Originally Posted by
joker365
Here's a couple of basic thoughts:
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However, no such thing is alleged to have happened. Quite the opposite, IRS says taxpayers consumed the gift cards themselves (by buying a money orders), which is probably why IRS did not pursue the argument the Judge appears to suggest could have been more promising.
If I walk into Walmart with two $500 VGCs that have a reduced basis of $475 due to the rewards, and I swipe both of them and leave with a $999 money order, haven't I done a sale or exchange that generates a taxable capital gain?
That has always been the fundamental issue to me.
If the IRS just looks to tax the $50.59 of rewards that a person got from purchasing those two $500 VGSs on a 5% reward card, it isn't giving credit for the $5.95 fee on each card, or the money order fee, or the other costs to complete the transaction. In the case, the IRS used hindsight to try and tax a portion of the rewards based on activity of the taxpayer, while the judge seemed to prefer an analysis that would only tax certain activities (and only at the time of the activity).
But I have never been able to get over the potential sale/exchange. To me, that is potentially different than truly consuming the VGC, but granted a purist might say that buying a $1,000 television with those two VGCs would also be a sale or exchange, and if that were the case, the entire nontaxable Rebate Rule would be at risk.