1099 But No Income

Consider the following (entirely realistic) scenario:
1) You create an account with Amazon Payments, enabling you to send money. 2) You send your wife/girlfriend/friend/dog $1000, paid from your
credit card, because you want to get the rewards points. You code the transaction as "goods/services" because otherwise your credit card company will charge you fees and interest. They of course give the money back to you. 3) Amazon sends your wife/girlfriend/friend/dog a 1099 for $1000, since that is the amount they receive for "goods/services."
Your co-conspirator of course has no income. I suspect the IRS will be very understanding, they are not really out to create income where none exists, and I'm sure they will be aware that the "scam" exists and not care if Amazon and the credit card companies are taking it on the chin.
But how do you net out the money received on the recipient's taxes?
========================================= MODERATOR'S COMMENT: did the recipient get the full $1000? Usually the commission/fee negates the points/rewards the payer gets.
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

I don't have an Amazon payments account, but I do have couple of Paypal accounts, which work the same way. They don't send anyone a 1099, because they're not the payor, they're just the channel.
People use these systems all the time for stuff that is not income, formal or informal expensse reimbursements, birthday gifts, and the like. If something is income, it's up to the actual payee to send a 1099.
By the way, this is an extremely expensive way to get airline points, because Amazon keeps about 3% of the amount transferred as their fee, even when the payment isn't funded by a credit card. Paypal lets you avoid fees for payments that are funded by your Paypal balance or by a bank account, but it is exceedingly rare to find anyone who will let you do a credit card transaction without paying a fee or interest.
In the few cases where it is possible, the frequent flyer community (yes, there is one) is all over it immediately. Twenty years ago the AAA would sell no-fee travellers checks and let you charge them to your credit card as a purchase. There was apparently a guy in Colorado who was buying upwards of $100K of checks every month, and collecting both the points and the bank interest from the time he deposited them in his bank and the time a month later when he paid the credit card bill. (The bank presumably sent him a 1099 for the interest they paid him, just like for any other savings account.)
More recently, the US Mint would sell you bags of dollar coins at par, with free shipping, even. You had to take delivery of the coins, which are very heavy, and spend them or take them down to the bank and persuade them to let you deposit them, but there were people lugging several thousand dollars worth down to the bank in a handtruck each month until the Mint changed the rules.
The only similar hack I know of that still works is "stoozing." Some banks will issue a no-fee balance transfer check payable to you, and charge no interest if you pay your bill in full at the end of the grace period. You deposit it and collect interest until you pay off the card the next month. This may sound too good to be true, but I've been doing regularly on my Capital One account for two years. See http://jl.ly/Money/freeupdate.html
R's, John
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

I am part of the "Frequent Flier Community" (readers of this board know that my wife lives in Canada and I live in the USA - 'nuff said) - and yes, you outlined some of the methods. I won't call them schemes or hacks or anything like that, because no one is doing anything the system doesn't provide for. If various financial providers are foolish enough to make rules that let the system be gamed, they are at fault, not the user.
RIght now, you can send up to $1000 per month via an Amazon Payments account from a credit card with no fees. I assume they are doing this (a) to gain market share and (b) to hope that people, once they have the money in their accounts, will recycle it back into the system or spend it at Amazon. I don't think a similar method will work with Paypal, and probably Amazon will close the loophole in time.
However, I saw a discussion on a frequent flier board indication that Amazon could/would/might send 1099's to anyone with receipts over $20,000 or 200 transactions. Nothing appeared to keep them from sending a 1099 for a lesser amount. I have not tried clicking on "cash advance" - but I think that if you do, it will process it as a cash advance on your card, with possible transaction fees, interest charged from the date of transaction, and no credit toward points or minimum spending requirements on cards.
So I still wonder what would happen if Amazon sent a 1099 saying that you got a certain amount of money, but it wasn't really income. It does kind of seem like Amazon shouldn't do that, since Amazon isn't the payor. But apparently their site says they will if you are over the threshold.
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

That is almost correct - the threshold is $20,000 AND 200 transactions. And more importantly, the requirement refers to a 1099-K, not a 1099-MISC. A 1099-K does not necessarily imply that you received income, only funds.
http://www.irs.gov/businesses/article/0,,id%1489,00.html?portlet 4
Don EA in Upstate NY
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

yes. If not, let us all in on this scam.
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

I would not call it a "scam." It is a "loophole."
With Paypal, you cannot receive credit card payments unless you have a "Premier" or "Business" account. These accounts charge fees on all payments received, whether funded by a credit card or not.
Amazon does not. Yes, it is pretty clear that they are taking a hit on this, and I suspect it is to build market share and to hope that the money eventually recirculates in ways they will make a fee off of. I wouldn't expect this loophole to last forever, and it's possible they will monitor accounts to see if certain users are exploiting it and close those accounts.
Keep in mind that if Jack sends money to Jill,and Jill sends it back to Jack, they will first take the money from Jill to Jack out of the funds in Jill's account. Jill has to receive the money, move it to a bank account, then send money back from her credit card.
I was sending money to my wife. Almost as soon as I started, Amazon started asking for more verification information on my wife. Of course her situation is unique as none of her information is in the system yet. (She just got her green card, SSN, and driver's license within the past few weeks.) So the verification thingy may be real and sensible, not a flag on the account.
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

I don't get the conspiracy. Your wife has to report 1k income, pay federal, state, FICA tax on it. When she gives it back to you, it is personal use and is not deductible on her Schedule C. The points on 1k is much less than the tax on 1k.
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

Why? It's a marital gift. The fact that something incorrect was told to Amazon is irrelevant.
Seth
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
wrote:

irrelevant as to tax law maybe, but not to the issue of defrauding Amazon.
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

Take it to misc.legal.moderated. This is misc.taxes.moderated, and the marital gift has no tax implications.
The wife does not have to report any taxable income resulting from this transaction.
Seth
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
On Jan 19, 12:52am, " snipped-for-privacy@yahoo.com" <removeps-

I was using the term "co-conspirator" lightly.
But I agree with Seth, unless the other person has actually performed taxable services, what you told Amazon is irrelevant.
I think the distinction between 1099-K and 1099-Misc has answered my question.
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload
In article

I am not a lawyer, but I expect this procedure is as least as criminal as check kiting. Moreover, it is unlikely that the IRS will willingly help you carry out your fraud. Do not expect a day in court to enforce a criminal contract.
--

Sam

Conservatives are against Darwinism but for natural selection.
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

Now that we have sorted out the fact that the for Amazon might send is a 1099-K, which doesn't imply that there's income, could you explain what fraud you believe has happened?
He tells Amazon to send $1000 to his wife, funded from his credit card. Amazon does it, and for whatever reason pays the processing fee that the underlying card processor charged. Where's the fraud?
While we're at it, I tell my credit card company to send me a large "balance transfer" check payable to me, which I deposit in my bank account, and they charge it to my credit card account. Six weeks later, I pay off the card on the due date from the bank account, avoiding any credit card interest charge, but leaving a modest amount of earned interest in my bank account. Is that fraud? If so, why?
R's, John
PS: That last example isn't hypothetical. See http://jl.ly/Money
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

Sorry, but that won't work. Cash advances are usually charged interest from the date of the advance.
___ Stu http://DownToEarthLawyer.com
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

Hmmn. I have to conclude that your mail program or perhaps web browser is broken, since it appears to have prevented you from reading this part of the message to which you were responding:

R's, John
ObTaxes: my bank sends me 1099s for the interest I earn on the free cash advances from my Capital One credit card.
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

^^^^^^^

Sorry, but that does (sometimes) work. That cash advances are _usually_ charged interest from the beginning implies that sometimes they aren't. I often get new credit card offers with interest-free cash advance availability for some limited time (it has been for over a year). Back when banks paid visibly non-zero rates I often took advantage of them.
Seth
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

Amazon's purpose is to help promote your business, which in turn will generate more income for Amazon. You are evading the purpose of this arrangement for your own benefit and to the detriment of Amazon.
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

Visit (Amazon.com product link shortened) and you will see a prominent box that says "No cash? Send money with Amazon Payments." Click on that, and you will find a page that invites you to "Send money to your friends and family using the payment information in your Amazon.com account."
For something to be fraud, there has to be a material misrepresentation to the victim. What's been misrepresented here?
R's, John
PS: This has a good summary of the elements required to prove fraud: http://en.wikipedia.org/wiki/Fraud#United_States
PPS: Perhaps we should move this to misc.legal.moderated.
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

is this the same service that the OP is speaking of?
9. How do I fund the payment? You can fund your payment using the credit card on file or from your Available Balance.
As soon as you verify the bank account information added to your account, you can add funds to your Available Balance. To add funds to your Available Balance, follow these steps: 1.. Log in to your Amazon Payments account. 2.. Click the Deposit tab. 3.. Select your bank account from the drop-down menu. 4.. Enter the amount you want to transfer from your bank account to your Payments account. 5.. Click Continue. Note: You cannot add funds to your Amazon Payments account by using a credit card.
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

Appears to be.

Right, he's using it to send a payment to his wife.
Look, Amazon is not dumb. They know that if they offer a service that lets clients do credit card payments at par, people will game it to run up their frequent flyer points, just like they have every other time that's been possible. But they also know that if they want to get into the payments business, they have a long, long, way to go to catch up with Paypal, and this is a calculated technique to gain mindshare and marketshare. (Since we're talking about it, it must be working.)
Also, if Amazon objects to the way someone is using their system, they don't have to resort to legal threats. They can just close his account. Since they haven't, we can assume that whatever he's doing hasn't annoyed them enough to get their attention.
R's, John
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
  Click to see the full signature.
Add pictures here
<% if( /^image/.test(type) ){ %>
<% } %>
<%-name%>
Add image file
Upload

BeanSmart.com is a site by and for consumers of financial services and advice. We are not affiliated with any of the banks, financial services or software manufacturers discussed here. All logos and trade names are the property of their respective owners.

Tax and financial advice you come across on this site is freely given by your peers and professionals on their own time and out of the kindness of their hearts. We can guarantee neither accuracy of such advice nor its applicability for your situation. Simply put, you are fully responsible for the results of using information from this site in real life situations.