In last December's issue of Practical Accountant, we reported that inInformation Letter 2001-0214, the IRS Chief Counsel states that income should be reported when someone goes on a personal trip using the frequent flyer mileage from employer-paid business travel. The letter went on to say "When a taxpayer does not receive a 1099 or other documentation, the tax system relies on voluntary compliance" and continues: "[I]income tax regs generally provide for an employee to include in gross income the fair market value of an employer-provided fringe benefit."
That was the first time I can remember the IRS addressing this issue in such a broad manner. I was a little surprised that such a pronouncement would come out in the form of an information letter from the Chief Counsel. I shouldn't have been, because the letter was simply a trial balloon launched by the IRS. The Service does that every once and awhile.
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