Google - Unlimited Free Transaction Processing till 12/31
Nov 15, 2006, 4:58 pm
#46
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I posed this scenario to a senior tax partner and CPA at a major accounting firm today and talked through the different ways this could work and in each of the scenarios I/you have laid out, he was convinced that this would amount to fraud and that the risk inherent was far greater than the returns. I will get the specific mumbo jumbo out of him and post it here if I can. What it comes down to was basically if something is being sold, then someone has to declare it as income. If its just moving money around and nothing is being sold then it is fraud. In the scenario that you're just moving the money but do it in a way that isn't viewed as fraudulent, then the IRS would still look at that as a non-deductible personal expense. A potential liability percentage of the $100k or $1 mm that we were thinking of churning through this. However, I asked another partner in the firm and he said that it might be possible and he'll think about, so I'm going to wait and see what he says.
peace,
~Ben~
peace,
~Ben~
Nov 15, 2006, 5:00 pm
#47
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Originally Posted by 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
peace,
~Ben~
Nov 15, 2006, 8:51 pm
#48
Join Date: Dec 2004
Posts: 1,320
Does anyone honestly believe that the IRS would take you to court over this once it was explained to them? Further, even if it was taken to court, does anyone actually believe that a tax court would find liability here? I think its crazy to think you would actually incur tax on this scheme. You might well trigger an audit if Google reports the income and you leave it off your return, but I would think this issue would be dropped quickly by the auditor.
J.
J.
Nov 15, 2006, 8:56 pm
#49
Join Date: May 2005
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Originally Posted by seoulmanjr
Good idea. I'm going to ask about this tomorrow to the aforementioned folks.
peace,
~Ben~
peace,
~Ben~
Thanks, I think we are seriously on the edge of our seats waiting for this. Those with large credit limits especially probably
Nov 15, 2006, 10:16 pm
#50
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Doesn't the IRS issue something like no-action letters or guidance letters upon request through some process?
There used to be something the IRS used to do for transfer-pricing schemes which helped firms avoid ambiguity or exposure vis-a-vis the IRS when it came to intra-company transactions. Advanced pricing agreements may be a more contemporary manifestation of that.
There used to be something the IRS used to do for transfer-pricing schemes which helped firms avoid ambiguity or exposure vis-a-vis the IRS when it came to intra-company transactions. Advanced pricing agreements may be a more contemporary manifestation of that.
Nov 16, 2006, 12:50 pm
#52
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Originally Posted by martian
Thanks, I think we are seriously on the edge of our seats waiting for this. Those with large credit limits especially probably
Keep in mind that these are tax guys/CPAs, so they're a lot more conservative on this stuff than any of us would be. Maybe rightly so. Personally, I'm not going to do this since I don't need the stress.
Good luck!
peace,
~Ben~
Nov 16, 2006, 2:06 pm
#53
Join Date: Mar 2005
Posts: 82
Originally Posted by seoulmanjr
I posed this scenario to a senior tax partner and CPA at a major accounting firm today and talked through the different ways this could work and in each of the scenarios I/you have laid out, he was convinced that this would amount to fraud and that the risk inherent was far greater than the returns. I will get the specific mumbo jumbo out of him and post it here if I can. What it comes down to was basically if something is being sold, then someone has to declare it as income. If its just moving money around and nothing is being sold then it is fraud. In the scenario that you're just moving the money but do it in a way that isn't viewed as fraudulent, then the IRS would still look at that as a non-deductible personal expense. A potential liability percentage of the $100k or $1 mm that we were thinking of churning through this. However, I asked another partner in the firm and he said that it might be possible and he'll think about, so I'm going to wait and see what he says.
peace,
~Ben~
peace,
~Ben~
His arguments seem to be:
1) If something is being sold, it needs to be declared as income.
I don't disagree here, but again, what is stopping someone from just selling back and forth with a friend and calling it as a wash. $1mm in revenue, $1mm in expenses. If you sell a car to a friend, he can legally sell it back to you for the same price; this is no different. Generally there is sales tax, but if this was a service type or interstate transaction, this too would be a non issue. The IRS may audit you, and you will explain to them that you had a business created to earn frequent flier miles. They will quickly realize that your only net gain is the miles, which could perhaps incur a liability on the miles themselves (if they are considered non cash compensation), but that is completely different from incurring a liability from every dollar that flowed through
2) If money is just churning through, it is fraud
Sure, it is fraud against Google, but how is it fraud against the IRS? The money is legal money, which doesn't need any laundering, so in effect, one would just be transferring money between accounts. Violations of the Google TOS would at worst risk a civil suit, but do you really think Google would spend their time on this?
I still haven't heard anyone cite specifically how the law is being broken....
Nov 16, 2006, 6:27 pm
#54
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Originally Posted by wtsuppr415
I think the CPA is missing the point.
His arguments seem to be:
1) If something is being sold, it needs to be declared as income.
I don't disagree here, but again, what is stopping someone from just selling back and forth with a friend and calling it as a wash. $1mm in revenue, $1mm in expenses. If you sell a car to a friend, he can legally sell it back to you for the same price; this is no different. Generally there is sales tax, but if this was a service type or interstate transaction, this too would be a non issue. The IRS may audit you, and you will explain to them that you had a business created to earn frequent flier miles. They will quickly realize that your only net gain is the miles, which could perhaps incur a liability on the miles themselves (if they are considered non cash compensation), but that is completely different from incurring a liability from every dollar that flowed through
2) If money is just churning through, it is fraud
Sure, it is fraud against Google, but how is it fraud against the IRS? The money is legal money, which doesn't need any laundering, so in effect, one would just be transferring money between accounts. Violations of the Google TOS would at worst risk a civil suit, but do you really think Google would spend their time on this?
I still haven't heard anyone cite specifically how the law is being broken....
His arguments seem to be:
1) If something is being sold, it needs to be declared as income.
I don't disagree here, but again, what is stopping someone from just selling back and forth with a friend and calling it as a wash. $1mm in revenue, $1mm in expenses. If you sell a car to a friend, he can legally sell it back to you for the same price; this is no different. Generally there is sales tax, but if this was a service type or interstate transaction, this too would be a non issue. The IRS may audit you, and you will explain to them that you had a business created to earn frequent flier miles. They will quickly realize that your only net gain is the miles, which could perhaps incur a liability on the miles themselves (if they are considered non cash compensation), but that is completely different from incurring a liability from every dollar that flowed through
2) If money is just churning through, it is fraud
Sure, it is fraud against Google, but how is it fraud against the IRS? The money is legal money, which doesn't need any laundering, so in effect, one would just be transferring money between accounts. Violations of the Google TOS would at worst risk a civil suit, but do you really think Google would spend their time on this?
I still haven't heard anyone cite specifically how the law is being broken....
YMMV. I'm just passing along what I found out. I'd love to hear that this will work so that I can churn $100k+ through it before 12/31.
I think from a tax/IRS perspective your scenario in #1 is far too simplistic. The two accountants told me that if the IRS looked at it and saw nothing was being exchanged or it was a patently unbeleivable assertion ($1mm for an empty envelope), then the $1mm in expenses would be seen as a non-deductable personal expense. Therefore, not reporting the gain/revenue of $1mm is problematic. If you do report it and claim it as a wash, but they see the $1mm as a personal expense re: the above, then you're on the hook for a LOT of taxes.
I'm not an accountant, but that's the understanding I got from a few people I trust. If an FTer accountant can chime in with details that'd be great since I can't hassle these guys anymore on this.
peace,
~Ben~
Nov 17, 2006, 9:39 am
#55
Join Date: Aug 2001
Location: Reno, Nevada
Posts: 7,368
Originally Posted by seoulmanjr
I think from a tax/IRS perspective your scenario in #1 is far too simplistic. The two accountants told me that if the IRS looked at it and saw nothing was being exchanged or it was a patently unbeleivable assertion ($1mm for an empty envelope), then the $1mm in expenses would be seen as a non-deductable personal expense. Therefore, not reporting the gain/revenue of $1mm is problematic. If you do report it and claim it as a wash, but they see the $1mm as a personal expense re: the above, then you're on the hook for a LOT of taxes.
I'm just saying that getting it to work is probably easier said than done, that's all, because one cannot just say that something was an expense to be deductible. The IRS has to accept it as such.
Mike
Nov 17, 2006, 10:26 am
#56
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Originally Posted by mtparadis
I don't understand how anyone could consider this "fraud." Who is being defrauded?
peace,
~Ben~
Nov 17, 2006, 4:23 pm
#57
Join Date: Mar 2005
Posts: 82
Originally Posted by seoulmanjr
Per the above, the IRS is being defrauded of taxes due since you'd be claiming as a legitiment business expense what they would see as a non-deductible pesonal expense.
peace,
~Ben~
peace,
~Ben~
Nov 17, 2006, 4:55 pm
#58
Join Date: Dec 2005
Location: Detroit
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Originally Posted by wtsuppr415
Even if this couldn't be deducted as an expense (which I disagree with), what would stop someone from just racking up the charges, and then refunding the "buyer" with a check 30 days later? It seems to me that would be 100% foolproof in terms of the IRS issues, and you would only need to worry about the Google TOS.
Nov 17, 2006, 4:56 pm
#59
Join Date: Dec 2005
Location: Detroit
Programs: Northwest Platinum
Posts: 1,533
Originally Posted by 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.
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.