United States

Travel Groups Urge IRS to Refrain from Taxing Loyalty Programs

By Alex Palmer
May 30, 2014

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Concerned about reports that the IRS is considering levying taxes on frequent flyer mile and hotel loyalty programs, four travel groups have sent a letter to Treasury Secretary Jack Lew urging the agency to refrain from imposing the new taxes. The agency's 2014-15 business plan, which would go into effect on July 1, reportedly includes a proposed rule change that would make these consumer incentive rewards taxable on the companies' end.

Signed by four travel organizations -- Airlines for America, U.S. Travel Association, the American Hotel & Lodging Association, and American Resort Development Association -- the letter states that the plan would "negatively impact loyalty programs" if such programs were taxed.

"Let us be clear, the IRS' proposal to alter the tax treatment of loyalty programs will impose a significant new tax on existing and future loyalty points that travel customers enjoy and rely upon," the letter reads. "Ultimately, any change or clarification of loyalty program accounting should be made through the legislative process, not IRS promulgation."

If enacted, the IRS plan would tax airlines, hoteliers, and corporations when a consumer redeems his or her points.

"All of a sudden, those 1,000 points are effectively worth about 650," AHLA President and CEO Katherine Lugar told the The Washington Post. "There is no question that diluting the value of loyalty programs will negatively affect travel."

The letter to Secretary Lew emphasizes that the travel companies "have complied with settled law in the area of loyalty program accounting for decades. These same companies, and those they serve, are now under the threat of wholesale changes to the longstanding tax treatment of their loyalty programs."

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