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 ...
Who was “losing money”? The gubmint believes that all money is theirs except what they allow you to keep.
Yes. When it amounts to a discount on things bought, it’s not taxable.
I’d say the state probably owes us money for that because we paid taxes on the full price.
This was 8 years ago.
I assume the folks at the various institutions figured this out and put some limits or prohibitions on it.
Like maybe you can’t buy millions of dollars of gift cards with your AMEX.
Not sure though.
As I understand it, the credit card gave him 5% back on purchases. He used his credit card to buy store cards, say for example 7-11 cards. He buys $1000 worth of 7-11 cards and gets $50 back from the credit card company. Then he goes to 7-11 and gets a $1000 money order using the gift cards. Then he deposits the $1000 money order back to his bank and pays his credit card bill. He essentially got $1000 for a net of $951 give or take. If you are an OCD type and have the resources you could theoretically bank many thousands of dollars a month doing this. Imagine if you could do this with $3000 or $5000 a day.
So of course the IRS will call that $49 per $1000 as income.
$6.4 mil in charges in two years.
A busy guy.
he must of found someone who would give out money orders for free using a credit card (or for a fee far smaller than the 5% discount he was getting)
Then he just ramped it up, until the numbers flowing through his bank grew large enough for the bank to report the activity to the IRS.
Thank you all. That was a tough read for me.
So the only rewards are from using the credit card. Everything flows from that...
here is a better link that describes better how he did it, without a paywall.
At the USPS, a 1000 dollar MO costs $1.75 or .175%
Plcmrk
Rewards are discounts. Do we have to pay income taxes on our grocery store coupons?
Stupid article.
Obviously the guy has to make a value judgement.
Cost of paying the taxes demanded vs cost of tax attorneys to represent him and possibly win.
Vonnegut was a great author.
I started paying attention after his mini roll in “Back to School”
Diane : Whoever *did* write this doesn’t know the first thing about Kurt Vonnegut!
[cut to Thornton’s dorm suite]
Thornton Melon : [on the phone] ... and *another* thing, Vonnegut! I’m gonna stop payment on the cheque!
I take advantage of credit card companies all the time. My favorite thing to do is this:
You know when you are at a department store and they offer you a massive discount on your purchase if you get their card? If I am already there making a massive purchase (I have a large family) ... I get the card, receive the deal, then simply reach into my pocket and pay the bill with the case I was going to use, then cancel the card.
...
After about 6 months or so (about as long between large purchases) you can do the whole thing again.
lol
Air Miles are awesome, they can be used to score free flights, hotel stays and if you’re really lucky, the scorn and hatred of everyone you come in contact with who has to pay full price when they travel. The king of all virtually free travelers is one David Phillips, a civil engineer who teaches at the University of California, Davis.
David came to the attention of the wider media when he managed to convert about 12,150 cups of Healthy Choice chocolate pudding into over a million Air Miles. Ever since, David and his entire family have been travelling the world for next to nothing.
So how did he do it? Well, first we need to explain the kind of man David Phillips is; he’s the kind of guy who reads every inch of the small print on things. The kind of guy who learned to count cards just so he’d never get ripped off in a casino. In fact, Phillips stated that he could have probably been a pro card player if it wasn’t for the cigarette smoke. Yes, this guy- according to him- could have been a millionaire card player, but he enjoyed fresh air more than the musky stink of success.
His most famous endevour was back in 1999 when he saw that Healthy Choice was having a promotion on their frozen entrées section. The offer was as follows: for every 10 bar codes of their product a person sent in, they’d be awarded 500 Air Miles. However, the company had an early bird stipulation that people who redeemed the offer within the first month of the competition would receive double that, meaning a person could potentially receive 1000 Air Miles for buying just 10 of their entrées.
Upon catching wind of the deal, David scoured his local supermarkets to see which, if any products offered the best potential return. After some legwork, he found what he was looking for- a discount grocery chain that was selling individual chocolate pudding cups for 25 cents each. This meant that for a measly $2.50, he could get 1000 Air Miles.
Realising the amazing return he was potentially able to receive, David set out to hit every store in the chain in one day and buy up every single Healthy Choice pudding they had.
Now, you’re probably thinking a guy walking into several stores and asking to purchase all the Healthy Choice pudding they possessed, even in the back of the store, would arouse suspicion; and if anyone cottoned on to what he was doing, they’d try to get in on it too, because, why wouldn’t they? David apparently had the same concern and while buying the pudding, he told people he was doing it because he was stocking up for Y2K, which was just around the corner.
All in all, David spent just over $3000 on pudding, which may seem like a lot, until you realise the total dollar value of the miles he was set to receive was in excess of $150,000. However, before that, he actually had to send off all of the bar codes.
According to David, his wife got blisters from peeling off hundreds of stickers and his kids and co-workers grew physically sick of the sheer amount of chocolate paste he was forcing on them. Further, it began to look doubtful they’d be able to peel off all the barcodes in time to qualify for the early bird part of the promotion.
This is when David had another idea- why did he need to have his wife and children suffer when he could get others to do the leg work for him?
David approached the local Salvation Army with an offer; if they gave him a bunch of volunteers to peel off all the bar codes on his pudding, he’d donate the pudding to them. But here’s the beautiful part, doing this counted as a considerable charitable donation, which let David claim just over $800 back in tax deductions at the end of they year.
But the benefits of David’s scheme didn’t end there. After sending off the bar codes and getting back his 1,280,000 miles, (he got a few more than just from the pudding because he also bought some soup at 90 cents a can before he realised that was the sucker’s method), he now officially had over a million miles in his frequent flyer accounts, which automatically gave him lifelong access to something called the “American Airlines AAdvantage Gold club” giving him and his family a number of awesome flying related perks for the rest of their lives.
But we haven’t even got to the best part yet. David will likely never run out of Air Miles because he’s still earning miles at about 5 times faster than he’s spending them, despite traveling quite often, thanks to various frequent flyer incentive programs he keeps an eye out for and exploits just like the pudding scheme. Today, he has over 4 million miles in his various accounts and has flown to over 20 countries and taken numerous vacations in the meantime.
In the end, for a one time cost of a little over $3000 (or less if you subtract the tax deduction), and a few other similar deals he’s taken advantage of to bolster his numbers, David never has to pay for a flight in his life ever again. Genius.
If
They (credit card) make the rulesTo play from. If you can play it to your advantage a small bit then IRS is ok with it. If you make it your full time job to play the rules then apparently it’s income. So what value of rewards is the threshold for the IRS ? 2k, 10K, 100K. We know now that 300+K is over the limit into income.
Right (at least as far as I understand it). He was essentially able to buy $100 bills for $96 or so after all was said and done. Just took a bit of recycling the credit card to gift cards to money orders to deposit to pay the credit card. Rinse and repeat to the tune of $6.5 million it adds up.
The title is misleading. It wasn’t so much the “rewards” that were taxable but the fact that he was able to churn his cash and earn say 4% or so in cash using the rewards.
Still is rewards which the IRS hasn’t gone after before. Slippery slope IMHO.
Merchants loose money, they get shafted on the fee.
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