To amend the Internal Revenue Code of 1986 to clarify the treatment of frequent flyer mileage awards.

March 6, 2003

Mr. MEEKS of New York introduced the following bill; which was referred to the Committee on Ways and Means

To amend the Internal Revenue Code of 1986 to clarify the treatment of frequent flyer mileage awards.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the `Frequent Flyer Tax-Free Liability Act of 2003'.

SEC. 2. FINDINGS.

Congress finds as follows:

(1) Individuals should be able to receive and use frequent flyer benefits for business or personal use without incurring tax liability.

(2) Taxation of frequent flyer benefits would raise a myriad of questions, including questions regarding timing, valuation, and foreign airlines, without obvious answers.

(3) Taxation of frequent flyer benefits would result in additional paperwork for consumers, airlines, hotels, car rental companies, credit card issuers, and the Internal Revenue Service.

(4) Clarifying that frequent flyer benefits are not taxable will encourage people to travel and aid the economy of the United States.

(5) The traveling public pays too much in taxes for travel-related services.

SEC. 3. CLARIFICATION OF TREATMENT OF FREQUENT FLYER MILEAGE AND AWARDS.

(a) IN GENERAL- Part III of subchapter B of chapter 1 of the Internal Revenue Code of 1986 is amended by inserting after section 139 the following new section:

`SEC. 139A. FREQUENT FLYER MILEAGE AND AWARDS.

`(a) IN GENERAL- If an individual receives a frequent flyer benefit as a result of the purchase of property or services--

`(1) no amount shall be includible in such individual's gross income by reason of receiving such benefit,

`(2) no deduction otherwise allowable for the purchase of such property or services shall be reduced by reason of such benefit, and

`(3) no deduction shall be allowed for the portion of any travel-related service purchased using such a benefit.

`(b) FREQUENT FLYER BENEFIT- For purposes of this section, the term `frequent flyer benefit' means any right to receive (or the receipt of) travel-related services, including air transportation services, lodging, automobile rental services, and passenger cruise ship accommodations, for an individual for free or at a reduced cost by reason of prior purchases of property or services. Such term shall include such a right only if the value of such right is de minimis relative to the cost of property or services purchased in order to receive such right.'.

(b) CLARIFICATION OF TREATMENT UNDER REIMBURSEMENT ARRANGEMENTS- Subsection (c) of section 62 of such Code is amended by adding at the end the following: `An arrangement shall not be treated as described in paragraph (2) merely because it permits the employee to retain a frequent flyer benefit (as defined in section 139A(b)).'.

(c) CLERICAL AMENDMENT- The table of sections for part III of subchapter B of chapter 1 of such Code is amended by inserting after the item relating to section 139 the following new item:

`Sec. 139A. Frequent flyer mileage and awards.'.

(d) EFFECTIVE DATE- The amendments made by this section shall apply to taxable years ending after the date of the enactment of this Act.

END