wtsuppr415

Well, we could start small, and I also don't mind casting the first stone. Plus, I think the zero liability programs are pretty good.

martian

Sorry, I will stick with my long time friends for something like this. Really no offense though: I hope you understand. This is truly playing with fire: the potential for a lot of gain, and 100 times the pain.

Dovster

Alternatively, I could set up an account using my Israeli address and you can all send me your deposits.

No IRS involvment.

(Also, no return of your money.)

Kagehitokiri

thats exactly how scams work. start small, work up, wait until the person gives you a nice large amount then run.

nako

Considering that sole proprietorships are several times more likely to be audited than businesses that operate as corporations or other legal entities, I really think that the bolded statement above is a careless one. I really hope that you are not a CPA or a tax professional giving this advice.

The larger issue I have with this post is that it's not so simple to say that the money would simply wash. What happens if the IRS determines that your expenses were neither ordinary nor necessary for your "business," and demands you to pay income tax on that money, plus penalties? The risks, in my opinion, are far too great for the gain that may occur.

Mike

Randy Petersen

Actually to help any of you along, the concept is not new and had been tested to the IRS standards. In the early 1990s, InsideFlyer magazine featured a system that eventually became quite popular for at least three years, that was, using your credit card to purchase travelers checks (fee-free of course through AAA) and re-deposit the checks as payment for your credit card balance. In no time at all, millions of miles were earned by its readers.

now, here's the interesting factoid. The system was invented by a reader of InsideFlyer, that reader ... was an IRS agent who created the program well within the guidelines of what must be reported as income and expense. No member following the system was ever hassled about money laundering or any issues involving tax consequences. I can't speak to the requirement of a tax ID as you can easily qualify individually as an eBay seller with no federal tax ID required, only personal SS#.

Anyway, I hope this helps as it brings back some of the memories of the golden years of these programs. I remember one of our readers who followed our advice and over a single year turned more than 600,000 miles into his favor - he visited us to say thanks, turned out to be a Vice President at IBM, so you never know who turns out to be a mileage junkie!!!!

Good luck.

GUWonder

.... and no extradition (usually).

nako

With all due respect, Randy, the scenario you describe with regard to travelers' checks and the scheme described in this thread are comparing apples and oranges. This is because the latter requires a legitimate business purpose to pass muster with Google (and also, most likely, with the IRS, since you are having to justify income received from a customer, and the expenses repaid to that same customer as legitimate business expenses.)

The travelers' check scheme had no such barriers, which is the reason why an IRS agent could do it and get away with it. The tax angle is a complete non-starter there, because it's not about income or expenses for a business at that point. It was merely the purchase of merchandise -- with the intention of earning miles based on those purchases -- but it just happened to be that the merchandise purchased was a cash equivalent that could be used to repay the debt incurred by making the purchase. And the IRS doesn't care how you spend your money, unless you're trying to claim it as a business expense. Since the expense is personal and not being used to decrease income in the travelers' check scheme, there is zero reason for the IRS to care about it.

Simply put - the two scenarios are not the same, and should not be treated the same. In fact, I think even trying to compare the two does a disservice.

Mike

wtsuppr415

Sure, sole proprietorships get audited more, but not because of mileage schemes; they get audited more because they are known to cheat more and make mistakes more. My point was, that as a sole proprietor, you CANNOT pay yourself...your income isn't distinguished from the businesses income, therefore it wouldn't be hard to show that this, in the end, was a wash... I bet it would work with parternships, LLCs, and C and S corps too.

To your point on the IRS questioning the expenses, I don't see why the would have a problem with it. Just tell them what you were doing; they would obviously realize you never made ANY money, therefore there wouldn't be any tax liability. Take the position of the IRS; how would you argue that taxable income was being earned? Even if you admitted you were violating Google's TOS, they wouldn't care! That is a CIVIL issue; tax fraud is CRIMINAL. Google would have to sue you in a CIVIL case, and they would probably win, but A) it wouldn't be CRIMINAL, and B) do you really think they would go to all that trouble?


The only issue I would worry about is the fact that perhaps the IRS would consider the miles some sort of taxable non-cash compensation. For instance, if you are driven a certain number of miles by a company hired car, the dollar value of that benefit is taxable after a certain point, but again, this would only be at your tax bracket . Assuming you racked up 1mm miles, at 1c/mile, and you were in the 30% tax bracket, maybe you would be liable for $3,000. But, I doubt this because there are plenty of people who get 1mm miles from business travel, and I don't think of them report this as compensation..

wtsuppr415

I suppose thats true... If someone is in the SF Bay Area, you can come over to my place and see where I live...if I rip you off you can kill my family.

seoulmanjr

How is this different from about two years ago when we were all "selling" back and forth to eachother on ebay for anything points to send through points.com for AA miles? I seem to remember ebay getting pissed at one point, but the IRS never came down on anyone.

Assuming they would have an interest, couldn't you get around that issue by "selling" to your spouse back and forth who you file with on a joint return and justify it as just moving money between your own accounts? My wife has her maiden name and we maintain two addresses in two different states, so I don't see how anything automated at google would even catch on except for the large $ amount transactions flag that was mentioned above. Being in two states and with the "sale" taking place online, there is no sales tax.

Also, to the person who guessed that google would send a 1099 - that isn't going to happen. Do you get 1099s from Paypal? Nope.

"You're solely responsible for specifying your own tax rates. If you don't specify any tax information, Google Checkout will not apply any taxes to your orders. If you need tax assistance, please consult with a qualified tax professional."

peace,
~Ben~

nako

Did anyone who did this report the activity to the IRS as income or expenses? I honestly don't know, as I was not part of this so-called "all" that was doing this.

Mike

seoulmanjr

I doubt it. I didn't do it myself, but spoke daily over PM with a few FTers that were. There's no question that one should report their income to the IRS, but my point was that many didn't report this as income and nothing triggered an audit for those that didn't. (big time YMMV, I suppose)

Also, if my wife and I have a joint checking account that the money is going out of and into, file jointly, don't exchange any actual goods, and do this, how in the world could it be conceived of as income by the IRS? They may think we're weird, but I don't know why it would be illegal. Anyone? Sure, google may take issue with the above, but they don't have the ability to handcuff or fine me and I personally doubt they'd undertake the effort and expense of a lawsuit. At worst, my account gets frozen/closed, but I didn't see anything draconian in their T&Cs like PayPal has in theirs.

I really hope we can pull this off, but I'm glad someone is playing the devil's advocate -- good discussion and questions.

peace,
~Ben~

bocastephen

I don't see anything illegal or tax-dodgy with this scheme at all. The only issue would be with Google TOS and also the TOS of the merchant processing agreements with Visa, MC, Amex - all of these agreement expressly forbid the use of the merchant's own credit cards against the merchant account.

So, there are two ways around this...

1) setup the Google account in a company name, and don't use a credit card with the company's designated rep's name on it

2) setup the Google account in your own name (as sole proprietor) and use a credit card with your business' name

For example: There are offers out there for 10,000-20,000 bonus miles to sign up and use new credit cards from Amex (Hilton/SPG) and Visa (UA, NW), etc. I receive offers for these all the time. If you received these offers, go ahead and accept them, get the cards in the company name, then just use them a few times to get the bonus miles off each initial purchase. That way you get a crapload of miles with a minimum number of transactions.

When done, cancel the cards.

The businesses I have where the offers were sent are inactive, so I don't care if the card app/cancel process dings the business' credit score abit.

martian

Or, like I mentioned earlier: you could sell a massage to a good friend or spouse for lets say $100k. Give them a really crappy massage and them them ask for a refund: write them a check within 30 days once the money is in your bank account. Then do the same in reverse. No tax liabilities and I don't see how this violates Google's TOS