Tax Court Rules in ‘Extreme Test’ for Rewards Programs (1)

The IRS improperly treated as income credit card rewards points generated by gift card purchases, the U.S. Tax Court ruled in what was described as an “extreme test” of the taxability of rewards programs.

The case involved the use of an American Express credit card to make purchases that generated rewards. The disputed purchases were Visa gift cards, money orders, and reloading debit cards.

The IRS determined that all three categories of purchases which generated rewards—including the gift cards that were later used to purchase money orders—should count as income because ...