Travel Smarts

Up In The Air

The IRS caused an uproar last November when it announced frequent-flier miles earned by employees traveling on business might be taxable. At present, it appears the IRS has backed away from this controversial matter; it has no official plans to tax frequent-flier benefits. However, tax experts agree that the prospect of a frequent-flier tax is an ongoing debate at the IRS.

"A frequent-flier tax is always a possibility," insists Richard Janis, tax counsel with the Air Transport Association (ATA).

What's at stake? Typically, employers reimburse employees for business-related air travel costs and allow them to keep frequent-flier miles for personal use. If frequent-flier miles were to become taxable, says Janis, employees who travel on business and retain the frequent-flier mileage could be subject to taxes.

Exactly how a frequent-flier tax would work, if imposed, is anyone's guess. Myriad problems would need to be addressed concerning how mileage is reported, as well as how to value miles, says Janis. Also, since many travelers pay for business and personal flights with the same credit card, difficulties would arise in distinguishing mileage usage. Ultimately, tax experts predict such a tax would result in more paperwork for business travelers, airlines and the IRS itself.

With this issue still up in the air, only one thing is certain: Most business travelers strongly oppose a tax on airline mileage.

Hoping to put an end to the debate, Rep. Barbara Kennelly (D-CT) has introduced a bill prohibiting taxation of frequent-flier miles. The bill, H.R. 3111, is in committee; Kennelly hopes it will go to a vote before the end of the congressional session on October 4.

To share your opinion, visit the IRS' new Web page at http://www.irs.ustreas.gov, or write your local congressional representative.

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This article was originally published in the August 1996 print edition of Entrepreneur with the headline: Travel Smarts.

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