Arthur L. Rubin <ronnirubin[at]sprintmail.com> wrote:

- quote -

I agree in theory. However, in practice, just how DO you go
about computing the exclusion and exactly WHAT code section
are you relying on for doing so? My whole point here is that
"mixed use" and "commingled" situations present unique
problems for tax purposes. Therefore, lacking specific code
provisions (such as 280A related to mixed use of a
residence), I think the courts would likely uphold the IRS
if they took an "all or none" approach to such issues. In
other words, it's either ALL business or ALL personal
depending on the facts and circumstances.

- quote -

Hey, I asked first. <g
There are lots of "Amway" cases out there and I don't claim
to have read all of them. Most deal with "activity not for
profit" issues and therefore we don't even get to the issue
in question. Some cases take note of the fact that Amway
distributors receive a certain amount of PERSONAL benefit as
the result of the ability to purchase products at wholesale
prices for personal use. This fact is then used to help
demonstrate that it is NOT an activity engaged in for
profit. So, the point is, the courts are aware of the
"personal" attributes of this kind of relationship and do
not hesitate to use those facts AGAINST the taxpayer.

MTW

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Michael T Wing CPA wrote:

- quote -

Of course! I'm not sure whether the correct component
of gross income is what the commission would have been
if there were no personal purchases (most agressive), or
by proportionate allocation; or only what the commission
would have been if there were no non-personal purchases
would be excluded (least agressive), but some exclusion is
appropriate.

....

- quote -

Can anyone cite "authoritative" cases where such an
exclusion was disallowed?

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Steve <s_pickle2001[at]yahoo.com> wrote:

- quote -

By the same token, it isn't always convenient or practical
for people with home offices to use them on a "regular and
exclusive" basis. Ditto for complying with the "listed
property" recordkeeping requirements if you use a computer
at home for a combination of personal and job-related
functions -or a combination of job and self-employment
activities. Ditto for people who use laptops away from their
regular workplace. Ditto for people who drive autos for a
combination of business and personal use. Ditto, ditto,
ditto, etc., etc., etc.

The point is, if you want the tax deduction and/or benefit,
you have to comply with the applicable rules. And, when
there is "mixed use" of a particular asset, those rules
typically required DETAILED records. If you don't feel like
keeping the records, no problem. You don't get the
deduction. Period. Simple.

The only thing that sets frequent flyer miles apart is that
they enjoy the unique protection of the nation's plutocrats:
members of Congress and fat-cat businessmen (the two groups
that appear to benefit most). <g> For some reason people
think that they shouldn't have to keep any records
whatsoever of their frequent flyer activities, and that the
resulting lack of records and/or the complications of
keeping adequate records should therefore excuse them from
taxation. I don't know where in the Internal Reve nue Code
people find any support for that point of view since (as
demonstrated above) it is clearly contrary to many other
analogous "mixed use" situations.

MTW

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Steve <s_pickle2001[at]yahoo.com> wrote:

- quote -

The answer to this is quite simple. If YOU have chosen to
COMMINGLE your miles, and you can't come up with a logical
and convincing methodology for separately accounting for
them, I think the courts would likely hold for the IRS if
they were to determine that ALL miles represent taxable
income when used. This would be entirely consistent with
many other tax issues where the failure of the taxpayer to
maintain adequate records works to the taxpayer's detriment.

Similar issue: Are Amway (and similar) representatives
allowed to exclude from income that portion of their
commissions that relates to their "personal" purchases,
notwithstanding the fact that the combination of the
personal AND business purchases pushed them into a HIGHER
commission percentage category than they would have
qualified for based on the business purchases alone? Can
anyone cite "authoritative" cases where such an exclusion
was allowed?

I have never seen a case where the courts have ruled that
income tax doesn't apply to situations that are
"complicated." <g
MTW

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"BMS" <mcfared[at]comcast.net> wrote:

- quote -

Another flaw is that orig poster is using "cc company"
loosely. The card issuer (bank) - who issues the rebate -
does not set the merchant fee, nor directly receive any part
of it. VISA, MC, etc. are merely member-owned organizations
who provide the network and set the rules. Two or three
further unrelated entities intervene between merchant and
purchaser. Where unrelated entities are involved, it's not
just substance, but form also.

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Arthur L. Rubin <ronnirubin[at]sprintmail.com> wrote:

- quote -

I would say it's clearly a discount on X, since the
acquisition of Y isn't an issue (and you can't give a
discount on a gift, say, and especially not on stolen
merchandise, either of which qualifies (in practice if not
legally) for ownership of Y).

- quote -

What's interesting is that Sales Tax works differently: it's
charged on the full price, the rebate doesn't matter; _some_
discounts are pre-tax-calculation (those offered by the
merchant), some are after-tax-calculation.

Seth

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Arthur L. Rubin <ronnirubin[at]sprintmail.com> wrote:

- quote -

I would say it's clearly a discount on X, since the
acquisition of Y isn't an issue (and you can't give a
discount on a gift, say, and especially not on stolen
merchandise, either of which qualifies (in practice if not
legally) for ownership of Y).

- quote -

What's interesting is that Sales Tax works differently: it's
charged on the full price, the rebate doesn't matter; _some_
discounts are pre-tax-calculation (those offered by the
merchant), some are after-tax-calculation.

Seth

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Dick Weaver <rweaver[at]ix.netcom.com> wrote:

- quote -

[lots of analysis snipped]

You've made a long, complicated analysis, but it doesn't
change the fact that the net effect is that you paid (say)
$99 for an item priced at $100. That's not taxable income,
no matter whether the discount comes from the merchant or
the credit card company.

I think you'll find the IRS will agree with the credit card
companies about this.

You mentioned a number of hypotheticals. The most
interesting is one where, say, "The Institute for Improving
the Economy" decides to reward you for spending money by
sending you 1% of your purchases last year. You have no
previous relationship (business or otherwise) with the
Institute, and they have not offered this deal in advance.
In that case, this is a *gift* from the institute to you,
and if it exceeds $11,000 in a year the institute (not you)
would owe gift taxes on it.

--
I pledge allegiance to the Constitution of the United States
of America, and to the republic which it established, one
nation from many peoples, promising liberty and justice for
all.

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"Michael T Wing CPA" <mtwingcpa[at]yahoo.com> wrote:
- quote -

I cannot think of many reasons for the airlines' stance, the
only good reason that I can think of is that there are
certain promotions, for example sign-up bonuses, which are
meant to be used only once per person.

You must realize that it is not always practical, to use
different airlines for personal and business travel, for
example, if you live in a city served by one airline only.
You often don't have a choice about which airline to fly on
business, your company may have a contract with a particular
airline, requiring you to use that airline unless it is
impossible, very inconvenient or very expensive. Even if you
are extra careful and avoid that airline for personal trips,
you might find that your company changed its contract and
now you have to fly an airline you have flown on a personal
trip before.

- quote -

qualify for gold status, these miles came from both business
and personal travel, but I would not have qualified on the
basis of business or personal travel separately. Next year I
am only taking personal trip, but I will get 50% extra miles
on every flight I take. Do these extra miles qualify as
perks of my employment, and if so, in what proportion? What
is the answer if I flew enough personal trips to qualify for
gold status, but I also made some business trips?

Steve

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"Dick Weaver" <rweaver[at]ix.netcom.com> wrote:

- quote -

The flaw in your argument has been that the merchant is not
a party to the transaction.

The cc copany's pitch is we'll provide a bonus incentive so
that a consumer that may not want to buy is encouraged to
spend maybe even more with the rebate.

Dick Weaver wrote:

- quote -

That's because it IS a discount on the purchase
price, however it's structured. The IRS is a
firm beiever in "substance over form", and the
SUBSTANCE of the transaction to the consumer is
that he/she has less of an expense.

To the moderator: this is still polite, on the
whole, but is it getting anywhere?

- quote -

Actually, that distinction is highly questionable, considering
the structure of rebates. For an example, is a rebate on
product X, only valid with proof of ownership (not proof of
purchase) of product Y, a discount on X or on Y or taxable?
Does it depend on whether X or Y or Z is giving the rebate?

The answer to the former question seems to be X, but
the answer to the latter is clearly NO.

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Arthur L. Rubin <ronnirubin[at]sprintmail.com> wrote:

- quote -

newsflash, use a different airline for personal purposes (just as
most people find if preferable to use different banks,
credit cards, automobiles, rooms in their home, etc.).

- quote -

been successfully applied in other areas, save for the ~political
will~ to address the problem in the first place. <g
MTW

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Thanks to everyone who has helped me thus far.

My model of the credit card "rebate" remains:

"Hey, consumer, if you use our card so that we can get
into the pockets of your merchant for our fee, we'll
split the take with you".

It is to the cc companies advantage to describe that
spliting of the take as non-taxable, increasing the
effective payment to the consumer. The cc companies have,
to date, accomplished this by confusing their splitting of
the take with rebates. My intent is to strip away the
"rebate" fog and make clear the underlying transaction.

Abstracting, as I did in the earlier m.t.m. thread, a $100
purchase, 5% cc fee, 1% "rebate" thus:

$95 merchant
4 credit card company
1 "rebate" to purchaser

loses significant details, making the cc "rebate" look like
any other purchase rebate (as was pointed out by several
respondents to my previous m.t.m. post - thanks).

Thinking (uh oh) about it again: Can anyone give me a
rebate? Can HP give me a rebate on the purchase of an IBM
computer? Suppose the Noble Consummer Awards Commission
called me at 4am to say that, for my services to the world
in spending 20K in 1995 they are rebating 1% of those 20K
1995 purchases, sending me a 2003 dated check for $200.
Taxable income? I don't know, but these questions emphasize
the separateness of the "rebate" from the purchase. And the
Noble Consumer Awards Commission's money was never my money.

The Noble rebate check was a second transaction. Does
viewing the purchase and cc "rebate" as a single transaction
makes it more difficult to see that the cc "rebate" is
taxable? Is it really one transaction or are there two
transactions?

Ahhh, that word "two" did the trick. There is more than one
thing going on when using a cc with a "rebate"

The first thing is the purchase. Selecting merchandise,
negotiating price, all ending at the cash register in an
exchange of goods for trusted tokens - that is a purchase.
Rebates, discounts, sale prices, all might be involved, but
at the cash register the purchase is complete (even though
delivery of merchandise, rebates, and discounts may occur
later). Rebates and discounts can be based on attributes
independent of the merchandise purchased, "10% off for
seniors on the 1st Wednesday of the month" for example.

The second thing is my acting as an agent for the cc
company. There is a quid pro quo; as agent I act, requiring
the seller to pay a fee to the credit card company, a 3rd
party, and I AM PAID BY THE CREDIT CARD COMPANY FOR ACTING
AS THEIR AGENT. This cc payment to me for acting as their
agent is what the cc calls a "rebate".

TWO different actions: purchase and agent, commingled in
one transaction.

The payment I get, a year later, is calculated on a sliding
scale of the gross cc fees my acting as agent generated,
unrelated to any specfic purchase. On fees, NOT on
purchases. CC companies that have negotiated lower fees for
warehouse stores accordingly pay me a lower cc "rebate" for
purchases at those stores. CC trasactions that do not
generate a fee do not get a "rebate".

The model: $100 purchase, 5% cc fee, 1% "rebate" is:

Purchase:
$95 merchant
5 cc company fee

Payment from cc company to agent for fees generated
1 payment to agent

Rebates and discounts are determined by purchase.

I am paid to act as an agent. Not a rebate, not part of the
purchase. The payment to the agent is for acting as agent,
for generating fees. This quid pro quo is the difference
(just as quid pro quo changes charitable donations to
non-charitable). Cc "rebates" are taxable income.

For those who've read this far and are considering posting a
response:

-- is there a quid pro quo between the cc user and the cc
company offering "rebates"?

-- if "yes", does that make the cc "rebate" taxable?

-- are there prior IRS/taxpayer actions where a quid pro
quo made a difference, either way, such as it does for
charitable?

Thanks

dick w

------------------------

Comments on several earlier responses follow. I've deleted
some text from these responses, not intending to change
meanings or arguments. Complete posts can be retrieved
using Google.

---------------------------
"From: bgold[at]nyx.net (Barry Gold)

"Assume you buy a color printer/scanner/fax/copier
"(all-in-one) for your home use. The retail price is $500.
"
"You pay cash:
" $ 500 merchant
"
"You pay by credit card with a 1% rebate:
" $ 475 merchant
" $ 20 credit card company
" $ 5 "rebate to purchaser"
"
"The net effect is that you paid $495 instead of $500 for the
"printer. It doesn't matter if the discount is offered by the
"merchant or by the credit card company. The net effect is
"the same. Hence, you have no taxable income, any more than
"you would if some merchant advertised the same item for $495
"when everybody else is selling it for $500.
"
"Now assume you buy the same all-in-one printer on behalf of
"your employer, who reimburses you based on your receipt.
"
"Now the transaction looks like this:
" $ 475 merchant
" $ 20 credit card company
" $ 5 "rebate to purchaser"
"
"*But* look at who actually paid and who got money. Your
"employer paid $500, of which the merchant kept $475 and the
"credit card company took $20. But you got a $5 "rebate" on
"money that _you_ didn't spend.
"
"In effect, the $5 "rebate" has become a "perk" of your
"employment. That is why it should be reported and you should
"pay taxes on it.

The credit card company paid me $5 in the two examples above
for acting as their agent and generating two $25 fees. Both
should be taxed. Note especially the transaction for my
employer - its not a rebate to the purchaser (my employer),
it is a payment to me for generating the $25 fee. A rebate
WOULD go to my employer.


"And _that_ is the reason the IRS proposed taxing "frequent
"flyer" miles. Say you fly across the country on SwingWing
"Airlines, for a fare of $500. Your employer pays the fare,
"but you get 2500 frequent flyer miles. When you later cash
"those miles in, you have gotten a benefit (free or
"discounted air travel) as a side effect of your employement.
"That (should be) taxable income.

Frequent flyer miles are a discount, associated with the
purchase, and with interesting questions of their own. But
not related to cc "rebates"; there is no agent/fee
generation. Only a normal purchase transaction which, like
all purchase transactions, can include rebates, discounts,
sales, ...

" From: "Arthur L. Rubin" <ronnirubin[at]sprintmail.com"

""Example. You sell cars and help arrange car insurance for
"buyers. Insurance brokers pay back part of their commissions
"to you for referring customers to them. You must include the
"kickbacks in your income."
"
"In that example, you're not paying for the car insurance --
"the buyer is. Hence your kickback (legal or not) is coming
"from a third party.

Exactly! And that is the cc case where I act both as buyer
and as agent (broker)! It's that dual function I failed to
describe in my earlier posts. And that dual function is
what the cc company had used to fog/conceal the agent
(broker) payment as a "rebate".


"<< -------------------------------------------------""
"" renormalize <NOSPAMrenormalize[at]hotmail.com" wrote:
"
"" To me, it appears similar to taking the cash rebate on a car
"" that you purchase outright, without financing it. That's
"" considered a reduction in the purchase price and
"" non-taxable.

Your example is reduction in price. A true rebate, the
buyer is not acting as an agent, no fees generated to 3rd
parties. Not the same thing as the cc "rebate".

"<< -------------------------------------------------""
" From: "FF" <n3-eu[at]comcast.net"
"
"That's an interesting analysis, but IRS has ruled in private
"rulings that these [cc] rebates are not taxable, unless the
"purchases were deducted as a business expense.

We'll have to change that!

thanks again, everyone
dick w

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"Michael T Wing CPA" <mtwingcpa[at]yahoo.com> wrote:

- quote -

you only have one frequent flier account, I remember reading
it among the terms and conditions. Of course, it would be
easy to circumvent it and the airlines would be unlikely to
detect if you had two accounts with different addresses.

Steve

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Michael T Wing CPA wrote:

- quote -

Not necessarily. It may be a violation of the FFM rules for
an individual to have two different accounts.

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Seth Breidbart <sethb[at]panix.com> wrote:

- quote -

No, it wouldn't. <g> The solution to this problem is really
quite simple, and it rests on what I consider to be one of
the "generally accepted" accounting principles: "He who
commingles bears the responsibility for the consequences."

If you choose to combine business and personal FFMs in a
single account, then that is YOUR choice. <g> There is no
reason why you should escape taxation simply because you've
chosen to make the situation complicated. <g
MTW

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Barry Gold <bgold[at]nyx.net> wrote:

- quote -

I think the bigger problem there would be trying to figure
out which of my frequent flyer miles came from
employer-purchased travel, and which came out of my own
pocket. The cost of doing that (in terms of hassle, not to
mention the practical impossibility of doing it
retroactively) would greatly exceed the benefit of taxing
it.

Seth

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[several levels of quoting, with attribution lost...]
- quote -

I don't think it's that way in all states. In many cases
the only thing that requires that credit card fees be
included in the listed price is the credit card company's
"merchant agreement". Basically, if you want to take Visa
or Mastercard, you have to sign a contract that says you
won't add an additional fee for using the credit card. (But
the merchant _is_ allowed to offer a discount off the listed
price for cash.)

That is, if the advertised price (or shelf price) of the
item is $99.95 and you walk in with your Visa card, $99.95
(plus sales tax if any) is charged to your Visa card. But
the merchant could, if he chose, sell you the item for
$97.95 if you pay cash. That way you save $2 and the
merchant saves $3 (assuming a 5% credit card fee).

And then Dick Weaver <rweaver[at]ix.netcom.com> wrote:

- quote -

I think Dick's analysis is a little over-simplified. Let's
take an example.

Assume you buy a color printer/scanner/fax/copier
(all-in-one) for your home use. The retail price is $500.

You pay cash:
$ 500 merchant

You pay by credit card with a 1% rebate:
$ 475 merchant
$ 20 credit card company
$ 5 "rebate to purchaser"

The net effect is that you paid $495 instead of $500 for the
printer. It doesn't matter if the discount is offered by the
merchant or by the credit card company. The net effect is
the same. Hence, you have no taxable income, any more than
you would if some merchant advertised the same item for $495
when everybody else is selling it for $500.

Now assume you buy the same all-in-one printer on behalf of
your employer, who reimburses you based on your receipt.

Now the transaction looks like this:
$ 475 merchant
$ 20 credit card company
$ 5 "rebate to purchaser"

*But* look at who actually paid and who got money. Your
employer paid $500, of which the merchant kept $475 and the
credit card company took $20. But you got a $5 "rebate" on
money that _you_ didn't spend.

In effect, the $5 "rebate" has become a "perk" of your
employment. That is why it should be reported and you should
pay taxes on it.

And _that_ is the reason the IRS proposed taxing "frequent
flyer" miles. Say you fly across the country on SwingWing
Airlines, for a fare of $500. Your employer pays the fare,
but you get 2500 frequent flyer miles. When you later cash
those miles in, you have gotten a benefit (free or
discounted air travel) as a side effect of your employement.
That (should be) taxable income.

It isn't, of course. The IRS floated the idea at least
twice that I remember, and there was such an uproar over it
that they gave it up as a bad job. Some things are just too
politically sensitive for even the IRS.

Sacred Cows? We got plenty.

--
I pledge allegiance to the Constitution of the United States
of America, and to the republic which it established, one
nation from many peoples, promising liberty and justice for
all.

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- quote -

No. Common sense says it's a discount. Consider
the next paragraph:

"Example. You sell cars and help arrange car insurance for
buyers. Insurance brokers pay back part of their commissions
to you for referring customers to them. You must include the
kickbacks in your income."

In that example, you're not paying for the car insurance --
the buyer is. Hence your kickback (legal or not) is coming
from a third party.

.....

- quote -

So -- the net result is that the purchaser paid $99, of
which $95 went to the merchant and $4 to the credit
card company. The IRS generally follows the maxim
"substance over form".

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- quote -

You were being generous when saying "interesting analysis".
Reading it the next morning, I thought it was pretty bad.
Here it is, more clearly stated. And IRS Pub 525 states
"You must include kickbacks, side commissions, push money,
or similar payments ... in your income". I'm not a
tax professional, common sense says its a kickback or
fee-splitting.

And, yes, common sense isn't worth much against a
pro-business adm. and a little scam that everyone likes.

---------------------

Consider a simple example: a $100 purchase using a credit
card with a 5% merchant fee.

For a credit card without a "rebate", the $100 payment made
to the credit card company is distributed as follows:

$95 merchant
5 credit card company

The same purchase, with a 1% "rebate" is distributed a
follows:

$95 merchant
4 credit card company
1 "rebate" to purchaser

Thus the so-called rebate is, in fact, a kickback of 20% of
the credit card fee, taxable income, required to be reported
on a 1099-MISC.

That the kickback is calculated on the purchase price and
not on the credit card fee is moot; all kickbacks that are
percentages of a percentage fee can be specified and
calculated on either the purchase price or the fee.

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