Wealthy taxpayers using credit cards to pay IRS and reap rewards

The Associated Press

WASHINGTON -- Would an all-expense-paid ski trip to the Canadian Rockies ease the pain of that income tax bill? How about a few free flights to Paris or Rome?Dozens of wealthy taxpayers are using their credit cards to charge hefty Internal Revenue Service bills -- several over $1 million -- so they can rack up airline frequent flier miles and other rewards.

"The biggest surprise we've had in the program is the people who want to pay more than $100,000," said Steve Johnson, senior vice president at U.S. Audiotex, a California company running the credit card program for IRS. "They want the miles." For the first time this year, people can call an Audiotex toll- free number -- (888) 2PAYTAX -- to pay their income tax bills using either an American Express, MasterCard or Discover card. Visa, the largest credit card issuer, is taking a wait-and-see approach this year. Even though taxpayers must pay a service fee averaging 2.5 percent to use plastic, interest is running high among some of the well- heeled who determine the airline miles or other rewards are worth the price. "If you run the numbers, some of these people who have a payment due figure there's a benefit to it," said Bob Barr, assistant IRS commissioner for electronic taxes. Most of the big tax charges are coming from American Express cardholders because they have no preset credit limit, Johnson said. About 50 people have asked to pay $1 million or more, including one person who sought to pay a $9 million bill. American Express spokeswoman Judy Tenzer said many cardholders are enrolled in the company's "Membership Rewards" program, which also has no limit and converts dollars charged into frequent flier miles and into points for free products ranging from music CDs to pearl necklaces to vacations in such places as British Columbia, Costa Rica or Disney World. "If they are using checks, they're not getting anything in return," Tenzer said. "While the size of these charges may be surprising, there are so many different things you can do." American Express is accepting such payments on a case-by-case basis after talking with the cardholder. One concern is that someone could escape paying the tax by putting the tax burden on a credit card, then declaring bankruptcy, knowing credit card bills rank lower than Uncle Sam when bankruptcy courts determine which debts get paid first. Some large tax payments also have been made with MasterCard, which is issued through a bank or other financial institution and does have credit limits. Through April 2, IRS had received 5,400 credit card payments averaging $1,445. Besides the toll-free number, taxpayers using Intuit's TurboTax and MacIntax software can use Discover or other Novus cards to pay online through those programs.

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