Posted on 03/07/2021 3:41:19 PM PST by DUMBGRUNT
Konstantin Anikeev, an experimental physicist, assembled everything he needed for an inquiry far outside his field.
His materials included American Express cards, the government’s view that credit-card rewards aren’t income, and his own willingness to spend time buying gift cards and money orders. He pulled the concept from personal-finance websites: Exploit the difference between unlimited 5% rewards and lower fees on gift cards and money orders.
“If one has a theory, one can test it experimentally. Some are easier to test,” Mr. Anikeev said. “Others require a Large Hadron Collider or something like that. But this one was a bit more accessible.”
It (mostly) worked.
Mr. Anikeev’s financial-optimization plan in 2013 and 2014—including $6.4 million in credit-card charges—led to an Internal Revenue Service audit and a finding that he and his wife had more than $310,000 in income that should have been taxed.
So Mr. Anikeev used his AmEx card to buy prepaid Visa gift cards at grocery stores, routinely stopping during his commute and purchasing the maximum allowed per day at a store. He often used the gift cards to buy money orders, then used the money orders to make deposits in his bank account, then used that money to pay his credit-card bill.
“He’s a very mathematical, brilliant person,” said his lawyer, Mr. Sklarz. “And this was just something he thought was fun.”
(Excerpt) Read more at wsj.com ...
So who was losing money in this deal? I assume this article is behind a firewall.
Bkmk
IF “credit-card rewards aren’t income” then how little or how much he accumulated is irrelevant unless IRS is going to come after all of us for these funds as income.
Can he pay the IRS with gift cards?
7 Mar 2921
In the year 2921....
I forgot the rest of the lyrics.
If somehow he was able to turn CC purchases into cash, at no discount, that’s a huge tax policy problem.
“If somehow he was able to turn CC purchases into cash, at no discount, that’s a huge tax policy problem.”
I assume there is a fee for the money order.
—2921
“THE YEAR WAS 2081, and everybody was finally equal. They weren’t only equal before God and the law. They were equal every which way. Nobody was smarter than anybody else. Nobody was better looking than anybody else. Nobody was stronger or quicker than anybody else. All this equality was due to the 211th, 212th, and 213th Amendments to the Constitution, and to the unceasing vigilance of agents of the United States Handicapper General.”
by Kurt Vonnegut, Jr.
A fantastic read from an unlikely source?
http://www.tnellen.com/cybereng/harrison.html
“If you want to take my guns away from me, and you’re all for murdering fetuses, and love it when homosexuals marry each other ... you’re a liberal. If you are against those perversions and for the rich, you’re a conservative. What could be simpler?”
It wasn’t for me.
In a $500 transaction, the 5% rewards would yield $25—more than enough to cover gift-card fees of about $5 and the $1 fee on the money order.
I’m not quite sure how this scheme worked. You can’t buy money orders with credit cards but I guess some stores will let you buy them with store gift cards? I think MOs are as cheap as 99 cents per. So if you can buy $1000 worth of gift cards, at 5% rebate you get $50 back, or $49 after fees. Deposit money orders to your bank and pay off the charge before interest kicks in. Recycle this every day it can add up to about $18,000 a year. Perhaps he had even greater spending power so maybe tens of thousands a year for the physicist?
“If somehow he was able to turn CC purchases into cash, at no discount, that’s a huge tax policy problem.”
*He pulled the concept from personal-finance websites: Exploit the difference between unlimited 5% rewards and lower fees on gift cards and money orders.*
I’d say it does seem to be income because he’s not buying anything.
Rewards otherwise are discounts on product bought. IRS actually gains on taxable items.
In this cases, it’s pure finance. Moving money around the garner more money.
Is it income or capital gain? Probably income.
I have a problem with a federal judge encouraging a federal agency to write federal tax laws. if there needs to be a new tax law here, cowardly congress needs to vote on it and Joe Biden needs to sign off on it.
I believe the IRS announced several years ago that they were not going to treat airline frequent flyer rewards as income. So i wonder what they think about hotel stay rewards, etc.
The tax on $310k added on top of his income is going to be a big number.
If he got 1099 forms for all that rewards money his case might be a little more difficult.
Cue “Tax Man” by the Beatles.
Yes.
I think it is income.
When you get cash-back rewards, it’s not taxable. It’s like a partial refund on paying your credit card bill. The money you use to pay your credit card bill has already been taxed.
I get it now. Ignore my first response.
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