Renee Foshee, J.D., CPA-San Angelo
Taxpayers who use cash-back rewards cards should take notice of a new Tax Court decision.
In Anikeev v. Commissioner, T.C. Memo 2021-23, taxpayers who used American Express Blue Cash Rewards cards in 2013 and 2014 to purchase money orders and reload debit cards using credit card cash rewards had to include those rewards in income.
In this unique case, the taxpayers deposited more than $4 million in money orders to their bank accounts over a two-year period by charging $1.2 million in 2013 and more than $5 million in 2014 for Visa gift cards, reloadable debit cards and money orders on their American Express cards. They received cash rewards although purchases of prepaid cards and cash equivalents were not eligible for purposes of the Rewards program.
Taxpayers used their American Express cards to purchase Visa gift cards from local grocery stores and pharmacies. The gift cards were then used to purchase money orders that were deposited into the taxpayers’ bank accounts.
Taxpayers also used their American Express cards to load cash into reloadable debit cards. The debit cards were used to pay the taxpayers’ American Express balances directly and sometimes by using the MoneyGram service at Walmart.
The court agreed that the purchases of money orders and debit card reloads were includible in income because those transactions were not product purchases, but infusions of cash.
The purchases of the Visa gift cards, on the other hand, were different. The IRS argued that the purchases of Visa gift cards were cash equivalents includible in income, forgoing the argument that the Visa gift cards were products subject to purchase price adjustments. The court did not agree with the IRS and determined that the rewards associated with those purchases were not included in income.