IRS Approves Deduction for Credit Card Cash Rewards Donated to Charity

In Priv. Ltr. Rul. 2010-027-015 (Apr. 5, 2010), the IRS ruled that (1) cash rewards on credit card purchases do not constitute income under § 61 to the card holder, and (2) cash rewards paid out to charity at the direction of the holder constitute a charitable contribution on the date the amount is received by the charity. (The IRS also ruled that the written acknowledgment provided to credit card holders did not satisfy the recordkeeping requirement of § 170(f)(17) because it did not include the date the credit card company remitted the contribution amount to the charity.) From the Wall Street Journal:

"This is a win/win for donors," says Melissa Labant, a tax expert with the American Institute of CPAs, since they can take a donation without claiming income. The cash reward qualifies as a rebate, which in tax terms is a reduction in the price of items purchased with the card. ...

The IRS ruling means there may be a sharp difference between cash-reward cards and "affinity cards" that benefit a university or charity. Holders of affinity cards don't get deductions for benefits to the group, whereas those who contribute their cash rewards may qualify for them.