United Bankruptcy Clouds Future of Frequent Flyer Miles

Q&A: Tax Deduction for Mileage Donation?

December 22, 2002 - When United Airlines filed for bankruptcy protection on December 8, the question weighing on the minds of Mileage Plus members shifted from "what if?" to "what now?"

In the short term, United will continue operating as usual, just as US Airways has done since declaring bankruptcy in August. Even as the business of restructuring debt and renegotiating labor agreements proceeds behind the scenes, United's planes will continue flying, and members of United's Mileage Plus program will continue earning and redeeming miles on those flights.

Six or more months out, United is expected to begin a downsizing regimen, both to cut costs and to raise money through the sale of routes. For Mileage Plus members, fewer flights translates into fewer opportunities to accrue miles, and fewer options for award trips. But any losses will be partially offset by United's partnerships through the Star Alliance network.

What should be of greatest concern to consumers -- and where the crystal ball is all but useless -- is United's long-term prospects.

Some airlines, including Continental and America West, have emerged from bankruptcy financially fit and competitively sound. For others -- Pan Am, Eastern, TWA and most recently Las Vegas-based National -- Chapter 11 was just a pit stop on the road to liquidation. It will be 12 or more months before we know how United will fare.

While there's no imminent danger, it's not too early to consider possible strategies for protecting United miles.

For Mileage Plus members with enough miles in their accounts for an award, a free trip is the surest way to extract full value from their earnings. And redeeming sooner rather than later reduces the risk of losing miles altogether.

Members of the Hilton HHonors program can use the HHonors Reward Exchange function to exchange 20,000 United Mileage Plus miles for 40,000 HHonors points. The HHonors points can then be redeemed for awards in Hilton's program or exchanged for 7,000 miles in a different airline program.

And if United's prospects dim, AwardGuard (http://privilegeflyer.com/) will insure miles in most airline programs, including Mileage Plus, up to a value of $7,500, for $119 per year.

Readers: Miles on their Minds

Question from Robert F.

Can I get a tax deduction for donating my frequent flyer miles to a charity?

Answer

In a word: No.

As a policy matter, for tax purposes, frequent flyer miles have never attained the status of "property." And as a practical matter, the valuation of miles remains a notoriously inexact science. So the IRS simply ruled them non-deductible.

Don't let that dissuade you from exercising your charitable instincts.

All major airline programs have miles-for-charity features. And a newly launched website, MileDonor.com (http://www.miledonor.com/), pulls together charitable-giving specifics from the airlines' programs.

Would-be donors can search MileDonor for information on their programs' own designated charities. Or they can search by charitable organization, to determine which programs support a specific charity.