Airline miles. You know, those fairly worthless things that you get back on some credit cards? I say fairly worthless because you have to jump through a fair amount to use them, if you ever can. Well, Citibank has started giving out these airline miles to people who open a new account with them (I am assuming a bank account but I don’t know that). Well, according to an article in the 3/19 Newsweek, what you may not realize is that Citibank is reporting that to the IRS at a rate of 2.5 cents a mile. They were giving new account holders enough miles that they could have a $350 in tax liability.

According to the LA Times it has to do with the fact that these miles are akin to the toaster you used to get, which was technically taxable because it was considered income. Now because it was such a low amount no one ever did, but I am sure that Citibank took a deduction as it is a payment. It seems as if the IRS rules on this are a little foggy.

There are a few issues I and many other people seem to have with this situation. 1) You may never be able to use these miles! When you take the toaster home you could actually make toast with it. I am not saying you will make toast with it but you could, at your convenience, make toast. Due to schedules, black out dates and the many other restrictions, you may not actually be able to use these miles. Yet you will be taxed on them.

2) Can you deny these miles? Say you don’t want to risk the tax liability, can you refuse them? If you can’t refuse them it doesn’t seem right that you would have to pay the tax on it.

3) Between the LA Times article and the Newsweek article, the evaluation on the value of these miles it outrageous. Some people give a valuation of 1.7-2.5 cents per mile where as the airlines value it at less than a cent a mile (Newsweek). There is an inference in the LA Times piece that Citibank is valuing the miles at more than they paid American Airlines for them.

This is a warning to everyone! Beware the air miles! Make sure, before you accept them, that you know what tax laws come with it because nothing could be worse than paying taxes on something you don’t want or won’t use. And Citibank, shame! From all the articles it appears that you didn’t make this clear to your customers until they received notice. It seems a little underhanded and I don’t think that is how you want your company to be perceived!