This Tax Tip Spotify Podcast and/or WordPress Blog Post is for someone who does a significant amount of traveling for business purposes; thus, the following information regarding frequent flyer programs may be of interest to you.
As you know, most major airlines offer frequent flyer programs under which passengers accumulate frequent flyer miles for each flight. You may also earn frequent flyer miles or other promotional benefits, for example, through rental cars or hotels. These promotional benefits may generally be exchanged for upgraded seating, free travel, discounted travel, travel-related services, or other services or benefits. The taxability of frequent flyer miles or other promotional items you receive as the result of business travel and used for personal purposes depends on the facts and circumstances under which you receive them. Generally, such amounts are excludible from income. However, is some situations, these amounts are includible in gross income.
There are numerous technical and administrative issues relating to frequent flyer benefits on which no official guidance has been provided, including issues relating to the timing and valuation of income inclusions and the basis for identifying personal use benefits attributable to business (or official) expenditures versus those attributable to personal expenditures. Because of these unresolved issues, the IRS has not pursued a tax enforcement program with respect to promotional benefits such as frequent flyer miles.
The IRS will not assert that you have understated your federal tax liability by reason of your receipt or personal use of frequent flyer miles or other in-kind promotional benefits attributable to your business or official travel. According to the IRS, any future guidance on the taxability of these benefits will be applied prospectively.
However, the frequent-flyer miles exclusion does not apply to travel or other promotional benefits that are converted to cash, to compensation that is paid in the form of travel or other promotional benefits, or in other circumstances where these benefits are used for tax avoidance purposes.
Please call me at your convenience so that we can discuss the IRS’s approach to frequent flier programs as it applies to your particular situation.
Please contact the office of Don Fitch Accountancy at (760)567-3110 or Email Don.Fitch@CPA.com if you have any questions or would like additional information.
DON FITCH, CPA
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Palm Desert, CA 92260
Toll Free: (877)CPA-Help or (877)272-4357
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Email: DonFitchCPA@paylesstax.com
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(Updated 05012021-1 320-296)