FILE h533.ih
          HR 533 IH
          105th CONGRESS
          1st Session
          To amend the Internal Revenue Code of 1986 to clarify the treatment
          of frequent flyer mileage awards.
                             IN THE HOUSE OF REPRESENTATIVES
                                    February 4, 1997
          Mrs. KENNELLY of Connecticut introduced the following bill; which
              was referred to the Committee on Ways and Means
                                         A BILL
          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. 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 redesignating section
          138 as section 139 and by inserting after section 137 the following
          new section:
          `SEC. 138. FREQUENT FLYER MILEAGE AND AWARDS.
            `(a) IN GENERAL- If an individual receives a frequent flyer
          benefit as a result of the purchase in a trade or business 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
              transportation 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) air transportation services or other benefit 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 new flush sentence:
          `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 138(b)).'
            (c) CLERICAL AMENDMENT- The table of sections for part III of
          subchapter B of chapter 1 of such Code is amended by striking the
          last item and inserting the following new items:
                      `SEC. 138. FREQUENT FLYER MILEAGE AND AWARDS.
                       `SEC. 139. CROSS REFERENCES TO OTHER ACTS.'
            (d) EFFECTIVE DATE- The amendments made by this section shall
          apply to taxable years ending after the date of the enactment of
          this Act.