The Shankar case does not change the reporting requirements for interest paid on deposit accounts, including non-cash account rewards. In Shankar, the bank issued a 1099-MISC to report that its customer had traded in rewards points for airline tickets with a value of $668 (exceeding the $600 threshold for 1099-MISC reporting), and the court held that the bank was correct to report the $668 value of the reward points as interest.

Under the IRS rules, you must file a Form 1099-INT for payments of interest over $10 in a calendar year, and an IRS Revenue Procedure states that such interest includes “non-cash premiums.” If you offer cash rewards or non-cash gifts that are valued at $10 or more in a calendar year, they should be reported on the Form 1099-INT. But, per Shankar, if your bank offers a prize or award valued at an amount greater than $600, you should report it on Form 1099-MISC.

However, the Shankar case leaves open the question of when to report rewards points – in other words, whether the amount of value should be reported when the points are awarded (and, if so, how they should be valued), or when the points are redeemed (although this would not be an issue if both events occur in the same tax year).  We suggest consulting with your bank’s accountants for their guidance on the timing and valuation of your rewards points when issuing 1099-INT and 1099-MISC forms.

For resources related to our guidance, please see below:

• Shankar v. Commissioner of Internal Revenue, 143 T.C. 5 (2014)
• IRS Webpage, Form 1099-MISC
• IRS Rev. Proc. 2000-30 (December 31, 1999) (“interest” is “amounts paid for the use or forbearance of money, which includes amounts, whether or not designated as interest, paid on savings accounts and other deposit arrangements”)