Seth Breidbart wrote:

- quote -

Careful about using "vacation days" and such as an example.
Some employers have "leave banks" where an employee can
either loan or donate unused leave to the bank - to be used
by another employee for a long-term illness or other
absence....

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Seth Breidbart wrote:

- quote -

But is any portion of the ticket purchase price SPECIFICALLY
allocated to the miles AT THE TIME OF PURCHASE?

- quote -

But is any portion of the computer purchase price
SPECIFICALLY allocated to the software AT THE TIME OF
PURCHASE?

- quote -

But is any portion of the bond purchase price SPECIFICALLY
allocated between the income and principal components AT THE
TIME OF PURCHASE? ... BINGO!

MTW

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MTW <mtwingcpa[at]yahoo.com> wrote:
- quote -

Look up "mileage runs" on flyertalk.com. Some people buy
tickets and travel _only_ for the miles and associated
benefits.

- quote -

Let's assume I can, since they came separately (the software
was not installed, CDs were included).

- quote -

I've seen new computers with Microsoft Office for sale at
less than the price for Microsoft Office alone. Now, which
is the primary purchase and which the incidental?

In other circumstances (e.g. bonds, the principal and
coupons), the IRS _requires_ appropriate allocation of the
purchase price.

Seth

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Seth Breidbart wrote:

- quote -

No, the entire cost would be allocated to the item that
appear to constitute the major element of the transaction.
Barring very weird pricing situations (and, yes, I have seen
them), no one would buy a plane ticket solely to get the
miles. Rather, they buy the ticket to get the ticket.
Similarly, no one would buy an insurance policy solely to
get an equity stake in a mutual insurance company. Rather,
they buy the policy to get the policy. Same with the
computer.

- quote -

That raises the age old question as to whether you can
legally do that without violating the terms of the
associated license agreements. As Stuart (I think it was)
pointed out the last time we discussed this, you can
probably legally sell (or otherwise dispose of) exactly
whatever it was that you purchased. However, it remains
questionable if you can "disassemble" what you purchased and
sell off the individual components without violating
applicable licensing agreements.

But, once again, if no part of the purchase price was
specifically allocated to the software, they I would
continue to say that it has no separate cost basis.

An exception to this general rule would be developed real
estate, where you are deemed for tax purposes to have
purchased "land" and "improvements" as separate items. But
in that case I would say that EACH item is a major element
of the transaction.

MTW

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MTW <mtwingcpa[at]yahoo.com> wrote:
- quote -

Really? So if I donate _both_ of them I don't get a
deduction, because the purchase price wasn't allocated? So
I buy a computer that comes with a "free" copy of, say, MS
Office. I donate the whole thing to a charity. I don't get
a deduction for the price paid?

What if I donate the hardware to one charity, and the
software to a different charity?

What if I donate only one of them?

- quote -

No.

Seth

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Arthur L. Rubin wrote:

- quote -

Agreed. What got me into this portion of the thread was the
question of whether "miles" constitute "property" that could
be deducted at FMV if contributed to a charity after 1 year.
I still contend that "miles" aren't property. They are
simply a unit of measure used by the plan, and they have no
reality outside of the terms of the plan itself.

Award certificates or issued tickets are a different matter.
They probably ARE "property." If you can manage to hold one
for over a year, and THEN transfer it to a charity, you
might have something.

MTW

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MTW <mtwingcpa[at]yahoo.com> wrote:
- quote -

I know that Northwest, USAir, and American have all allowed
me to get tickets for other people with my frequent-flyer
miles.

Seth

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Seth Breidbart wrote:

- quote -

A few years ago I recall trying to get a ticket issued to
the child of a friend. My FFM plan said they wouldn't do it
- that tickets could only be issued to "immediate family
members or dependents." The child in question was neither.

But, the specific result is not the point. The point is that
the tickets can only be issued in accordance with the terms
of the PLAN (whatever those terms might be), and the plan
can be modified unilaterally by the airline. If I go into
court and argue that the airline's rules are stupid, I would
not expect the court to have any sympathy. In other words,
my rights are limited to what the plan allows, the airline
controls the plan, and I have no rights outside of the plan
itself.

- quote -

I was responding to your comment [emphasis added]: "TICKETS
bought with frequent flier miles are [transferable].

- quote -

Kindly don't try to change the subject. <g> We are talking
about the donation MILES, not the donation certificates or
tickets acquired with the miles. I am trying to clearly
distinguish between the two situations, because they are
clearly different.

- quote -

It means that, in accordance with my employer's "vacation
day donation plan," the university can contact my employer
and request the cash-out of a certain number of "days." The
employer cuts a check to the university for the appropriate
dollar amount, adds it on to my W-2, withholds any necessary
taxes from OTHER amounts that the employer owes me (at
least, that's the way it works under the plan as I've
conceived it), and lastly the employer notes that I've made
a contribution to the university and has withheld same from
my pay. [No, I'm not smoking anything.]

- quote -

No, there isn't. And that makes just as much sense as
donating "miles" or "days" or any other "unit of measure" of
your choice.

- quote -

But, once again please remember, we are discussing the
donation of MILES, not the donation of certificates or
tickets.

- quote -

Yes, but once again please remember, we are discussing the
donation of MILES, not the donation of certificates or
tickets.

- quote -

And, on a certain level, I probably agree. But I don't think
the IRS does if no portion of the purchase price was
SPECIFICALLY allocated between the items AT THE TIME OF THE
PURCHASE.

Can you cite anything (other than your own opinion, to which
you are certainly entitled) to indicate that my
understanding of the IRS position is incorrect? Or that the
IRS position (as I've suggested it) is contrary to law (and,
if so, WHAT law)?

MTW

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MTW wrote:
- quote -

We've ordered American certificates for friends. And I
think that even Alaska allows you to order tickets to bring
a friend to you, even if not a family member.

But I've never been in the Alaska program, as far as I can
recall. My wife flew Alaska once, but I think we cashed in
my American miles for the ticket.

- quote -

That's true for all the plans I'm in, although one of them
bans only certificates "bartered for cash" (whatever that
means). It might indicate that if ABC airlines and XYZ
airlines had the same restrictions, then you could (within
the rules) exchange an ABC certificate for an XYZ
certificate.

I think we're straying from the context of this newsgroup,
though. Although much of the question of whether FFM or
certificates are taxable or deductible depends on "facts and
circumstances", as do most tax issues, I think this strays
from the context of this newsgroup UNLESS hypothetical,
because of the differences between plans.

Hypothetically, though, ....

In general, would a certificate be considered restricted if
it could not be "sold", and could only be transferred once?

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- quote -

Delta allows the direct donation of miles to your choice of
several selected charities. They also state that the
donation is NOT tax deductible.
http://www.delta.com/skymiles/use/donate/index.jsp

US Air also allows the donation of miles to Make-A-Wish. The
fine print says that the IRS does NOT consider this as a tax
deduction.
http://www.usair.com/dividendmiles/p...ityprogram.htm

American Airlines also has a donation program similar to the
above. They also note the non-deductible nature of the
donation. And, in a twist, they also OFFER frequent flier
miles for your donation to several charities.
http://www.aa.com/apps/AAdvantage/Vi...Type=Charities

--
Don EA in Upstate NY (Obviously with too much spare time)

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Arthur L. Rubin wrote:

- quote -

The last time I looked, the plan that I am most familiar
with (Alaska) limited awards and tickets to immediate family
members and dependents. And, it imposed harsh penalties if
you are caught buying, selling or bartering award
certificates or tickets.

If you don't think those restrictions are "narrow," try
this: Contact the NRA and ask them how they'd feel about
legislation that limited the transfer of guns to family
members and dependents, and imposed harsh penalties if they
are sold? <g> I'm sure they would be happy to offer you an
"education" in the concept of "property rights." <g
MTW

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MTW <mtwingcpa[at]yahoo.com> wrote:
- quote -

I knew I should have worded that more carefully.

In most (perhaps all) plans, I can use my miles to get a
ticket in someone else's name. The plans generally prohibit
the _sale_ of such, or doing that for compensation; but
getting a ticket for a travelling companion, or a friend to
visit me, etc. is quite permissible: I've done it.

- quote -

That is, the person sells the vacation days back to his
employer, and uses the (cash) proceeds however he wishes?
What does that have to do with donation _of vacation days_?

- quote -

It is not a direct donation of miles, but of the item of
value acquirable with them (see above).

- quote -

OK: You have 5 vacation days accrued. Please explain
exactly what it _means_ for you to donate those 5 days to
Harvard University. On your end, since you have given up 5
vacation days, it means you will work 5 days more than had
you not given them up. On Harvard's end, what does it mean?
Whan _can_ it mean? (I'm assuming there's no
employer-employee relationship between you and Harvard, just
that you choose to donate to them.)

There's nothing in the IRC or any state code preventing the
donation of a square circle, either.

- quote -

Of the miles, no. Of tickets acquired with the miles, to
any charity that has a charitable use for those tickets,
most or all.

- quote -

Or if the donation were arranged in advance so the correct
ticket were acquired.

- quote -

I would say that if I spend (nondeductible) money and get
two "things", then they're both my property.

Seth

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MTW wrote:
- quote -

All plans allow you to order a ticket for someone else.
Most plans allow you to order an award cirtificate
for someone else, but they cannot then order a ticket
for a third party. Doesn't seem that narrow to me...

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D. Stussy wrote:

- quote -

The "asset" is the entitlement itself, as defined by
whatever contract created it. It is not the "miles" or
"days" (or "inches" or "feet" or whatever) that measure the
entitlement.

MTW

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Barry Margolin wrote:
- quote -

Would that be any different from a REBATE which one doesn't
get instantly, but has to wait some period for it to be
mailed? Rebates are basis adjustments to the ORIGINAL
item(s) rebated, not to the item that the rebate pays for
(either by itself or in combination [with other rebates]).

I agree that there may be a valuation problem at the time of
the original trip, but there is no problem when the miles
are converted to their ultimate form.

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MTW wrote:
- quote -

I don't like the above....

Accounting 101: Receivables (which may include "accrued
entitlements") are assets, at least for the equation: A - L
= NW

Therefore, for me to be "happy" with MTW's statement, these
things cannot be "accrued entitlements." They must be
something else (i.e. not entitlements).

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Seth Breidbart wrote:

- quote -

I've never seen a frequent flyer ticket or award certificate
that was transferable except under very narrow circumstances
permitted by the plan itself. Can you cite any plans that
allow unlimited, unrestricted transfers of frequent flyer
tickets? By the same token, tickets bought with the proceeds
of "vacation days" can ALSO be donated if the terms of the
ticket allow it. But, I'm not talking about the donation of
TICKETS or AWARD CERTIFICATES. I am talking about the
donation of MILES.

- quote -

Who says you can't? Can you cite a provision of the IRC or
applicable state law that would prevent such a donation?
This, I think, is simply a matter of contract law between
the employee and the employer. Similarly, frequent flyer
plans are governed by contract law between the flyer and the
airline.

In any event, you can't donate MILES to just any charity. I
have never seen this allowed except by airlines that permit
donations to SELECTED (by them) charities with which they
have a business relationship. Can you cite any frequent
flyer plans that allow unlimited, unrestricted donations to
ANY charity of your choice? (If so, please donate all
available miles to the Starving CPA Fund, c/o General
Delivery, Lakebay, WA 98349.)

- quote -

Yes, you can probably donate a TICKET if it has no
restrictions to prevent such a donation. Once again, would
you please cite those frequent flyer programs that allow
unrestricted transfers of FREQUENT FLYER tickets? But, note
once again that I'm not talking about the donation of
TICKETS or AWARD CERTIFICATES. I'm talking about the
donation of MILES.

- quote -

As they say, "You can lead a horse to water, but..."

In any event, the question I raised was whether "miles" (not
tickets or award certificates) constitute a form of
"property" and/or qualify as a "capital asset." Do you have
any comments on those particular issues?

MTW

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Arthur L. Rubin wrote:

- quote -

Huh? Conversion of zero basis FFMs **IS** a taxable event!
See IRC 61. I have never seen any authoritative
pronouncement that holds differently. (If you don't believe
me, ask Ed Zollars. This is one of the few matters that he
and I actually agree on. <g> )

The only thing the IRS has said on this matter (via a low
level form of announcement) is that they won't assert
deficiencies against taxpayers who fail to report such
income. Presumably they can take such a position in the
interest of "administrative efficiency." But, they have
never, ever, ever said per se that the miles aren't taxable.

MTW

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MTW <mtwingcpa[at]yahoo.com> wrote:

- quote -

Vacation days are not transferable. Tickets bought with
frequent flier miles are.

You can't donate vacation days to a charity, period. The
concept makes no sense.

You can donate tickets to a charity. The issue is the tax
treatment.

Therefore, the examples are not parallel.

Seth

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John H. Fisher <taxservice[at]aol.compliance> wrote:
- quote -

Why do you say I have no basis? I spent a total of $1750,
and got 6 tickets. I might even have spent it all the same
day (the day of the fare sale).

What I'm purchasing is one ticket plus 5,000 "airline
miles".

If I go to a charity carnival and buy three blue tickets for
$10 each and then trade them for a stuffed panda, isn't my
basis in the panda $30? What's the tax difference between a
"blue ticket" and an "airline mile"?

Seth

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