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Lawsuit Filed
Alleging Citibank Is Being Deceptive In Frequent Flier Tax Practice By Mike Mitchell |
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February 22, 2012 - A federal class action lawsuit has
been filed against Citibank in what customers have
reported the company lured them in by offering 40,000
frequent-flier miles to open an account but failed to
tell them they had to report 2˝ cents per mile as income
to the IRS.
Citibank has been sending 1099 tax forms to customers
who received frequent flier miles as a reward for
opening a checking or savings account. Despite IRS
guidance that frequent flier miles are not taxable,
Citibank continues to send out the 1099 forms to
consumers incorrectly stating that they must pay taxes
on frequent flier miles earned. Citibank has interpreted a rule requiring individuals to report rewards and prizes as taxable income, calculating the value of each frequent flier mile as 2.5 cents of taxable income. A 2002 ruling from the IRS clearly states that frequent-flier miles are not taxable income. |
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Citibank
arbitrarily calculates the value of each frequent flier mile as
2.5 cents of taxable income.
Based upon its incorrect interpretation of a rule
requiring individuals to report rewards and prizes as taxable
income, Citibank has been sending its customers 1099 tax forms
to report their frequent-flier miles.
A spokesperson for the bank stated that the bank is
following instructions from the 2012 Internal Revenue Code, and
that income tax must be paid if at least $600 in “prizes and
awards” is received.
The Internal Revenue Service (IRS) has made clear that frequent-flier miles are not taxable income. In a ruling made in 2002 which still stands the IRS highlighted that frequent flier miles are not subject to income tax due to the “numerous technical and administrative issues relating to these benefits.” The IRS stated that it “will not assert that any taxpayer has understated his federal tax liability by reason of the receipt or personal use of frequent flier miles or other in kind promotional benefits attributable to the taxpayer’s business or official travel.
Lead
plaintiffs Bertram Hirsch and Igor Romanov state "What Citibank
does not disclose to customers who take advantage of the
American Airlines miles promotions is that Citibank will file
with the Internal Revenue Service ('IRS') a 1099-MISC reporting
that they received miscellaneous income, in the amount of 2.5
cents per mile, for the American Airlines miles provided to such
customers. |