Seeking CC help/suggestions - Specific conditions

[scripta]

@shinobi

@scripta

@shinobi

tax free income

*** This claim is disputed ***

Thank God only by you.

[shinobi]

I read through the entire thing. My reaction:

yawn

back atcha

[scripta]

Selected highlights (by me) from the ruling, if you don’t want to read the whole thing:

Generally, when a payment is made by a seller to a customer as an inducement to purchase property, the payment does not constitute income but instead is treated as a purchase price adjustment to the basis of the property. … In this case, however, petitioners did not purchase goods or property to which a basis adjustment may apply. Rather, they purchased cash equivalents, in the form of Visa gift cards, Reloads for the Green Dot card, and money orders, to which no such adjustment can apply. … As a result, the Reward Dollars paid to petitioners as statement credits for the charges relating to cash equivalents are an accession to wealth and income to petitioners under I.R.C. § 61

… had Mr. Anikeev not been so successful in his efforts he likely would have been ignored by … the IRS. However, the scale of his success in acquiring rewards makes this case an extreme test of the longstanding nontaxability of credit card reward programs. To avoid offending his own longstanding policy respondent seeks to apply the cash equivalence concept

Petitioners allege that the gift cards are goods and services and their subsequent use is irrelevant. Respondent argues that the gift cards are cash equivalents because of petitioners’ intended use of the cards to purchase money orders.

[scripta]

@shinobi

I read through the entire thing. My reaction:

yawn

back atcha

So you read the entire ruling and you still think that rewards earned from purchasing Certificates of Deposit with credit cards are tax-free? This ruling is clear as day and as applicable to your scheme as any. CDs are obviously cash equivalents, and the rewards are obviously an accession to wealth and income. The only thing going for you is the scale – don’t be a whale and your scheme may be ignored. But just because it’s ignored, does not mean it’s tax free. It’s clearly taxable income, and your failure to report it is tax evasion.

[shinobi]

When rewards payouts begin to be reported to the IRS on a 1099-whatever form I will commence paying attention . . . and tax.

Until then . . . . . . yawn

[scripta]

A 1099 is not required to make income taxable. Your argument is baseless, and you know it.

[glitch99]

@shinobi

When rewards payouts begin to be reported to the IRS on a 1099-whatever form I will commence paying attention

That is the worst basis for determining taxability…

[shinobi]

@glitch99

That is the worst basis for determining taxability…

Whatever. It works for me

[scripta]

@meed18

What forum is Konstantin Anikeev on??? Sign me up for that forum!

He’s got a Masters in Physics from what looks like one of the top Russian universities, and a doctorate from MIT. He may not even be on a forum as the scheme wasn’t secret (Daraius had a big mouth). Many of us were doing OBC-VGC-MO, though I’m sure most didn’t reach such scale. This couple had $35K + $15.5K limits on their cards and they charged over $5MM in 2014, meaning they cycled their CL more than 8 times per month for at least a year. I’m surprised they got away with it. Amex was pretty strict, but I don’t recall when the first wave of shutdowns hit. Maybe it was at the end of 2014 and these two were part of that.

[shinobi]

Exactly right

Theirs is an ultra/super extreme case of MS.

Will the IRS act on that singular outlandish example to come after thousands of us little guys? Sure it could happen. But until it does,

yawn

[scripta]

But it finally gave us a tax court case with a clear-as-day explanation that rewards generated for income are taxable. It’s not even disputable now.

What you actually do is between you and your God and conscience. Just don’t claim that this income is tax-free.

[shinobi]

Readers of this thread should be aware that, in the past, certain CC issuers did, indeed, report rewards paid cardholders to the IRS. I know of no recent examples of this occurring.

The CC issuers doing this in the past tended to be the “big banks”, Citi, B of A, Chase, and so forth. Their position was that this is a “gray area” and they acted out of an abundance of caution in order not to run afoul of the IRS.

Again, I’m unaware of this sort of reporting in recent years by any CC issuer. However, with this latest court silliness it would not surprise me if those same “big banks” once again began such reporting. We will not know until early in 2022 what they decide to do.

As for me, the overwhelming portion of my hustle activity is charged at smaller financial institutions and not with the big banks.

[shinobi]

@scripta

Just don’t claim that this income is tax-free.

Is that an order? If so, how do you intend to enforce it?

Fact is, I see no clear indication at this time that my rewards from the hustle herein described are taxable. That perception is subject, of course, to change. Until it changes:

yawn

[pattyb53]

@shinobi

Fact is, I see no clear indication at this time that my rewards from the hustle herein described are taxable.

You 2 & your conversation made me wonder. I have that Citibank Double Cash cc. I use my card for multiple charges, farm expenses (it’s mucho), estimated taxes, property taxes + other things. So every couple months I take the cash back. It’s usually $500 or so.

I never get any form 1090 or whatever to include on IRS Tax at end of year. So I go along with shin about not paying taxes on CC rewards.

[shinobi]

It would require rather a good bit of effort for CC issuers to produce 1099s reflecting rewards on purchase of cash equivalents . . . .

but it could be done.

At least it could be done in theory. What first they would need is reliable, possibly enhanced, MCCs (merchant category codes) for each and every credit card purchase. Purchases having no taxable rewards jeopardy, for example farm expenses, would have to be separated out meticulously from purchases of cash equivalent items. Taxes? I dunno. The IRS would need to issue specific guidance by MCC regarding which rewards are taxable and which are not.

So could this happen going forward? Sure it could.

Has this happened yet? Not to my knowledge.

[scripta]

CC issuers have been updating their terms to specifically exclude cash equivalents from earning rewards. The problem is that they can’t always determine from the transaction that it included cash equivalents. Nor is it their responsibility (at this time anyway) to produce 1099s for any such rewards. AFAIK the 1099s issued in the past were for referral rewards and signup bonuses, not for rewards earned from purchases.

@shinobi

Fact is, I see no clear indication at this time that my rewards from the hustle herein described are taxable. That perception is subject, of course, to change. Until it changes:

You’re full of potatoes and natural gas. And you know it. And if you don’t know it, then you’re in denial.

@shinobi

how do you intend to enforce it?

“Wrong, these rewards are obviously taxable per United States Tax Court Memo 2021-23.”

[shinobi]

@scripta

these rewards are obviously taxable

Not at all. We do not agree on what is obvious and what is not.

[scripta]

@pattyb53

I use my card for multiple charges, farm expenses (it’s mucho), estimated taxes, property taxes + other things

While other things are probably OK, estimated taxes and property taxes usually cost more than 2%, so you’re not actually profiting from paying them by CC, you’re losing money. However, if your farm is a business, then the basis of your farm expenses should be reduced by the rewards you earned with the credit card before you claim those as business expenses.

What happens here is you spend $100 on seeds, grow $1000 worth of… tomatoes, and claim a $900 profit on your business tax. But your actual profit was $902, because you got $2 back from Citi for your $100 purchase. Your business tax should show a $98 expense and $1000 revenue or $100 expense and $1002 revenue, resulting in $902 profit.

Like I said, what you do is between you and your God and conscience, but the rules are pretty clear.

[doveroftke]

@shinobi

At least it could be done in theory. What first they would need is reliable, possibly enhanced, MCCs (merchant category codes) for each and every credit card purchase.

Surely if they got to that point the CC issuers would be more likely to exclude those purchases from rewards rather than report the rewards as income.

[scripta]

@shinobi

@scripta

these rewards are obviously taxable

Not at all. We do not agree on what is obvious and what is not.

LOL. Do you agree that US T.C. Memo 2021-23 exists and is the law of the land?

Do you agree that the memo states the following:

In this case, however, petitioners did not purchase goods or property to which a basis adjustment may apply. Rather, they purchased cash equivalents, in the form of Visa gift cards, Reloads for the Green Dot card, and money orders, to which no such adjustment can apply. … As a result, the Reward Dollars paid to petitioners as statement credits for the charges relating to cash equivalents are an accession to wealth and income to petitioners under I.R.C. § 61

?

Let’s start there and see where we diverge.