Click here for help
Sep 2, 1999 | 7:07 am
#1
Original Poster
Original Member
Join Date: May 1998
Location: USA
Programs: AAdvantage (Exec Plat), United, Delta
Posts: 270
Click here for help
A little feedback, please, from anyone familiar with the Click Rewards program.
A friend just won 80,000 points and asked for my advice on how to utilize them. My questions are this: is 80,000 points the same as 80,000 miles on any program? Although I have suggested American (he is already a member) for placing his points, are there any limitations in terms of this or other programs?
Also, he has been told that the value of the prize is $2400 and he will be eligible for taxes. This doesn't seem fair, since 80,000 miles is worth $1600 (valued at .02/mile, the usual conversion figure). If he were to use the miles for 3 domestic tickets (75,000 miles), the probable cost of three coast-to-coast tickets would be about $1200. How does the IRS look at this?
A friend just won 80,000 points and asked for my advice on how to utilize them. My questions are this: is 80,000 points the same as 80,000 miles on any program? Although I have suggested American (he is already a member) for placing his points, are there any limitations in terms of this or other programs?
Also, he has been told that the value of the prize is $2400 and he will be eligible for taxes. This doesn't seem fair, since 80,000 miles is worth $1600 (valued at .02/mile, the usual conversion figure). If he were to use the miles for 3 domestic tickets (75,000 miles), the probable cost of three coast-to-coast tickets would be about $1200. How does the IRS look at this?
Sep 2, 1999 | 8:47 am
#2
Original Member
Join Date: May 1998
Location: NJ
Posts: 3,343
Two thoughts:
First, from the usage perspective, unless he really wants to use the miles right now, he might want to wait and see if Click is going to have another double mile conversion promotion. It appears that they will have. There was a 10,000 mile limit, but if they keep having them every once in a while, he has the ability to convert 10,000 Click miles at a time into 20,000 miles on his airlines of choice. I know I converted my entire account balance of about 9500 Clicks into about 19,000 airline miles recently, but it was only fortuitous that I had left them in the account and hadn't converted. Actually, leaving them in the account is a good idea anyway, until you know where and when you want to go, and can then decide what airline you need to fly on then put them into.
Second, from the tax perspective, he will get a 1099 from the awarding company listing $2400 as the presumptive value of the prize, and that value will be sent to the IRS as well. However, he can claim something different (lower) on his taxes, but he needs to be ready to substantiate it. So, for example, he needs to get documentable information about how much it costs to buy airline miles that he converts the prize into. Or, if he converts them into tickets, he needs to get information on what he could have purchased the same ticket for on his own, with comparable tickets. As to this second suggestion, this will be hard on him if he converts it into anything above coach, since the full fare value of bus. and first class is outrageous. Therefore, that will probably only work if he converts into coach class tickets.
I have had some experience with this, and have done the legal research. I won a trip to Paris, and declared the value of the trip as what it would have cost me (super-saver tickets) vs. what they valued it as (full-fare coach tickets. Declared a different value on my tax return, IRS computer flagged it a year later and they contacted me, I explained the position and won in the end. However, it certainly was a lot of hassle to save about $300 in taxes in the $1000 difference in valuation I put on the prize than what the prize awarder put on the prize. (Just for information, I think many times those values come from the airlines, etc. who give the seats to a charity, and then take a charitable deduction for an inflated value of the services they donated, but that's just an educated guess.)
For everyone's information, I will come back and repost the name and citation of the case from tax court which said that a taxpayer can declare the value of a prize at the value to him, not the value that it was selling at, or that someone else might have paid, if he can show that he never would have paid that much for such a prize trip (i.e., if you won first class tickets, I think you could legitimately claim the value as a coach class, if you could prove that you never ever pay and fly first class). Will post that shortly.
First, from the usage perspective, unless he really wants to use the miles right now, he might want to wait and see if Click is going to have another double mile conversion promotion. It appears that they will have. There was a 10,000 mile limit, but if they keep having them every once in a while, he has the ability to convert 10,000 Click miles at a time into 20,000 miles on his airlines of choice. I know I converted my entire account balance of about 9500 Clicks into about 19,000 airline miles recently, but it was only fortuitous that I had left them in the account and hadn't converted. Actually, leaving them in the account is a good idea anyway, until you know where and when you want to go, and can then decide what airline you need to fly on then put them into.
Second, from the tax perspective, he will get a 1099 from the awarding company listing $2400 as the presumptive value of the prize, and that value will be sent to the IRS as well. However, he can claim something different (lower) on his taxes, but he needs to be ready to substantiate it. So, for example, he needs to get documentable information about how much it costs to buy airline miles that he converts the prize into. Or, if he converts them into tickets, he needs to get information on what he could have purchased the same ticket for on his own, with comparable tickets. As to this second suggestion, this will be hard on him if he converts it into anything above coach, since the full fare value of bus. and first class is outrageous. Therefore, that will probably only work if he converts into coach class tickets.
I have had some experience with this, and have done the legal research. I won a trip to Paris, and declared the value of the trip as what it would have cost me (super-saver tickets) vs. what they valued it as (full-fare coach tickets. Declared a different value on my tax return, IRS computer flagged it a year later and they contacted me, I explained the position and won in the end. However, it certainly was a lot of hassle to save about $300 in taxes in the $1000 difference in valuation I put on the prize than what the prize awarder put on the prize. (Just for information, I think many times those values come from the airlines, etc. who give the seats to a charity, and then take a charitable deduction for an inflated value of the services they donated, but that's just an educated guess.)
For everyone's information, I will come back and repost the name and citation of the case from tax court which said that a taxpayer can declare the value of a prize at the value to him, not the value that it was selling at, or that someone else might have paid, if he can show that he never would have paid that much for such a prize trip (i.e., if you won first class tickets, I think you could legitimately claim the value as a coach class, if you could prove that you never ever pay and fly first class). Will post that shortly.
Sep 2, 1999 | 9:07 am
#3
Original Member
Join Date: May 1998
Location: NJ
Posts: 3,343
Okay, here's the additional information. In the case of Reginald Turner, Tax Court Memo. Opinion 1954-38, Prentice Hal TCM Paragraph 54,142 (1954), the tax court reviewed the proper tax payable by a person who won first class steamship tickets, and traded them in for tourist tickets for his whole family instead. The tax court found that the prize was taxable to him at the value of the tourist tickets, rather than the full value of the first class tickets.
I think a similar situation can apply here, depending upon how your friend uses the 80,000 Clicks. Thus, for example, if I was awarded a first class ticket, I would claim if for tax purposes as the value of a coach, and the value of the miles (at .02 per mile) needed to upgrade to that ticket, not the dollar cost of the first class flight.
Hate to do this folks, but my partners would probably get mad at me if I don't. This is not to be construed as legal or tax advice. Our firm only provides actual legal or tax advice to clients who have retained it for that purpose. You should consult your own legal or tax advisor before making your own decisions with respect to legal and tax matters.
That feels better, now that I got that off of my chest.
I think a similar situation can apply here, depending upon how your friend uses the 80,000 Clicks. Thus, for example, if I was awarded a first class ticket, I would claim if for tax purposes as the value of a coach, and the value of the miles (at .02 per mile) needed to upgrade to that ticket, not the dollar cost of the first class flight.
Hate to do this folks, but my partners would probably get mad at me if I don't. This is not to be construed as legal or tax advice. Our firm only provides actual legal or tax advice to clients who have retained it for that purpose. You should consult your own legal or tax advisor before making your own decisions with respect to legal and tax matters.
That feels better, now that I got that off of my chest.
Sep 3, 1999 | 8:15 am
#7
Join Date: Mar 1999
Location: (SNA) Orange County, California USA
Posts: 3,641
Thank you, Djlawman. I really appreciate your efforts. It is a most interesting concept to this layperson, that the same prize could have a different stated tax value for (tax form) itemization purposes, from one person to the next! I have filed this for future reference, just in case!
Sep 5, 1999 | 9:07 am
#9
Original Member
Join Date: May 1998
Location: NJ
Posts: 3,343
Decided to add some additional detail for everyone, and rather than edit the above messages, I put it in another.
In the Turner case, the court found it persuasive that the taxpayer could demonstrate that he never would have traveled on the first class steamship tickets. He didn't have the financial means to do so. Therefore, he was able to show that he never would have purchased that fare himself. Thus, in answer to MrLimo's message, the same tickets could definitely have different value to different people. If Michael Jordan won 2 FC tickets, he would have a hard time contending that it wasn't worth the full FC value to him. If, on the other hand, a supermarket cashier won FC tickets, he or she could legitimately claim that the prize didn't have FC value to them, since they never would have paid for FC tickets. They could probably get away with valuing at coach plus cost of miles to upgrade, or something like that, as I mentioned above. Here's hoping we all have occasion to use this information in the near future!!
In the Turner case, the court found it persuasive that the taxpayer could demonstrate that he never would have traveled on the first class steamship tickets. He didn't have the financial means to do so. Therefore, he was able to show that he never would have purchased that fare himself. Thus, in answer to MrLimo's message, the same tickets could definitely have different value to different people. If Michael Jordan won 2 FC tickets, he would have a hard time contending that it wasn't worth the full FC value to him. If, on the other hand, a supermarket cashier won FC tickets, he or she could legitimately claim that the prize didn't have FC value to them, since they never would have paid for FC tickets. They could probably get away with valuing at coach plus cost of miles to upgrade, or something like that, as I mentioned above. Here's hoping we all have occasion to use this information in the near future!!