It has to be over $20K AND 200 transactions. Square's terms specifically state they won't be reporting to the IRS for tax year 2011 anyway. In 2012, if you were to do this, you'd still be fine. As long you kept valid documentation and honestly explained to any auditor exactly what you were doing, you'd probably get away with it.

Also, the point of holding the money is to account for potential chargebacks. They have changed the verbage, it's not a $1000 limit any more. Even when it was that way, it was only in the previous 7 days, not 30. The rule simply was anything in excess of $1000 in the past 7 days would be held for 30.

The way it works now is if you have a positive history with few or no chargebacks, you can easily surpass that $1000 without doing any paperwork about your business. You can sell old garbage at your garage sale at higher prices (even taking the 2.75% loss into accout) if you offer to take cards.

But again - why anyone would do this for miles at 2.75cpm is beyond me. Other than meeting minimum spend requirements but that's only if you can't find a cheaper way to do it. Even my mortgage can be paid through ChargeSmart at a rate lower than 2.75cpm if I really needed to do it that way. I would rather buy a gift card and sell it on Craigslist for a 1% loss. But even then there are still better, lossless methods.

And 2.75cpm is NOT lower than the going rate for purchasing miles directly. AA and US (and probably others, I just happened to be checking them lately) sell them at 2.75cpm.