Elizabeth C. Crouse (J.D. 2009, Michigan) has posted Doing as They Say or Saying as They Do: Tax Policy and the (In)Effective and (In)Efficient Taxation of Credit Card Rewards on SSRN.  Here is the abstract:

In recent years, credit card reward programs have become a basic component of personal finance and, often, a basic perquisite for employees. Taxing rewards earned by an employee who charges an employer’s expense on a personal credit card and is later reimbursed are problematic. Consequently, in 2002 the IRS stated that it would not assert a deficiency for in-kind rewards, e.g., frequent flyer miles, earned on business-related expenses, but that the “relief” provided does not apply to rewards converted to cash. This paper argues that, for various reasons, the IRS should also not assert a deficiency for cash rewards earned on business-related expenses. These arguments range from the practical (depending on perspective, the rewards can be classified in many different ways and valuation of in-kind rewards is ultimately not much more difficult than for cash) to the theoretical (enforcement would be an administrative nightmare, but failure to enforce the tax impairs transparency and equity). All arguments ultimately come out against using IRS resources to enforce a deficiency based on a cash business-related reward and, therefore, against maintaining the charade that such payments are taxable.