Taxes on non-cash prizes.

If bonuses for opening a new account are taxable, I would imagine so are bonuses to existing customers, as an incentive to keep their accounts open.

Citi sends out 1099s Citi drew attention to the issue last week because it is sending out

1099-MISC notices to customers who took advantage of a 2011 Citi promotion that offered 25,000 American Airlines frequent flier miles to anyone who opened a new bank account.... ========Note: 1099-MISC, not 1099-INT; big difference. In my original post, I didn't say whether it was taxable; I only said it's NOT INTEREST as the bank reported.

That's not obvious at all. You have money on deposit with them; they pay you interest. When and how they pay the interest doesn't "obviously" change its character. ===== It should be obvious. The fact it's a flat amount regardless of how much was on deposit or for how long means it's NOT based on the "time value" and therefore not interest.

Interest defined: "The price paid for borrowing money. It is expressed as a percentage rate over a period of time and reflects the rate of exchange of present consumption for future consumption."

[The percentage relates to the amount borrowed and therefore value. I ignored the other definition which spoke to property rights.]

The pub doesn't say it's interest, it just says you report it "as interest". So even though it's not actually interest, it's taxed as if it were.

Since the tax on ordinary income and interest are the same, does it really matter what you call it?

I beg to differ. It comes into play in certain situations. If you intend to rent property, and take steps to do so, but fail to rent it, it is rental property.

The pub doesn't say it's interest, it just says you report it "as interest". So even though it's not actually interest, it's taxed as if it were.

Since the tax on ordinary income and interest are the same, does it really matter what you call it? ======= Yes, because as it's not interest, I won't be putting it on line 8, but if taxable at all, on line 21 of form 1040. That will cause an IRP mismatch which can generate a CP-2000 notice, because the IRS employees who work in the notice section aren't too bright (being GS-5 and below).

No. You will get the CP-2000 notice because no one reviews them before they are mailed. CP-2000 notces are computer generated and mailed without review. The "review" comes after the taxpayer disagrees with the notice.

Ira Smilovitz

The IRS publication specifically and clearly tells you how to report it, yet you plan on ignoring those instructions, I guess because you think the dictionary trumps it. Yet you think the IRS computer (not employees, as pointed out by Ira) is "not too bright"?

Technically IRS publications are not authoritative. I have not been able to find this particular issue discussed either in the code, regulations or even a revenue ruling. How the IRS handles things is not presumed to be correct if it's not in one of those things.

But when someone takes out a home loan and there are loan fees in addition to stated interest, how are those fees treated? Because, based on Stussy's definition, they are no more interest than stated interest. But my recollection is that they are treated like interest.

The IRS publication specifically and clearly tells you how to report it, yet you plan on ignoring those instructions, I guess because you think the dictionary trumps it. Yet you think the IRS computer (not employees, as pointed out by Ira) is "not too bright"? ============ Please remember, as a former [field-office] IRS employee myself, I KNOW that the service center (or campus; whatever they call it now) employees aren't bright.

We ALL know that. But you missed the point.

============>> Please remember, as a former [field-office] IRS employee

No, I think you missed the point. The Tax Court said, in Zimmerman v. Commissioner (1978) 71 T.C. 367, 371, and many times since then,

"Petitioners have, on brief, engaged in an extensive semantical exercise based upon their analysis of certain statements contained in respondent's publication 'Your Federal Income Tax.' We find this analysis not only unpersuasive but beside the point, since the authoritative sources of Federal tax law are in the statutes, regulations, and judicial decisions and not in such informal publications."

The point is that an IRS publication does not trump the law. The law is in the statutes, regulations and court decisions - and there is none (at least that I could find) that justifies calling gifts in this context interest, or even treating them like interest.

And Mr. Stussy has not cited a single statute, regulation, or court decision. So, where does that leave us?

Mr. Stussy has received something of value due to his placing money in a bank account. What, exactly is that? And what statute, regulation, or court decision so states?

Where does the burden lie here?

And Mr. Stussy has not cited a single statute, regulation, or court decision. So, where does that leave us?

Mr. Stussy has received something of value due to his placing money in a bank account. What, exactly is that? And what statute, regulation, or court decision so states?

Where does the burden lie here? ============ The first burden lies with the issuer of the information document (1099) to ACCURATELY report the amount. Should he use a 1099-INT to report an item (regardless of whether it's includible) that is NOT interest, the issuer has not accurately reported the amount.

Regardless of whether the amount is includable (or should be), my point is that using the wrong document to report it means that the burden of proof lies with the issuer and the IRS, not with the taxpayer.

But it is interest.

If it's reported as interest it can be taxed for NIIT, right?

And it can be used to allow a schedule A investment interest deduction?

We haven't had a definition here yet. Neither of you has cited any authority for your definitions.

According to the Comptroller of the Currency, here is how interest is defined:

"any payment compensating a creditor or prospective creditor for an extension of credit, making available of a line of credit, or any default or breach by a borrower of a condition upon which credit was extended. It includes, among other things, the following fees connected with credit extension or availability: numerical periodic rates, late fees, not sufficient funds (NSF) fees charged when a borrower tenders payment on a debt with a check drawn on insufficient funds, over-limit fees, annual fees, cash advance fees, and membership fees. It does not ordinarily include appraisal fees, premiums and commissions attributable to insurance guaranteeing repayment of any extension of credit, finders' fees, fees for document preparation or notarization, or fees incurred to obtain credit reports."

See HAWAII EX REL. LOUIE v. HSBC BANK NEVADA, N.A., 761 F.3d 1027,

1035 (9th Cir. 8-1-2014).

Under this definition interest does not have to be a periodic charge in proportion to the amount borrowed. It can also be a lump sum not necessarily tied to the amount borrowed, as long as it is given in consideration for loan (or in this case, deposit) of money.

If this definition is appropriate under the circumstances, then it would be completely proper to call it interest when a bank makes a gift to a customer to encourage or reward him for having an account at that bank.

But the burden was on Mr. Stussy.

Why, because you cited an IRS publication that cites no authority and, technically, has no more legal significance than anybody else's opinion?

If you want to convince anyone, you will need to present more than merely that in your opinion it seems like it should be the right answer.

I don't have a burden here. This is between Mr. Stussy and the IRS. Between Mr. Stussy and the IRS, it is clear that it is Mr. Stussy who has the burden.

This is good advise for Mr. Stussy.