Magazine article American Banker

IRS Defends Citi after Criticism from Capitol Hill

Magazine article American Banker

IRS Defends Citi after Criticism from Capitol Hill

Article excerpt

Byline: Kevin Wack

WASHINGTON a Democratic Sen. Sherrod Brown, an outspoken critic of big banks, had to back away from his criticism of Citigroup just hours after blasting the firm on Monday.

On Monday morning, Brown wrote to Citigroup chief executive Vikram Pandit, chastising the bank for sending 1099 tax forms to customers who received at least $600 in frequent-flyer miles as a reward for opening a checking or savings account.

Brown's letter cited a 2002 ruling by the Internal Revenue Service that, the Ohio Democrat argued, makes it clear that frequent-flyer miles are not taxable income.

"Reporting frequent-flier miles as taxable income is inconvenient to consumers, raises their anxiety unnecessarily, and is not required by law," Brown said. "I urge Citibank to halt this practice."

But later in the day, the IRS released a written statement that undercut Brown's argument.

"When frequent flyer miles are provided as a premium for opening a financial account, it can be a taxable situation subject to reporting under current law," IRS spokeswoman Michelle Eldridge said.

Eldridge went on to say that the 2002 IRS guidance focused specifically on the use of frequently flyer miles attributable to a taxpayer's official or business travel.

"That guidance does not address the issues raised when frequent flyer miles are given as a premium for opening a financial account," she said.

Sean Kevelighan, a Citigroup spokesman, defended the firm's practice of sending out 1099 forms regarding frequent flyer miles in certain specific circumstances. …

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