wtsuppr415

I agree..the IRS doesn't care what I think.. but you aren't answering my question. You owe taxes when you make money. How are you making any money? If you refund the money you are back where you started. It just seems like you are ripping off Google, which isn't illegal.

I remember once I went into a Safeway and paid for some beer with my credit card. They made a mistake on the charge, but then their system went down, and they refunded me with cash. Are you telling me they did something illegal??

wtsuppr415

One more thing. 1) If I, or you for that matter, had $1mm sitting around, we wouldn't be looking at this message board looking to earn 1 cent on the dollar. 2) I don't have $1mm in cash, but I do have a $50k credit line, so if I run that through 20 times I'm doing pretty well.

nako

That's a sure fire way to get your seller account revoked if you get caught. It also exposes you to a giant risk of losing all of your money. (See below.)

That instance is a violation of the merchant agreement, but one that would not be pursued on a one-time basis that was done in the name of customer service. As already noted, giving massive cash refunds on a credit card purchase is a sure way to have your merchant account cancelled, and opens you up to a whole array of other risks (namely, the risk of double refunding via chargeback - the buyer can claim non-receipt of goods and possibly win a chargeback, because the refund was never issued back onto the card and there is no real proof that it happened properly).

That risk is enough to make me squeamish with regard to doing it that way. And it's possible that the IRS could disallow the refunds as a legitimate business expense, meaning you'd still be on the hook for the money.

Mike

wtsuppr415

I agree 100% that you risk losing your merchant account... but if you only created one for this purpose, who cares? Regarding double charge backs, I think the idea would be that you do this with a good friend you trust.

mbreuer

Interesting discussion. The way I see it (I am not a lawyer or accountant), but have had long discussions with both regarding what is income...

1. If you exchange money with people other than yourself, even family members, it's reportable. For example, if you give over $10,000 to a child in a year, they may be subject to gift tax. There are many other rules here - including lifetime maximums & retroactive accounting in the event someone dies within a certain amount of time after making such a "gift."
2. If you're selling something, and the business is a business, then you deduct expenses from income. This should cover many of the schemes listed above so that the amounts would properly wash.
3. If you're doing this only for the points, then the transactions could conceivably be viewed as a hobby vs. a business. There are different rules, and you would not be able to deduce 100% of the "expenses". This is probably the biggest risk for most of the schemes described.
4. If you set up multiple accounts for yourself and only transfer money between those accounts, then I can't see as how the IRS would treat this any differently then moving money from bank to bank in search of free toasters.

Whether there is fraud here depends on the TOS. IF the TOS which you agree to forbids this sort of thing, then Google can certainly sue. Perhaps if they can establish sufficient damage and figure out the correct jurisdiction they could file a criminal complaint. As I understand things, fraud is pretty simple: if you lie (i.e., create multiple identities in order to violate the TOS and bypass Google's internal controls) for the purpose of monetary gain, that's fraud. I would expect that some of the schemes discussed here would violate the TOS but not constitute fraud. Others are probably fraud. As noted in several posts, anyone planning on doing this with any sizable sum should probably consult a lawyer.

wtsuppr415

You are probably right that you would be in trouble using multiple fake identities, as that would likely be wire fraud, a federal offense. Hence, a complaint could land you in jail. But as you mentioned, these schemes, have all relied on exploitable missteps by Google, and violating the Google TOS is not fraud per se, even if you knowingly lie. If violating a companies rules was a criminal offense, that would be in effect treating TOS as legislation!

I think the careful distinction needs to be made between civil and criminal. If something is a civil violation, you can be sued and forced to pay money. If something is criminal, you can go to jail. A company CANNOT file a criminal suit, only a judicial authority can do that. Therefore violating a Google TOS while not breaking state or federal law would be a civil issue.

I found an article on the American Institute of CPAs homepage that discusses fraud: http://www.aicpa.org/PUBS/JOFA/oct2004/lawrence.htm


They had this handy table which shows when fraud becomes criminal rather than civil:

"Although federal securities laws address financial statement fraud, prosecutors often also will charge criminal violations under one or more of the below categories, depending on the exact circumstances of the case."

Misrepresentation of material facts.
Concealment of material facts.
Bribery.
Illegal gratuities.
Conflicts of interest.
Embezzlement.
Theft of trade secrets.
Mail fraud.
Wire fraud.
Interstate transportation of stolen property.
Racketeer Influenced and Corrupt Organizations (RICO). False claims and statements.
Conspiracy.
Foreign Corrupt Practices Act.
Bankruptcy fraud.
Financial institution fraud.
Health care fraud.
Identity theft.
Telemarketing fraud.
Computer fraud.
Economic espionage.
Money laundering."

It seems like so long as you don't enter any false information, you couldn't be charged with anything criminal if Google lets you through the system due to their lack of monitoring.

ja_user

Let me just say that a transaction in excess of 10k will result in a phone call to the buyer to verify, from google to the phone number on file. The limit may be less, but over 10k will for sure do it.

And they will look at the address/name on the seller account as well, make sure they don't match.

mtparadis

Why not just tell the IRS you were loaning your friend whatever amount through Google for the points and then he paid you right back without interest? That's not a gift, and nothing is really a revenue/expense.

GUWonder

Dynamics involving interest free loans have been known to cause trouble before -- at least in other circumstances.

sany2

The fact of the matter is it doesn't matter what you call it, if the IRS decides to investigate, it could become very costly.

martian

or in fact quite beneficial if you like collecting miles

Kagehitokiri

that was his point..

except lawyers and the IRS don't usually take credit card

martian

huh


I mean beneficial in the sense that you could run a few million through this and it might be worth an audit or two as long as you are not tax liable.

mtparadis

Article about interest-free loans:
http://www.april15.com/docs/article_loans.pdf

ja_user

I would recommend lower dollar amounts, and put some variety in the stores you buy from.