Author Topic: FYI: Tax Court rules that points from certain MS are taxable.  (Read 9192 times)

Offline R.A.T.

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Re: Is MS taxable?
« Reply #1 on: February 24, 2021, 08:53:09 AM »
Interesting.

Eric Green (tax rebbi) just posted this:
"Big Win in the US Tax Court!  Earlier today the U.S. Tax Court rule in favor of our client that acquisition of credit card reward points, no matter how many the receive, is a taxable event.  In Anikeev v. Commissioner, the IRS tried to tax credit card reward points that the taxpayer received claiming they were “cash equivalents” because the taxpayer purchased gift cards with his credit card, which generated rewards points, and then used the gift cards to purchase money orders, which the taxpayer then deposited in his bank account.  The Tax Court ruled the transaction was not a taxable event: “Reward [points] petitioners received were not notes, but they were commitments by [the credit card issuer] to allow petitioners credits against their card balances. Respondent’s analysis leaps to the cash equivalence position without an analysis of the origin of the[r]eward [points].”  This was a case of first impression and an important development in the cash equivalent doctrine."

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Offline Ephcc90

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FYI: Tax Court rules that points from certain MS are taxable.
« Reply #3 on: February 24, 2021, 09:14:35 AM »
See https://milestomemories.com/wp-content/uploads/2021/02/KONSTANTIN-ANIKEEV-AND-NADEZHDA-ANIKEEV-Petitioners-v-COMMISSIONER-OF-INTERNAL-R-1-1.pdf

"Therefore, we uphold respondent's inclusion in income of the related Reward Dollars for the direct purchases of money orders and the cash infusions to the reloadable debit cards"

Offline lubaby

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Re: FYI: Tax Court rules that points from certain MS are taxable.
« Reply #4 on: February 24, 2021, 10:12:33 AM »
It’s all in the name. If he was earning regular membership reward points (instead of rewards “dollars”), it very likely would’ve been a different outcome.


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Re: Is MS taxable?
« Reply #6 on: February 24, 2021, 10:20:05 AM »
Interesting.

Eric Green (tax rebbi) just posted this:
"Big Win in the US Tax Court!  Earlier today the U.S. Tax Court rule in favor of our client that acquisition of credit card reward points, no matter how many the receive, is a taxable event.  In Anikeev v. Commissioner, the IRS tried to tax credit card reward points that the taxpayer received claiming they were “cash equivalents” because the taxpayer purchased gift cards with his credit card, which generated rewards points, and then used the gift cards to purchase money orders, which the taxpayer then deposited in his bank account.  The Tax Court ruled the transaction was not a taxable event: “Reward [points] petitioners received were not notes, but they were commitments by [the credit card issuer] to allow petitioners credits against their card balances. Respondent’s analysis leaps to the cash equivalence position without an analysis of the origin of the[r]eward [points].”  This was a case of first impression and an important development in the cash equivalent doctrine."


This is the boast of one of the lawyers in the case. The bottom line seems to be that gift cards are considered a product and rewards for their purchase are not taxable while MOs and debit transfers that are directly redeemable for cash are not a product and rewards for their purchase are taxable.
Feelings don't care about your facts

Offline Ephcc90

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Re: FYI: Tax Court rules that points from certain MS are taxable.
« Reply #7 on: February 24, 2021, 10:51:14 AM »
It’s all in the name. If he was earning regular membership reward points (instead of rewards “dollars”), it very likely would’ve been a different outcome.
Why? It doesn’t matter what you receive, only whether or not it’s a “rebate.”

Offline R.A.T.

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Re: Is MS taxable?
« Reply #8 on: February 24, 2021, 10:54:35 AM »
This is the boast of one of the lawyers in the case. The bottom line seems to be that gift cards are considered a product and rewards for their purchase are not taxable while MOs and debit transfers that are directly redeemable for cash are not a product and rewards for their purchase are taxable.
Buy GreenDot with CC. Buy MO with GreenDot = Nontaxable?
Reload GreenDot with CC. Buy MO with GreenDot = Taxable?
What is wrong with this picture?

Offline Dan

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Re: FYI: Tax Court rules that points from certain MS are taxable.
« Reply #9 on: February 24, 2021, 11:31:13 AM »
OK, I'm confused as to what the outcome is.

Did the judge split the difference and say tax isn't owed on the gift cards? But is owed on direct debit reloads and direct money order purchases?

How do you directly purchase a money order with an AMEX?

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Offline Dan

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Re: FYI: Tax Court rules that points from certain MS are taxable.
« Reply #10 on: February 24, 2021, 11:34:35 AM »
Any way around paywall?
Or can you post it?
Bloomberg Law News 2021-02-24T10:13:14621-05:00
IRS Wins in ‘Extreme Test’ of Credit Card Reward Tax Status
By Jeery Leon 2021-02-23T17:05:24000-05:00
The IRS can tax more than $300,000 in credit card rewards because they were used to purchase prepaid
debit cards and money orders rather than goods or services, the U.S. Tax Court ruled.
Konstantin Anikeev and Nadezhda Anikeev used their credit cards and prepaid gift cards to purchase
money orders which they then deposited into their bank accounts. The rewards they reaped through their
credit cards alone aren’t includible as income, the Tax Court said, adding that the case is an “extreme test
of the longstanding nontaxability of credit card reward programs.”
But the gift cards and money orders are cash equivalents—an “accession to wealth” under tax code
Section 61, Judge Robert Goeke said in his opinion, siding with the IRS. Goeke said the holding is based on
the fact that money order purchases and debit card reloads are incompatible with an IRS policy that
allows credit card rewards for the purchase of goods and services to be excluded from income.
The IRS determined deficiencies of about $103,000 for 2013 and 2014 and argued the pair should have to
recognize $312,046 in additional income stemming from the rewards.
The Anikeevs had alleged that the gift cards are goods and services and their subsequent use is irrelevant.
The IRS had argued the gift cards should be treated like cash because they were used to purchase money
orders.
Goeke said the court hopes that the IRS in the future polices its policy “in regulations or public
pronouncements rather than relying on piecemeal litigation.”
Jeffrey M. Sklarz of Green & Sklarz LLC, representing the Anikeevs, and the IRS didn’t immediately respond
to requests for comment.
The case is Anikeev v. Commissioner , T.C., No. 13080-17, 2/23/21 .
To contact the reporter on this story: Jeffery Leon in Washington at jleon@bloombergindustry.com
To contact the editors responsible for this story: Patrick Ambrosio at pambrosio@bloombergtax.com;
Colleen Murphy at cmurphy@bloombergtax.com
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Offline Dan

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Re: FYI: Tax Court rules that points from certain MS are taxable.
« Reply #11 on: February 24, 2021, 11:35:07 AM »
Bloomberg Law News 2021-02-24T10:13:14621-05:00
IRS Wins in ‘Extreme Test’ of Credit Card Reward Tax Status
By Jeery Leon 2021-02-23T17:05:24000-05:00
The IRS can tax more than $300,000 in credit card rewards because they were used to purchase prepaid
debit cards and money orders rather than goods or services, the U.S. Tax Court ruled.
Konstantin Anikeev and Nadezhda Anikeev used their credit cards and prepaid gift cards to purchase
money orders which they then deposited into their bank accounts. The rewards they reaped through their
credit cards alone aren’t includible as income, the Tax Court said, adding that the case is an “extreme test
of the longstanding nontaxability of credit card reward programs.”
But the gift cards and money orders are cash equivalents—an “accession to wealth” under tax code
Section 61, Judge Robert Goeke said in his opinion, siding with the IRS. Goeke said the holding is based on
the fact that money order purchases and debit card reloads are incompatible with an IRS policy that
allows credit card rewards for the purchase of goods and services to be excluded from income.
The IRS determined deficiencies of about $103,000 for 2013 and 2014 and argued the pair should have to
recognize $312,046 in additional income stemming from the rewards.
The Anikeevs had alleged that the gift cards are goods and services and their subsequent use is irrelevant.
The IRS had argued the gift cards should be treated like cash because they were used to purchase money
orders.
Goeke said the court hopes that the IRS in the future polices its policy “in regulations or public
pronouncements rather than relying on piecemeal litigation.”
Jeffrey M. Sklarz of Green & Sklarz LLC, representing the Anikeevs, and the IRS didn’t immediately respond
to requests for comment.
The case is Anikeev v. Commissioner , T.C., No. 13080-17, 2/23/21 .
To contact the reporter on this story: Jeffery Leon in Washington at jleon@bloombergindustry.com
To contact the editors responsible for this story: Patrick Ambrosio at pambrosio@bloombergtax.com;
Colleen Murphy at cmurphy@bloombergtax.com
They seem to be reading it differently than me.
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Offline R.A.T.

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Re: FYI: Tax Court rules that points from certain MS are taxable.
« Reply #12 on: February 24, 2021, 11:35:25 AM »
How do you directly purchase a money order with an AMEX?
You could back then but not now.
The title has been changed. The court made no ruling on "points". This card(s) was 100% cash back card. No points involved.

Offline Ephcc90

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Re: FYI: Tax Court rules that points from certain MS are taxable.
« Reply #13 on: February 24, 2021, 11:40:07 AM »
OK, I'm confused as to what the outcome is.

Did the judge split the difference and say tax isn't owed on the gift cards? But is owed on direct debit reloads and direct money order purchases?

How do you directly purchase a money order with an AMEX?

This is exactly right. (Though it seems clear that the court felt their hands were tied for procedural reasons by existing IRS policy to treat CC points as a rebate, not because they necessarily agreed with that analysis.) 

"However, petitioners’ direct purchases of money
orders and reloads of cash into the debit cards
using the American Express cards presents a different
question from the purchase of Visa gift cards.
The
Visa gift cards have product characteristics. They
provide a consumer service embodied in a simple
plastic card for convenience. The Visa gift cards
are not redeemable for cash, but the money orders
purchased with the American Express cards and the
infusion of cash into the reloadable debit cards are
difficult to reconcile with the IRS credit card reward
policy. No product or service is obtained in these
uses of the American Express cards other than cash
transfers. The money orders are not properly treated as
a product subject to a price adjustment because they
were eligible for deposit into petitioners’ bank account
from acquisition. Similarly, the cash infusions to the
reloadable debit cards were not product purchases.
The reloadable debit cards were used for Moneygram
transfers, which are arguably a service. However, the
Reward Dollars in dispute were issued for the cash
infusions, not the transfer fees. Therefore, we uphold
respondent's inclusion in income of the related Reward
[*22] Dollars for the direct purchases of money orders
and the cash infusions to the reloadable debit cards."

Offline Dan

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Re: FYI: Tax Court rules that points from certain MS are taxable.
« Reply #14 on: February 24, 2021, 11:41:37 AM »
You could back then but not now.
Was I living under a rock? What was the method?
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Offline Dan

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Re: FYI: Tax Court rules that points from certain MS are taxable.
« Reply #15 on: February 24, 2021, 11:42:38 AM »
This is exactly right. (Though it seems clear that the court felt their hands were tied for procedural reasons by existing IRS policy to treat CC points as a rebate, not because they necessarily agreed with that analysis.) 

"However, petitioners’ direct purchases of money
orders and reloads of cash into the debit cards
using the American Express cards presents a different
question from the purchase of Visa gift cards.
The
Visa gift cards have product characteristics. They
provide a consumer service embodied in a simple
plastic card for convenience. The Visa gift cards
are not redeemable for cash, but the money orders
purchased with the American Express cards and the
infusion of cash into the reloadable debit cards are
difficult to reconcile with the IRS credit card reward
policy. No product or service is obtained in these
uses of the American Express cards other than cash
transfers. The money orders are not properly treated as
a product subject to a price adjustment because they
were eligible for deposit into petitioners’ bank account
from acquisition. Similarly, the cash infusions to the
reloadable debit cards were not product purchases.
The reloadable debit cards were used for Moneygram
transfers, which are arguably a service. However, the
Reward Dollars in dispute were issued for the cash
infusions, not the transfer fees. Therefore, we uphold
respondent's inclusion in income of the related Reward
[*22] Dollars for the direct purchases of money orders
and the cash infusions to the reloadable debit cards."
So Bloomberg is wrong?
What was the actual amount owed? How much of the purchases were for cash and not goods?
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Offline Dan

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Re: FYI: Tax Court rules that points from certain MS are taxable.
« Reply #16 on: February 24, 2021, 11:44:59 AM »
Interesting.

Eric Green (tax rebbi) just posted this:
"Big Win in the US Tax Court!  Earlier today the U.S. Tax Court rule in favor of our client that acquisition of credit card reward points, no matter how many the receive, is a taxable event. In Anikeev v. Commissioner, the IRS tried to tax credit card reward points that the taxpayer received claiming they were “cash equivalents” because the taxpayer purchased gift cards with his credit card, which generated rewards points, and then used the gift cards to purchase money orders, which the taxpayer then deposited in his bank account.  The Tax Court ruled the transaction was not a taxable event: “Reward [points] petitioners received were not notes, but they were commitments by [the credit card issuer] to allow petitioners credits against their card balances. Respondent’s analysis leaps to the cash equivalence position without an analysis of the origin of the[r]eward [points].”  This was a case of first impression and an important development in the cash equivalent doctrine."

Link?
Is or is not a taxable event?
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Offline R.A.T.

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Re: FYI: Tax Court rules that points from certain MS are taxable.
« Reply #17 on: February 24, 2021, 11:46:50 AM »
Was I living under a rock? What was the method?
Some chains were not hard coded to disallowed MO purchases with a CC.
How much of the purchases were for cash and not goods?
99+%

Offline Ephcc90

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Re: FYI: Tax Court rules that points from certain MS are taxable.
« Reply #18 on: February 24, 2021, 11:48:25 AM »
So Bloomberg is wrong?
What was the actual amount owed? How much of the purchases were for cash and not goods?

Here is the case, no clue what Bloomberg is talking about: https://milestomemories.com/wp-content/uploads/2021/02/KONSTANTIN-ANIKEEV-AND-NADEZHDA-ANIKEEV-Petitioners-v-COMMISSIONER-OF-INTERNAL-R-1-1.pdf


All of petitioners’ charges of more than $400 in single
transactions with the American Express cards during
2013 and 2014 were for Visa gift cards, reloadable
debit cards, or money orders. In 2013 petitioners’
charges on the 1005 Card totaled $1,219,077. Of this
amount, $1,208,376 was for charges of more than $400
in single transactions for Visa gift cards, reloadable
debit cards, and money orders. Accordingly, over 99%
of the charges on the 1005 Card during 2013 were
for Visa gift cards, reloadable debit cards, and money
orders. Petitioners made $10,702 in purchases during
2013 that were not for Visa gift cards, reloadable
debit cards, or money orders. In 2014 petitioners made
charges totaling [*9] $5,184,033 on their American
Express cards for Visa gift cards, reloadable debit
cards, and money orders.

*******

On March 23, 2017, respondent issued a notice
of deficiency to petitioners for 2013 and 2014
determining additional “other income” of $29,775 and
$265,485, respectively, from the Rewards Program. In
the first amendment to answer, respondent increased
the amount of the other income from the Rewards
Program to $36,200 for 2013 and $277,275 for 2014
which increased the tax deficiencies from $8,264 to
$9,928 for 2013 and from $89,847 to $93,845 for 2014.

Offline Dan

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Re: FYI: Tax Court rules that points from certain MS are taxable.
« Reply #19 on: February 24, 2021, 11:52:29 AM »
99+%
Isn't that gift cards and direct MOs/reloads.
What's the breakdown for gift cards vs direct MOs/reloads.
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