Fail: Citibank sends 1099 to people for frequent flyer miles received after opening account

Remind me again why we bailed Citibank out?

(USA Today)- Some American Airlines frequent-fliers got a jolt this week after Citibank sent tax forms that listed miles as taxable miscellaneous income.

The Associated Press reports the 1099 tax forms "were sent to customers who were given American Airline miles for opening a checking or savings account last year. That's causing confusion — and possible concern — among those who never before reported their frequent flier miles and other credit card rewards as income."

The Los Angeles Times writes the AA customers who received the 1099 tax forms from Citibank now could be "on the hook for paying related taxes or possibly facing a greater risk of being audited."

How did this issue surface in the first place?

The AP notes that – generally -- frequent-flier miles given as credit card rewards have not been considered taxable "because they're treated as rebates on spending, according to the Tax Institute at H&R Block."

However, the catch in this situation is that miles doled out as a "reward" for opening a new checking or savings account may be viewed differently. The AP says that's because "you don't spend any money to receive it," meaning it's not really a rebate on spending. Keep on reading...