The Taxability of Frequent Flyer Credits

It has been over twenty years since the advent of frequent flyer programs at major airlines.' Yet, the Internal Revenue Service ("IRS" or "Service") has left unsettled the controversy surrounding the taxability of credits earned by employees through these programs. This inaction is surprising given the following factors: (1) well-established taxation principles found in code and case law that seem to warrant IRS intervention in this area2 and (2) the well-known nature of the IRS to tax everything within its powers.3 Indeed, the IRS has not turned a fully blind eye to this controversial topic; in a 1985 notice of proposed rulemaking regarding the implementation of regulations pertaining to employee fringe benefits,4 the