As the spiritual successor to the FatWallet Finance forum, (as you will read from the transcript) I feel it makes sense to discuss the recent point taxability question posed in Anikeev vs. Commissioner here.
Here are the links to the opening and answerer briefs and the portion of the transcript which was included in the taxpayer’s brief (I got too cheap to pay for the full transcript):
The text of Anikeev vs. Commissioner is here at: https://casetext.com/case/anikeev-v-commr
To me, I think the main reason Tax Court slapped down the IRS is that they wanted to treat all OBC cash gained as an “accession to wealth” without allowing deductions for the cost of acceding that wealth (the gift card and money order fees). The IRS obviously did not want to treat it as a reduction of basis, because that would start causing an administrative nightmare. For example, the business owner deducting a plane ticket - do they only deduct 98% of the cost? How about someone donating $3,000 to charity to meet a minimum spend bonus? Now what if they also spent $6,000 elsewhere during the qualification period - does only 1/3 of that minimum spend bonus get deducted from the basis of the charitable deduction?
You have something called de minimis for charitable deductions, which lets charities give people tote bags or calendars without reducing the amount which can be deducted, while not allowing them to give, say, NBA tickets and make it all tax deductible. But the IRS would have to come up with this threshold, which could ruin minimum spend bonuses.
So they handwave with this “accession of wealth” argument but it’s clear that gift cards are a product - they have UPCs on them and can only be used as stores which take that brand of card in the US.
Also, the IRS chose December 2013 as a sample and did not attempt to trace all the funds. I tried to do so with the bank statements and saw other possible opportunities for untaxed MS, including but not limited to Kaspersky rebates, Amazon payments, and wife and husband back and forth electronic bill payments, but given that there were likely dozens of bank accounts and the limited funding given to an IRS examiner per case, they chose the easier way out and did not look at any other cards or methods which they may or may not have been heavy hitting.
Regarding the money orders, I see at least tens of thousands of dollars of money orders purchased at Rite Aid, if the $xxx.89 charges at RA on the Amex are to be believed. It certainly was not even 10% of the $6 million or so of spending, and as MO are more directly cash equivalents since they can be deposited anywhere, the same with reloads of Green Dot cards which can be cashed out or bill paid. (Although looking at the bank statements there were clearly thousands of dollars in Blackhawk, InComm, and Netspend deposits, but those were minor in the grand scheme of things.)
I love how the taxpayer hoisted the IRS at their own petard by pointing to the publication that encouraged people to pay their taxes with credit or debit cards to earn points. It should be noted the stated publication has been withdrawn.
The questions the taxpayer’s counsel posed to the IRS, and the dodges therein, are also notable: https://pdfhost.io/v/Xy982.zJz_2nd_Stipulation_Redactedpdf.pdf Although it strains credulity to say that generating thousands of dollars is an “intellectual pursuit”, to each their own. Still, the taxpayer asks a question about what is a cash equivalent, if a VGC is. Is a eBay or Amazon card a cash equivalent? Now, I know the IRS has slapped down folks for claiming the $50 nominal value of a gold coin as income instead of the $1,800 intrinsic value of an American eagle, but this could open a terribly complex can of worms so I understand why they don’t really want to go there.