By way of DoC recap. Long story short, Amex salespeople encouraged high volume businesses to run certain business expenses through their business CC, even if there was an extra fee, to collect CC rewards and later redeem them for personal use “tax-free,” even offered a 1:1.25 redemption to a personal Schwab account:
There was a lot of pressure to sell this scheme and the salespeople likely thought their pitches were approved from the top, but that may not have been the case, so many got fired after an internal investigation.
Relevant to our discussions, the story mentions a 2002 IRS guidance regarding personal use of business CC rewards – miles redemtpions are OK, but “does not apply to travel or other promotional benefits that are converted to cash.”
I guess it isnt any different than what we do/have done. But requiring a million dollars in cash and relying solely on a 35% deductions/tax savings to manufacture a gain, $995 doesnt seem worth the hassle and opportunity costs?
I am not enjoying the attention that congresscritters seem to be paying towards credit cards, swipe fees, rewards, and the like.
I have a sneaking feeling that the rewards game is gonna get significantly watered down in the next 5-10 years. Either by taxation, some kind of swipe fee legislation, or similar. This will be interesting to watch because it’s going to pit big retailers against banks, airlines, and hotel chains. Not sure who in that group wields the most power in Congress.
Probably not for the cash-out option. Article mentions that they were going after “points junkies”. Probably people who assigned a higher value to the points. TPG gives MR 2c/pt because of airline transfer partners, so if you like to fly in style, it’s not too bad. And this doesn’t violate the IRS rules. The article doesn’t mention how the businesses were using points, only that Amex tried to promote questionable methods.
It might get watered down, but I would bet on fee caps, not taxation. Taxation of rewards on personal cards doesn’t make sense as it really is just a rebate. But the CC fees have been creeping up. They introduce new tiers (like Visa Infinite) that suddenly cost more to accept, which also doesn’t make any sense.
Business cards is another matter. There should be rules that any rewards go back to the business or are used for business travel or expenses, not personal. It is clearly a loophole, and Amex enabled its exploitation.