Speaking of charging for miles, does anyone know what the current yearly maximum is on traditional AA Citibank cards (MC) and on AA Citibank Business Platinum?

It won't work!

There is no such thing as a Widget!

http://www.flyertalk.com/forum/biggrin.gif

This plan runs into a couple problems.

1. The aforementioned fees for credit card use. Most people are not willing to eat the fees for the miles, as it usually is not worth it.

2. If you charge a lot to a card and are getting cash/checks from friends, the IRS may come after you and want you to pay tax on that "income". I have heard stories of people who could pay their rent with credit cards. They had friends who paid with checks and simply asked the friends to write them the checks so that they could use the credit card to charge the rent for the miles. The IRS sees that you are getting this money from friends and they decide to view it as taxable income and you are left to prove that it is not income. I will pay restaurant bills and collect the cash from friends and such, but I have not sought the opportunity to do it for larger amounts on a regular basis. If you did end up paying income tax on it, those would become some pretty expensive miles.

This is not a problem if your friendly merchant records it on his book as a cash refund for a returned item.

The real problem is that this is a violation of his merchant credit card agreement. Credit card companies don't like deals that result in cash advances disguised as purchases, since most cardholders have much lower cash advance limits than credit limits. As a result they are very strict about enforcing rules intended to prevent this : In this case they would almost certainly catch it and cancel the merchants credit card account (ruining him since he can no longer accept credit cards) and perhaps even cancel the customer's credit card account.

Strangly credit card companies are not too concerned about your airline miles, since those are paid by the merchant discount fee.

Many credit card agreements also forbid you to use your personal credit card to charge buisness expenses : the rationale is that they offer buisness (corporate) credit cards which cost the merchant a higher discount rate and usually have higher annual fees. I have had a relative threatened by Discover card because he bought 3 computer in 1 month on the grounds that if he continued they would assume he was buying stuff for his employer (which wasn't far from the truth) and cancel his card.

You have not concept on how merchant agreements work...Your "merchant friend" is dumb or your dumber. Someone is eating the Merchant fee of 1% to 3.5% so on five grand your friend is losing over a $100 bucks which could be in his pocket.

Now if you really mean your merchant friend is not trully a meachant but acting as a sales agent such as travel agency..then both of you are "putting it" it to the real merchant like an airline.

No ... I was just trying not to muddy the waters.

I assumed I would make good on the fees so that he would not be out any money. This is the figure I would use to determine whether it was worth it or not.

To repeat the numbers used above, 2% of $5000 is $100. On the DC/BA deal, this represents 10,000 miles, or one cent/mile. I repay the merchant the hundred bucks he is out, and I get the miles at a price I find agreeable.

Other percentages/airlines make the math different.

My merchant friend may be crooked, but not stupid. http://www.flyertalk.com/forum/smile.gif

All my relatives and friends know that I am a FF mile junkie, and I always tell them about the many opportunities to get miles without flying but they don't want the "hassle."
I see nothing unethical with getting miles from your friends' and relatives' transactions as long as there is full disclosure. I let our adult sons charge on my credit card -- I get the miles and sometimes let them keep a little of the cash. http://www.flyertalk.com/forum/smile.gif

My friends and I have this worked out to everyone's satisfaction: I keep the miles, but I'm pretty generous when we all go on vacation!

fiat_owner

You really don't need a friend to do this. You can open your own sole proprietorship and sign up with a credit card clearing house. You can do MC and Visa transactions for less than 2%. The credit card charges go directly to your business bank account; you can write yourself a check from your business account, deposit it into your personal account, then write a personal check to the credit card company.

So there's a whole lot of money going through your business account, but you're not claiming any revenue on your tax return. So what? Banks don't report deposit and checking activity to the IRS, so you don't have to report all deposts as revenue. If the IRS audits you and sees a bunch of money going in and out, it's pretty easy to explain. There's no money laundering, because you're just recirculating the money every few days and the money's easy to follow. Fraud? Sure, as far as the airline is concerned - but the IRS won't care that you're defrauding the airline out of frequent flyer miles; they're only concerned with defrauding the government.

Will the airline know? Probably not - there are more people than you would realize that charge hundreds of thousands of dollars a month on their mileage-earning credit cards. Look at OzFlyer - over 35 million miles on his Diners.

Is it worth it? If you think you miles are worth a lot more than $0.02/mile and you can use a lot of miles, then it just may be.

Well, the typical 2-2.5% rate is for visa/mc.. amex is somewhere around 3 and discover is even higher at 3.5% or so.. diners club is probably higher... if a friend with a merchant account were doing this for you and was audited like someone else mentioned they would see these thousands of dollars of extra deposits from the merchant account that wasnt on the books and assume it was other income.

Huh? How would you know this? Is there some way he did this and let everyone know about that I missed? 35 million miles is a lot of miles.

http://www.flyertalk.com/pasttalk/ft...ML/006564.html

Mind you, I would never accuse OzFlyer of doing anything illegal or unethical. You have to admit - 3 million Diners points on one transaction is pretty sweet.

Also check this thread:

http://www.flyertalk.com/pasttalk/ft...ML/006565.html

He talks about doing $5M (I assume AUS) per year on credit cards. Someone laundering a million or two a year probably wouldn't show up on the radar.

No need to go postal dude...it seems like an interesting conversation to me.

Interesting that the BigLar originally asked about the ETHICS of the scenarios, and most of subsequent posts are about the COSTS of the scenarios. Ethics should really have nothing to do with whether it is financially advantageous to do so.

As far as the ETHICS of the scenarios --

I have to go with the poster who commented about cash advances 'hidden' as a charge. That is clearly against most CC rules of usage. IMHO, the ethics tips from OK to not-so-OK (and to a resounding NO for #6 http://www.flyertalk.com/forum/smile.gif )when the magnitude and intention become substantial. When dining, I often take my friends' cash and charge the meal, but usually more for convenience or I am short on cash (I confess, the miles aspect lurks in the background). But to do it routinely and for 'large' amounts of money (not sure how much that is), then the ethics get iffy.

So, IMHO -- 1&2 seem innocent enough, probably 3 too (an isolated case); but 4&5 are a pattern of deception and, to me, are ethically deficient.

And finally -- dude, where are you buying your widgets? I get mine for $3K tops!

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Da DOK

Well if that is true, then BigLar is getting 5000 miles for an impossible purchase -- REALLY unethical http://www.flyertalk.com/forum/biggrin.gif

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Da DOK