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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Comments on “The Free Airline Tickets That Cost Much More Than Regular Airline Tickets”

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Mike Brown (user link) says:

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.

Mike Brown (user link) says:

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.

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