Go Back  FlyerTalk Forums > Miles&Points > Credit, Debit and Prepaid Card Programs > Manufactured Spending
Reload this Page >

Buy Presidential Dollar Coins with CC @ Face Value, Free Shipping

Buy Presidential Dollar Coins with CC @ Face Value, Free Shipping

Old Jul 19, 09, 5:11 pm
  #2926  
Original Member
 
Join Date: May 1998
Posts: 1,113
Originally Posted by dayone View Post
It's a $20K rebate, not "a $20K profit." It's not a taxable event. Similar to the early payment discount that a company might earn for a quick settlement of a purchase invoice.

A lot of the tax, accounting, bank and cash management advice being dispensed seems to be by people who stayed at a Holiday Inn Express last night.
I agree with your last statement, Dayone. Here is a quick summary that people can use to shoot holes in.

The reason that most of us believe that the miles/points earned by purchases on personal credit cards are nontaxable is the long-standing tax principle that a rebate on personal nondeductible purchases is not taxable.

If someone buys 20 loaves of bread for $1 each under a program in which he gets a $5 rebate check after spending $20 at the store, the $5 check is not taxable. The purchaser has not received an accession to wealth in comparison to a scenario in which the purchaser was simply charged $15 for the 20 loaves of bread. Credit card companies accept this principle and don't issue 1099s for the rewards they issue, even when the reward system involves a cash-back card instead of a points/miles card.

There is a fine line between this situation and the classic scenario in which someone receives a $100 bonus for opening a personal bank account. The IRS opinion is that the $100 is taxable interest income for the use of the depositor's cash. Bank's accept this IRS opinion and do issue 1099s for the account opening bonus.

Personally, I think the rebate scenaio applies and that no taxable income should be recognized on the points/miles or even cash-back rewards attributable to coin purchases. But there are NO absolute answers in taxation. The IRS might argue that the coins were not purchased for personal use and the rebate principle should not apply. The IRS might argue that the coins purchases were a financial transaction like the account opening bonus and any rewards should be taxable. I am skeptical that the IRS could win this argument, particularly since the motivation of many purchasers is to help the government reduce its overall currency issuance costs by helping to force banks to accept the $1 coins instead of $1 bills. We are kind of like the environmentalists.

Since there won't be any 1099s from the credit card companies this issue would only arise upon physical audit, which is unlikely. Another advantage of earning points/miles instead of cash rebates is that the auditor will have difficulty in valuing the points/miles earned via coin purchases.
Andy2 is offline  
Old Jul 19, 09, 5:27 pm
  #2927  
 
Join Date: Jun 2009
Location: Metro Detroit
Programs: DL KM
Posts: 628
You would think that the circulation coins would be cheaper because there is less packaging and handling costs.
Easy Victor is offline  
Old Jul 19, 09, 5:58 pm
  #2928  
 
Join Date: Jul 2005
Posts: 3,057
That said if that same man goes on to sell each loaf of bread for $1 each, he has made a profit of $5. That $5 is taxable.

I paid $1,000 for $1,000 and 1,000 miles and then sold what I had bought for $1,000 for a profit of 1,000 miles.

I'll agree that odds are nothing will happen w/o 1099s and it is very difficult to put a $ value on a mile.

Originally Posted by Andy2 View Post
If someone buys 20 loaves of bread for $1 each under a program in which he gets a $5 rebate check after spending $20 at the store, the $5 check is not taxable. The purchaser has not received an accession to wealth in comparison to a scenario in which the purchaser was simply charged $15 for the 20 loaves of bread. Credit card companies accept this principle and don't issue 1099s for the rewards they issue, even when the reward system involves a cash-back card instead of a points/miles card.
ClimbGuy is offline  
Old Jul 19, 09, 6:22 pm
  #2929  
Original Member
 
Join Date: May 1998
Posts: 1,113
Originally Posted by ClimbGuy View Post
That said if that same man goes on to sell each loaf of bread for $1 each, he has made a profit of $5. That $5 is taxable.

I paid $1,000 for $1,000 and 1,000 miles and then sold what I had bought for $1,000 for a profit of 1,000 miles.

I'll agree that odds are nothing will happen w/o 1099s and it is very difficult to put a $ value on a mile.
If you truly sold the coins at more than you paid for them, I would agree. But you seem to consider your deposit of the coins as the selling of the coins at a gain. I'm not sure I agree with that. If you got miles for buying shaving cream, you wouldn't have income each time you shaved. Most people make banking transactions each day just like they shave every day. I could certainly see an IRS agent arguing that the entire coin aspect is a pure financial transaction (with a reduction in the basis of the coins prior to your "sale"), but I'm not sure the law would support the agent's argument. Two reasonable people could certainly disagree on this point, though.
Andy2 is offline  
Old Jul 19, 09, 7:59 pm
  #2930  
 
Join Date: Mar 2003
Location: Independence, MO USA
Programs: AA LT Gold & Marriott Gold
Posts: 275
Please read/re-read my post #2909. The IRS does not care or deal with frequent flyer miles unless they meet the examples in my post. This is a hobby we're dealing with, not a business and you aren't making a profit. End of story.
gejone is offline  
Old Jul 19, 09, 8:24 pm
  #2931  
FlyerTalk Evangelist
 
Join Date: Jul 2003
Location: Florida
Posts: 28,463
Originally Posted by Easy Victor View Post
You would think that the circulation coins would be cheaper because there is less packaging and handling costs.
The Non-Circulated types have LIMITED count. They are COLLECTIBLES, Limited Editions, not meant for Circulation (i.e. being used.)

It has nothing to do with the packaging and handling.
Happy is offline  
Old Jul 19, 09, 8:44 pm
  #2932  
FSU
 
Join Date: May 2005
Location: Chicago Area
Posts: 368
I think I may need professional help. The "Presidential Coins" addiction seems to worse than any other. It started simply enough, order some coins get a few miles. Then of course it became, lets order a few more and more. Then its up to 5000 at a time. I am excited at the ordering process, elated when the order ships, slightly let down when the package arrives, agitated when I have to unroll all the coins for my bank. Then comes the shame of dropping the coins off at the bank. The unapproving looks by the bank tellers, holding up the line for the other customers, questions from the branch manager. I try to go to different branches hiding my addiction. I swear that this time is the last time. It just isn't worth it. No more.

Then I hear the call "its me, US MINT.GOV, come and visit for a while, you don't have to buy anything." Well it can't hurt to just look right? So I stop by for awhile. Oh, no more limits on order size? I can get 99 boxes at once? Well I don't need THAT many. Maybe just $10,000 just one last time. I wont even tell the family this time. They are very worried about me anyway. I have told them I can control myself, that I can stop at any time. I will have to hide the marks on my arms from carrying the boxes in. The marks on my fingers from unrolling the coins. Its OK, this will be the last time.
FSU is offline  
Old Jul 19, 09, 8:51 pm
  #2933  
 
Join Date: Jun 2009
Location: Metro Detroit
Programs: DL KM
Posts: 628
Originally Posted by Happy View Post
The Non-Circulated types have LIMITED count. They are COLLECTIBLES, Limited Editions, not meant for Circulation (i.e. being used.)

It has nothing to do with the packaging and handling.
I know what Limited count means and what a collectible is. That's what makes this even more frustrating. Why would anything limited and collectible be LESS money than ordinary circulated product???????
Easy Victor is offline  
Old Jul 19, 09, 9:01 pm
  #2934  
 
Join Date: Aug 2006
Location: ATL, BHM, DUB, County Wexford
Programs: DL DM, AA ExPlt, Diamond HH & HY
Posts: 3,492
Originally Posted by Easy Victor View Post
I know what Limited count means and what a collectible is. That's what makes this even more frustrating. Why would anything limited and collectible be LESS money than ordinary circulated product???????
It is the other way around. The limited, collectibles are MORE!
EasternTraveler is offline  
Old Jul 19, 09, 9:08 pm
  #2935  
 
Join Date: Jun 2009
Location: Metro Detroit
Programs: DL KM
Posts: 628
The ones in the bag are collectibles?? That's why I was confused. Makes no sense to have collectible coins banging against each other and getting scratched up. That lowers the value of the coin.
Easy Victor is offline  
Old Jul 19, 09, 9:10 pm
  #2936  
FlyerTalk Evangelist
 
Join Date: Jul 2003
Posts: 11,370
Originally Posted by Easy Victor View Post
You would think that the circulation coins would be cheaper because there is less packaging and handling costs.
Cheaper than what?

The Circulated coins are *cheaper* than the numismatic ones.
soitgoes is offline  
Old Jul 19, 09, 9:21 pm
  #2937  
 
Join Date: Aug 2006
Location: ATL, BHM, DUB, County Wexford
Programs: DL DM, AA ExPlt, Diamond HH & HY
Posts: 3,492
Are they just loose in the bag or are they in plastic cases?
EasternTraveler is offline  
Old Jul 19, 09, 9:50 pm
  #2938  
 
Join Date: Jul 2005
Posts: 3,057
It is an interesting question. If I am not 'selling' the coins to the bank, but only making a deposit. Am I buying them from the mint?

In all honesty I have no idea if you need to pay taxes on this whole thing.

what I do know is that if you do, and don't odds are high that nothing will happen.

I don't really follow your shaving cream example, if shaving cream cost $1.99 and I buy a bottle and get 2 miles with it I paid $1.99 and got shaving cream and 2 miles. I am the consumer of the shaving cream. Now lets talk in terms of cash back because it is easier to quantify then miles, which is a whole another issue.

I go to Costco and buy a case of 10 cans of shaving cream for $20, and get 1% cash back. The 'rebate' makes the true cost of the shaving cream $19.80. Lets say you go onto sell the shaving cream cans for $2 each. At the end of the day your profit is $0.20. The same thing goes for the coins.

As you mention the question if if you are 'selling' the coins comes up. If you aren't you are buying coins at less then face value thus earning profit on the order. This once you sign for the coins you have made your profit.

Since just about everyone here is getting miles not cash back, the value of a mile because a big question. Even if you need to pay taxes on your miles, how do you value them? Well, I think the airlines state that your miles have no cash value, so maybe you don't owe anything.

Originally Posted by Andy2 View Post
If you truly sold the coins at more than you paid for them, I would agree. But you seem to consider your deposit of the coins as the selling of the coins at a gain. I'm not sure I agree with that. If you got miles for buying shaving cream, you wouldn't have income each time you shaved. Most people make banking transactions each day just like they shave every day. I could certainly see an IRS agent arguing that the entire coin aspect is a pure financial transaction (with a reduction in the basis of the coins prior to your "sale"), but I'm not sure the law would support the agent's argument. Two reasonable people could certainly disagree on this point, though.

Last edited by ClimbGuy; Jul 19, 09 at 9:58 pm
ClimbGuy is offline  
Old Jul 20, 09, 2:39 am
  #2939  
Moderator: Avis and Rental Cars
 
Join Date: Oct 2006
Programs: US Platinum, United 1k, HHonors Diamond, Avis CC, Priority Club Platinum, Marriott Gold
Posts: 7,710
Originally Posted by FSU View Post
I think I may need professional help. .... Its OK, this will be the last time.
+1


Also, just got a few emails from The Mint: Even though the site shows that the NA coins are open to ship on 7/17, the emails for my outstanding orders state that they're back-ordered and will ship on 8/4. Not complaining, just an FYI in case anyone was expecting fast shipment on any orders.
IAHtraveler is offline  
Old Jul 20, 09, 7:43 am
  #2940  
Original Member
 
Join Date: May 1998
Posts: 1,113
Originally Posted by ClimbGuy View Post
It is an interesting question. If I am not 'selling' the coins to the bank, but only making a deposit. Am I buying them from the mint?

In all honesty I have no idea if you need to pay taxes on this whole thing.

what I do know is that if you do, and don't odds are high that nothing will happen.

I don't really follow your shaving cream example, if shaving cream cost $1.99 and I buy a bottle and get 2 miles with it I paid $1.99 and got shaving cream and 2 miles. I am the consumer of the shaving cream. Now lets talk in terms of cash back because it is easier to quantify then miles, which is a whole another issue.

I go to Costco and buy a case of 10 cans of shaving cream for $20, and get 1% cash back. The 'rebate' makes the true cost of the shaving cream $19.80. Lets say you go onto sell the shaving cream cans for $2 each. At the end of the day your profit is $0.20. The same thing goes for the coins.

As you mention the question if if you are 'selling' the coins comes up. If you aren't you are buying coins at less then face value thus earning profit on the order. This once you sign for the coins you have made your profit.

Since just about everyone here is getting miles not cash back, the value of a mile because a big question. Even if you need to pay taxes on your miles, how do you value them? Well, I think the airlines state that your miles have no cash value, so maybe you don't owe anything.

You are definitely buying the coins from the mint, but there may never be an element of the transaction where you sell the coins at a profit. You buy things every day without re-selling those things. That is why I used the shaving cream as an example. You generally use the shaving cream; you don't re-sell it. A similar argument can be made for the coins when deposited and used to pay the credit card. Most would argue no gain there, even if you theoretically may have to reduce the basis of the coins by the value of the miles/points.

Most would also argue that the mere receipt of the miles/points also causes no taxable income, since a ruling exists for employers stating that the receipt of miles/points by an employee after travelling for the employer does not cause the employer to do withholding on any "deemed" value of the miles/points. But I work in tax every day and I can assure you there are NO absolute answers, and this coin situation is a little different than the facts in the very few IRS rulings on the subject.

I think we can all agree that if someone bought $500,000 of coins on a 2% cash-back card and pocketed $10,000, we would all hesitate on assuring the guy that he has no taxable income (even though most people would take the position that no taxable income exists because of the "rebate rule"). But we would all feel a little more confident saying there is no tax effect if that same guy received 500,000 miles - even if the 500,000 miles allowed him to get $25,000 of first class travel, which seems nuts to a lot of people.
Andy2 is offline  

Thread Tools
Search this Thread
Search Engine: