Tax Memo

Facts Latrell accumulated haunt flyer miles from his business travel as a CPA in which his employer paid for the business trips, and he was not taxed on the travel reimbursement. He recently theatrical roled his Delta Skymiles to purchase a free roundtrip airline just the ticket worth $1,200 to Milan, Italy. Issues Is an employees personal use of grass flyer miles earned as a result of business travel taxable? Authorities IRC Sec. 62(a) IRS Announcement 2002-18 ConclusionNo, an employees personal use of frequent flyer miles earned as a result of business travel is not taxable. Because Latrells used his frequent flyer miles to purchase an airline ticket instead of redeeming his frequent flyer miles for cash, he does not need to include the value of the airline ticket in pure(a) income. Analysis IRC Sec. 62(a) provides the deductions from gross income that are allowed for computing adjusted gross income. IRC Sec. 2(a)(1) states that gross income includes fringe benefits such(preno minal) as frequent flyer miles accumulated from business travel. IRC Sec. 62(a)(2)(A) states that the reimbursed expenses of an employee related to his or her procedure of services under a reimbursement or other expenses allowance arrangement with the employer are allowable deductions in addition to those allowed by IRC Sec. 161 through IRC Sec. 196. Since under IRC Sec. 62(a) frequent flyer miles are categorized as deductions to gross income, they are not taxable.IRS Announcement 2002-18 also states that frequent flyer miles or other in-kind promotional benefits, such as a free airline ticket, earned by the taxpayers business travel will not represent taxable income. However, this ruling applies only if to in-kind benefits and not to benefits that have been liquidated or converted to cash. Therefore, since Latrell used his frequent flyer miles to purchase an airline ticket instead of redeeming his frequent flyer miles for cash, he does not need to include the value of the airline ticket as taxable income.