Update -- Sort Of -- On Citibank And Taxing Of Award Miles

me1004 | Jan 31, 2012 | 948 posts since 2010

Los Angeles Times today following up on its previous column about Citibank issuing 1099 forms this year for miles awarded for opening new accounts:

IRS clarifies its stand on whether airline miles are taxable - latimes.com

It says it has pressed the IRS for a decision on this, and the IRS has responded: We'll get back to you on that.

A lot of discussion about it at varying levels. So, this is a continuing controversy now, stay tuned. You might or might not end up having to report that for taxes.

City takes the position that airline miles awards for opening new account are taxable, but not awards on things like credit cards. We don't have an explanation for that, but I suspect they consider the miles or other on a credit card to be a purchase, whereas there is no purchase for the award on a new savings account.

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pearlbrown | Jan 31, 2012 | 2,298 posts since 2010

The IRS has been reluctant to tax airline miles, and it's hard to understand why Citi would want to force the issue by generating the 1099's or why they would have done so without a firm decision from the IRS.

If the IRS now decides the miles are taxable, then other institutions will have to follow suit (in future years), and bonuses would have to be a little richer to be worthwhile.

If the IRS decides the airline miles awarded for new accounts are not taxable, then Citi has to deal with a PR nightmare. Citi would likely have to generate corrected 1099's (and does anyone know if the IRS would penalize Citi for generating unnecessary 1099's in the first place?). Taxpayers who included the amount reported on Citi's 1099 in their income will have to file amended tax returns to recover the extra taxes paid.

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