www.sellyourpoints.com
 

Check out this site, I thought selling airline miles was illegal??


http://www.sellyourpoints.com

It's not illegal. It is against the rules of most major airlines & hotels.

The IRS won't look too kindly upon such a business either. Which may hurt all frequent traveller programs, if the IRS decides that they need to tax this "resource".

I hope they go out of business soon, or get busted by the airlines.

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"If life doesn't offer a game worth playing, then invent a new one."
-Anthony J. D'Angelo

Would be interesting if this was set up by the airlines so that they could get the people offering their miles to provide the needed information (e.g. name, FF#, address-or legal jurisdiction) directly.

I'd love to get rid of several hundred thousand nearly-worthless miles. I'm going to check it out and see what mechanisms they use to put one over on "The Man".

How are ff miles any different than selling extra stuff at a yard sale?

If you sell your extra stuff at a yard sale, it normally wouldn't create taxable income because you'd be selling it for less than you paid for it (at a loss). If you did for some reason sell some item for more than you paid for it, you do indeed have taxable income. Note this is true even if you sold a bunch of other stuff at a loss; they don't offset.

But frequent flier miles are different. You paid nothing for them, so you have no tax basis, so your entire proceeds represent taxable income. You could argue that the miles were included in the cost of the ticket and therefore you DO have basis, but since the tickets are sold for the same price to people who aren't members of the mileage program, you'd probably lose that argument.

Lou(the toe)Groza - Are you expressing this opinion because you are a tax professional, or are you just guessing?

Well, I'm expressing the opinion because I'm an opinionated horse's ... but I am a CPA, although not a tax specialist.

Hey Tino,
Several hundred thousand? Why not cash in for travel awards and give them to your friends.
Rita

"But frequent flier miles are different. You paid nothing for them, so you have no tax basis, so your entire proceeds represent taxable income. You could argue that the miles were included in the cost of the ticket and therefore you DO have basis, but since the tickets are sold for the same price to people who aren't members of the mileage program, you'd probably lose that argument."

However, everyone has the "right" to join these programs, it's their choice if they don't-and arguably their loss-so therefore we ARE paying for the miles. It's just that the people who do join get the benefits and those who choose not to don't. Kind of like using coupons at the grocery store-they are available to everyone and they are not considered income even though you are paying less than those who don't use them.

Kind of like using coupons at the grocery store-they are available to everyone and they are not considered income even though you are paying less than those who don't use them.

[/B][/QUOTE]

I don't think that is a good analogy. A better analogy would be SELLING grocery store coupons and that would definitely create taxable income to the seller, assuming the seller didn't pay for the coupons in the first place (or paid less than the selling price). Not everybody clips coupons, although everybody can, and those who sell them have income as a result.

My guess is that you would not be selling these tickets anyway. I would think that you will be booking the ticket using your miles, but in another travellers name. You will then be paid some cash from the company, who have inturn collected more cash from the customer whose ticket you just booked using your miles. Not sure if this works on all the ff programs, as I dont know what the rules are for booking lfights for friends and family...just a guess http://www.flyertalk.com/forum/smile.gif

Ummm, I think he was kidding.

LouGroza is 100% correct on the tax issue.

FF miles are not taxable when received from FF programs (see IRS Announcement 2002-18). That reinforces the notion of you having no cost basis in them. Selling anything in which you have no cost basis produces taxable income.

Will the IRS show up at your door if they found out you sold a friend an award ticket for a few hundred dollars? Probably not (although you'd probably get taxed if the money your friend paid you showed up in a bank account audit). Will they show up at your door if you are listed as a mile seller with a mileage broker? Very likely.

Funny, but I could have sworn I saw a tax on my FF miles when renting a car in SAN back in the summer. While I wouldn't be inclined to sell miles or tickets in any form, this tax must muddy the waters of the argument that the miles are "free", yes?

I don't think this is actually a tax. That's the car rental company trying to stick it to you to recoup the cost of them buying those miles from the airline.

Nevermind.

[This message has been edited by Dudemon (edited 10-17-2003).]

That's an excise tax, not an income tax.

The legality of the buying or selling has been debated numerous times before. What they are doing that is clearly illegal is using the airlines trademarks and logos without permission, which opens them up to a huge amount of liablity, especially since they are directly profiting from their unauthorized us.

Anyone who uses a middle-man like this is playing with fire. I know of a person who has sold literally MILLIONS of miles worth of awards in the past dozen years (the smallest being 15K mile awards and the very largest being only 90K), they always deal with their clients personally and have never had any problems in their 100+ transactions. They have 2 Cardinal Rules:

1. ALWAYS counsel potential clients BEFORE making a sale, i.e. tell them that the FF award that they are considering buying is totally transferable but the airlines say they should't be bought or sold (or bartered - see Coupon Connection) and if they say at check-in "I bought this ticket from some dude on the internet" that it will be confiscated. If the potential customer isn't comfortable with this or if it causes them a moral dilemma this person then wishes the potential client well and recommends that they instead buy their tickets from a travel agent, orbitz or travelocity, or directly from the airline. However, if after being counseled the potential customer still wants the award ticket the two parties then "get their story straight" just in case if they are asked any questions at check-in (a VERY unlikely event but better safe than sorry).

2. Finally, NEVER EVER involve a 3rd party (like sellyourpoints.com), they can only mess things up - not to mention that you'll end up with more money in your pocket with no middle-man taking their cut.

[This message has been edited by yanxfann (edited 10-18-2003).]

Has anyone asked for a quote?

"Other companies will buy your miles at only 1.3 to 1.4 cents a mile. We give you more."

Sounds generous.

Or maybe they are using the trademarks WITH permission because they are the ones running the site in the first place!

I can't imagine that there is an issue with selling miles earned on tikets that you paid for, but it certainly would be different if you sold miles on tickets paid for by your company.

In any case, unless you are willing to risk all of the rest of your miles and really need the cash, I would stay away from it. THe airlines are far too clever these days to risk this.

This advice is wrong. Selling something you got for free (even if you got the free thing together with a paid thing) always creates taxable income.

Not. Very different getting something that somebody else paid for as part of your employment and something else that you get in conjunction with a purchased item. But no need to belabor it. I would be much more concerned about the airlines vs the IRS.

This site has the actual amounts paid for miles bought ny them:

http://pages.sbcglobal.net/gpirkle/index.htm


Mileage
Sellers
earn
Brokerage Fees
per ticket*
Buyers
pay

25,000
$450
$170
$620

30,000
$540
$180
$720

35,000
$630
$190
$820

40,000
$720
$275
$995

45,000
$810
$285
$1095

50,000
$900
$300
$1200

55,000
$990
$310
$1300

60,000
$1080
$335
$1415

65,000
$1170
$345
$1515

70,000
$1260
$400
$1660

75,000
$1350
$450
$1800

80,000
$1440
$595
$2035

85,000
$1530
$610
$2140

90,000
$1620
$695
$2315

95,000
$1710
$710
$2420

100,000
$1800
$795
$2595

105,000
$1890
$795
$2695

110,000
$1980
$795
$2775

Brokers Fee of $895 per ticket over 110,000 miles

IF you think outside the box you should be able to get slightly more than 2 cents per mile. And I'm NOT talking about those BS "you are bidding on a plain white envelope, the lucky winner will receive a free..." auctions.



[This message has been edited by yanxfann (edited 10-19-2003).]

Help me think outside the box.

I'm not. Any takers?

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).]