Author Topic: FYI: Tax Court rules that points from certain MS are taxable. (Read 9418 times)

AsherO · « **Reply #40 on:** February 24, 2021, 03:42:11 PM »

Quote from: Dan on February 24, 2021, 03:38:36 PM

Draft article, please don't share yet, but post here about any corrections please.

https://www.dansdeals.com/points-travel/milespoints/tax-court-weighs-whether-manufactured-spending-taxable-income/

Nice write up, very clear.

Ephcc90 · « **Reply #41 on:** February 24, 2021, 03:53:40 PM »

Quote from: Dan on February 24, 2021, 03:38:36 PM

Draft article, please don't share yet, but post here about any corrections please.

https://www.dansdeals.com/points-travel/milespoints/tax-court-weighs-whether-manufactured-spending-taxable-income/

Bloomberg got it right here: Case: Credit Card Rewards Earned from Buying Gift Cards Not Income; Rewards Earned from Buying Debit Cards, Money Orders Income (T.C. Memo) (IRC §61) https://news.bloombergtax.com/daily-tax-report/case-credit-card-rewards-earned-from-buying-gift-cards-not-income-rewards-earned-from-buying-debit-cards-money-orders-income-t-c-memo-irc-61

The reporter you linked to is just wrong.

Edit. You mentioned it at the end, but maybe I would just edit and clarify that the tax court didn't rule that getting points for Visa gift cards is not taxable income (under general taxes principles), rather, in the case of the Visa gc, they just applied and bound the IRS to its existing rebate policy.

Dan · « **Reply #42 on:** February 24, 2021, 03:55:55 PM »

Quote from: Ephcc90 on February 24, 2021, 03:53:40 PM

Bloomberg got it right here: Case: Credit Card Rewards Earned from Buying Gift Cards Not Income; Rewards Earned from Buying Debit Cards, Money Orders Income (T.C. Memo) (IRC §61) https://news.bloombergtax.com/daily-tax-report/case-credit-card-rewards-earned-from-buying-gift-cards-not-income-rewards-earned-from-buying-debit-cards-money-orders-income-t-c-memo-irc-61

The reporter you linked to is just wrong.

Weird!

Ephcc90 · « **Reply #43 on:** February 24, 2021, 04:06:09 PM »

Quote from: Dan on February 24, 2021, 03:55:55 PM

Weird!

Well maybe that's why he's a reporter and not a tax lawyer

(Also, what's very familiar to us-MS-is quite foreign to most normals lol)

R.A.T. · « **Reply #44 on:** February 24, 2021, 04:50:43 PM »

When you buy a VS GC/Debit card you are loading money onto the card. This ruling makes no sense.

aygart · « **Reply #45 on:** February 24, 2021, 04:53:57 PM »

Quote from: R.A.T. on February 24, 2021, 04:50:43 PM

When you buy a VS GC/Debit card you are loading money onto the card. This ruling makes no sense.

The court seems to feel that the ability to withdraw cash directly is a deciding factor for whether it is a product or an “accession to wealth”

R.A.T. · « **Reply #46 on:** February 24, 2021, 04:57:11 PM »

Quote from: aygart on February 24, 2021, 04:53:57 PM

The court seems to feel that the ability to withdraw cash directly is a deciding factor for whether it is a product or an “accession to wealth”

Then the court is clueless because the money was withdrawn directly from the VS GC\Debit card.

Dan · « **Reply #47 on:** February 24, 2021, 04:58:35 PM »

Quote from: R.A.T. on February 24, 2021, 04:50:43 PM

When you buy a VS GC/Debit card you are loading money onto the card. This ruling makes no sense.

But you can a physical product.

avromie7 · « **Reply #48 on:** February 24, 2021, 05:01:56 PM »

Quote from: R.A.T. on February 24, 2021, 04:57:11 PM

Then the court is clueless because the money was withdrawn directly from the VS GC\Debit card.

It was withdrawn indirectly.

R.A.T. · « **Reply #49 on:** February 24, 2021, 05:04:36 PM »

Quote from: avromie7 on February 24, 2021, 05:01:56 PM

It was withdrawn indirectly.

CC>GD>MO = taxable
CC>GC>MO = nontaxable
Do I have this right? If so how does that make sense?

avromie7 · « **Reply #50 on:** February 24, 2021, 05:09:44 PM »

Quote from: R.A.T. on February 24, 2021, 05:04:36 PM

CC>GD>MO = taxable
CC>GC>MO = nontaxable
Do I have this right? If so how does that make sense?

I don't think so. IIUC, the only thing they found taxable is buying a MO directly with CC.

noturbizniss · « **Reply #51 on:** February 24, 2021, 05:10:33 PM »

How do we interpret this:
"In conclusion, we hold
that the Reward Dollars associated with the Visa gift
card purchases were not properly included in income."

R.A.T. · « **Reply #52 on:** February 24, 2021, 05:17:09 PM »

Quote from: avromie7 on February 24, 2021, 05:09:44 PM

I don't think so. IIUC, the only thing they found taxable is buying a MO directly with CC.

From Dan's article: "On the other hand, the court found that the direct purchase of money orders with a credit card, and the actual reloading of a reloadable debit card directly from a credit card are not product or service purchases. Therefore the rewards earned on direct purchases of money orders and cash infusions to the reloadable debit card would be subject to taxable income."

aygart · « **Reply #53 on:** February 24, 2021, 05:25:10 PM »

Quote from: noturbizniss on February 24, 2021, 05:10:33 PM

How do we interpret this:
"In conclusion, we hold
that the Reward Dollars associated with the Visa gift
card purchases were not properly included in income."

That it was not proper for it to be included under their description of income.

aygart · « **Reply #54 on:** February 24, 2021, 05:27:10 PM »

Quote from: R.A.T. on February 24, 2021, 05:04:36 PM

CC>GD>MO = taxable
CC>GC>MO = nontaxable
Do I have this right? If so how does that make sense?

THey disregard the second step entirely but consider the gift card to be a product and the debit card to be a cash infusion and not able to be called a "product". This is regardless of how they access the value of the card afterwards.

noturbizniss · « **Reply #55 on:** February 24, 2021, 05:38:12 PM »

Quote from: aygart on February 24, 2021, 05:25:10 PM

That it was not proper for it to be included under their description of income.

Aha. it is the court telling the IRS that they "did not properly include it in income". Damn legalese

Kobe Bryant · « **Reply #56 on:** February 24, 2021, 06:50:21 PM »

Quote from: Dan on February 24, 2021, 03:38:36 PM

Draft article, please don't share yet, but post here about any corrections please.

https://www.dansdeals.com/points-travel/milespoints/tax-court-weighs-whether-manufactured-spending-taxable-income/

I thought you simplified a complex case into an easy read. HT @R.A.T.

R.A.T. · « **Reply #57 on:** February 24, 2021, 07:09:42 PM »

Quote from: aygart on February 24, 2021, 05:27:10 PM

THey disregard the second step entirely but consider the gift card to be a product and the debit card to be a cash infusion and not able to be called a "product". This is regardless of how they access the value of the card afterwards.

So I load 500 on the GC, load 500 on GD and one is taxable and the other is not. Like I said, this makes no sense.

Ephcc90 · « **Reply #58 on:** February 24, 2021, 07:20:29 PM »

Quote from: R.A.T. on February 24, 2021, 07:09:42 PM

So I load 500 on the GC, load 500 on GD and one is taxable and the other is not. Like I said, this makes no sense.

You're right (imo, anyway) that there is no difference between the two from a tax perspective. Both should really be taxed upon liquidation with the fees paid increasing basis and the reward dollars reducing basis (which the court basically says is the right approach).

However, the court decided to apply existing IRS policy to treat, where possible, the reward dollars as a rebate. That is only possible, said the court, when you are purchasing something tangible i.e. a physical gift card that has some other use/benefit to it. They declined to apply that policy to directly purchasing money orders. So despite the inconsistency, it's not a result of an inconsistent application of tax principles, rather due to an application of IRS policy.

Zalc · « **Reply #59 on:** February 24, 2021, 07:24:23 PM »

Quote from: Dan on February 24, 2021, 03:38:36 PM

Draft article, please don't share yet, but post here about any corrections please.

https://www.dansdeals.com/points-travel/milespoints/tax-court-weighs-whether-manufactured-spending-taxable-income/

Attached is a comment from Atty Eric Green clarifying his perspective, he thought they would lose due to another reason that the IRS did not even try to argue.

Uploaded with tapatalkhttp://cloud.tapatalk.com/s/6036ee0a75833/AUD-20210224-WA0049.mp3