Did you open a new bank account recently and get rewards points that can be used to buy merchandise? If so, good for you.
Did you know that those points are going to be taxable income? Not so good for you.
In Shankar v. Commissioner (143 T.C. No 5), the Tax Court ruled that the points you get for opening a bank account are taxable income, because they are in essence the equivalent of interest on the money that you deposited into the account. As Forbes Magazine points out, the value of the points becomes taxable when they are actually turned in for something of value.
Banks are expected to issue Form 1099, showing the value of the points, when depositors convert the points into merchandise, whether that’s an airplane ticket, clothing, or even (presumably) a toaster.
If you really have time on your hands you can get a copy of the case by typing “Shankar v. Commissioner” into your web brower and clicking on one of the PDFs that will probably show up at the top of your search request.
By the way, none of this affects the tax-free status of frequent flier points that you get from airlines. So there is that.