Anikeev vs. Commissioner tax law discussion

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: Anikeev v. Comm'r, T.C. Memo. 2021-23 | Casetext Search + Citator

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: 2nd Stipulation Redacted.pdf | PDF Host 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.


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I agree with your “not wanting to go there” comment. Taxable income is taxable income, be it $100,000 or $1; whatever policy they are enforcing has to fit small transactions as well as large ones, and anything targeting large-scale churning can be translated into some pretty ridiculous everyday scenarios. However, these days merchants and banks have solved a lot of the issues for the IRS, with limits and caps and outright disallowing such transactions in the first place.

It’s an interesting case that leaves as much uncertainty as it resolves. Perhaps the biggest part is (essentially) the judge strongly encouraging the IRS to issue policy guidance on the matter, and not continue to make it up as they go along in individual litigation.


If there’s income here, the income would be the earning of the rewards points, which has never been taxed before, and the IRS realizes this.

That if rewards points were always taxable, first of all, there’d be a massive
public outcry because, like your clerk, we all love our credit cards rewards


Love it!


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Does anyone have an old link or name? Maybe that could be obtained via the wayback machine or something similar.

It’s in the second stipulation linked at the bottom of my post.

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Thanks calwatch, I’ll check.

Page 12 of the first transcript excerpt contains an interesting error. Judge asks why the uncapped blue cards were cancelled–maybe a violation of the card agreement?–and the lawyer says, “I dunno, but we think it’s because they didn’t offer it anymore.”

In fact, as several of us active at the time will recall, Amex cancelled any card of that type with any meaningful activity, essentially all at once in October of 2014. Then later, they imposed a change in terms capping the card.

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That was a fun time to remember. They didnt just close the accounts, they merely flagged them to be closed with the next purchase. So everything appeared fine with the account, until you went to a store and tried to make a purchase - the attempt was denied, and the account immediately showed as closed. If you were lucky enough to hear the warning before you swiped, or had multiple cards and only swiped one, you were left only able to stare at your “open” card knowing it was an unusable ticking timebomb.

The subsequent scramble to get rewards paid out, since Amex has a month lag in making rewards redeemable, also became quite the adventure.


Like I said in the other thread, the lawyer elides some of the other evidence stipulated to make the best case for his client.

How did this guy get reported to the IRS?

Read the transcript. The IRS clearly admitted there were over $4 million in FINCEN reports and suspicious activity reports which were duly investigated.


Anyone with remotely moderate volume should assume they have been the subject of numerous reports. I like to imagine that buried in some office somewhere is an overstuffed file cabinet simply labeled “Glitch99”.

What’s unusual about this case is the vigor with which they pursued him. When I was subjected to my own IRS investigation, my retired/unemployed status prompted the agent’s primary concern to be if my churning was generating enough to support myself each month, or if they should suspect I was hiding other income. That’s the underlying problem that needs to be formally addressed, enforcement has been all over the place when confronted with the issue.


I think the distinction could be easier than it looks for the IRS to make. At least as far as store-specific credits are concerned. And that could include reward miles, credit card points, etc. Some are not easily translated into a fixed value. Like you pointed out for claiming business expense on plane ticket, the miles/points earned are worth how much exactly so that you’d know not to claim that as business expense? For me, the variability in redemption value is what makes the IRS not want to touch this one. Just look at various website putting their own evaluation on how much these loyalty points/miles are worth. It varies in time and even among experts in the field.

The second type of cash equivalents, store-specific credits, are a bit easier. Many are in dollars to start with. That said, from someone shopping at Kohl’s, you know the Kohl’s cash is not a straight equivalent to . is the upper limit of their worth considering restrictions like redemption period, opportunity cost to redeem them, or even simply restrictions on usage at that specific store (maybe you could find the same products cheaper elsewhere). Even for stores that offer just about everything like Amazon, there’s an opportunity cost. When using the cash equivalent, I have to forgo earning cashback rebates from my credit card. So I think this is another of those debates the IRS does not want to get into. Assigning value would be a bit easier than for points/miles but not that much. The other reason is that the store-specific cash equivalents are harder to churn.

But the line gets a bit clearer for Prepaid VISA/AMEX/MC gift cards which are not store-specific and can be used for almost any purpose. While one may argue about the costs of obtaining them, there are practically few costs in using them. So assigning them a cash equivalent value that is fair would be simpler than the previous categories. IRS could simply assign them a slightly less than 100% of face value (say 95%) as cash equivalent and it’d be difficult to argue that this valuation is grossly erroneous.

More discussion in the popular financial press by Matt Levine.