Elections to Direct Credit Card Rebates to Qualified Charities

By Joel C. Jones, CPA/ABV, CVA, CIA, Kassouf & Co., Birmingham, AL

Editor: Michael D. Koppel, CPA, MSA, MBA, PFS, CITP

Charitable Contributions

In a letter ruling issued in April 2010, the IRS addressed the common concept of credit card companies allowing their customers to request that their credit card rebates be donated to charity. Not only does this letter ruling continue to affirm the IRS’s position on these programs, it also provides a review of the program requirements, along with the substantiation needed for deductions.


In February 2002, in Announcement 2002-18, the IRS addressed the issue of taxable inclusion of credit card rebate programs by specifically focusing on frequent flier miles and other in-kind promotional benefits attributable to a taxpayer’s business or official travel that are used for personal purposes. In that announcement, the IRS stated that it would “not assert that any taxpayer has understated his or her federal tax liability by reason of the receipt or personal use of airline frequent flyer miles or other in-kind promotional benefits attributable to the taxpayer’s business or official travel.” However, in its announcement the IRS further stated that this “relief does not apply to travel or other promotional benefits that are converted to cash, to compensation that is paid in the form of travel or other promotional benefits, or in other circumstances where these benefits are used for tax avoidance purposes.”

In July 2002, in Letter Ruling 200228001, the IRS addressed the concept of credit card customers electing to donate available credit card incentive rebates to charity and determined that the taxpayer may deduct these amounts as long as the cardholder makes an affirmative election to direct the rebate amounts to a qualified charity.

Letter Ruling 201027015

In July 2010, in Letter Ruling 201027015, the IRS again addressed the election by a credit card customer to donate credit card rebates to charities. The petitioner in the letter ruling asserted that purchases would be made with the credit cards and, as a result of these purchases, the taxpayer would be entitled to rebates in accordance with the rebate program, which was based on a percentage of the purchase and reduced by fees charged by the credit card company. The taxpayer would have the option of either taking these rebates as cash payments or allowing the credit card company to pay the amounts to a charity chosen by the taxpayer from a list. The election was made when the taxpayer opened the credit card, but the taxpayer could change it at any time by contacting the credit card company.

Are credit card rebates includible in gross income? The first issue addressed in the letter ruling relates to whether the credit card rebates are includible in the gross income of the taxpayer (credit card customer). Sec. 61 provides that “gross income” refers to all income from whatever source derived. However, the IRS has determined on numerous occasions that a rebate received by a buyer is an adjustment in purchase price of the amount paid for the items and is not included in the rebate recipient’s gross income (Rev. Rul. 76-96, as modified by Rev. Rul. 2005-28). In Letter Ruling 201027015, the IRS again affirmed this position by ruling that because the taxpayer has the option of receiving cash but elects to direct the rebate to charity, the rebate constitutes an adjustment in the purchase price of the items purchased with the credit card, which is a holding consistent with the IRS’s position in Letter Ruling 200228001.

Is a rebate that is paid to charity a charitable contribution? The second issue addressed in the letter ruling deals with whether the taxpayer is entitled to a charitable contribution under Sec. 170 for the amount of the rebate that is directed to a charity. As in Letter Ruling 200228001, the IRS again focuses on the taxpayer election. The case the IRS cited in both letter rulings is American Bar Endowment, 477 U.S. 105 (1986), in which the Supreme Court held that there was no voluntary payment of money or property because the members of the program could not demonstrate that they had intentionally contributed money to the charities. In American Bar Endowment, a membership organization maintained a group insurance program for its members. As a condition of participating in the insurance program, members were required to assign refunds from their premiums to the organization. Every year, a portion of the insurance premiums paid by members was refunded to the organization, and the organization used these refunds to fund charitable grants. Members participating in the group insurance program claimed charitable contribution deductions under Sec. 170 for their pro-rata shares of the refund amounts that funded charitable activities. In Letter Ruling 201027015, the IRS makes a distinction between the arrangement described in American Bar Endowment and the situation of credit card rebates directed to a charity. The election that must be made by the credit card customer demonstrates that the charitable contribution is made voluntarily and with donative intent.

Does a sample written acknowledgment satisfy the Sec. 170(f) recordkeeping and substantiation requirements? In Letter Ruling 201027015, the taxpayer provided a sample written acknowledgment with the charity’s name and address, along with the date of the letter in the letterhead:

Dear Contributor:

This letter is to acknowledge your contribution made to the –––, an organization described in section 501(c)(3) of the Internal Revenue Code and qualified to receive contributions deductible for federal income tax purposes, provided the contribution is made exclusively for charitable purposes.

We appreciate your contribution of $––– made in calendar year ––– and wish to confirm for you that no goods or services were provided to you in consideration, in whole or in part, for your contribution.

Sincerely, –––

In the letter ruling, the IRS held that this acknowledgment did not meet the recordkeeping requirements of Sec. 170(f)(17), which states that an acknowledgment must denote (1) the name of the donee organization, (2) the amount of the contribution, and (3) the date of the contribution. The acknowledgment presented by the taxpayer lists only the calendar year of the donation, not the actual date. The letter ruling states that the acknowledgment must set forth the date the credit card company remits the contribution to the charity, not just the calendar year.


While private letter rulings are applicable only to specific taxpayers and tax situations, they do provide indications of the IRS’s thoughts related to the specific matters addressed in the rulings. The IRS has consistently held that credit card incentive programs are not includible in gross income and that programs providing the election of transferring these rebates to charities constitute charitable contributions by the cardholders. However, practitioners should carefully note the charitable contribution acknowledgments received by their clients related to these programs to ensure that the recordkeeping requirements of Sec. 170(f) are met.


Michael Koppel is with Gray, Gray & Gray, LLP, in Westwood, MA.

For additional information about these items, contact Mr. Koppel at (781) 407-0300 or mkoppel@gggcpas.com.

Unless otherwise noted, contributors are members of or associated with CPAmerica International.

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