In my practice I treat cash back as a rebate which is tax free. I have spoken to a few auditors about this subject and, after I explain to them what cash back is, have agreed that it should be treated as a rebate, although this was never in an audit specific, just boring tax nerd small talk. With that being said, every audit and auditor is different due to the vagueness of the law. It has never come up in an audit in which I have represented but if it did I would use the rebate theory.
Ernie Mayhorn, EA
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Posted by: Ernie Mayhorn <e_mayhorn@yahoo.com>
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