IRS Approves Deduction for Credit Card Cash Rewards Donated to Charity

In Priv. Ltr. Rul. 2010-027-015 (Apr. 5, 2010), the IRS ruled that (1) cash rewards on credit card purchases do not constitute income under § 61 to the card holder, and (2) cash rewards paid out to charity at the direction of the holder constitute a charitable contribution on the date the amount is received by the charity. (The IRS also ruled that the written acknowledgment provided to credit card holders did not satisfy the recordkeeping requirement of § 170(f)(17) because it did not include the date the credit card company remitted the contribution amount to the charity.) From the Wall Street Journal:

"This is a win/win for donors," says Melissa Labant, a tax expert with the American Institute of CPAs, since they can take a donation without claiming income. The cash reward qualifies as a rebate, which in tax terms is a reduction in the price of items purchased with the card. …

The IRS ruling means there may be a sharp difference between cash-reward cards and "affinity cards" that benefit a university or charity. Holders of affinity cards don't get deductions for benefits to the group, whereas those who contribute their cash rewards may qualify for them.

About the Author

Paul Caron

Paul Caron was named Duane and Kelly Roberts Dean of Pepperdine University School of Law on June 1, 2017. Dean Caron joined the Pepperdine faculty in 2013 after serving as the Dorothy and Leonard Straus Distinguished Visiting Professor of Law in the spring semesters of 2010 through 2013. He served as Associate Dean for Research and Faculty Development at Pepperdine in 2015-2017. Before coming to Pepperdine, he was Associate Dean of Faculty and Charles Hartsock Professor of Law at the University of Cincinnati College of Law.

4 responses to “IRS Approves Deduction for Credit Card Cash Rewards Donated to Charity”

andy

August 30, 2010

This ruling recites the principle that “[a] rebate received from the party to whom the buyer directly or indirectly paid the purchase price for an item is an adjustment to the purchase price paid for the item.” Then it simply states that the amount received from the credit card company “constitutes an adjustment to
the purchase price of the items.”
But the principle applies to purchase price adjustments made by the seller, not by a purported rebate or reward made by the lender financing the purchase. That this is an “indirect” purchase price adjustment does not seem self-evident. Perhaps the ruling reaches the correct result, but the analysis is insufficient.