The Free Airline Tickets That Cost Much More Than Regular Airline Tickets

from the doing-the-math... dept

There ain't no such thing as a free lunch, right? Apparently that applies to airline tickets as well. There have been stories in the past about people receiving prizes (especially on game shows) and then being shocked at how much they had to pay in taxes, but that same story takes an unusual twist when it came to a promotion from American Airlines giving out 12 round-trip tickets for two. Unfortunately for the winner of the tickets -- all of which needed to be used in twelve months, and none of which were transferable -- American Airlines valued each ticket at its highest rate, saying each one was worth $2,200 -- meaning that the winner suddenly had to pay $800 per ticket in taxes. Of course, this is based on full fare prices for international travel on every ticket. Given the twelve month limitation and the non-transferable nature of the tickets, it seems unlikely that he would ever use all the tickets, let alone fly internationally very often. Also, given the fare wars that are now common, you can fly plenty of places for much less than $800 these days. Of course, the normal response would be that American should do something about this -- such as valuing the tickets at a more reasonable rate. Unfortunately, they refuse to do anything, and so they've effectively created a promotion that would cost the winner a lot more than the actual value of the winnings. Some promotion, right?


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  1.  
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    Mousky, Jul 6th, 2005 @ 5:28am

    No Subject Given

    You should direct your tirade at the tax codes not American Airlines. Perhaps the valuation of the tickets were too high, but the fact is someone could have used those tickets for the most expensive flight that AA offers. Talk to the IRS not AA.

     

    reply to this | link to this | view in thread ]

  2.  
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    Mike Brown, Jul 6th, 2005 @ 6:14am

    Not as bad as it sounds...

    This is nothing new. I knew someone who was put in exactly the same situation back in the 1950's or 60's when he won a prize on "The Price is Right". It took a bunch of arguing, but he eventually got the IRS to accept a valuation of the prize at the fair market value of the merchandise, not the overinflated MSRP the company put on it.

    For airline tickets, I think the IRS would wind up accepting a Travelocity or Priceline printout of what the actual flights taken would have cost to be the value of the ticket. Unused, expired tickets would have no value, regardless of their potential at the time they were received (you might have to declare a value then, and take a loss the next year when they expire - I'm not a tax accountant)

    The distance flown wouldn't be an issue - it cost me much more to fly from Ithaca, NY to Washington, DC, than from New York to London.

     

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  3.  
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    Anonymous Coward, Jul 6th, 2005 @ 9:48am

    No Subject Given

    Mike, you should note that the winner refused the prize.

     

    reply to this | link to this | view in thread ]

  4.  
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    Greg N, Jul 6th, 2005 @ 4:49pm

    Taxes?

    That sounds crazy.

    Over here in Australia, if you win something, your've won it. No taxes or extra crap.

     

    reply to this | link to this | view in thread ]

  5.  
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    Mike Brown, Jul 7th, 2005 @ 9:18am

    Re: Prize refused

    If he refused the prize, there's no tax. This is from IRS publication 525 on "Taxable and Nontaxable Income":

    "Prizes and awards. If you win a prize in a lucky number drawing, television or radio quiz program, beauty contest, or other event, you must include it in your income. ... If you refuse to accept a prize, do not include its value in your income."

    The next sentence is also interesting, as it says basically what I had said:

    "Prizes and awards in goods or services must be included in your income at their fair market value."

    In other words, not at the inflated price the airline put on them, but what they are actually worth.

     

    reply to this | link to this | view in thread ]

  6.  
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    eponymous geek, Jul 7th, 2005 @ 12:37pm

    Here's another one

    Here is a story in the paper today about someone that won a $1.5 million home but refused it because he wouldn't be able to afford the taxes and upkeep.

    http://www.azcentral.com/news/articles/0707dreamhouse-problem-ON.html

     

    reply to this | link to this | view in thread ]

  7.  
    identicon
    Mousky, Jul 7th, 2005 @ 6:51pm

    Re: Taxes?

    Same in Canada.

     

    reply to this | link to this | view in thread ]


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