms of AA's mystery miles promotion they are assign a value of 2.75c for a mile.

Jim055

Please post a link to these specifics. I'm sensing a taxing tidal wave is coming.

Happy

Soon people would be surprised by Chase which has a very clear wording on the UA 10K promo on the checking account bonus. I have read the wordings but not remember where it is now as personally I am not affected since I do not participate in such promotions.

You can do a search on Chase may be you can then see the wordings yourself.

thehawk75

Believe it or not, this can be found by clicking the link that says:

'Click here for complete rules'

And yup, if they issue 1099's on the 25,000 mile prizes at a value of $687.50, then I can see some serious 'unlikes' to that facebook page.

Happy

As usual, majority of people dont bother to read the fine print and this is not even fine print - it is actually bold print but of course one has to click open it.

Wonder how many people entered the game actually read that first. Though majority of folks may only win 100 to 300 miles.

Mountain Trader

If I pay tax on AA miles based on a valuation of 2.75 cents per mile, I could actually lose money (depending on the tax year), as the taxes would be greater than the value I assign to the miles.

sun_aa

With AA's own valuation being greater than Citi's 2.5cpm arguing with Citi/IRS is probably not going to work if you get a 1099. So staying away from Citi might be the wiser option.

Happy

If you are in the 35 to 50% bracket (including state tax), the cash out of pocket can be quite hurtful.

OTOH, AA miles if used wisely could easily worth 0.05 or more for us based on our need, and that is not even in biz class, but plain old coach One-Way Europe - NA off peak that we often needed. We used one last May and will use another this May. Had I purchased that one-way just to NA gateway, the cheapest out of pocket is $3600 nonstop and the cheapest option is AA., followed by Air France, Delta and Iberia which wants a mere $4000. A 10 hours flight for the non stop.

Go to 1 or 2 stop, except 2 or 3 BA flights with immediate connections (13 hrs) the others all require an overnight somewhere, and the journey becomes 20 to 30 hrs.

It is $1680 one-stop on BA. If we are willing to go for 2 stops (Agh!) it drops to $900 on Air Berlin, $1230 on Air Lingus, and $1450 on SAS. For a mere 20K - that is a big $ saving to us if using the 1-stop. I dont think I would take Air Berlin for this.

So the AA mile would worth $0.07 to $0.084 per mile - that would justify the tax paid if one wins big.

Using it for a OneWorld award, in business, one could still achieve a $0.08 per mile. We did an AA 150C OneWorld award in 2009, the itinerary can be duplicated with more restrictions on a Circle Pacific OneWorld revenue fare at $12,000. That means the 150K miles are at $0.08 per mile value.

Using it for domestic travel though, probably only achieve $0.02 to $0.05 depends on WHEN you need the award.

FlyingBoat

How can AA say they value them at greater than 2.5c per mile, when you can go to AA's own web site, choose vacation, pick a hotel, and have a sliding scale of points plus miles with each mile reducing the cash cost by about 1c per mile? This clearly shows what AA values them at. They will give you 1.1c per mile in price reduction.

Happy

AA sets the rules for the game and that is what AA uses. You are told to click the rules before you play. The wordings cannot be clearer.

You dont accept the rules, then dont play. There is no question nor argument.

sun_aa

AA clearly sells and buys back miles at different rates. 2.75cpm is the base rate if you buy less than 5001 miles from them. If you include taxes and fees, the best rate you can get is 2.7625cpm ($1105/40k). It goes down to 2.009cpm ($1105/55k) with the current promo.

Redemption rates for most coach awards are around 1cpm. If you have a segment on BA it is going to be even lower.

Ideally, you would have to deal with taxes only when you redeem miles just like you pay capital gains tax only when you sell stocks? Even in that case, you might be stuck arguing about some inflated first class fare as the value of some award that you got.

Mountain Trader

Everything you say is true, Happy, as usual. But I apply big discounts for:

1. Time Value of Money-Any miles I receive at this point will likely not be used for 5 years or more. Thus I apply a discount not only for present value but also for....

2. Unknown Future Program Changes-What will AAdvantage terms and conditions be in 2016? Beats me too, but I'll bet you $5 they will not be as good as they are today. Will that come about via higher mile values required for redemption, co-pays, priorities to status customers or some as yet uninvented burden? Time will tell.

3. Risk of Program and/or Airline Failure-I don't know what the risk of a bankruptcy leading to the failure of a program is, but I do know that it is not 0.

There's more but I'll leave it there, for now.

Happy

Well, the time value argument when the interest rate is at this current level in the next 2 to 3 years, it would be of very little value.

Besides, even with a mileage bank balance of over 1.5 million, I dont see how it can last 5 years. I pretty much would use them all up in 3 years or less if I do not replenish them - especially now it is not easy to replenish them as easy as before.

Actually this argument has been there all the time - devaluation of award due to inflated redemption requirement or rule changes. When AA did away the 1 free stopover and replaced it with one-way award in May of 2009, almost everyone felt the program has taken a worse turn. But, once we learn more the rules, this has become clear to many of us, that the new one-way system with a stopover at NA gateway is actually a big enhancement. My husband actually says many times now that the One-Way system is a lot better for our needs. And I agree.

The really bad development lately is the BA YQ on AAdvantage award because we gained very little yet lost a lot. This pretty much rules out BA as an option especially for us who live on the East Coast.

The risk is always there, however to me, the risk is remote enough that is not worth for me to rush out to spend all my miles just to avoid this risk.

Except AA, ALL US Legacy Airlines have filed bankruptcy, CO has gone through that twice or three times. Nothing from bankruptcy filing ever stopped the airlines flying, let alone the FF programs.

Of course, same cannot be said with Aero Mexico or Alitalia. So yes, this risk is not 0, but if they can survive 2008 to 2009 finance crisis, I dont see why they cannot survive future yet unknown crisis.

Andy2

But Happy, this fight should be between each of us and the IRS, if audited. This risk has always been there.

By issuing a 1099, Citi fires the first shot in a war that they shouldn't even be involved with. Citi gets a deduction for what it paid for the miles, regardless of what it puts on the 1099 (and even if it doesn't issue a 1099 at all).

Now the IRS is informed of what Citi thinks the miles are worth, and there is a rebutable presumption that the amount on the 1099 is right. The IRS computer cross-matches to see if the amounts on the 1099s are reported. If a different amount is reported by the taxpayer, a manual set of eyes looks at it at the IRS. Sure, if a schedule is attached that explains or reconciles the difference the IRS might not pursue the issue (but no one knows for sure and the treatment may be different for each of us).

Citi could have followed the precedent of every other financial institution and not issue 1099s, since the value of miles is subjective and they receive no benefit from issuing the 1099s. But they broke ranks, used a ridiculous value, and forced their own customers to make a manual adjustment on tax returns to get to the result that most of us genuinely believe to be correct (a value far less than 2.5 or 2.75 cents per mile). And they put their competitors like Bank Direct in an awkward position.

Can't you see why many of us are angry?

Jim055

Some attorney at Citi has made a big, big, big mistake concerning 1099s.

No Citi banking products for me. No amount of miles is worth talking to the IRS.