EXCISE TAX

Rev. Rul. 2002–60, page 641. Mileage awards. This ruling illustrates the application of Notice 2002–63, in this I.R.B., when a foreign air carrier purchases mileage awards from a domestic air carrier. In addition, the revenue ruling concludes that Rev. Rul. 55–534, 1955–2 C.B. 665, does not hold that all payments between air carriers are exempt from the tax imposed by Section 4261 of the Code. Rev. Rul. 55–534 distinguished.

Notice 2002–63, page 644. Mileage awards. This notice provides guidance on the application of the excise tax on the amount paid for air transportation to amounts paid for frequent flyer miles. Under the notice, amounts paid for mileage awards that cannot be redeemed for taxable transportation are not subject to tax. The notice further provides that, inasmuch as mileage awards issued by a foreign air carrier cannot be redeemed for taxable transportation, those mileage awards are not subject to tax. In addition, the notice provides that amounts paid by an air carrier to another air carrier for mileage awards that can be redeemed for taxable transportation are not subject to tax to the extent those miles will be awarded in connection with the purchase of taxable transportation. Amounts paid by an air carrier to another air carrier for mileage awards that can be redeemed for taxable transportation are subject to tax to the extent the miles will be awarded other than in connection with the purchase of taxable transportation. Notice 2001–6 modified and superseded.