What Exactly is Taxable by the IRS When it Comes to Free Travel?

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Are travelers required to report their frequent flier miles as income? If so, what about press trips?

There seems to be some confusion among those who have never before reported their frequent flier miles as income. What is all the confusion about? Citibank recently sent their customers, who were given American Airline miles for opening a checking or savings account last year, 1099 tax forms to report their frequent flier miles.Yesterday, the Associated Press reported that:

Credit card rewards — including frequent flier miles and cash back — are not taxable because they are treated as rebates on spending, according to the Tax Institute at H&R Block.

However, a reward given for opening a checking or savings account is not considered a rebate since you don’t spend any money to receive it. So the gift is instead treated similarly to interest income, meaning that it’s taxable.

So, if you go on a press trip which you did not spend anything to receive, how should the trip be treated when it comes to taxes? Should you come up with an approximate value for that trip and declare it as income? Should the trip provider come up with the value and issue a 1099-MISC form? If you are issued a 1099-MISC form, do you have to tell the IRS you received it?

Ultimately, when it come to press or promotional trips, I am not aware of a single company that has ever sent out a 1099 form telling an individual and the IRS that they gave away trips valued at or above $600 as income in the form of an award, prize or “other income payments.”

Image: scott*eric

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14 Responses to “What Exactly is Taxable by the IRS When it Comes to Free Travel?”

  1. Durant Imboden February 2, 2012 12:30 am
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    We had a discussion of this topic on the Facebook Travel Bloggers group a while back. There was a lot of speculation until someone said she’d asked the IRS and they’d said “No, press trips aren’t taxable.” (Which stands to reason, since press trips are intended to be business travel, not prizes or rewards.)

  2. Michael Hodson February 2, 2012 9:55 am
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    Everyone should consult with their tax professional. I have consulted with 3 and they all say that blogging trips are taxable, if I am writing for my own website. “Press trips” are not taxable, because the writers are writing for another publication, but as a blogger writing for your own website, for tax purposes, you are a publisher, not just a writer. The writer/publisher issue and how the IRS deals with the difference is usually what trips people up on this particular conversation.

    Consult with a professional. Get it in writing from them. Have them file your taxes as your agent. And sue them for malpractice if they end up being wrong. Best money you can spend in many cases is actually using someone that actually does and knows things for a living in a particular technical field, like a lawyer, or here, an accountant.

  3. Durant Imboden February 2, 2012 5:02 pm
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    I’d imagine that the overriding factor is whether the blog is a business, rather than a hobby. That’s also the IRS’s standard for allowing or nixing deductions. Robert W. Wood, who writes a column for FORBES called “The Tax Lawyer,” has some tips that may be useful to bloggers who want to avoid raising the ire of the IRS:

    http://www.forbes.com/2010/01/08/irs-tax-audit-hobby-losses-personal-finance-robert-wood.html

    Also, in his post, Rich Whitaker mentioned Form 1099. If a DMO or travel company is reporting your trip as income to the IRS, then the trip is obviously taxable in the minds of the DMO or travel company’s accountants or tax lawyers. (For what it’s worth, I’ve never heard of a professional travel writer or writer-publisher receiving a Form 1099 for a press trip.)

  4. Michael Hodson February 2, 2012 8:28 pm
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    Income determination in the law is quite different than the determination of allowable business expenses. So while that article is an interesting one, it has nothing to do with the question here. Basically… please consult an ACTUAL professional on this very important topic, instead of taking the tax advice from someone that is not trained and does not know what they are talking about.

    If the IRS comes calling on someone for an audit, wanting unpaid taxes plus penalties and interest, a valid defense is not going to be “someone told me this was just fine on a Facebook fan page” or a comment on a website. Professionals exist for a reason — they actually are trained and knowledgeable.

  5. Durant Imboden February 2, 2012 9:54 pm
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    Or, better yet, ask the IRS, as the blogger in the Facebook travel bloggers’ group did.

  6. Durant Imboden February 2, 2012 10:54 pm
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    More thoughts on this topic:

    – If a blogger did want to pay taxes on the value of a press trip, he or she would first need to calculate the value of the press trip. That could be difficult, because even a DMO might have trouble coming up with a figure for a trip that involved a long list of promotional partners. (I wonder if this situation ever comes up in real life?)

    – Why are we talking only about the IRS, especially on a site that has a large number of British readers? It would be interesting to hear a UK perspective. Has the Inland Revenue been known to tax the press trips that are constantly being flogged on sites like Travel4press? And what about other countries? Another post on Travelllll.com discusses an Oman “treasure hunt” junket that includes journalists and bloggers from a number of EU states. Are press-trip participants in France, Germany, Switzerland, and Italy required to pay taxes on press trips?

    – If professional writers, bloggers, or photographers *were* taxed on the value of press trips and other reimbursed business travel, many DMOs would face a dilemma: To get coverage from the media, they’d need to provide stipends to subsidize the taxes paid by trip participants. This would put an added financial burden on second- and third-tier DMOs. (Big, popular destinations wouldn’t be affected much, since destinations like New York, London, and Paris don’t rely as heavily on press trips for coverage as the less popular destinations do.)

  7. Durant Imboden February 3, 2012 3:24 pm
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    Follow-up:

    In today’s Travel Insider newsletter, David M. Rowell draws attention to something that Citibank recently did: The bank sent Form 1099s to customers who’d received airline miles as a reward for opening accounts with Citibank. David Lazarus of the Los Angeles Times has written a column about this at:

    http://www.latimes.com/business/la-fi-lazarus-20120124,1,261989.column?track=rss&utm_source=dlvr.it&utm_medium=twitter&dlvrit=309400

    The bank’s action apparently came as a surprise not only to its customers, but also to the IRS, which had stated back in 2002:

    “”Consistent with prior practice, the IRS 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.”

    Tax professionals reportedly were taken aback by the bank’s action. For more details, see David Lazarus’s follow-up column:

    http://www.latimes.com/business/la-fi-lazarus-20120131,0,1866043,full.column

    A key point (which is relevant to our discussion here) is the “administrative headache” that the IRS would face it it tried to value and tax every benefit or incentive received by taxpayers (never mind press trips, which may be legitimate business travel in some cases but junkets or gifts in other cases).

    Still, what happens if the Elbonian Tourist Board pulls a Citibank and sends you a Form 1099 for the retail value of your press trip to Elbonia? Will you simply pay the tax? Will the IRS feel forced to deal with the question of whether press trips are taxable after ignoring that question for so many years? Will other DMOs and travel vendors feel obligated to follow the Elbonian Tourist Board’s example? Let’s hope that a rogue accountant at a DMO, cruise line, etc. doesn’t take it upon himself or herself to open a can of worms that has been sitting, forgotten or intentionally ignored, in the back of the kitchen cabinet for decades.

  8. Rich Whitaker February 3, 2012 3:37 pm
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    hey durant – i mentioned the irs because the sourced article involved citibank notifying them…

  9. Michael Hodson February 4, 2012 11:34 am
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    Seriously…. clueless.

    Please, if anyone is reading this thread, ignore all the commentary by people that have no idea about the tax code and how it works.

    Award of airline miles and its possible relationship to the tax code is completely and totally different than the issue of possible tax consequences of getting a blog/press trip, if you are writing for your own publication.

    Garbage like this — uninformed people trying to draw legal conclusions, though they have no idea what they are talking about — is what gets people in trouble. GO CONSULT AN ACTUAL PROFESSIONAL.

  10. Rich Whitaker February 4, 2012 12:22 pm
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    Michael – I agree with you 100% that anyone with a question regarding taxes should consult a professional. I posed a question and nothing more… Lighten up a little-

  11. Durant Imboden February 4, 2012 5:20 pm
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    Michael: You’re missing the point. No one is suggesting that airline miles and press trips are one and the same.

    And while it’s fine to suggest that taxpayers “consult a professional,” the Citibank incident shows that matters of taxation aren’t always clear-cut.

    If taxpayers really want to play it safe, they should ask the IRS (and get the answer in writing).

  12. Michael Hodson February 5, 2012 5:55 am
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    I have no problem with you posting the question at all. Perfectly valid question. I have problems with people like Durant that give uninformed legal advice to people — advice that could get them in an amazing amount of trouble — as the problem. I’ve got no beef at all with you.

  13. Durant Imboden February 5, 2012 3:41 pm
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    What’s with Michael’s comment about “people like Durant that [sic] give uninformed legal advice?” I’m not giving legal advice to anyone, unless “Ask the IRS” constitutes “legal advice.”

  14. Durant Imboden February 5, 2012 7:54 pm
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    More food for thought: Michael defines a “press trip” as “writing for another publication,” as opposed to a “blogging trip,” which he defines as “writing for your own website.” If the IRS were to agree with that definition, I imagine we’d see a lot of bloggers writing for each other or for sites like Travellady.com that pay in letters of assignments.

    It would be interesting to read comments from PR people. Are there any DMOs, travel vendors, or PR agencies in the U.S. that mail Form 1099s to participants in “blogger trips”?

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