Taxation of Frequent Flyer Miles.

In Announcement 2002-18, the IRS took the position that frequent flyer miles that an are awarded to a taxpayer in exchange for purchases are only taxable if they are converted to cash, or are changed to compensation paid in the form of travel or other promotional benefits (or in situations where such benefits are used for tax avoidance purposes).  In this case, the Tax Court held that the receipt of points that a bank issued to the petitioner which were then redeemed to buy a plane ticket were includible in income.  The court pointed out that the points were a non-cash award for the petitioner opening a bank account with the bank and were really in the nature of interest or money and that Notice 2002-18 didn't apply.  Shankar, et al. v Comr., 143 T.C. No. 5 (2014).

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