I constantly get questions about frequent flier miles. It is a thorny area that IRS has shied away from. However, recently, IRS issued some guidance on it. Here is what IRS has noted:
First: Any frequent flier mileage given for opening bank accounts is fully taxable and included in income for the value given you by the bank. They will send you a form 1099 as to this value.
Secondly, frequent flier mileage given you resulting from credit card purchases or given by airlines for their flights are tax-free! The reason given by IRS is that the latter is that mileage given for credit card purchases or flights are in the nature of a rebate, which are usually tax free.