Internal Revenue Service (IRS) has a longstanding policy of not taxing credit card rewards. The rationale behind this is that the rewards itself act as a discount on the property or services being purchased by the consumer. However, in an interesting ruling in the case of Konstantin Anikeev and Nadezhda Anikeev v. Commissioner of Internal Revenue [2021] 127 taxmann.com 612 (TC- US), the United States Tax Court held that the redemption of credit card reward points, which are earned from buying 'cash equivalents', shall be liable to tax. The Court held that the reward received in connection with the purchase of a gift card constitutes a rebate. However, buying money order and reloading cash into debit cards is nothing other than cash transfers. Thus, the reward received in connection with the direct purchase of these items did not constitute rebates and were includible as taxable income in the hands of cardholder.
