Comments on: American Express Reward Points

Question: American Express Reward Points

curiousleo — Sun, 04 Feb 2007 13:39:03 -0800

American Express Reward Point... Any Tax implications?

Our family has gathered a lot of AMX Reward Points over the years. I know we can buy items or services with them.

Are there any tax implications with using the points to purchase ... say business computer or personal equipments? Does it matter who in the family is using the points?

What if I buys some home depot gift cards and resell them on ebay...? What are the tax implications with the cash procede? Is there any?

I would like to know the technical/law view of this.

thanks for any help...

By: kindall

kindall — Sun, 04 Feb 2007 14:09:31 -0800

There are no tax implications. These points are a rebate or discount on something you've bought, not income.

By: grouse

grouse — Sun, 04 Feb 2007 15:21:08 -0800

Unless of course you were reimbursed for the cash value of the purchase, or you won the points in a drawing. In the former case it probably won't be enough points to worry over, and in the latter you'll probably get a 1099 anyway.

By: Mid

Mid — Sun, 04 Feb 2007 17:50:00 -0800

From my tax class about 8 years ago in law school, the IRS does not currently tax miles/points but really really wants to. IANAtaxL.

Kindall -- but they are income when you are buying something that you get reimbursed for. This happens a lot at work -- i.e., you pay for the catering at the company retreat, get reimbursed, and get 10,000 points.

By: curiousleo

curiousleo — Sun, 04 Feb 2007 17:54:08 -0800

But what if I resell the gift cards that were purchased with the reward points?
If thousands of dollars comes into my checking account, doesn't that make suspicious IRS?
or Do I just keep all the receipts and see if IRS contacts me?

I rather not complicate my life with IRS if I can some how pre-report or write some kind form to avoid it.

By: Mid

Mid — Sun, 04 Feb 2007 18:06:22 -0800

Oooh. I think that probably complicates things; you'd be taking your "points," which are arguably some sort of customer loyalty discount thing, and changing them into hard cash.

As far as whether or not to worry: how many thousands are we talking?

By: curiousleo

curiousleo — Sun, 04 Feb 2007 18:32:46 -0800

Let's just say it is enough to buy a nice car.

By: curiousleo

curiousleo — Sun, 04 Feb 2007 18:33:15 -0800

a new car ;-)

By: smackfu

smackfu — Sun, 04 Feb 2007 19:12:34 -0800

People regularly use airline miles to get tickets and upgrades that are valued in the thousands of dollars, and it is not considered as income.

(The IRS wants to tax this in the business situation, because the points are essentially additional income to the travelers but are not taxed like it.)

By: curiousleo

curiousleo — Sun, 04 Feb 2007 19:59:36 -0800

I have googled for hours.. but nothing similar has shown up... I can't believe there isn't a lot of people in this situations...

By: that girl

that girl — Sun, 04 Feb 2007 21:00:01 -0800

Sales of goods counts as income, I would think, and hence can be taxed. Using the points for yourself shouldn't be taxed however.

Try this IRS web page on what types of income can be taxed.

By: Rock Steady

Rock Steady — Mon, 05 Feb 2007 04:24:52 -0800

that girl's reasoning sounds good, but for tens of thousands of dollars, you REALLY should consult a professional.

By: dios

dios — Mon, 05 Feb 2007 10:00:48 -0800

You should talk to a tax attorney. That being said, here are my generalized personal thoughts of how I proceed in these cases, but should not be construed as advice on how you do.

Under Glenshaw Glass, any ascension to wealth from any source is income (unless specifically excepted by statute).

So,

But what if I resell the gift cards that were purchased with the reward points?

If I did this, I would recognize that the sale is income. I now have more wealth than I previously had, so it would be income to me. I know that the issue of extra benefits like this has been debated (as Mid notes), and the IRS is trying to carve the salami extremely thin on this topic. I seem to recall that there is an IRS opinion that miles earned due to things I bought for myself is not income, but if I receive the miles as a benefit from my job, then it is income when I use them (I would have to have paid otherwise, so they were wealth). So my personal practice is to only declare them as income if I got them from flying on planes that my company paid for, and only when I redeem them. If they are points I got from buying myself a flat screen, then I don't count it as income.

That's my personal practice and should not be taken as legal advice for you.

By: grouse

grouse — Mon, 05 Feb 2007 10:19:18 -0800

I seem to recall that there is an IRS opinion that miles earned due to things I bought for myself is not income, but if I receive the miles as a benefit from my job, then it is income when I use them (I would have to have paid otherwise, so they were wealth).

While that still may be their legal opinion, they have issued carefully worded guidance that says that they will not enforce it:

The IRS will not assert that any taxpayer has understated his federal tax liability by reason of the receipt or personal use of frequent flyer miles or other in-kind promotional benefits attrib- utable to the taxpayer's business or official travel. Any future guidance on the taxability of these benefits will be applied pro- spectively. The relief provided by this announcement does not apply to travel or other promotional benefits that are converted to cash, to compensation that is paid in the form of travel or other promotional benefits, or in other circumstances where these benefits are used for tax avoidance purposes.

By: dios

dios — Mon, 05 Feb 2007 11:44:26 -0800

Thanks grouse. Looks like you have this one wrapped up!

By: curiousleo

curiousleo — Mon, 05 Feb 2007 22:52:19 -0800

This is great learning experience....
Thanks for all the feedbacks.... Any more opinions or advises... ? if possible have them keep coming.. I think it will help a lot of people in my situation.