Miles in exchange for donation

[Deleted]

I fell for one of the many year-end donation appeals in my FB feed- 30 American Airlines miles for every dollar you donate to St. Jude's hospital.  A worthy cause, there's room in the budget and I fly AA a lot so I donated $500.

So, they send me an e-mailed receipt thanking me for my donation and informing me that the value of the points received was $450.  

I know where they got the $450- it's about what AA charges me if I want to buy 15,000 miles although a current promotion will get me 15,600 miles for $418.

I thought the IRS had always said that miles were not taxable income.  If you take out an AA-branded credit card for your business is the sign-on bonus (typically 50-60,000 miles after you spend a certain amount) taxable income?  What if I let the miles sit in my account and they become worthless because of no activity in the account over the next 18 months?  What if I use them for a round trip that ordinarily costs $350?  And what did St. Jude's pay for them?

This is just wrong.  I'm well aware that I have little chance of being audited- my income is all SS, pension and investments so it's all tracked and reported and my deductions are average except for charitable, which is high due mainly to a large donation to my donor-advised fund. I just want to know how the IRS can define miles with such an uncertain value as an offset to a charitable donation.

[CCL]

So are they saying the value of your actual donation would be $500 - $450 = $50, which means you can deduct the $50? Basically, you bought 15000 miles for $450, then the amount you "donated" is the $50. Kinda like attending a fancy dinner for $500, but the value of the food is $100, so your donation = $400. Really, that doesn't sound too bad to me. They could have valued the points at $499, then your donation would only be worth $1. Of course, it would be better for you if they valued the miles at $100, but you said you are willing to pay $418 for them.

[Deleted]

I didn't say I'd be willing to pay $418 for them- I'm saying that's what AA charges for them!  Most people don't buy miles unless they want to "top up" their accounts to get a particular free flight because they recognize they're overpriced.  I'll give you a more concrete example:  a round trip from DSM to ORD (which I plan to take with my granddaughter in May) is $360 in regular Economy. An award ticket, with the same terms as Regular Economy, is 15,000 miles if you choose carefully and have flexibility (I do) but can go to 30,000 depending on the days.  So, my AA miles which are supposedly valued at $450 will buy a $360 ticket or maybe HALF of a $360 ticket.

Two other factors that make this valuation inconsistent:  I KNOW these miles were not taxable income years ago.  Back when AA announced that in 6 months only actual flying miles would count towards Million Miler status (not from credit cards, buying or gifting miles, charitable donations etc.) many of us on FlyerTalk who were close to that point started doing everything we could to get more miles.  The Susan G. Komen Foundation gave 10 miles for every $ donated.  AA messed up and gave us 100 miles per dollar and gracefully agreed that they'd messed up and we could keep them.  No mention in the receipts of any value of the miles. 

The other, form a random site I found with a Google search:

The IRS recognizes award points and miles as a gift or an award from the corporation to the individual. Therefore, points and frequent flier miles donated to charity are not considered tax deductible.

So... if I turn around and donate those miles to one of the many charities that can use them they're worthless?

[thyme4change]

Dec 30, 2019 7:58:07 GMT -5 @athena53 said:

I didn't say I'd be willing to pay $418 for them- I'm saying that's what AA charges for them!  Most people don't buy miles unless they want to "top up" their accounts to get a particular free flight because they recognize they're overpriced.  I'll give you a more concrete example:  a round trip from DSM to ORD (which I plan to take with my granddaughter in May) is $360 in regular Economy. An award ticket, with the same terms as Regular Economy, is 15,000 miles if you choose carefully and have flexibility (I do) but can go to 30,000 depending on the days.  So, my AA miles which are supposedly valued at $450 will buy a $360 ticket or maybe HALF of a $360 ticket.

Two other factors that make this valuation inconsistent:  I KNOW these miles were not taxable income years ago.  Back when AA announced that in 6 months only actual flying miles would count towards Million Miler status (not from credit cards, buying or gifting miles, charitable donations etc.) many of us on FlyerTalk who were close to that point started doing everything we could to get more miles.  The Susan G. Komen Foundation gave 10 miles for every $ donated.  AA messed up and gave us 100 miles per dollar and gracefully agreed that they'd messed up and we could keep them.  No mention in the receipts of any value of the miles. 

The other, form a random site I found with a Google search:

The IRS recognizes award points and miles as a gift or an award from the corporation to the individual. Therefore, points and frequent flier miles donated to charity are not considered tax deductible.

So... if I turn around and donate those miles to one of the many charities that can use them they're worthless?

I suspect the charity got the full 500 dollars and AA donated the miles to them.

So, as this may be a crappy deal, at least the charity benefitted.

[justme]

Dec 30, 2019 7:58:07 GMT -5 @athena53 said:

I didn't say I'd be willing to pay $418 for them- I'm saying that's what AA charges for them!  Most people don't buy miles unless they want to "top up" their accounts to get a particular free flight because they recognize they're overpriced.  I'll give you a more concrete example:  a round trip from DSM to ORD (which I plan to take with my granddaughter in May) is $360 in regular Economy. An award ticket, with the same terms as Regular Economy, is 15,000 miles if you choose carefully and have flexibility (I do) but can go to 30,000 depending on the days.  So, my AA miles which are supposedly valued at $450 will buy a $360 ticket or maybe HALF of a $360 ticket.

Two other factors that make this valuation inconsistent:  I KNOW these miles were not taxable income years ago.  Back when AA announced that in 6 months only actual flying miles would count towards Million Miler status (not from credit cards, buying or gifting miles, charitable donations etc.) many of us on FlyerTalk who were close to that point started doing everything we could to get more miles.  The Susan G. Komen Foundation gave 10 miles for every $ donated.  AA messed up and gave us 100 miles per dollar and gracefully agreed that they'd messed up and we could keep them.  No mention in the receipts of any value of the miles. 

The other, form a random site I found with a Google search:

The IRS recognizes award points and miles as a gift or an award from the corporation to the individual. Therefore, points and frequent flier miles donated to charity are not considered tax deductible.

So... if I turn around and donate those miles to one of the many charities that can use them they're worthless?

I'm only accounting adjacent so I don't know the full impact, but accounting rules have recently changed with the ASC606 ruling regarding loyalty programs. This was aimed at and most impacted airlines and their programs, but my own company got a nasty hit as well and it has changed how we're handling our loyalty program. But ours is nowhere near as complicated nor as big as airlines programs.

This may have changed how the IRS handles miles as well, but like I said I'm accounting adjacent so I don't know specifics.

[Deleted]

Dec 30, 2019 12:51:20 GMT -5 justme said:

I'm only accounting adjacent so I don't know the full impact, but accounting rules have recently changed with the ASC606 ruling regarding loyalty programs. This was aimed at and most impacted airlines and their programs, but my own company got a nasty hit as well and it has changed how we're handling our loyalty program. But ours is nowhere near as complicated nor as big as airlines programs.

This may have changed how the IRS handles miles as well, but like I said I'm accounting adjacent so I don't know specifics.

I looked up ASC606 and it pertains to revenue recognition; I can see why that would apply to loyalty programs since airlines are making tons of $$ selling miles and they need to put up some offsetting liability for when those miles get redeemed. I think they went for years without setting up any liability for the value of the outstanding miles, regardless of how they were earned. They were finally forced to do so.

BUT- and I know I'm beating this topic to death: I just bought a membership at our local art museum. It was $70 and, according to the Web site, it's 100% tax-deductible. It includes free parking (ordinarily $8 per visit) and admission for 2 to special exhibits, which will be worth $32 this weekend when I go with a friend. (Admission to the permanent exhibits is free.) I also get discounts to the restaurant and the gift shop.

So why is this membership 100% tax-deductible while a taxable value is assigned to miles? The benefits of both are variable depending on how they're used and both can expire worthless if unused.

[justme]

That I have no idea. There's a reason I ran away from accounting and refused to get a job in there. Hell, the few times I have to deal with it in my current job makes me head hurt!

I know ASC606 was with revenue - just didn't know if there was some corresponding whatever that recognizes miles less as a perk and more as actual $$ with the change.