Ohio senator targest Citibank taxes

DAYTON, Ohio (Dayton Business Journal) - U.S. Sen. Sherrod Brown, D-Ohio, is requesting Citibank stop sending unnecessary tax forms to customers.

The Democratic senator on Monday sent Citibank CEO Vikram Pandit a letter asking the official to stop sending 1099 tax forms to customers who receive frequent flier miles in return for opening a checking or savings account.

According to Brown, Citibank has been incorrectly categorizing frequent flier miles as rewards and prizes, which are considered taxable income, with a valuation of 2.5 cents per mile. However, in 2002, the IRS ruled that frequent flier miles should not be classified as rewards or prizes because of the “numerous technical and administrative issues relating to these benefits.”

Citibank officials issued a statement in response, saying, "Rewards and airline miles that are provided in connection with a purchase on a credit card are routinely not subject to individual income tax reporting. When a customer receives a gift for opening a bank account -- whether cash, a toaster, or airline miles -- the value of that gift is generally treated as income and subject to reporting. This is separate and distinct from miles or points earned by our credit card customers for their purchases."

In his letter, Brown wrote: “During these challenging economic times, middle-class families are pinching pennies to help pay for the cost of a flight to fly home from college, visit an ailing relative, or see friends. To some, signing up for a bank account in exchange for frequent-flier miles to help make a trip more affordable is an offer that is too good to resist. However, your actions are leaving working families with the seemingly incorrect impression that when they rack up miles, they are hiking up their taxes, too.”

Citibank, which is part of Citigroup Inc., has 12 financial services branches in the Dayton region.

Citigroup is the nation’s largest third-largest banking company.