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Frequent flier foolishness.

A storm of confusion and misinterpretation has been caused by the IRS over an employer's travel reimbursement plan. The Service recently held that a travel reimbursement policy that allows employees to keep frequent flier mileage for personal use constitutes additional income to the employees. The IRS reasoned that the retention of frequent flier miles by employees makes the policy a nonaccountable plan since, theoretically, the employee is reimbursed for more than the actual cost of the ticket. This conclusion was reached primarily because the employer had a written policy that allowed employees to use the frequent flier benefits for personal purposes. However, missing from the Service's position is any guidance on how to value the mileage or when the mileage becomes taxable.

A reimbursement plan that is classified as nonaccountable requires the employer to include reimbursements in the employee's gross income; an accountable plan does not.

Although the ruling applies only to the specific taxpayer it addressed, it does follow the IRS's philosophy with respect to frequent flier mileage. The Service has always maintained that frequent flier miles can result in taxable income. In 1993, the IRS held that frequent flier programs can result in gross income. However, since the value of the benefit is not fixed or determinable, it is not reportable.

There should be no rush to make significant changes or policy adjustments in light of the Service's ruling. There are no administrative requirements for an employer to report the value of frequent flier mileage on a Form W-2, since it is not determinable by the employer. The IRS has announced that it will be reevaluating its position and is planning to clarify it in the near future. Until such time, no administrative changes should be made.
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Article Details
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Author:Michelman, Marvin
Publication:The Tax Adviser
Article Type:Brief Article
Date:Mar 1, 1996
Words:289
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