<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Originally posted by MoreMiles:
If you don't mind about the fees... then it's very possible. Just go ahead and transfer yourself some money using Paypal. You can get all the miles you want... at the cost of paypal merchant fee.
Your original hypothetical question will have no ethical or legal problem. It is however finanically not feasible due to the fees. Why would you want to change cash into miles? Reward miles are not considered commodity. They can be voided by the airlines at any time, using simple excuses.
Also, if you charge too much (let's say a few million $ / year)... IRS will knock on the door soon asking for audit.
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Why would I want to change cash into miles? Well, if a First Class ticket costs $7000 or more, and I can get the miles needed for between $1000 and $2000, it's a no-brainer. If I was planning on "banking" the miles (for my retirement?) then your argument is more valid, especially in light of the changes to various programs recently.
As far as the fees go, I'd have to do an analysis on a card-by-card/airline-by-airline basis. The best deal is Diner's Club/BA and the annual 2-for-1 deal. Other cards/airlines might not be as attractive.
IRS - if what I'm doing is not illegal, they may take a dim view of what I'm doing but I don't see any basis for tax liability. I could be wrong, and in any event I'm not planning on any million-mile deals in the near future.