Frequent flier foolishness.

• Author: Coppinger, Terence
• Position: Brief Article

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...