SECTION 1. PURPOSE — Internal Revenue Bulletin 2015-46

The Treasury Department and the Internal Revenue Service (IRS) are consid

Bulletin No. 2015–46 669 November 16, 2015

taxable payments, if any, with respect to awarded frequent flyer miles “if the Treasury determines that a portion properly can be allocated (traced) to frequent flyer miles that are used by consumers for purposes other than air transportation.” General Explanation at 231. The General Explanation further states that as part of any rulemaking process it undertakes, the Treasury Department is authorized to review airline mileage awards programs and other information from all available sources, including industry and thirdparty data, in determining whether frequent flyer miles can be adequately traced to support allocations based on the ultimate use of the frequent flyer miles. The General Explanation also states that Congress intended that any adjustment to the tax base will be prescribed only if the Treasury Department finds a consistent pattern of non-air transportation usage of frequent flyer miles by consumers at levels indicating that significant mileage awarded pursuant to payments taxable under § 4261(e)(3) are being used for purposes other than for taxable air transportation.

The Treasury Department and the IRS have not prescribed an allocation method that taxpayers (for example, credit card companies) and collectors (typically airlines’ mileage awards programs) can use to exclude from the taxes imposed by § 4261(a) amounts attributable to mileage awards that are used other than for taxable air transportation. As a result, taxpayers currently must pay tax on all frequent flyer miles purchased from an airline mileage awards program and then file a claim for credit or refund for tax paid on

those frequent flyer miles that were ultimately redeemed other than for taxable air transportation.

The Treasury Department and the IRS are considering a possible methodology, described in Section 3 of this Notice, that would allow a reduction in a taxpayer’s § 4261(a) tax base for amounts paid for mileage awards based on historical redemption data.