The IRS is not known for giveaway programs, so Private Letter Ruling 2010-027-015 (4/5/10) comes as a bit of a surprise.
The IRS has ruled that cash rewards, your “kickback,” for your credit card purchases, do not represent income to you, the card holder (see § 61). Additionally they have ruled that these cash rewards, when donated to a charity at the direction of the card holder, qualify as a charitable contribution, eligible to be deducted on Schedule A (itemized deductions) on your tax return.
The IRS further stated that the acknowledgement you receive from the credit card company may not be sufficient to satisfy requirements under § 170. Make sure you secure from the charity a letter or receipt reflecting the date the contribution was received, amount of the contribution, and a statement that no goods or services were provided for the contribution. The contribution must go directly from the credit card company to the charity – not through your hands.
Melissa Labant, with the American Institute of CPAs, stated “This is a win/win for donors” as they can take a donation without claiming income. The cash reward is considered a rebate (not income) which is considered to simply be a reduction in the cost of goods purchased.
This ruling also has significance for cardholders with the so called “affinity cards” that benefit a school or other group. The payments to organizations made through an affinity card won’t qualify as deductions on your tax return.