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Old Feb 26, 21, 11:32 am
  #10  
Andy2
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Join Date: May 1998
Posts: 1,113
Originally Posted by radonc1 View Post
I think that Andy2 has the probable reasoning behind the IRS's decision to go after this couple.

Trying to determine the value of airline and hotel points is a fool's errand. While one might wish to say that a particular point is worth, say, $0.01, this is actually a guess dependant upon so many variables that not even frequent flyers agree when trying to establish it.

OTOH, a 2-5% cashback card gives you a definite value for the spend you do. While there is no doubt that this is a rebate when purchasing a product, it can easily be said that it is income when purchasing a monetary equivalent such as a VGC and converting the same into another monetary equivalent known as a money order.

The majority of us can rest easy because, like many who get cash income (from selling on ebay or pocketing tips obtained on many jobs not requiring reporting of same) the amount received is way too small to interest the IRS's collection department.

However, as witnessed from the above tax court case, the general truism still holds....

"Pigs get fed, but hogs get slaughtered"
And to your point about smaller volumes being safer, this type of adjustment requires a lot of hands-on auditing, so it isn't like the IRS is going to be able to mail out assessments.

It does raise an interesting comedy question.

Presumably, it was reports issued by the banks (we don't know if it was CTRs, SARs, etc) that got these seemingly ordinary wage earners audited.

But the first step of most civil audits is the auditor making the presumption that all bank deposits are taxable income, and making the taxpayers prove otherwise if the deposits exceed the reported income.

Kind of awkward if the auditor sees deposits of $5 million or so from pretty ordinary wage earners. Someone on one of the websites referenced above requested the more detailed court filings. I do wonder what kind of proof the auditor requested to prove that none of the deposits were income (other than the purported profit portion).

That is why I am a fan of just mailing the money orders to pay the credit cards, but that generates its own issue for the one in a thousand that gets lost and you have to file a refund claim. And of course the stamp adds to the costs, and the credit card company sees the entirety of what you are doing.

The other comedy of all of this is just how damn much this added up to for Amex. Think about all the FTers and FWers who did this, and the fact that there were whales doing it into the millions.

None of us are sure how much, if anything, AMEX got from credit card charges on this. I have always doubted that supermarkets or drugstores were paying much of anything to the credit card companies for these type of sales. It wouldn't make sense for them to do so. So AMEX was paying a lot of 5% rewards, and allowing massive churning of credit lines on the card. It was great fun while it lasted, but I wonder if it generates some very unpleasant memories for some folks at AMEX.
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