July 29, 2010
Putting Credit Card Rebates to Good Use
By Bianca Santiago-Rosa, Supervisor, Tax & Business
Taxpayers can make an election to donate merchant rebates to charity instead of receiving them personally. In an IRS Private Letter Ruling (PLR 200228001) it has been confirmed that rebates transferred to a charity are a charitable contribution in accordance with the Internal Revenue Code Section 170.
The IRS permits taxpayers to claim a deduction for credit card rebates donated to charity provided the following criteria are met:
- The taxpayer makes an affirmative election to donate merchant rebates to charity rather than receive them personally. This election will normally be contained on the application for the credit card.
- Written substantiation is received for amounts transferred in a lump sum in excess of $250 from the credit card company to a particular charity. The credit card company usually provides the charity the taxpayer selected with the taxpayer’s name and address so the organization can provide the required substantiation in a timely manner.
- A deduction may be claimed in the year the company transferred the rebate to a particular charity not in the year the rebate was earned.
- A deduction may only be claimed for rebates or points that are available to the taxpayer. If the issuing bank has an agreement to donate a percentage of the taxpayer’s purchases to charity and these amounts are never available to the taxpayer, no deduction is permitted.
The taxpayer is not required to include in income the rebates earned, whether they are donated to charity or retained personally since it is a reduction in the purchase price of an item. If the donation of the rebates is automatic and not a voluntary election there is no charitable deduction allowed. By law, a charitable contribution must be made voluntarily and with donative intent. If the credit card can only be obtained if rebates are donated to charity, then a deduction is not permitted for any rebates issued to charity from that credit card. The taxpayer should retain monthly statements that reflect the rebates transferred on behalf of the cardholder as backup for any charitable deduction claimed on tax returns.