Shankar v. Commissioner , was unfavorable to the taxpayer, it still offered some much needed guidance on the treatment of “thank you points” that can be converted into cash or other merchandise. In Shankar , a Citibank customer received 50,000 thank you points for opening an account. During 2009, the taxpayer redeemed the points and subsequently received a 1099 from the bank valuing the place ticket at $668. Because the customer “was given something in exchange for the use of Mr. Shankar’s money” the court decided it was the equivalent of earning interest on the account, and should be treated as such for tax purposes.

Though the differences are subtle, frequent flier miles are still treated as tax-free rebates. Additionally, the IRS clarified in Announcement 2002-18 that it will not treat miles earned from business travel and redeemed for personal travel as taxable income.

Stephen Osborne, CPA
Certified Public Accountant
sosborne@mo-cpa.com