Is this exactly true? As I recall, the IRS originally came out with a proposal that was going to tax businesses by including FF miles as taxable rebate to the company when the tickets had been claimed as a business expense.

In the resulting furor they backed down. What I think they are now saying is not that FF miles are non-taxable, but that they are not going to tax them at this time.

I doubt that the IRS wants to get into taxing individuals, but they appear to still want to leave the door ajar, if not open, for taxing business FF miles at some time in the future.

Bruce

Please help me think outside the box. Thanks!

While pynchonesque is right to be concerned about taxes, I don't think his/her advice is definitive. If you receive a rebate of your purchase price, that is not income. For this reason, rebates from cash back credit card rebates are not taxed. FF miles can be viewed similarly. The amount you receive on sale arguable does not exceed your basis in the cost the cost of those miles. This is a theory - I am aware of no precedence - I just object to sweeping generalizations.

As for Yanxfan, the miles are not transferable. The airlines give you something - miles - that by their very nature are non-transferable. So when you say it is legal to trasfer them, you are correct that you are not breaking any laws but you are defrauding the purchaser of the miles who expect to have valid ownership of the miles.

Semantics, perhaps a poor choice of words on my part. By transferable I was referring to the fact that as a rule of thumb FF award tickets can be issued to not only the FF account holder themself but also to virtually any person of the FF account holder's choosing, for example you could use say your UAL miles to have an award ticket issued to anyone that you choose.

Unless you explicitly bought the miles from an airline, your cost basis in them is $0.

Speaking as someone with very large balances in FF and Frequent Guest accounts, I can't imagine getting involved in these grey market schemes. Since a person's entire account is subject to being cancelled by participating in such "funny business" the risk/reward ratio gets uglier and uglier with increasing balances. Aside from the morality/legality, it's just not worth in my opinion.

Sorry but I can't. I feel like I opened Pandora's Box - no pun intended.



[This message has been edited by yanxfann (edited 10-20-2003).]

Most of my miles accrued through the purchase of airline tickets or other goods and so have a cost basis of part of that purchase price.

QL

Two points on this. #1, how much is your basis in the miles? Remember the IRS takes sort of an innocent until proven guilty approach and if you can't prove how much the basis is, they will likely deem it to be zero. What basis could you use to allocate the basis of the tickets vs that of the points?

Now what would be interesting is that once you sold them, you might have a basis for allocating relative value. But, basis is supposed to be figured on your cost and not your proceeds, so I think you still have a problem.

#2, a long time ago there was a case involving someone who sold S & H Green Stamps (or Plaid Stamps, or something like that). That would seem to be similar in that people who collected the stamps paid the same price as those who did not. And, it was held that the entire proceeds were taxable. But, I can't provide a cite because it was so long ago I can't even remember how long ago it was! Certainly the rules could have changed. Also, let's not forget that if push came to shove, assuming the case was not pursued in Tax Court, the answer could be different depending on what circuit the taxpayer's state is in.

Q: What's the difference between the IRA and the IRS?

A: One is the Irish Republican Army and the other is a terrorist organization.

As per the FAQs posted on sellyourpoints.com website:

Question: Is this legal? (to sell the miles)

Answer: There is no federal or state law restricting the sale, bartering, or transfer of miles in 49 of the 50 states (Utah being the exception).

Any comments?

[This message has been edited by sjuhawk_jd (edited 10-21-2003).]

Oh? And how much extra did you pay for your miles?

but it is against the policies of most if not all the airlines to sell your miles to another party. There was a thread here around April about some guy caught by AA because he sold miles to some AA agent posing as a buyer- he was penalized something big like 100k miles and could have lost them all.

Here is the thread, 100K:

Warning/Confession: I was caught selling miles!

Pnych, the issue is not basis but whether you have income. If you get miles from a credit card, its considered a rebate, or a reduction of the amount you spent as opposed to something you received. Ditto with FF miles I believe.

As for transferability, the fact that there are no laws is a distracting tangent. The law regarding property allows an airline to create miles that by their nature are not transferable. If you attempt to transfer them, you are likely defrauding either the purchaser of the miles or the airline, but arguably don't violate any law by transferring the miles. So the statement is probably correct but should not be the end of the inquiry.

An anology might be if I tried to sell you the Brooklyn Bridge. There is no law against selling bridges. But I don't have the right to transfer the Brooklyn Bridge (because I don't own it; you can't transfer FF miles because you don't own the right to transfer them). If I sell it to you, I'm implying that I have the right to sell you the bridge, and that is basically fraud.

[This message has been edited by LemonThrower (edited 10-29-2003).]