EsquireFlyer

IMO, published IRS rulings are not untested, hypothesized "academic theories," but hey, you're entitled to your opinion.

MilesTalk

I'm waiting for my THIRD appeal to Citi to finally state which of my points came from banking and which came from credit cards. IF they can do that it should prove the 1099 is in error.

That said, based on the calls I have had, I am not sure they can provide this breakdown and I'll be stuck paying what they erroneously state I owe. So fun.

ss

I received a 1099-INT from Citi for the 2010 tax year, valuing miles at an erroneously high rate. I including the full amount from the 1099 on my Schedule B, and adjusted this on my 1040 down to what is my honest, best approximation of the actual FMV of those miles. I entered this negative adjustment on 1040 line 21 ("other income"), and wrote "Promotional gift FMV adjustment" on the left.

I collected some documentation supporting my valuation and squirreled it away in case I'm ever asked to justify my reasoning, but I did not attach it to my return.

It has been about one year since I filed, and I've heard nothing from the IRS so far. They have two years left in which to register any objections.

Igor718

Hi guys,

So this is where I read that BankDirect maybe the next one sending out the 1099 tax form for the miles they give every month. http://www.freefrequentflyermiles.com/index.htm

"BankDirect Caution: There has been a lot of publicity about Citibank sending out a 1099 for their value of AA miles given for opening an account (2.5 cents/mile!) The IRS has made at least one statement that this is correct for bank account bonuses (but not credit card bonuses). BankDirect has not send out 1099's for miles in the past, but I fear they may not be able to continue to avoid doing so. I closed my account with them and explained why. They responded that the understood my concern, with no further comment. "

Kinda alarming. Anyone else pulling their money from them now?

Andy2

The IRS said that in general, non-cash bonuses for opening bank accounts are taxable, which has been settled law forever. The IRS said absolutely nothing regarding the valuation of the miles when the IRS spokesperson issued a statement a few weeks ago in response to the question regarding Citi's 1099s. A person reading your post might assume that the IRS said that Citi's ridiculous valuation is correct. I think it is important to make that distinction.

Paiteaw

So if I read it on the Internet it must be true ?

Andy2

I realize that not everyone wants to read academic discussions on this topic, but this is an incredibly detailed article that might be of interest to some. It deals a little more with the rebate rule than bank account bonuses, but it is so thorough that it covers just about everything.

http://pymnts.com/assets/Uploads/Doi...rd-Rewards.pdf

The concept of customers withdrawing funds from Bank Direct because of Citi's actions (that were presumably not as a result of IRS action) is really troublesome to me. Bank Direct takes a customer-service, taxpayer-friendly position and Citi does the exact opposite, so Bank Direct suffers detrimental consequences from its customers. I guess it makes sense from a pure economic game theory standpoint, but it just doesn't seem right.

MilesTalk

No. The idea of using a response from them saying essentially nothing as a basis for alarm is just silly. If they issue a statement about sending 1099's, I'll pull the money then.

EsquireFlyer

IMO it seems kind of like going to the doctor preemtively and asking for chemotherapy because you found out that someone in your neighborhood has cancer.

Andy2

Daveland, if you don't mind reading a lot of policy stuff in addition to the meat of the article, the link I just posted has a lot of information to contradict Citi's silly argument that your "regular" Thank You points are a rebate but the "bonus" Thank You points are taxable (if that is in fact why they issued you the 1099 instead of the customer service agent just making that up because it sounded sort of right). The information might be useful if you end up needing to make a Prize FMV negative adjustment on your return.

Paiteaw

I am satisfied with the banking services BankDirect provides and am quite content to see my AA mileage balance increase every month.
Not thrilled about the new monthly fee but it is still a lot easier than churning credit cards or doing mileage runs for status.
Love those flights in F to Asia each year in leiu of 1% interest.

MilesTalk

It's worthwhile - however my problem now is that nobody at Citi will take ownership of the error or how to fix it and the CSRs just make up arguments to support the 1099. CSR: "Well, I see you spent the points" ME: "Yes, I know - but that doesn't make them taxable" CSR: "I'd suggest you consult your accountant" - etc, etc.

Maddening is an understatement.

Update: CSR finally got the hang of what I was saying, agreed that no credit cards should be taxable, and opened a 4th investigation asking for a breakdown of bank.credit card.

Meanwhile, it was suggested that I call Thank You and have my banking account unlinked and funneled to a separate TY account. I called TY, explained the situation, and she told me that he understanding is that any bonus points from credit cards ARE taxable (here we go again in circles) and that in fact there is no way to unlink the accounts. She suggested I could call Citibank back and ask them to turn off my participation in TY altogether on the banking side.

ALSO - I just looked in my activity on TY and my last round of Flight Points posted - as BONUS points. Based on everything I'm being told, THOSE should now be treated as taxable as well - since anything labeled BONUS is taxable.

I sure wish someone from Citi would come on here and clarify.

Andy2

It seems like you have the best argument of any of the posters to make an adjustment on your tax return to reduce or eliminate the income that Citi reported to you. Most recipients are stuck with arguing that Citi performed an incorrect valuation, in your situation they may have improperly applied the law. Hopefully they will finally realize their mistake and correct the 1099.

UA Fan

Apart from obeying the law, does citi have a financial reason to issue 1099? I read something about a write-off. May I know what it is?

Andy2

There is a guy who writes on a travel blog that insists that Citi get a tax benefit from deducting the 2.5 cents per mile as a write-off. I think he is giving everyone half a sandwich to sensationalize this issue.

Strictly speaking, yes Citi can deduct 2.5 cents per mile if they distribute property as an account opening bonus that Citi owns and values at 2.5 cents per mile. But there is an Internal Revenue Code section that requires a company to record as taxable income the difference between the FMV and tax basis of property that it distributes in this situation. So if Citi paid 0.5 cents per mile (I have no idea how much it paid) and deducts 2.5 cents per mile when it pays those miles as bonuses, it also has to record 2.0 cents per mile of income. Otherwise the books don't balance.