Refund from Airline - Taxable Income??

[Yardley CPA]

Client is dealing with airline trying to obtain a full refund due to Italy being closed for business/travel.  (My Poor Italy!)  Anyway, the Airline offered them a voucher to use up to the value of what they paid for the Italy tickets.  That voucher could be used up to the end of this year on any tickets for any travel on the airline.  The client preferred the refund.  The airline told the client, if the refund is approved it would be considered taxable income??  Is that correct??  I'm having real trouble understanding how that is possible?  Are they just trying to entice the client to take the voucher?

[FDNY]

That does sound strange and wrong info.  I'm with you on them trying to entice him to take the voucher.  I have a client who works for a big travel agency that books big groups and she said they may go out of business, or at least lay everyone off.  My cousin teaches in Milan and she said they are doing virtual classwork.  But many of the people in the north decided to go south to escape so the government shut down the whole country.  They had to, there were over 100 dying each day.   Now I need to polish up on my Italian to call all the relatives, they need support, this too will pass, I hope.

[Gail in Virginia]

I can only see this as taxable income if it were first deducted as an expense.  So if this is a business trip that they paid for last year, and they are cash basis taxpayers who deducted it last year, then potentially it could be income if they get a refund this year.  BUT I don't see it. 

[Max W]

We know how reliable tax advice is coming from brokers, bankers and lawyers, so I would take it with a grain of salt.  In the supposed case of the airline issuing a 1099-Misc, that can be dealt with later.

[Yardley CPA]

1 hour ago, Gail in Virginia said:

I can only see this as taxable income if it were first deducted as an expense.  So if this is a business trip that they paid for last year, and they are cash basis taxpayers who deducted it last year, then potentially it could be income if they get a refund this year.  BUT I don't see it. 

Gail...in the event it was business related, maybe.  This is a normal Joe (no offense to Joe's), a married couple who had planned a vacation to Italy  No business about it.  

[Margaret CPA in OH]

A couple of years ago a hurricane closed down the east coast flights when I was to go on a dive trip.  As it was on a live-aboard boat, if you miss the connections, you miss the boat so you miss the trip.  While I had a non-refundable ticket, the airlines did refund it.

I think many tickets now are sold as non-refundable so, if something happens like the country being closed down, the airline does not want to refund money already used and 'nonrefundable.' It's easier to give a voucher with some restrictions and threaten taxable income if refused. I'm just guessing that it was nonrefundable except perhaps in special circumstances like this.  But I simply cannot see how it is remotely possible to have taxable income on the refund of money paid.  Sort of like getting taxed on your federal refund, a return of your own money.

[Gail in Virginia]

14 hours ago, Yardley CPA said:

Gail...in the event it was business related, maybe.  This is a normal Joe (no offense to Joe's), a married couple who had planned a vacation to Italy  No business about it.  

And even if it was business related, how would the airline know that?  Surely they don't think all the people who fly business class are flying on business trips? 

[Pacun]

The airline feels that you owed them that money and that if you don't want to go Italia, it is your problemo.  So, if they have rights to that money, they will refund it to you but it will be cancellation of debt and they will issue a 1099-C and therefore the word "taxable" is coming into play.

That's what I think.

[Catherine]

@Pacun you may well be right in your guess at what the airline is thinking.  That doesn't mean their "thinking" is right!  If the trip was personal, the expense was personal, and the refund is personal.  End of story.   And it's not even like they *decided* not to go - travel was shut down; not possible.  Get the cash, it's not taxable, the airline giving tax advice/scares is as meaningless as me giving advice to a trained pilot on how to fly.

[ILLMAS]

How many thousands was this refund?