Guy makes $300K from gift-card rewards, IRS comes knocking

[ATCclears]

He Got $300,000 From Credit-Card Rewards. The IRS Said It Was Taxable Income.

A physicist used credit-card rewards, gift cards and money orders to generate more than $300,000. Then the IRS went after him.

www.wsj.com

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[Alexx1401]

Did not bother to read the "details" but, comes as no surprise and should not to anyone else. Several places I have worked give out "bonuses". These have always been taxed. Place I work now when they give them out as rewards they are taxed. Our insurance has a program to "stay healthy" and each of us can make $450 a year or $900 for couples. It's given out in gift cards and they make it clear that at the end of the year it goes on your W2 and we are taxed on it.

 

[The Heretic]

Did not bother to read the "details" but, comes as no surprise and should not to anyone else.

The devil is in the details.

Normally the IRS does not treat CC rewards as income, but his case was a bit different with how he generated income.

My bet is that American Express has already changed their rewards program.

 

[Labradorian]

The headline is click bait. "....Then the IRS went after him."

How about:

"Dr. does cute trick and cheats people who do pay taxes by failing to pay his taxes."

 

[The Heretic]

The headline is click bait. "....Then the IRS went after him."

How about:

"Dr. does cute trick and cheats people who do pay taxes by failing to pay his taxes."

Meh.

I don't fault people for taking advantage of tax loopholes. The tax system isn't fair and any smart person would take advantage of any lawful tax loophole to avoid pay unnecessary taxes. I do it when I deduct my property tax, mortgage interest and when I push income into a 401K so I will pay less tax later when I take it out when I am in a lower tax bracket.

This year I will also avoid most of my taxes on business income by putting most of that income into a solo 401K and some of it by declaring a business expense - all above board and legal. And I do not feel bad about it.

Not everybody can do this, and some people say that isn't fair - but that is our tax system; people who make more income have more opportunities to somewhat avoid the higher tax rates they have to unfairly pay simply because they make more income.

A fair tax system would have everybody paying the same flat percentage/rate, on everything they purchase, no deductions, no exemptions, no subsidies, no rebates, no loopholes.

But we will never have such a fair system because there are too many entities who want to use our current system to control people, and too many entities that benefit from it financially. So, since I pay a percentage rate of 2X (or more) on my income (even after taking advantage of legal "loopholes"), I don't feel guilty at all. Some people in low tax brackets wind up paying no taxes, some even get refunds where they get paid by the government more than they paid out in withholdings (although FICA usually cannot be avoided - but then they may get more than they put in when they apply for SS benefits).

Then there is FICA (Social Security and Medicare). If I die tomorrow, my kids will get about $250 in a burial benefit and the government gets to keep the hundreds of thousands I have paid in FICA - my kids won't get any of it. That isn't fair.

 

[Alexx1401]

The headline is click bait. "....Then the IRS went after him."

How about:

"Dr. does cute trick and cheats people who do pay taxes by failing to pay his taxes."

I did not feel like reading through it, all I needed to see was he made hundreds of K. ANYONE smart enough to find a way to clear this kind of cash has zero excuse to get caught pants down by the IRS. If he was smart enough to make this kind of money, he should have been smart enough to seek legal help when it came tax time.
Long ago when that one show hit TV one of the early winners did this. Made half a Mil I think it was? Ended up doing time for tax evasion. When you find "some way" to start getting that much cash in your name you have to stop and think, maybe I should pay a pro to see how to keep as much as I can from the IRS. Or be standing there shocked when they come knocking at the door thinking you really did not need to claim this kind of income. Give me a break.

 

[The Heretic]

It is hard to say whether he got a pro opinion on his income source or not. He probably did at least some research on it.

I personally have never thought to declare my Amazon reward points as income - although they certainly do not amount to $300K in a year, and according to the article they would not be income, but rather discounts. OTOH, if I was using CC rewards to generate actual income, especially if it was more than the few hundred $ I get in Amazon points, I would probably consult a tax professional - even more so if it was $300K.

You really need to read the article to understand what he is on the hook for - as I read it, he is not on the hook for the full $300K, only some fraction of it (probably more than $3K - the portion he got discounted for money orders?) - the article says he and the IRS are working that out.

 

[Siglvr]

When I first got my "cash back" credit card years back, I bought some US Treasury bonds and got a rebate from my Credit Card company on them. I realized I could be maxing out my card on T-Bills, depositing the T bills in my checking account and paying the credit card then buying more T-bills and make a decent: living but the bottom line is I just didn't have the stones that guy did. I figured it was likely illegal and someone would come knocking so I didn't do it.

That guy did. $6.4 million in CC purchases. Now they're knocking.

 

[Certaindeaf]

When I first got my "cash back" credit card years back, I bought some US Treasury bonds and got a rebate from my Credit Card company on them. I realized I could be maxing out my card on T-Bills, depositing the T bills in my checking account and paying the credit card then buying more T-bills and make a decent: living but the bottom line is I just didn't have the stones that guy did. I figured it was likely illegal and someone would come knocking so I didn't do it.

That guy did. $6.4 million in CC purchases. Now they're knocking.

There's no statute of limitations on murder.. and tax liabilities.

 

[BBQ Guy]

It is time to defund the IRS and all the other alphabet agencies.

 

[Alexx1401]

It is time to defund the IRS and all the other alphabet agencies.

They are checking you for an audit as we speak

 

[BBQ Guy]

They are checking you for an audit as we speak

I've been through a few in my lifetime.
I tell them to bite me once it's finished.

 

[Siglvr]

2 audits here, both times came away with more than I went in with. That's not to say that the IRS hasn't sent letters requesting (and getting) money. It's easy to misplace a letter that someone took one of your company's private and since it was all autopilot without any input from you - you forget that you need to pay tax on any profit between what you bought it and sold it at.

Say, some random Feburary of the year. you get a letter "Company B has offered $XXXX( where X = too much) for the shares you own in company C. We've deposited your share of $XXXX, which is $X into a cash account. ("Oh, OK" then letter into trash the end). You don't file taxes for over a year and letter has long been forgotten.

That is, the end until @ 3 years later when the IRS sends you a letter: " You owe us about half of $X from many forgotten years back due to the sale of company C". Your first thought: "Who the hell is company C?" Then research, followed by DOHHH. LOL.

 

[BBQ Guy]

2 audits here, both times came away with more than I went in with. That's not to say that the IRS hasn't sent letters requesting (and getting) money. It's easy to misplace a letter that someone took one of your company's private and since it was all autopilot without any input from you - you forget that you need to pay tax on any profit between what you bought it and sold it at.

Say, some random Feburary of the year. you get a letter "Company B has offered $XXXX( where X = too much) for the shares you own in company C. We've deposited your share of $XXXX, which is $X into a cash account. ("Oh, OK" then letter into trash the end). You don't file taxes for over a year and letter has long been forgotten.

That is, the end until @ 3 years later when the IRS sends you a letter: " You owe us about half of $X from many forgotten years back due to the sale of company C". Your first thought: "Who the hell is company C?" Then research, followed by DOHHH. LOL.

We've had an audit because we didn't report something inconsequential in our view.
In one instance the original amount was $500 or so. By the time they did the audit 3 years later and added interest. The penalty/taxes were almost $500.
I was angry, real angry.

What gets me, is they collect interest on the unreported money.
If you skip a few years of taxes and money is owed to you, do they pay interest?
Nope.

That is why taxes are theft and the IRS should be de-funded in my opinion.

 

[The Heretic]

We've had an audit because we didn't report something inconsequential in our view.
In one instance the original amount was $500 or so. By the time they did the audit 3 years later and added interest. The penalty/taxes were almost $500.
I was angry, real angry.

What gets me, is they collect interest on the unreported money.
If you skip a few years of taxes and money is owed to you, do they pay interest?
Nope.

That is why taxes are theft and the IRS should be de-funded in my opinion.

Taxes are theft because the gov uses them for social purposes - mostly wealth redistribution, but also to manipulate behavior.

It is common for those in power to make rules where they do not pay for their mistakes. Banks do the same thing.

I've never had an audit. Generally the IRS goes after the small fry because we don't have tax lawyers and we are not able to spend thousands to hundreds of thousands for lawyers and court to defend a mistake we make where a few hundred are involved. I sometimes forget to declare a hundred or so of interest from my checking account or something like that, but when it comes down to it that would make very little difference, if any on the amount I owe/pay. Usually the IRS corrects my mistakes and I get a refund because I overpaid. The state on the other hand usually says I owe more than I calculated.

 

[Member 5605]

He was/is a peon, only the Gov can manipulate money and make money.

 

[Knebel]

The guy is a genious for doing that!