American Express’s argument to business customers that using an AmEx card to pay employees and suppliers turned out to be based on a flawed premise that generated billions for the company, but which cost to customers due to “a flawed interpretation of how tax law treats reward points.”
AmEx has told customers in emails, phone calls, and in-person meetings since 2018 that the rewards they earn for using their cards can then be converted to untaxed cash and deducted transaction fees at for tax purposes, according to a report in the Wall Street Journal Monday. (November 22).
A whistleblower reported the problem to the Internal Revenue Service in July, telling the federal agency that AmEx convinced business owners to underreport their income and taxes.
This is “a great company encouraging tax crimes,” said Gregory Lynam, co-founder of Lynam Knott, the law firm that filed the report on behalf of the whistleblower, in the WSJ report. It âpromotes a tax shelter that doesn’t work,â he said.
A spokesperson for AmEx told the WSJ that some members of its sales organization in the United States “have not lived up to our values ââand have positioned certain products inappropriately, particularly with regard to tax benefits.” . The company hired its own law firm to investigate the situation.
“This misconduct should not have happened,” he said, noting that the company has fired, sanctioned or retrained some employees and that their compensation plans have been adjusted, and that Amex “will take other measures as appropriate “.
Related: Amex enables business customers to create virtual cards with Extend
In September, American Express and the FinTech Extend virtual card teamed up on a plan that allowed American Express Business Card members to sign up and create virtual cards, also known as tokens, in about five minutes using the application or connection to the Extend desktop.
American Express said about 40% of U.S. businesses plan to expand their use of virtual cards over the next year. Businesses can use the Extend Card to create their own cards and send e-cards to employees, contractors, and suppliers, with better options for expense control, simplified expense reporting, and security.