Internal Revenue Bulletin:  2005-32 

August 8, 2005 

Rev. Rul. 2005-47


ATM surcharge fees. This ruling holds that, for federal income tax purposes, a credit card issuer treats third-party ATM surcharge fees incurred by its cardholders as additional amounts loaned to those cardholders. Further, this is so whether the credit card issuer reflects the ATM surcharge fee on the cardholder’s account as part of the amount of the cardholder’s cash advance (as in Situation 1) or as a separately stated amount (as in Situation 2).

ISSUE

If a credit card holder uses the credit card to obtain a cash advance from an ATM and, as a result, incurs a liability for an ATM surcharge fee, how does the credit card issuer treat for federal income tax purposes the amount that it remits to the owner or operator of the ATM in satisfaction of the cardholder’s liability?

FACTS

X issues credit cards. Each credit card allows the cardholder to access a revolving line of credit to make purchases of goods and services and to obtain cash advances. Cardholders may obtain cash advances, for example, by using their credit cards to obtain cash from an automated teller machine (ATM). X does not own or operate any ATMs and does not impose any ATM transaction fees on its cardholders under its cardholder agreements.

Situation 1: X issues a credit card to cardholder A, and A uses the credit card to obtain a cash advance of $100 at an ATM owned by Y. After A initiates the transaction requesting $100, A is informed that, if the transaction is completed, an ATM surcharge fee of $5 will be deducted from the $100 cash advance requested by A. A accepts liability for the $5 ATM surcharge fee, and the transaction, in which $95 of funds are disbursed to A, is completed. Upon Y’s request to X for reimbursement for A’s ATM cash advance transaction, X remits $100 to Y and reflects a $100 cash advance on A’s account.

Situation 2: The facts are the same as in Situation 1 except that A uses an ATM operated by Z to obtain a cash advance of $125 and that the transaction is handled as follows. After A initiates the transaction requesting $125, A is informed that, if A completes the transaction, a $5 ATM surcharge fee will be charged to A’s credit card in addition to the $125 cash advance requested by A. A accepts liability for the $5 ATM surcharge fee, and the transaction, in which $125 of funds are disbursed to A, is completed. Upon Z’s request for reimbursement for A’s ATM cash advance transaction, which includes a $5 ATM surcharge fee, X remits $130 to Z and reflects on A’s account both a $125 cash advance and a $5 ATM surcharge fee.

LAW AND ANALYSIS

Section 1.1273-2(g) of the Income Tax Regulations provides rules for determining the treatment of certain cash payments made incident to lending transactions. Section 1.1273-2(g)(4) provides rules for determining the treatment of these payments when made between the lender and a person other than the borrower (the “third party”). If, as part of a lending transaction, the lender makes a payment to a third party, that payment is treated in appropriate circumstances as an additional amount loaned to the borrower and then paid by the borrower to the third party.

In both Situations 1 and 2, the $5 ATM surcharge fee is imposed on A by the third party owner or operator of the ATM, not by X. When X remits an amount inclusive of the ATM surcharge fee to Y in Situation 1 and to Z in Situation 2, X is making those payments on behalf of A. Therefore, in both Situations 1 and 2, the $5 ATM surcharge fee is appropriately treated under § 1.1273-2(g)(4) as an additional amount loaned by X to A and then paid by A to Y or Z. This is so whether X reflects the $5 ATM surcharge fee on A’s account as part of the amount of A’s cash advance (as in Situation 1) or as a separately stated amount (as in Situation 2).

HOLDING

In both Situations 1 and 2, for federal income tax purposes the credit card issuer treats third-party ATM surcharge fees incurred by its cardholders as additional amounts loaned to those cardholders.

DRAFTING INFORMATION

The principal authors of this revenue ruling are Jonathan Silver and Tina Jannotta of the Office of Chief Counsel (Financial Institutions and Products). For further information regarding this revenue ruling, contact the principal authors at (202) 622-3930 (not a toll-free call).


More Internal Revenue Bulletins