Citibank Claims Awards of Frequent Flyer Miles Are Taxable

Citibank offered frequent flyer miles for customers who opened new accounts, but it announced it would issue a form 1099-MISC to any customers who received the frequent flyer miles. Typically, promotional awards used to entice customers are not considered income and are non-taxable. However, Citibank argues the frequent flyer miles are taxable income and thus issued Form 1099.

Customers who received the frequent flyer miles have filed a class action lawsuit against Citibank, arguing that the bank failed to provide adequate notice to the costumers of the tax consequences of the frequent flyer miles. The suit also claims that Citibank inflated the value of the miles.

Since 2002, the IRS has stated that frequent flyer miles earned by employees due to business travel are not taxable and that it “has not pursue a tax enforcement program with respect to promotional benefits such as frequent flyer miles.” It is likely, however, that the IRS will likely be forced to address the matter.

See Kelly Phillips Erb, Citibank Issues Forms 1099 for Frequent Flyer Miles, Surprising Customer and IRS, Forbes, Mar. 1, 2012.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.