This man earned himself a fortune by paying credit card bills and receiving credits

This man earned himself a fortune by paying credit card bills and receiving credits

Konstantin Anikeev, a US physicist has earned $300,000 as cashback by paying his credit card bills.

How many of us have delayed credit card bills until it was absolutely necessary to pay them? Well, I have. However, after reading the curious case of Konstantin Anikeev I have decided to be as punctual as I can be.
Konstantin Anikeev, a physicist based in the US, has earned $300,000 by paying credit card bills. He was able to make a fortune in cashback by paying his credit card bills, using a "unique idea".


Konstantin started earning from his credit card in 2009 as a hobby and it soon turned into a "profession" for him. He eventually managed to earn millions from it. He used his credit card to buy a large number of gift cards. He would then encash them and use deposit the money into his bank account and pay the credit card bill. This payment earned him a reward from the credit card company.
He considered the reward of paying his credit card bills as his earnings. He repeated the process multiple times to earn more money.
Cashback perks are a common reward among today’s credit card selections. While the typical card offers 1.5% cashback, cards offering 5% cashback awards are about as good as it gets and Konstantin Anikeev found a way to make one even better.
He had an American Express Card that came with a long-standing policy of the United States Internal Revenue Service and a simple plan. Using his unique plan, Anikeev was able to arbitrage the difference between unlimited 5% rewards and lower fees on gift cards and money orders.



He made $6.4 Million in purchases that netted him more than $300,000 in ‘cashback’ rewards. The case came to light when someone noticed Konstantin's income rise exponentially and reported it to the US Tax department. An investigation was carried out and the case was referred to the court.
Konstantin arrived with a tub full of gift cards and defended himself by saying that the rewards were not his income but discounts and cashback given to him by the credit card companies.
The IRS argued this was ordinary income, but the Tax Court held that it wasn’t. The Rewards Program was essentially a purchase-price discount, which the Court said has never been seen as ordinary income. But the Court opened the door for the IRS to argue that the Visa Gift Card could be viewed as an asset with a basis equal to its cost.
In the end, the court noted the longstanding IRS policy that card rewards are not taxable. Thus, for now, at least, those ‘cash back’ rewards, rebate programs, and purchase price adjustments are safe from taxation as ordinary income. But caution should be exercised when leveraging the arbitrage opportunity to generate gains, as was the curious case of Konstantin Anikeev.

Also read: Australians may be eligible for free incentives in exchange for getting vaccinated against the Coronavirus.

Article source: Law.ox 
Image Source: Konstantin Anikeev blog

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