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Making a Point: Tax Court’s Anikeev Decision Challenges Longstanding IRS Policy


In February, a U.S. Tax Court opinion in Anikeev v. Commisioner addressed challenging issues regarding the IRS’s existing policy with respect to the taxation of credit card rewards and other rebates. The case involves Mr. and Mrs. Anikeev, each of whom held a Blue Cash American Express Card (“Blue Card”) during 2013 and 2014, on which they accumulated a substantial amount of reward dollars through the use of their cards. At issue in Anikeev is whether the reward dollars were taxable income to the Anikeevs. Basing its decision on longstanding IRS policy, the court determined that the overwhelming majority of the rewards were not taxable to the Anikeevs, although the decision does address how the Service could potentially reform its policy regarding credit card rewards to prevent the same result in the future.

The Facts in Anikeev

From 2013 to 2014, American Express paid reward dollars to Blue Card holders who made eligible purchases. Card holders were eligible to receive reward dollars of up to 1% of eligible purchases for the first $6,500 spent in a reward year, and up to 5% for eligible purchases in excess of $6,500. These “reward dollars” could be redeemed for Amazon gift cards or as credits on a card holder’s Blue Card balance. American Express did not impose a limit on the amount of reward dollars cardholders such as the Anikeevs could accumulate in a given year.

During these same years, the Anikeevs each held a Blue Card, which they used primarily to accumulate as many reward points as possible. To achieve this goal, the Anikeevs used their Blue Cards to purchase Visa gift cards, reloadable debit cards, and money orders. In 2013, the Anikeevs charged over $1.2 million for such items, and in 2014, they made charges totaling nearly $5.2 million. It appears that most of these purchases were for Visa gift cards. To maintain credit necessary to continue accumulating points, the Anikeevs would then use their Visa gift cards to purchase money orders, which they used to pay their American Express bills. The Anikeevs also appear to have used reloadable debit cards to pay their American Express bills. On some occasions, they also purchased money orders directly using their Blue Cards.

Through this arrangement, the Anikeevs accumulated significant reward dollars, as well as the ire of the Service. In 2013, they redeemed over $36,000 in reward dollars as statement credits. It appears that 2013 was just a test run because, in 2014, the Anikeevs redeemed over $277,000 in statement credits. The Anikeevs did not report these amounts as income on their 2013 or 2014 federal income tax returns. Thereafter, the IRS issued a notice of deficiency to the Anikeevs, asserting that the full amount of statement credits represented “other” income subject to federal income tax.

Longstanding IRS Precedent on Rewards and Rebates

To fully appreciate the import of the Anikeev decision, it helps to understand existing IRS guidance on the taxability of customer rewards and rebates.

  • Frequent Flier Miles. Recognizing the numerous technical and administrative issues inherent in monitoring and taxing frequent flier miles, the IRS has taken the position since 2002, when it published Announcement 2002-18, that it will not pursue a tax enforcement program with respect to promotional benefits such as frequent flier miles attributable to business travel. However, as noted below, the value of an airline ticket obtained through other means, such as the opening of a bank account, should generally be reported as taxable income by the taxpayer who receives this benefit.
  • Customer Rebates. The IRS has taken the position that rebates on the purchase of products and services do not constitute income to the customer who receives the rebate. Rather, as set forth in Revenue Ruling 76-96, the rebate acts as a discount on the product or service being purchased. Revenue Ruling 76-96, which the IRS relied upon in litigating its case against the…



Read More: Making a Point: Tax Court’s Anikeev Decision Challenges Longstanding IRS Policy

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