The IRS has made it official—it won’t go after individuals who personally use frequent flyer miles earned on business travel. Here’s what this policy means in practical terms where frequent flyer miles earned on business travel are used for a personal flight:

 If you are an employee who earned the frequent flyer miles on employment-connected travel that your company paid for (or reimbursed you for), you don’t have to include the value of the personal flight in your income.

 If you are an employer, you don’t have to treat employees’ personal use of frequent flyer miles as a taxable fringe benefit subject to income- and payroll-tax withholding.

 If you are a self-employed taxpayer who earned the frequent flyer mileage on business trips, the value of the personal flight doesn’t affect your deduction for business travel and isn’t included in your income.

The IRS’s official policy formalizes what had been an “unofficial” policy of not going after the personal use of frequent flyer miles earned on business travel.

The IRS’s decision not to go after frequent flyer miles doesn’t apply if the mileage (or other promotional benefit) is converted to cash. In the employment context, the IRS doubtless will insist that the cash be treated by employer and employee alike as a taxable fringe benefit. If a self-employed business person turns business-earned frequent flyer miles into cash, the IRS probably would say that the cash reduces the deduction for business travel, or, if received in the year after the deduction is claimed, should be treated as taxable income.