
                         Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: WEDNESDAY, November 29, 1995                   TAG: 9511290068
SECTION: BUSINESS                    PAGE: B-6   EDITION: METRO 
SOURCE: Associated Press
DATELINE: WASHINGTON                                LENGTH: Medium

FLIER MILES MAY COST YOU IN TAX

The Internal Revenue Service is reconsidering advice it gave that could result in an extra tax liability for workers who are allowed to keep frequent-flier miles from business trips, the agency said Tuesday.

A seven-page ``technical advice memorandum,'' reported Tuesday by The Wall Street Journal, was issued in July to just one company that lets employees use business-generated frequent-flier miles for personal travel.

After a day of uproar over the memo, the agency issued a statement saying it had ``no special enforcement program for frequent-flier miles'' and was reconsidering the advice it gave in the memo. And it stressed that the memo applied only to the company to which it was issued.

``It does not establish precedent for any other case involving any other employer,'' the agency said. ``The IRS does not want other employers to be misled by applying the analysis ... to their [employee reimbursement] plans.''

In any case, the memo did not mark a policy change on the taxability of the frequent flier miles themselves, IRS spokesman Frank Keith said.

The IRS has always said taxes are due when someone converts to personal use those frequent-flier miles earned on business trips paid for by an employer, he said.

If the policy outlined in the memo were applied to all companies, it could subject many employees to extra tax and force them through a complex calculation on their tax returns.

``This is a bombshell,'' said Mary B. Hevener, a tax lawyer at Weil Gotshal & Manges in Washington and an authority on taxation of employee benefits.

The IRS memo said that because the unidentified company lets employees keep frequent-flier miles, it should report as income on the workers' W-2 forms the full cost of the plane tickets that led to the accumulation of the frequent-flier miles.

The employees could deduct from income the tickets' cost - minus the value of any frequent-flier miles used for personal travel.

by CNB