Get Ready To Pony Up For Those ‘Thank You’ Points

Did you redeem a free airline ticket with award points you received from your bank?

Guess what? It’s not so free.

The United States Tax Court ruled this week that the value of an airline ticket purchased via a bank’s “thank you” points should be counted as gross income and therefore taxable. The “thank you” points are often giveaways by banks to lure customers.

The Tax Court’s decision upheld the Internal Revenue Service ruling stemming from the case of Shankar vs. Commissioner, 143 T.C. No. 5. In 2009, Citibank customer Parimal Shankar received 50,000 thank you points from Citibank which, at the end of the year, the bank sent him a 1099-MISC “other income” form in the amount of $668. Shankar fought the ruling in court after not reporting the 1099 as part of his income.

But the Tax Court said in its ruling, “On balance, we give more weight to Citibank’s records showing Mr. Shankar’s receipt of an award than we do to his testimony to the contrary, and we find that he did in 2009 receive from Citibank in redemption of 50,000 thanks you points a restricted coach class airline ticket.”

The Tax Court did not include airline frequent flyer programs as part of its decision, saying "We are not here dealing with the taxability of frequent-flyer miles attributable to business or official travel."