MilesBuzz! - Unlimited airline miles ~1.7c/mile...?

Okay, so I've been pondering this one for a good number of hours and since I see no potential pitfalls yet, I figure I'll post it...

In a nutshell:

1) Get a mileage-earning credit card with your airline of choice (provided your status waives any annual mileage-earning limitations),

2) If you're not self-employed already, become self-employed by getting a DBA (instant, ten bucks, and a piece of paper) and a federal tax ID (instant, free, and online),

3) Get your business a merchant service account so you can accept credit cards for your new business,

4) Charge your card at your own company... funds are deposited next day into your bank account. Pay off your credit card (online if you can), and repeat. Your miles go into your FF account for the "purchases"... no need to worry about them not being credited, and no max purchases or waiting for gift cards to arrive in the mail...


I started pondering ways to build up miles, and I've been reading FT a lot more these days which has gotten me thinking... plus I already have my own company so all I need is a mileage-earning credit card (on the way). Details on how this would exactly work and where to get things done are below:

1) I've got a Citi AAdvantage card on the way... you could potentially do Delta SkyMiles too, but with American Express comes more set-up time, $25 more set-up cost, and potentially a lot more dollars spent, as they take a cut of 3% of transactions you'd run. I pay a rate of 1.59 cents per $1.00 (1.59%), which would equal 1.59 cents per mile, plus 30 cents per transaction (insignificant)... this is for all Visa/MasterCard.

2) Starting a business is nowhere near as hard as it's made out to be. Takes about an hour altogether. First, you go to your county clerk's office (google to find out where it is) - file a DBA (Doing Business As certificate)... usually a single side of paper asking for name, address, and your business name, costs about 5-10 bucks depending on the county (i think i paid 8 bucks in dallas county, 10 in collin county for my DBAs). This officially makes you "John Doe DBA Doe Enterprises" or whatever you choose to call it.

"But I don't have a company!", you say? Sure you do. Just make one up... maybe you sell computer parts or you videotape bar mitzvahs or you import diapers or hell - maybe you're just a "consultant". For the record, I actually do have a legit company, but it doesn't matter. The county clerks don't ask any questions, and there's never been a line. On the DBA form, mark "sole proprietor." This is your type of business.

To sign up for a Federal Taxpayer ID # (the business equivalent of your Social Security #), fill out the IRS form SS-4 single-page application (http://www.irs.gov/businesses/small/article/0,,id=102767,00.html) and you'll instantly get an Employer Identification #, also known as EIN or Federal Taxpayer ID.

Of course, if you already have a company, you've already done all of this.

3) I have my merchant service account with GoEMerchant (http://www.goemerchant.com) - the application took a total of about 20 minutes and the processing and setup took GoEMerchant about 3-4 days from what I remember. I believe it was a $59.95 setup fee and then I pay $24 a month for the card processing. Note: there are 3 types of merchant service: internet, mail order/telephone order, and retail. Unless you already have a store you're not retail.

For those of you who are new to merchant services, basically what a merchant service provider does is provide a gateway for you to accept and process credit card transactions for your customer. When I process a transaction, I login to my account on their site, enter the customer's information through their secure server, and click submit. They process the information and send it to a back-end bank processor which then deposits the funds directly into your checking account. Funds arrive next business day between 10am and noon, without fail.

There are lots and lots (and lots and lots) of merchant service providers out there, but some of their rules and fees are really complex, and some of them don't offer the complete service - they are the "data processor" which processes the funds but they don't provide the gateway and online site for you to enter the transactions (also known as a "virtual terminal"). Others require you to actually possess a physical terminal with card-swiping capabilities ($$) and some offer a software solution, but a virtual terminal like what I have is easiest and usually free (the fees that you pay for are for the credit card processing services).

Aside from the 24 bucks a month, each transaction is docked 30 cents and 1.59%... so if I ran a charge of $5000, i'd have $4920.20 credited to my bank account. Bottom line? $79.80 in cost for 5,000 miles - a mere 1.596 cents per mile.

4) Run your transactions. Be your own customer. Just enter your name and billing address into your virtual terminal, enter your card # and $ amount, and process. It comes back with "APPROVED" and that's all there is to it.

If I were to run $100,000 over three months' time, doing say 20 transactions of $5,000 each every few days, and paying off the credit card after each one (presumably one could do this online or over the phone for free, either instantly or within 2 business days), I'd have $98,404 credited from the transactions, less about $118 in costs ($60 setup, 2 months @ $24, and the $10 DBA), for a total cost of $1,714 for 100,000 miles - just 1.714 cents per mile...

Find me any routing to anywhere on any airline that will net you 100,000 miles for under $2k and you're my new hero.

Even if you can't get a merchant rate as low as 1.59%, your cost at a rate of 2.39% (widely obtainable even with bad credit, no retail outlet, and no merchant history) would still be just $2,514 for 100,000 miles or 2.5c/mile. Not as cheap as my method, but still cheaper than buying from the airline (no tax), and there's no limit to the # of miles.

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So that's that - mainly, I'm posting this for two reasons: 1) you might want to try this if you're interested, and 2) to get feedback on the plan as a whole...

Let me know any reason this might not work, and let me know if you're going to try it, or if you're already doing this, or if you've tried and failed...

Also, any potential legal setbacks?

I've charged my own card in the past (years ago when I was starting up my company) when I needed a cash advance and didn't want to have to pay cash advance fees - 20 bucks and I have 2K in the bank the next day, not a bad loan at all for the short term, and no interest. Point is, card companies don't care if you charge your own card with your business - John Doe the individual and John Doe the business are two separate people to their system.

I'm thinking Citibank would call after the first couple charges to make sure you know you're charging 10 grand to "Doe Imports & Exports" and that it's not fraud, but they're still getting their cut so as long as you pay the bill I don't see why they'd have any problems.

I know this is a lot of words but thank you for reading, and if nothing else, this is at least something to muse over, and thank you for any feedback.

--brownguy

I don't think you're looking at the true value of those points relative to what it costs you.

In your example, it cost you $2000 to get 100,000 miles. Well, what do you get for those 100,000 miles. Let's say 4 domestic tickets. Now could you get those four tickets for less than $2000? Probably, therefore you've lost money on your scheme. Similar results if you compare an international ticket to what you could pay for one commercially. At the best, you break even.

I'd say back to the drawing board for this idea...

Good concept, but a few problems:

According to any merchant account that I have seen - you are not allowed to do this.

Wouldn't everyuthing that you cahrge be considered income and you wouldn't you be charged income tax, thus costing you a lot more.

I don't think you're looking at the true value of those points relative to what it costs you.

In your example, it cost you $2000 to get 100,000 miles. Well, what do you get for those 100,000 miles. Let's say 4 domestic tickets. Now could you get those four tickets for less than $2000? Probably, therefore you've lost money on your scheme. Similar results if you compare an international ticket to what you could pay for one commercially. At the best, you break even.

I'd say back to the drawing board for this idea...

Well, it depends on how you'd use the miles... 90,000 AA miles yields a business class to europe, easily $8000 on a week's notice (and milesaaver seats always available within 7 days LAX-LHR - just look at the AA136 seatmap for a week from today, J is wide open)

Or 4 one-way awards on the same routing, each worth upwards of $3500...

130,000 miles (cost of 2192.80 w/ my plan) would yield a J class oneworld 14000-20000 mile award ticket, potentially good for LAX-HKG-SYD-AKL-LAX (all on qantas except LAX-HKG on cathay) - I did this with AA miles in february, retail value ~$9K.

i think i've only once used miles for domestic coach tickets - frankly it doesn't seem like a very worthwhile use of them. the one time was a last minute emergency trip and would have cost $2K to purchase anyway.

regards,

--brownguy

Good concept, but a few problems:

According to any merchant account that I have seen - you are not allowed to do this.

Wouldn't everyuthing that you cahrge be considered income and you wouldn't you be charged income tax, thus costing you a lot more.


I've thought about the income tax issue, but at the same time, everything you're charging should likewise be a tax-deductible expense, so it would all even out... in fact, it would even work to your benefit because you could deduct the $5,000 as an expense and only have to declare the $4920 as income. Depending on your tax bracket that takes a considerable percentage out of your mileage cost in the long run.

Is this the issue with the merchant account or is there something else? If it's something else, please elaborate if you know any details on merchant account restrictions or regulations...

I specifically rembember reading a Wall Street Journal article years ago about a troubled restauranter who did this for a "free" loan not miles and the article stated it violated the merchant agreement. 1. Ofcourse this would not be a free loan since he was doing it every month for 1-3.5 points which would equal at best 12% to 48% effective annual intrest . 2. I find it hard to believe the merchant account people do not have "alarms set" set for this senerio because they could be on the hook for a large some of money very quickly if the user spent the money and could not pay off the card and a Bankruptcy filing would make them a unsecured creditor. SUMMARY..I DO NOT THINK THIS WILL WORK FOR ANY SIGNIFICANT AMOUNT OF MONEY OR MILES..ie more than 10,000 a month before you are shut down

Your income is still $5000. The credit card fees are an expense. I don't see how the other $4920 can be an expense though.

... in fact, it would even work to your benefit because you could deduct the $5,000 as an expense and only have to declare the $4820 as income. ...

In order to take the $5000 as an expense, don't you have to specify what the $5000 was for? What did you buy with your $5000 that makes it deductible? You didn't buy a product. Did you pay yourself for a consultation? I'm no accountant, so I would be interested to hear how this would be a justifiable deduction.

Your income is still $5000. The credit card fees are an expense. I don't see how the other $4920 can be an expense though.

From the IRS's perspective:

Let's assume you're Kevin Johnson and you as your business are Johnson Consulting.

Johnson Consulting types up an invoice for $5000 for Kevin Johnson.

Kevin Johnson pays Johnson Consulting $5000 (with his credit card, of course). Kevin Johnson deducts this on his tax return as a travel expense (line 24a on your Schedule C).

Johnson Consulting receives $4920.20 in his bank account. He lists $5000 as income in Gross Receipts (Line 1 on the Schedule C) and lists $79.80 as bank fees (Line 10 on the Schedule C).

Therefore, income = $5000, expenses = $5079.80. (Meaning as a bonus you get an extra $80 deduction, worth $12-32 depending on your bracket).

I'm no tax attorney. If I'm wrong on this, tell me for sure.

--brownguy

I specifically rembember reading a Wall Street Journal article years ago about a troubled restauranter who did this for a "free" loan not miles and the article stated it violated the merchant agreement. 1. Ofcourse this would not be a free loan since he was doing it every month for 1-3.5 points which would equal at best 12% to 48% effective annual intrest . 2. I find it hard to believe the merchant account people do not have "alarms set" set for this senerio because they could be on the hook for a large some of money very quickly if the user spent the money and could not pay off the card and a Bankruptcy filing would make them a unsecured creditor. SUMMARY..I DO NOT THINK THIS WILL WORK FOR ANY SIGNIFICANT AMOUNT OF MONEY OR MILES..ie more than 10,000 a month before you are shut down


When you sign up for a Merchant Account, you are initially approved for a certain dollar amount per month based on your credit. In my example I say 100K miles over 3 months time because you should be able to get approval for 25K a month initially and then have it increased to 35 or 40K afterthe first 30 days. Telling a merchant service provider you're expecting $300,000 a year in gross sales does not seem that unreasonable to me.

If you have poor credit then they'll only approve you for a small amount (i.e. $5000/month, as I was for my first merchant account when I started my first business at age 16 with no credit to speak of). Considering that there is cost of business and all, $60K a year isn't that much to be allotted for gross receipts.

From the IRS's perspective:

Let's assume you're Kevin Johnson and you as your business are Johnson Consulting.

Johnson Consulting types up an invoice for $5000 for Kevin Johnson.

Kevin Johnson pays Johnson Consulting $5000 (with his credit card, of course). Kevin Johnson deducts this on his tax return as a travel expense (line 24a on your Schedule C).

Johnson Consulting receives $4920.20 in his bank account. He lists $5000 as income in Gross Receipts (Line 1 on the Schedule C) and lists $79.80 as bank fees (Line 10 on the Schedule C).

Therefore, income = $5000, expenses = $5079.80. (Meaning as a bonus you get an extra $80 deduction, worth $12-32 depending on your bracket).

I'm no tax attorney. If I'm wrong on this, tell me for sure.


The IRS just won't let you claim something as an expense because you say it is. You have to show it as something that is "ordinary" and "necessary," not something that is just randomly pulled out of one's arse.

This would raise an audit flag that could be seen for miles. (And no, I'm not a tax attorney, either, though I've done some work for accountants on projects related to business tax loopholes, so I know a little bit about the tax code in this area.) The point is - it would be considered income either on the business end or the personal end (depending on how the corporation is structured), and would be - at best - a really stupid idea.

Mike

platbrownguy with all respect, this post doesn't pass the smell test with me. I am both a Member Service Provider of one very large bank and an ISO/MSP of another equally large bank, I'll be brief:

1) This is not only against all Visa & MasterCard regulations, it's illegal under IRS regulations.

3) It's impossible to have a 1.59% rate for card processing in a non-swipe/virtual terminal environment (which is why the 2.39% reference is made), even Ticketmaster.com pays more than that - and they do a pretty decent volume. It's also not possible to get a 1.59% rate for card present, non-debit card (ATM cards with a V/MC logo) transactions.

4) There are +/-54 card types that process through Visa/MasterCard, so even if they gave you a qualified rate of 1.59%, they have to jam you on the downgrades to make up the difference.


5) I could go on forever, but I'll just paste this that I got from their own website on the About Us page:

goEmerchant.com is partnered with these processing banking partners: NOVA Information Systems, iPayment, Inc., Bridgeview Payment Solutions, TheBancop.com, & Cornerstone Payment Systems.

I know NOVA quite well and I can guarantee you that their system would catch you within 5 days of trying to do something like this. NOVA has one of the best artificial intelligence security systems in the business. I've spent many hours observing their system and it's quite awesome. Also, even though Cornerstone is a piece of crap company, they would consistently request copies of purchase orders and receipts for those types of transactions. When you get busted it sucks too. You're placed on MATCH which is a database that keeps you from ever having a merchant account in the future with anyone, AND your account is frozen and the funds are held for 6-9 months before being released to you.

NOTE: I've edited my post to remove my suggestion that the OP sells card services or receives some sort of referral income, I've done this out of respect based on a PM the poster sent me. I must admit though, it's difficult for me to not see this as a veiled attempt to market GoEmerchant - but it looks like I'm wrong.

The IRS just won't let you claim something as an expense because you say it is. You have to show it as something that is "ordinary" and "necessary," not something that is just randomly pulled out of one's arse.

This would raise an audit flag that could be seen for miles. (And no, I'm not a tax attorney, either, though I've done some work for accountants on projects related to business tax loopholes, so I know a little bit about the tax code in this area.) The point is - it would be considered income either on the business end or the personal end (depending on how the corporation is structured), and would be - at best - a really stupid idea.

Mike


I'd venture to say it's both income and expense on the business side given the Johnson scenario above. But then again maybe not. Seeing as how it's a sole proprietorship and not a corporation, the money is never actually changing hands between entities, Kevin Johnson and Johnson Consulting are one and the same, and when Kevin Johnson files his tax return, he lists his own personal social security on the whole thing, even on the business profit/loss return (aka Schedule C). Given that, I'd even go as far as to say it need not be reported as anything at all. It's merely a transfer of funds from one account to another, with the bank taking a $79.80 commission on such transfer.

But, nevertheless, from the IRS:
http://www.irs.gov/...00.html (http://www.irs.gov/businesses/small/article/0,,id=98191,00.html)
First cell on the chart: Basic Taxes for a Sole Proprietorship - Schedule F is for farmers and Schedule SE is for self-employment taxes (not necessary if net earnings <$400), leaving you with your regular 1040 and the Schedule C (Profit/Loss). Instructions for the Schedule C explicitly tell the filer to use his social security number, not FTN/EIN. A corporation would file a business profit/loss under its FTN or EIN and would definitely have to pay taxes if it engaged in a mileage-earning scheme like this. But I'm talking about a sole proprietorship.

again, just thoughts...

I'd venture to say it's both income and expense on the business side given the Johnson scenario above. But then again maybe not. Seeing as how it's a sole proprietorship and not a corporation, the money is never actually changing hands between entities, Kevin Johnson and Johnson Consulting are one and the same, and when Kevin Johnson files his tax return, he lists his own personal social security on the whole thing, even on the business profit/loss return (aka Schedule C). Given that, I'd even go as far as to say it need not be reported as anything at all. It's merely a transfer of funds from one account to another, with the bank taking a $79.80 commission on such transfer.

But, nevertheless, from the IRS:
http://www.irs.gov/...00.html (http://www.irs.gov/businesses/small/article/0,,id=98191,00.html)
First cell on the chart: Basic Taxes for a Sole Proprietorship - Schedule F is for farmers and Schedule SE is for self-employment taxes (not necessary if net earnings <$400), leaving you with your regular 1040 and the Schedule C (Profit/Loss). Instructions for the Schedule C explicitly tell the filer to use his social security number, not FTN/EIN. A corporation would file a business profit/loss under its FTN or EIN and would definitely have to pay taxes if it engaged in a mileage-earning scheme like this. But I'm talking about a sole proprietorship.

again, just thoughts...

It still won't work, because you can't do what you're proposing.

Sole Proprietorships under Schedule C are not exempt from keeping proper books and records. Nor are they exempt from the idea that a business is supposed to be in business.

One cannot simply ignore large transfers in and out of a business by simply saying "I'm moving money back and forth." That has serious laundering implications on it, and will appear to the IRS to be either laundering or the hiding of personal income. If you are questioned, the IRS is going to look at why your business is taking in thousands of dollars of unreported credit card transactions (regardless of the source) - not to mention the thousands of dollars being deposited into your bank account - and asking why your business paper trail does not support said income.

Then again, I'm not a tax attorney, nor am I your tax specialist. You're a grown-up - do what you feel you must.

(NOTE TO MODERATORS: Because this thread is beginning to cross lines that even the Wal-Mart scheme does not, I suggest it be closed.)

Mike

It still won't work, because you can't do what you're proposing.

Sole Proprietorships under Schedule C are not exempt from keeping proper books and records. Nor are they exempt from the idea that a business is supposed to be in business.

One cannot simply ignore large transfers in and out of a business by simply saying "I'm moving money back and forth." That has serious laundering implications on it, and will appear to the IRS to be either laundering or the hiding of personal income. If you are questioned, the IRS is going to look at why your business is taking in thousands of dollars of unreported credit card transactions (regardless of the source) - not to mention the thousands of dollars being deposited into your bank account - and asking why your business paper trail does not support said income.

Then again, I'm not a tax attorney, nor am I your tax specialist. You're a grown-up - do what you feel you must.

(NOTE TO MODERATORS: Because this thread is beginning to cross lines that even the Wal-Mart scheme does not, I suggest it be closed.)

Mike


Yes yes, I as well see this thread coming to a swift end, but before it does I'll just say that I only threw it out there as an idea, I don't in any way advocate money laundering, tax evasion, or illegal use of a merchant account.

Seeing as how I already have a merchant account though, if I were hard-pressed for an extra 5K miles and that 80 bucks isn't a bad price, I might be tempted to try it just once and see what happens.

Oh, and after corresponding with TravelManKen, even I wouldn't recommend doing this more than once in a blue moon.

Besides this probably being illegal and impractical, 1.76 cents per mile is really not that good. You can do much better with mileage runs (if you have 100% status bonus), and you can certainly do better with gift cards (and related matters) which although problematic as well, are not nearly as problematic as your scheme and give a MUCH better rate per mile.

So even if this had any chance of being legal and/or not being detected (which is not the case according to the sound advice given here) I would see no point in following this scheme...

Some notes:

1. A few years ago our US company sold around $30,000 of services to our Canadian company (both companies are related because they both are owned by one holding company). Someone in the Canadian company tried to pay the US company using their personal US Amex. Amex caught this right (that the guy worked in a company related to the company making the charge) and disallowed the charge. They claimed that it is not allowed to make a charge between two related companies (or a company and its employee). I am sure there are cases where an employee buys something at a place they work but I guess Amex only cares if the amount is big.

2. I don't see any serious tax implications with doing this (although it is probably not worth it). It could be structured it as a cash-advance or loan. Person loans company some money by charging his credit card, company pays that back in cash. Shareholder loan, very typical. The fact that it is done by credit card doesn't make much difference.

3. Money laundering: I hear people throw this term around alot on this forum, and it is odd. You are guilty of money laundering if you are helping to move money with illegal origins. Just moving money around does not make you guilty of money laundering. (you may violate some financial rules/regulations and even laws regarding recording of transactions designed to stop money laundering, but that does NOT mean you are guilty of money laundering.)

I am not an attorney or accountant, so I may have missed some subtleties in this area...

I'm not a tax expert either but I don't think just transferring money to yourself or to your company or business amounts to a taxable event. One post said this breaks IRS laws-which ones?

I don't know what the merchant agreements-or for that matter the cardholder agreements-say. But since the credit card issuer is getting full payment and full fees, it's hard to see why they would care.

This strikes me as the seeds of an interesting, and very creative, idea.

On whether it is worth the cost, I agree that at 1.5 to 1.7 cents a miles, it is high since I now generally value miles at 1 cent. But that's really another topic.

One post said Mileage Runs are a better deal. I haven't been to the MR board lately. But I really wonder what the hourly earn rate is for bouncing around in airports and coach-class service.

People have some crazy ideas. This isn't money laudering, nor is it illegal in any way. The money is not taxable as income because it would be accounted as a loan from the owner. If you deposited $10,000 in form of a personal check in your business account to pay for some capital expense (or just to keep your business account at a level you were happy with), you don't have to treat that as income. It is a silly argument.

The only problem would be how the credit card companies viewed it. Although I believe that the credit card processors would immediately shut down any credit transactions from your merchant account to a personal credit card, I don't think they'd stop the transaction you propose. You would pay the fees and they would make money. I suspect that many cash strapped small businesses have financed their operations in this way many times.

I simply don't think it is a great deal. We've looked at it for my wife's business and thought the cost per mile wasn't worth it.

MikeLaw and the original poster are right. There are no tax implications to this. I am a CPA and can say that an owner investment in his own company is no taxable event.

The only problem would be how the credit card companies viewed it. Although I believe that the credit card processors would immediately shut down any credit transactions from your merchant account to a personal credit card, I don't think they'd stop the transaction you propose. You would pay the fees and they would make money. I suspect that many cash strapped small businesses have financed their operations in this way many times.
Actually many would stop the transaction (2 of the top 3 processors would) and freeze the funds. You cannot use a merchant account as a cash advance terminal. Cash Advance setups are regulated and only allowed to occur at financial institutions, not retail store locations. If you were able to pull it off, obviously there are ways to do it, the funds deposited into your bank account are for "goods and services" not cash advance. This would create a situation where someone would have to create a fake invoice and that is the part that would be illegal.

I can tell you many stories about merchants who were shut down for cash advance. This is not a new idea and with today's technology it's easier than you think to detect cash advance activity.

Actually many would stop the transaction (2 of the top 3 processors would) and freeze the funds.

I don't have any first-hand knowledge of this, so I would defer to those more expert than I. I can tell you that I was involved in case where a restaurant fradulently charged many thousands of dollars to my card and a dozen or so other patrons and processed it as a credit to his personal card. He then spent the money from his own card. Despite my complaints to the credit card company, he was able to do this to several other people over a period of months. I'm not as convinced of the all-knowing fraud detection programs as others may be as a result. I did testify at his trial, where I learned that this was the third time in five years he had run this particular scam and as I waited outside the courtroom a guy from "Nova" told me that it is actually pretty hard for them to prevent. That seems to me much, much easier to stop than what the poster wants to do.

I can tell you that I charged one of our cards when we first set up my wife's firm to take credit cards and the money appeared in our account the next day without any issues. I think it was $5.00, so perhaps they have a threshhold that they are looking for. We were just kind of excited to see how it all worked.

This would create a situation where someone would have to create a fake invoice and that is the part that would be illegal.

I'm not seeing it. It might be a violation of your contract with the credit card people, but I fail to see the crime. To the extent that a "fake invoice" would be a crime, it might be fraud against the person you presented the invoice to. However, in this case, you would be invoicing yourself and I don't think even the most tortured statutory interpretation could have you defraud yourself.

I'm not seeing it. It might be a violation of your contract with the credit card people, but I fail to see the crime. To the extent that a "fake invoice" would be a crime, it might be fraud against the person you presented the invoice to. However, in this case, you would be invoicing yourself and I don't think even the most tortured statutory interpretation could have you defraud yourself.

Wouldn't you be defrauding the credit card company? If they ask to see invoices to back up the charges you keep putting on your own credit card, to make sure that you're upholding your end of the contract, and you produce fake invoices to them, isn't that a fraud upon that company, not (just) on yourself?

To reassure investors, the Parmalat people created a fake letter from Bank of America (by doing some cutting and pasting with BofA letterhead) saying that they had something like $4B on deposit in the bank. That was certainly a case of Parmalat defrauding investors.

About 10 years ago I did something similar to this.

I cannot remember the details of why I thought this was a good idea, but there was some sort of advantage for me to charge 20,000 miles before 12/31.

I basically charged $20,000 on 12/31 to myself 'for products provided' that I returned on 1/1.

I got a phone call from the bank on 1/5. Thankfully the credit had already processes and it was a zero sum transaction to them.

Back to the original post: Not worth the trouble, not worth doing it for economic reasons, not illegal, but probably not supported by your mechant agreement.

The challenge here is that the situation you describe with the restaurant is totally different than what is proposed by the OP. In your fraud example the merchant lied about offering a product (something from the restaurant) and fraudulently entered a transaction on your behalf. Key-entered or adjusted tickets from restaurants are not unusual transactions. Every ticket with a tip gets adjusted after the fact and many to-go orders are key-entered.

Here is the situation that is created with the idea in this thread:

* You setup a merchant account and run a transaction for $1000, $5000, etc.
* Processor asks you for an invoice to offset the charge
* Your invoice shows your "Business" charging you for "services" or whatever product/service your business allegedly provides.
* The cardholder (you) are listed on both the card and merchant agreement. When you're unable to explain what service you're providing to yourself you get shut down and the funds are frozen.

If someone really thinks that they are brighter than the "system", go ahead and have fun. Most of the people that get prosecuted never really read all 25-30 pages of their processing agreement and the rules by Visa USA and MasterCard Int'l. Just remember when the crap hits the fan that you were warned.

P.S.: Merchant agreements from reputable companies all have provisions that allow them to see your financial statements, this would be even more fraud.

P.P.S.: I'm not talking about every processor, but this does include First Data (Wells Fargo, BofA, Fleet), CHASE, NOVA (US Bank, Washington Mutual), Paymentech and Cardservice Int'l - and those are the real players in the industry.

you probably would have gotten away with it if you hadn't done it all at once. say 4 G's three times.

peace
wwonka



About 10 years ago I did something similar to this.

I cannot remember the details of why I thought this was a good idea, but there was some sort of advantage for me to charge 20,000 miles before 12/31.

I basically charged $20,000 on 12/31 to myself 'for products provided' that I returned on 1/1.

I got a phone call from the bank on 1/5. Thankfully the credit had already processes and it was a zero sum transaction to them.

Back to the original post: Not worth the trouble, not worth doing it for economic reasons, not illegal, but probably not supported by your mechant agreement.

If someone really thinks that they are brighter than the "system", go ahead and have fun. Most of the people that get prosecuted never really read all 25-30 pages of their processing agreement and the rules by Visa USA and MasterCard Int'l. Just remember when the crap hits the fan that you were warned.


Wow, I can't believe this thread is actually still alive and swimming. I've gone over my merchant agreement, just for kicks, and the only real violation of policy would be in the fact that you are using your terminal to provide cash advance services.

No other part of the process would be illegal, and as far as I can tell, the only penalty even for violating the cash advance clause would be closure of the account, as long as there were no chargebacks.

True, my payment processor is none of those listed by TravelManKen (mine is IPayment, a decidedly more laid-back company), but it is still a legit merchant provider nonetheless.


About 10 years ago I did something similar to this.

I cannot remember the details of why I thought this was a good idea, but there was some sort of advantage for me to charge 20,000 miles before 12/31.

I basically charged $20,000 on 12/31 to myself 'for products provided' that I returned on 1/1.

I'm almost 100% sure the reason your bank called you wasn't just because you charged yourself 20K, but rather that you charged that large of a sum and then subsequently refunded it. In this thread the process wouldn't necessitate refunds...

To reassure investors, the Parmalat people created a fake letter from Bank of America (by doing some cutting and pasting with BofA letterhead) saying that they had something like $4B on deposit in the bank. That was certainly a case of Parmalat defrauding investors.

Yeah, that's fraud.
Here it's just moving money around... there's really not even any need for an invoice, as pointed out by MikeLaw:

If you deposited $10,000 in form of a personal check in your business account to pay for some capital expense (or just to keep your business account at a level you were happy with), you don't have to treat that as income. It is a silly argument.

All in all, I honestly don't believe that in moderate quantities (~$5K/month) this would raise any red flags at all, and in greater quantities, I think the card companies have a hell of a lot more to worry about, like real fraud. I heard on the news that somewhere around 6% of all transactions result in chargebacks. That would seem to me to take priority. And for the record, I've charged $2000 to myself in the past as a cash advance loan and had no problems, but that was years ago.

Anyways, I'm off to LAX on a mileage-run-slash-gambling-binge.

--platbrownguy

The challenge here is that the situation you describe with the restaurant is totally different than what is proposed by the OP. In your fraud example the merchant lied about offering a product (something from the restaurant) and fraudulently entered a transaction on your behalf.

Well, yes. But the guy was running $5,000 CREDIT transactions to his own personal card and they didn't stop him. That seems to be even more of a thing that would get their attention than large debits. But clearly, a different case.

* Processor asks you for an invoice to offset the charge

The merchant agreement for my wife's firm doesn't give the right to demand any documentation other than the signed charge slip and then (as best I can tell) only in the event of a disputed charge.

P.S.: Merchant agreements from reputable companies all have provisions that allow them to see your financial statements, this would be even more fraud.

Our agreement gives them no such right.

Just to be clear, I don't advocate this method and have no intention to use it myself. I just wanted to dispute that it was illegal. The processor could cancel their agreement with you since you were providing unauthorized cash advances, but I think that would be the worst case. No one has yet enunciated anything that would violate any criminal statute I'm aware of.

I love the amount of thought that went into this but I think you are looking at some major expense (1.5% is a low merchant fee)but more importantly you are looking at MASSIVE paperwork. Hardly seems worth it when you can buy miles at the same or less rate.

If someone really thinks that they are brighter than the "system", go ahead and have fun. Most of the people that get prosecuted never really read all 25-30 pages of their processing agreement and the rules by Visa USA and MasterCard Int'l. Just remember when the crap hits the fan that you were warned.

P.S.: Merchant agreements from reputable companies all have provisions that allow them to see your financial statements, this would be even more fraud.


In using words like "prosecution" and "fraud" you are confusing violation of the merchant agreement with the criminal act of fraud. Just because you violate your merchant agreement does not mean you are committing fraud. These are different things.

Imagine a company that sells voucher for travel (or whatever other product) and allows the customer to return those vouchers if for whatever reason those are not used. Normally he would get the amount credited back to his card, but this company would also offer an alternative option: if for whatever reason he wants to have the money back in cash, no problem. But he has to pay a fee for this, since the company has to pay a disagio for credit-card sales, that is lost if refund is made in cash. Maybe they have a good deal with VISA/Master and their disagio is very low (like 1,2%). So if they charge the customer 1,7 % handling fee for those transactions they would still make some money out of this. The customer is also very happy since he gets miles for a good price. An the credit-card companies do not have a problem with this, maybe they even confirmed to the company that this is ok to do. Maybe they even promised a lower disagio if this company has a high turnover.

I do not recommend anything here and I will not hand out an adress. Just want to let you know that this scheme can work without any legal problems.

I love the amount of thought that went into this but I think you are looking at some major expense (1.5% is a low merchant fee)but more importantly you are looking at MASSIVE paperwork. Hardly seems worth it when you can buy miles at the same or less rate.

Yes but there is often a cap of ~25,000 miles per year, maybe 50,000 (Alaska Airlines being the only exception I know of, but then again their last-minute fares are never much higher than the cost of buying the miles for a ticket)... buying normally costs 2.5c/mile plus a 7.5% tax plus a $25-$75 fee though, considerably more...