Capital One Bank did a promotion last year where you would earn a $100
bonus if you opened a new checking account and used the accompanying debit >card to make $300 in purchases within 90 days. The debit card charges were >deducted directly from the checking account. I completed this requirement >and received the $100 bonus.
I fully expected to receive a 1099 from the bank reporting the $100 as >interest, but weirdly Capital One apparently does not believe the $100 is >taxable interest. Are they correct?
I understand that credit card bonuses and sign-up rewards are generally not >considered taxable because they are considered a reduction of amounts spent >with the card. But this was a Debit card, and the charges made were all >against a checking account. I've always understood that checking account >bonuses and sign-up rewards are generally taxable income.
Am I missing something here?
"Rick" wrote in message news:svtass$11r$1...@gioia.aioe.org...
Capital One Bank did a promotion last year where you would earn a $100 >bonus if you opened a new checking account and used the accompanying debit >card to make $300 in purchases within 90 days. The debit card charges were >deducted directly from the checking account. I completed this requirement >and received the $100 bonus.
I fully expected to receive a 1099 from the bank reporting the $100 as >interest, but weirdly Capital One apparently does not believe the $100 is >taxable interest. Are they correct?
I understand that credit card bonuses and sign-up rewards are generally not >considered taxable because they are considered a reduction of amounts spent >with the card. But this was a Debit card, and the charges made were all >against a checking account. I've always understood that checking account >bonuses and sign-up rewards are generally taxable income.
Am I missing something here?I did some further research into this and found the answer.
While most banks indeed regard sign-up bonuses for checking accounts to be a form of interest which they report on a 1099-INT, a few (like Capital One, apparently) consider this to be miscellaneous income, which they report on a 1099-MISC. And while the 1099-INT has a $10 threshold for reporting, the 1099-MISC evidently has a $600 threshold. So that's apparently why Capital One didn't send me anything.
--
--
On Sunday, March 6, 2022 at 11:58:08 AM UTC-5, Rick wrote:
"Rick" wrote in message news:svtass$11r$1...@gioia.aioe.org...
I did some further research into this and found the answer.
Capital One Bank did a promotion last year where you would earn a $100
bonus if you opened a new checking account and used the accompanying
debit
card to make $300 in purchases within 90 days. The debit card charges
were
deducted directly from the checking account. I completed this
requirement
and received the $100 bonus.
I fully expected to receive a 1099 from the bank reporting the $100 as
interest, but weirdly Capital One apparently does not believe the $100
is
taxable interest. Are they correct?
I understand that credit card bonuses and sign-up rewards are generally
not
considered taxable because they are considered a reduction of amounts
spent
with the card. But this was a Debit card, and the charges made were all
against a checking account. I've always understood that checking account
bonuses and sign-up rewards are generally taxable income.
Am I missing something here?
While most banks indeed regard sign-up bonuses for checking accounts to
be a
form of interest which they report on a 1099-INT, a few (like Capital
One,
apparently) consider this to be miscellaneous income, which they report
on a
1099-MISC. And while the 1099-INT has a $10 threshold for reporting, the
1099-MISC evidently has a $600 threshold. So that's apparently why
Capital
One didn't send me anything.
--
--
Either way, it's still taxable income.
Ira Smilovitz, EA
Leonia, NJ
On Sunday, March 6, 2022 at 11:58:08 AM UTC-5, Rick wrote:
"Rick" wrote in message news:svtass$11r$1...@gioia.aioe.org...
I did some further research into this and found the answer.
Capital One Bank did a promotion last year where you would earn a $100
bonus if you opened a new checking account and used the accompanying debit >>> card to make $300 in purchases within 90 days. The debit card charges were >>> deducted directly from the checking account. I completed this requirement >>> and received the $100 bonus.
I fully expected to receive a 1099 from the bank reporting the $100 as
interest, but weirdly Capital One apparently does not believe the $100 is >>> taxable interest. Are they correct?
I understand that credit card bonuses and sign-up rewards are generally not >>> considered taxable because they are considered a reduction of amounts spent >>> with the card. But this was a Debit card, and the charges made were all
against a checking account. I've always understood that checking account >>> bonuses and sign-up rewards are generally taxable income.
Am I missing something here?
While most banks indeed regard sign-up bonuses for checking accounts to be a >> form of interest which they report on a 1099-INT, a few (like Capital One, >> apparently) consider this to be miscellaneous income, which they report on a >> 1099-MISC. And while the 1099-INT has a $10 threshold for reporting, the
1099-MISC evidently has a $600 threshold. So that's apparently why Capital >> One didn't send me anything.
--
--
Either way, it's still taxable income.
Ira Smilovitz, EA
Leonia, NJ
On Sunday, March 6, 2022 at 11:58:08 AM UTC-5, Rick wrote:
While most banks indeed regard sign-up bonuses for checking accounts to be a
form of interest which they report on a 1099-INT, a few (like Capital One, apparently) consider this to be miscellaneous income, which they report on a
1099-MISC. And while the 1099-INT has a $10 threshold for reporting, the 1099-MISC evidently has a $600 threshold. So that's apparently why Capital One didn't send me anything.
Either way, it's still taxable income.
On 3/6/2022 7:48 PM, ira smilovitz wrote:
On Sunday, March 6, 2022 at 11:58:08 AM UTC-5, Rick wrote:
"Rick" wrote in message news:svtass$11r$1...@gioia.aioe.org...
I did some further research into this and found the answer.
Capital One Bank did a promotion last year where you would earn a $100 >>>> bonus if you opened a new checking account and used the accompanying
debit
card to make $300 in purchases within 90 days. The debit card charges
were
deducted directly from the checking account. I completed this
requirement
and received the $100 bonus.
I fully expected to receive a 1099 from the bank reporting the $100 as >>>> interest, but weirdly Capital One apparently does not believe the $100 >>>> is
taxable interest. Are they correct?
I understand that credit card bonuses and sign-up rewards are generally >>>> not
considered taxable because they are considered a reduction of amounts
spent
with the card. But this was a Debit card, and the charges made were all >>>> against a checking account. I've always understood that checking
account
bonuses and sign-up rewards are generally taxable income.
Am I missing something here?
While most banks indeed regard sign-up bonuses for checking accounts to
be a
form of interest which they report on a 1099-INT, a few (like Capital
One,
apparently) consider this to be miscellaneous income, which they report
on a
1099-MISC. And while the 1099-INT has a $10 threshold for reporting, the >>> 1099-MISC evidently has a $600 threshold. So that's apparently why
Capital
One didn't send me anything.
--
--
Either way, it's still taxable income.
Ira Smilovitz, EA
Leonia, NJ
I don't think that it is. The bonus is tied to using the debit card in a >specific fashion, not merely opening the account.
My understanding is that with credit cards a bonus tied merely to opening
the credit card account is taxable income, but bonuses tied to use of the >card are not.
On Sun, 6 Mar 2022 22:48:55 EST, ira smilovitz wrote:
On Sunday, March 6, 2022 at 11:58:08 AM UTC-5, Rick wrote:
While most banks indeed regard sign-up bonuses for checking accounts to
be a
form of interest which they report on a 1099-INT, a few (like Capital
One,
apparently) consider this to be miscellaneous income, which they report
on a
1099-MISC. And while the 1099-INT has a $10 threshold for reporting,
the
1099-MISC evidently has a $600 threshold. So that's apparently why
Capital
One didn't send me anything.
Either way, it's still taxable income.
As a practical matter, what is likely to happen if the taxpayer
doesn't report it? If CapitalOne doesn't issue a 1099, how would the
IRS even know about the payment?
On 3/6/2022 7:48 PM, ira smilovitz wrote:
On Sunday, March 6, 2022 at 11:58:08 AM UTC-5, Rick wrote:
"Rick" wrote in message news:svtass$11r$1...@gioia.aioe.org...
I did some further research into this and found the answer.
Capital One Bank did a promotion last year where you would earn a $100 >>> bonus if you opened a new checking account and used the accompanying debit
card to make $300 in purchases within 90 days. The debit card charges were
deducted directly from the checking account. I completed this requirement >>> and received the $100 bonus.
I fully expected to receive a 1099 from the bank reporting the $100 as >>> interest, but weirdly Capital One apparently does not believe the $100 is >>> taxable interest. Are they correct?
I understand that credit card bonuses and sign-up rewards are generally not
considered taxable because they are considered a reduction of amounts spent
with the card. But this was a Debit card, and the charges made were all >>> against a checking account. I've always understood that checking account >>> bonuses and sign-up rewards are generally taxable income.
Am I missing something here?
While most banks indeed regard sign-up bonuses for checking accounts to be a
form of interest which they report on a 1099-INT, a few (like Capital One, >> apparently) consider this to be miscellaneous income, which they report on a
1099-MISC. And while the 1099-INT has a $10 threshold for reporting, the >> 1099-MISC evidently has a $600 threshold. So that's apparently why Capital >> One didn't send me anything.
--
--
Either way, it's still taxable income.
Ira Smilovitz, EA
Leonia, NJ
I don't think that it is. The bonus is tied to using the debit card in
a specific fashion, not merely opening the account.
My understanding is that with credit cards a bonus tied merely to
opening the credit card account is taxable income, but bonuses tied to
use of the card are not.
--
The bonus is tied to using the debit card in a specific fashion,I understand that credit card bonuses and sign-up rewards are
generally not considered taxable because they are considered
a reduction of amounts spent with the card. But this was a
Debit card, and the charges made were all against a checking
account. I've always understood that checking account bonuses
and sign-up rewards are generally taxable income.
not merely opening the account.
My understanding is that with credit cards a bonus tied merely to
opening the credit card account is taxable income, but bonuses tied
to use of the card are not. --
You think wrong. IRC Section 61 defines gross income this way:
"Except as otherwise provided in this subtitle, gross income means
all income from whatever source derived, ..." So unless you can find
where in the IRC this debit card bonus is specifically excluded from
gross income, it's taxable.
Ira Smilovitz, EA Leonia, NJ
On 3/7/2022 10:05 PM, ira smilovitz wrote:
The bonus is tied to using the debit card in a specific fashion,I understand that credit card bonuses and sign-up rewards are
generally not considered taxable because they are considered
a reduction of amounts spent with the card. But this was a
Debit card, and the charges made were all against a checking
account. I've always understood that checking account bonuses
and sign-up rewards are generally taxable income.
not merely opening the account.
My understanding is that with credit cards a bonus tied merely to
opening the credit card account is taxable income, but bonuses tied
to use of the card are not. --
You think wrong. IRC Section 61 defines gross income this way:
"Except as otherwise provided in this subtitle, gross income means
all income from whatever source derived, ..." So unless you can find
where in the IRC this debit card bonus is specifically excluded from
gross income, it's taxable.
Ira Smilovitz, EA Leonia, NJ
Would you also say that a credit card bonus is included gross income?
If not, what is the distinction? The quote of Section 61 would appear
to apply with equal force to credit cards as to debit cards.
Both may offer cash (or point equivalent) rewards as a percentage of net spending. Both may offer bonuses, also as a percentage of spending,
e.g. a 40% reward such as $200 for spending $500 in a specified period
of time.
See Citibank for an example of a debit card that pays point rewards as a percentage (1/3% or 1/2%) of monthly spending. https://online.citi.com/JRS/popups/rrcalc/debit.html
This piece from Covington & Burling LLP discusses a recent case, Anikeev
v. Commissioner. In it, it the exclusion from income of 5% rebates on a credit card that was at issue. https://www.twrblog.com/2021/05/making-a-point-tax-courts-anikeev-decision-challenges-longstanding-irs-policy-on-credit-card-rewards/
"The IRS has taken the position that rebates on the purchase of products
and services do not constitute income to the customer who receives the rebate. Rather, as set forth in Revenue Ruling 76-96, the rebate acts
as a discount on the product or service being purchased."
--
On 3/7/2022 10:05 PM, ira smilovitz wrote:
Would you also say that a credit card bonus is included gross income?The bonus is tied to using the debit card in a specific fashion,I understand that credit card bonuses and sign-up rewards are
generally not considered taxable because they are considered
a reduction of amounts spent with the card. But this was a
Debit card, and the charges made were all against a checking
account. I've always understood that checking account bonuses
and sign-up rewards are generally taxable income.
not merely opening the account.
My understanding is that with credit cards a bonus tied merely to
opening the credit card account is taxable income, but bonuses tied
to use of the card are not. --
You think wrong. IRC Section 61 defines gross income this way:
"Except as otherwise provided in this subtitle, gross income means
all income from whatever source derived, ..." So unless you can find
where in the IRC this debit card bonus is specifically excluded from
gross income, it's taxable.
Ira Smilovitz, EA Leonia, NJ
If not, what is the distinction? The quote of Section 61 would appear
to apply with equal force to credit cards as to debit cards.
Both may offer cash (or point equivalent) rewards as a percentage of net spending. Both may offer bonuses, also as a percentage of spending,
e.g. a 40% reward such as $200 for spending $500 in a specified period
of time.
See Citibank for an example of a debit card that pays point rewards as a percentage (1/3% or 1/2%) of monthly spending. https://online.citi.com/JRS/popups/rrcalc/debit.html
This piece from Covington & Burling LLP discusses a recent case, Anikeev
v. Commissioner. In it, it the exclusion from income of 5% rebates on a credit card that was at issue. https://www.twrblog.com/2021/05/making-a-point-tax-courts-anikeev-decision-challenges-longstanding-irs-policy-on-credit-card-rewards/
"The IRS has taken the position that rebates on the purchase of products
and services do not constitute income to the customer who receives the rebate. Rather, as set forth in Revenue Ruling 76-96, the rebate acts
as a discount on the product or service being purchased."
On Monday, March 7, 2022 at 11:33:18 AM UTC-5, Taxed and Spent wrote:specifically excluded from gross income, it's taxable.
On 3/6/2022 7:48 PM, ira smilovitz wrote:
On Sunday, March 6, 2022 at 11:58:08 AM UTC-5, Rick wrote:I don't think that it is. The bonus is tied to using the debit card in
"Rick" wrote in message news:svtass$11r$1...@gioia.aioe.org...
I did some further research into this and found the answer.
Capital One Bank did a promotion last year where you would earn a $100 >>>>> bonus if you opened a new checking account and used the accompanying debit
card to make $300 in purchases within 90 days. The debit card charges were
deducted directly from the checking account. I completed this requirement >>>>> and received the $100 bonus.
I fully expected to receive a 1099 from the bank reporting the $100 as >>>>> interest, but weirdly Capital One apparently does not believe the $100 is >>>>> taxable interest. Are they correct?
I understand that credit card bonuses and sign-up rewards are generally not
considered taxable because they are considered a reduction of amounts spent
with the card. But this was a Debit card, and the charges made were all >>>>> against a checking account. I've always understood that checking account >>>>> bonuses and sign-up rewards are generally taxable income.
Am I missing something here?
While most banks indeed regard sign-up bonuses for checking accounts to be a
form of interest which they report on a 1099-INT, a few (like Capital One, >>>> apparently) consider this to be miscellaneous income, which they report on a
1099-MISC. And while the 1099-INT has a $10 threshold for reporting, the >>>> 1099-MISC evidently has a $600 threshold. So that's apparently why Capital >>>> One didn't send me anything.
--
--
Either way, it's still taxable income.
Ira Smilovitz, EA
Leonia, NJ
a specific fashion, not merely opening the account.
My understanding is that with credit cards a bonus tied merely to
opening the credit card account is taxable income, but bonuses tied to
use of the card are not.
--
You think wrong. IRC Section 61 defines gross income this way: "Except as otherwise provided in this subtitle, gross income means all income from whatever source derived, ..." So unless you can find where in the IRC this debit card bonus is
Ira Smilovitz, EA
Leonia, NJ
On Thursday, March 10, 2022 at 12:03:43 AM UTC-5, msf wrote:
On 3/7/2022 10:05 PM, ira smilovitz wrote:
Would you also say that a credit card bonus is included gross income?The bonus is tied to using the debit card in a specific fashion,I understand that credit card bonuses and sign-up rewards are
generally not considered taxable because they are considered
a reduction of amounts spent with the card. But this was a
Debit card, and the charges made were all against a checking
account. I've always understood that checking account bonuses
and sign-up rewards are generally taxable income.
not merely opening the account.
My understanding is that with credit cards a bonus tied merely to
opening the credit card account is taxable income, but bonuses tied
to use of the card are not. --
You think wrong. IRC Section 61 defines gross income this way:
"Except as otherwise provided in this subtitle, gross income means
all income from whatever source derived, ..." So unless you can find
where in the IRC this debit card bonus is specifically excluded from
gross income, it's taxable.
Ira Smilovitz, EA Leonia, NJ
If not, what is the distinction? The quote of Section 61 would appear
to apply with equal force to credit cards as to debit cards.
Both may offer cash (or point equivalent) rewards as a percentage of net
spending. Both may offer bonuses, also as a percentage of spending,
e.g. a 40% reward such as $200 for spending $500 in a specified period
of time.
See Citibank for an example of a debit card that pays point rewards as a
percentage (1/3% or 1/2%) of monthly spending.
https://online.citi.com/JRS/popups/rrcalc/debit.html
This piece from Covington & Burling LLP discusses a recent case, Anikeev
v. Commissioner. In it, it the exclusion from income of 5% rebates on a
credit card that was at issue.
https://www.twrblog.com/2021/05/making-a-point-tax-courts-anikeev-decision-challenges-longstanding-irs-policy-on-credit-card-rewards/
"The IRS has taken the position that rebates on the purchase of products
and services do not constitute income to the customer who receives the
rebate. Rather, as set forth in Revenue Ruling 76-96, the rebate acts
as a discount on the product or service being purchased."
--
Yes, it would "appear" to apply. The problem is you can't extend exclusions to other items that may "appear" to be similar. It needs to be explicitly excluded. Such is the stuff that tax court cases are made of.
On 3/10/2022 10:22 AM, ira smilovitz wrote:
On Thursday, March 10, 2022 at 12:03:43 AM UTC-5, msf wrote:
On 3/7/2022 10:05 PM, ira smilovitz wrote:
Would you also say that a credit card bonus is included gross income?The bonus is tied to using the debit card in a specific fashion,I understand that credit card bonuses and sign-up rewards are
generally not considered taxable because they are considered
a reduction of amounts spent with the card. But this was a
Debit card, and the charges made were all against a checking
account. I've always understood that checking account bonuses
and sign-up rewards are generally taxable income.
not merely opening the account.
My understanding is that with credit cards a bonus tied merely to
opening the credit card account is taxable income, but bonuses tied
to use of the card are not. --
You think wrong. IRC Section 61 defines gross income this way:
"Except as otherwise provided in this subtitle, gross income means
all income from whatever source derived, ..." So unless you can find
where in the IRC this debit card bonus is specifically excluded from
gross income, it's taxable.
Ira Smilovitz, EA Leonia, NJ
If not, what is the distinction? The quote of Section 61 would appear
to apply with equal force to credit cards as to debit cards.
Both may offer cash (or point equivalent) rewards as a percentage of net >>> spending. Both may offer bonuses, also as a percentage of spending,
e.g. a 40% reward such as $200 for spending $500 in a specified period
of time.
See Citibank for an example of a debit card that pays point rewards as a >>> percentage (1/3% or 1/2%) of monthly spending.
https://online.citi.com/JRS/popups/rrcalc/debit.html
This piece from Covington & Burling LLP discusses a recent case, Anikeev >>> v. Commissioner. In it, it the exclusion from income of 5% rebates on a
credit card that was at issue.
https://www.twrblog.com/2021/05/making-a-point-tax-courts-anikeev-decision-challenges-longstanding-irs-policy-on-credit-card-rewards/
"The IRS has taken the position that rebates on the purchase of products >>> and services do not constitute income to the customer who receives the
rebate. Rather, as set forth in Revenue Ruling 76-96, the rebate acts
as a discount on the product or service being purchased."
--
Yes, it would "appear" to apply. The problem is you can't extend exclusions to other items that may "appear" to be similar. It needs to be explicitly excluded. Such is the stuff that tax court cases are made of.
Debit cards with cash back rewards, credit cards with cash back rewards, mail-in rebates and so on all serve to reduce the net purchase price of products and services. In this respect they are not merely similar but identical.
You are right to ask for the source in the tax _Code_, because
everything else, regulations, revenue rulings, private letter rulings, whatever, must ultimately trace back to the Code. In Rev. Rul. 96-76,
you can see the code citations for yourself. https://www.bradfordtaxinstitute.com/Endnotes/Rev_Rul_76-96.pdf
The Revenue Ruling stands for the proposition that a rebate paid to the purchaser of a product or service constitutes a reduction in cost basis
(i.e. purchase price) and does not constitute gross income. It says
nothing specific to credit cards and applies to all rebates.
The IRS linkage to credit cards is likewise broad. It is based only on
the customer receiving money back on a purchase after a transaction is complete. Such is the stuff that tax court cases are made of. As in Anikeev, where the court wrote:
"Rev. Rul. 76-96 ... is a key link in the chain of IRS reasoning on
credit card rewards. ...
"... [IRS's] counsel said: 'And it's a long-standing IRS policy ... that
card rewards are not taxable. And the rationale for that is that the
reward itself acts as a discount on whatever property or services are
being purchased by the consumer.'
"This policy reflects the recognition that a taxpayer who avails himself
or herself of a discount in acquiring goods and services has no
accession to wealth. That taxpayer has retained more of his or her
wealth than a taxpayer who pays full price for the same good or service,
but the taxpayer has no additional income, he or she simply has reduced consumption."
Reiterating - you ask the right question about where it says in Section
61 that debit card rewards are not included in gross income. Again I
ask you, where in Section 61 is a distinction drawn between credit cards
and debit cards? In the alternative, are credit card rewards also
taxable and the IRS mistaken in its interpretation of the Code?
[That wouldn't be the first time; the IRS had to clean up Rev. Rul.
96-76 in 2008 after courts repeatedly rejected its interpretation of the
code on the seller side of transactions involving rebates; not at issue
here. See bullet points here: https://www.journalofaccountancy.com/issues/2008/oct/tax_treatment_of_rebates_may_be_clearing_up.html
]
On 3/10/2022 10:22 AM, ira smilovitz wrote:
On Thursday, March 10, 2022 at 12:03:43 AM UTC-5, msf wrote:
On 3/7/2022 10:05 PM, ira smilovitz wrote:
Would you also say that a credit card bonus is included gross income?The bonus is tied to using the debit card in a specific fashion,I understand that credit card bonuses and sign-up rewards are
generally not considered taxable because they are considered
a reduction of amounts spent with the card. But this was a
Debit card, and the charges made were all against a checking
account. I've always understood that checking account bonuses
and sign-up rewards are generally taxable income.
not merely opening the account.
My understanding is that with credit cards a bonus tied merely to
opening the credit card account is taxable income, but bonuses tied
to use of the card are not. --
You think wrong. IRC Section 61 defines gross income this way:
"Except as otherwise provided in this subtitle, gross income means
all income from whatever source derived, ..." So unless you can find
where in the IRC this debit card bonus is specifically excluded from
gross income, it's taxable.
Ira Smilovitz, EA Leonia, NJ
If not, what is the distinction? The quote of Section 61 would appear
to apply with equal force to credit cards as to debit cards.
Both may offer cash (or point equivalent) rewards as a percentage of net >>> spending. Both may offer bonuses, also as a percentage of spending,
e.g. a 40% reward such as $200 for spending $500 in a specified period
of time.
See Citibank for an example of a debit card that pays point rewards as a >>> percentage (1/3% or 1/2%) of monthly spending.
https://online.citi.com/JRS/popups/rrcalc/debit.html
This piece from Covington & Burling LLP discusses a recent case, Anikeev >>> v. Commissioner. In it, it the exclusion from income of 5% rebates on a
credit card that was at issue.
https://www.twrblog.com/2021/05/making-a-point-tax-courts-anikeev-decision-challenges-longstanding-irs-policy-on-credit-card-rewards/
"The IRS has taken the position that rebates on the purchase of products >>> and services do not constitute income to the customer who receives the
rebate. Rather, as set forth in Revenue Ruling 76-96, the rebate acts
as a discount on the product or service being purchased."
--
Yes, it would "appear" to apply. The problem is you can't extend
exclusions to other items that may "appear" to be similar. It needs to be
explicitly excluded. Such is the stuff that tax court cases are made of.
Debit cards with cash back rewards, credit cards with cash back rewards, >mail-in rebates and so on all serve to reduce the net purchase price of >products and services. In this respect they are not merely similar but >identical.
You are right to ask for the source in the tax _Code_, because everything >else, regulations, revenue rulings, private letter rulings, whatever, must >ultimately trace back to the Code. In Rev. Rul. 96-76, you can see the
code citations for yourself. >https://www.bradfordtaxinstitute.com/Endnotes/Rev_Rul_76-96.pdf
The Revenue Ruling stands for the proposition that a rebate paid to the >purchaser of a product or service constitutes a reduction in cost basis
(i.e. purchase price) and does not constitute gross income. It says
nothing specific to credit cards and applies to all rebates.
The IRS linkage to credit cards is likewise broad. It is based only on the >customer receiving money back on a purchase after a transaction is
complete. Such is the stuff that tax court cases are made of. As in >Anikeev, where the court wrote:
"Rev. Rul. 76-96 ... is a key link in the chain of IRS reasoning on credit >card rewards. ...
"... [IRS's] counsel said: 'And it's a long-standing IRS policy ... that
card rewards are not taxable. And the rationale for that is that the
reward itself acts as a discount on whatever property or services are being >purchased by the consumer.'
"This policy reflects the recognition that a taxpayer who avails himself or >herself of a discount in acquiring goods and services has no accession to >wealth. That taxpayer has retained more of his or her wealth than a >taxpayer who pays full price for the same good or service, but the taxpayer >has no additional income, he or she simply has reduced consumption."
Reiterating - you ask the right question about where it says in Section 61 >that debit card rewards are not included in gross income. Again I ask you, >where in Section 61 is a distinction drawn between credit cards and debit >cards? In the alternative, are credit card rewards also taxable and the
IRS mistaken in its interpretation of the Code?
[That wouldn't be the first time; the IRS had to clean up Rev. Rul. 96-76
in 2008 after courts repeatedly rejected its interpretation of the code on >the seller side of transactions involving rebates; not at issue here. See >bullet points here: >https://www.journalofaccountancy.com/issues/2008/oct/tax_treatment_of_rebates_may_be_clearing_up.html
]
"Rev. Rul. 76-96 ... is a key link in the chain of IRS reasoning
on credit card rewards. ...
"... [IRS's] counsel said: 'And it's a long-standing IRS policy
... that card rewards are not taxable. And the rationale for that
is that the reward itself acts as a discount on whatever property
or services are being purchased by the consumer.'
Interesting point: who is paying the credit card bonuses? The sellers,
or the credit card company? Seems it is coming out of the fees charged
by the credit card company to the seller. Likewise re debit card bonuses.
msf <nBeOwXs@nyc.rr.com> wrote:
"Rev. Rul. 76-96 ... is a key link in the chain of IRS reasoning
on credit card rewards. ...
"... [IRS's] counsel said: 'And it's a long-standing IRS policy
... that card rewards are not taxable. And the rationale for that
is that the reward itself acts as a discount on whatever property
or services are being purchased by the consumer.'
There is one very common situation where the IRS should tax credit card benefits but doesn't. That is when a charge is made for a business
purpose (often airline tickets), and the entire cost is deductible.
The "rebate" has been deducted by the employer, so when the employee
receives it, it should be taxable. But the last time I checked the IRS indicated that it would cause too much of an uproar, so they don't
bother to try to tax those rebates.
On 3/11/2022 12:51 PM, Stuart O. Bronstein wrote:
msf <nBeOwXs@nyc.rr.com> wrote:
"Rev. Rul. 76-96 ... is a key link in the chain of IRS reasoning
on credit card rewards. ...
"... [IRS's] counsel said: 'And it's a long-standing IRS policy
... that card rewards are not taxable. And the rationale for that
is that the reward itself acts as a discount on whatever property
or services are being purchased by the consumer.'
There is one very common situation where the IRS should tax credit card
benefits but doesn't. That is when a charge is made for a business
purpose (often airline tickets), and the entire cost is deductible.
The "rebate" has been deducted by the employer, so when the employee
receives it, it should be taxable. But the last time I checked the IRS
indicated that it would cause too much of an uproar, so they don't
bother to try to tax those rebates.
If that is their thinking, we need many more uproars.
On 3/12/2022 10:51 AM, Taxed and Spent wrote:
On 3/11/2022 12:51 PM, Stuart O. Bronstein wrote:
msf <nBeOwXs@nyc.rr.com> wrote:
"Rev. Rul. 76-96 ... is a key link in the chain of IRS reasoning
on credit card rewards. ...
"... [IRS's] counsel said: 'And it's a long-standing IRS policy
... that card rewards are not taxable. And the rationale for that
is that the reward itself acts as a discount on whatever property
or services are being purchased by the consumer.'
There is one very common situation where the IRS should tax credit card >>>benefits but doesn't. That is when a charge is made for a business >>>purpose (often airline tickets), and the entire cost is deductible.
The "rebate" has been deducted by the employer, so when the employee >>>receives it, it should be taxable. But the last time I checked the IRS >>>indicated that it would cause too much of an uproar, so they don't
bother to try to tax those rebates.
If that is their thinking, we need many more uproars.
I believe there's something a little more subtle going on here. The >benefits inure to the payer of the goods or service, i.e. the employer.
Say an employee uses a business card to purchase a $1,000 ticket, which
the employer pays for. And suppose there's a 2% reward ($20).
Accounting for the rebate, the employer has paid a net $980 for the
ticket as a business expense. But the employee grabs the "points" (or >whatever). In effect, the employer has paid the employee the $20 benefit.
From the employer's perspective, it is out $1,000 either way - paying
$1,000 for the ticket, or paying $980 for the ticket and $20 in employee >benefits. From the employee and IRS perspective, the employee has
gotten a taxable $20 benefit. Not because it was a credit card rebate,
but because it was the employer's money which the employee received.
The IRS has said that this is too much of an administrative hassle to
deal with. So until further notice it will not hold employees liable for >getting these taxable employee benefits.
msf <nBeOwXs@nyc.rr.com> wrote:
I believe there's something a little more subtle going on here.
The benefits inure to the payer of the goods or service, i.e. the
employer.
Say an employee uses a business card to purchase a $1,000 ticket,
which the employer pays for. And suppose there's a 2% reward
($20). Accounting for the rebate, the employer has paid a net $980
for the ticket as a business expense. But the employee grabs the
"points" (or whatever). In effect, the employer has paid the
employee the $20 benefit.
From the employer's perspective, it is out $1,000 either way -
paying
$1,000 for the ticket, or paying $980 for the ticket and $20 in
employee benefits. From the employee and IRS perspective, the
employee has gotten a taxable $20 benefit. Not because it was a
credit card rebate, but because it was the employer's money which
the employee received.
The IRS has said that this is too much of an administrative hassle
to deal with. So until further notice it will not hold employees
liable for getting these taxable employee benefits.
I understand your reasoning but the employee would submit his
receipt in the reimbursement plan. One of my administrative duties
is reimbursements and it took a lot of back-and-forth to get one
person seeking reimbursement to submit bills or receipts or
invoices and never the credit card statement.
The credit card statement has way too much personal information on
it that's none of the employer's business. The only way for the
employer to count this as income is to require the employee to
submit the credit card statement for review to see if rebates were
applied, a further complication being that the rebate would show
up on a subsequent credit card statement.
That would be an outrageous violation of privacy and a massive
administrative burden to the employer.
The employer is not supposed to know or care if the reimburseable
employee business expense was paid by cash, check, credit, or
debit card.
There's simply no way for the employer to provide the employee the
check stub or information return treating the rebate as earned
income, which I assume you're thinking would be subject to Social
Security taxes.
I've gotten rebates in the form of checks or gift cards, which are
temporary debit cards. None of that would even appear on the
credit card statement.
I disagree with you. This is not earned income from the employer
to the employee.
"Adam H. Kerman" <ahk@chinet.com> wrote:
msf <nBeOwXs@nyc.rr.com> wrote:
I believe there's something a little more subtle going on here.
The benefits inure to the payer of the goods or service, i.e. the >>>employer.
Say an employee uses a business card to purchase a $1,000 ticket,
which the employer pays for. And suppose there's a 2% reward
($20). Accounting for the rebate, the employer has paid a net $980
for the ticket as a business expense. But the employee grabs the >>>"points" (or whatever). In effect, the employer has paid the
employee the $20 benefit.
From the employer's perspective, it is out $1,000 either way - paying >>>$1,000 for the ticket, or paying $980 for the ticket and $20 in
employee benefits. From the employee and IRS perspective, the
employee has gotten a taxable $20 benefit. Not because it was a
credit card rebate, but because it was the employer's money which the >>>employee received.
The IRS has said that this is too much of an administrative hassle
to deal with. So until further notice it will not hold employees
liable for getting these taxable employee benefits.
I understand your reasoning but the employee would submit his
receipt in the reimbursement plan. One of my administrative duties
is reimbursements and it took a lot of back-and-forth to get one
person seeking reimbursement to submit bills or receipts or
invoices and never the credit card statement.
The credit card statement has way too much personal information on
it that's none of the employer's business. The only way for the
employer to count this as income is to require the employee to
submit the credit card statement for review to see if rebates were
applied, a further complication being that the rebate would show
up on a subsequent credit card statement.
That would be an outrageous violation of privacy and a massive >>administrative burden to the employer.
The employer is not supposed to know or care if the reimburseable
employee business expense was paid by cash, check, credit, or
debit card.
There's simply no way for the employer to provide the employee the
check stub or information return treating the rebate as earned
income, which I assume you're thinking would be subject to Social
Security taxes.
I've gotten rebates in the form of checks or gift cards, which are >>temporary debit cards. None of that would even appear on the
credit card statement.
I disagree with you. This is not earned income from the employer
to the employee.
Right, it's not earned income.
But technically it should be taxable, and as wages.
The entire cost of a plane ticket is deducted by the employer and
paid to the employee. But it's not zero sum for the employee - he
gets miles or another form of rebate on top of that. It's money that
was never taxed, and is not exempt from tax in any way.
But technically it should be taxable, and as wages.
How can income that's not earned income be wages? Wages are always
earned income.
"Adam H. Kerman" <ahk@chinet.com> wrote:
But technically it should be taxable, and as wages.
How can income that's not earned income be wages? Wages are always
earned income.
My understanding is that any accession to wealth that comes from an
employer to an employee, unless treated otherwise under the Code, is
treated as wages and subject to withholding taxes.
I have been known to be wrong about things in the past, so I may be
wrong on this. If I am, I'd love to know the basis for it.
"Stuart O. Bronstein" wrote in message news:XnsAE5952F9B9B1Espamtraplexregiacom@130.133.4.11...example, you provide an employee with a fringe benefit when you allow
"Adam H. Kerman" <ahk@chinet.com> wrote:
But technically it should be taxable, and as wages.
How can income that's not earned income be wages? Wages are always
earned income.
My understanding is that any accession to wealth that comes from an
employer to an employee, unless treated otherwise under the Code, is
treated as wages and subject to withholding taxes.
I have been known to be wrong about things in the past, so I may be
wrong on this. If I am, I'd love to know the basis for it.
One exception I can think of is non-cash service awards (like a 15-year
award of a gold watch) under a certain dollar amount ($400? $600?
something like that) aren't taxable. And if you get a per diem but
spend less than the per diem, I don't think that's taxable. But that
would all be in the Code.
-"A fringe benefit is a form of pay for the performance of services. For
"Adam H. Kerman" <ahk@chinet.com> wrote:
But technically it should be taxable, and as wages.
How can income that's not earned income be wages? Wages are always
earned income.
My understanding is that any accession to wealth that comes from an
employer to an employee, unless treated otherwise under the Code, is
treated as wages and subject to withholding taxes.
I have been known to be wrong about things in the past, so I may be
wrong on this. If I am, I'd love to know the basis for it.
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