IRS Investigating American Express Sales Pitches

AmEx previously acknowledged, in response to the November story, that some members of its U.S. sales organization “failed to uphold our values and had positioned certain products inappropriately, specifically with respect to tax benefits.”

An AmEx spokesman said this week that “we have already taken a number of actions to change products, policies and personnel and are continuing to cooperate with our regulators and government agencies.”

“As we said in November, we engaged an external law firm to conduct an investigation of our small business sales practices in the U.S.,” he added. AmEx “will take further steps as appropriate.”

AmEx previously said that it discontinued wire services associated with the pitch. These had been available to a wide range of companies, according to people familiar with the matter.

Last month, AmEx sales employees were told that the company was discontinuing a payments service for McDonald’s Corp. franchise owners associated with the tax pitch, according to people familiar with the matter.

Such IRS investigations can take years. In an investigation like this, AmEx could decide to give the IRS the names of clients who signed up for the payments services, according to tax attorneys. AmEx could have to turn over the profits it made from the sales strategy, they said.

It couldn’t be determined whether the IRS is examining any of the business owners’ tax returns.

An IRS spokesman said the agency is prohibited by law from commenting on specific taxpayers.

The sales pitch that the IRS is investigating was previously described to the Journal by current and former employees, and in training and sales documents reviewed by the Journal. AmEx encouraged businesses, including eye doctors, McDonald’s franchisees and payroll companies, to use AmEx to pay vendors and employees through wire or card transactions. Salespeople told the businesses that they could deduct the resulting fees as expenses, the Journal previously reported. Salespeople also told the businesses they could transfer the rewards points they’d earn to a certain AmEx card, and then the business owner could convert those points into untaxed cash, the Journal reported.

Rewards points generally aren’t considered income for individuals who generate them when they make personal purchases. It is less clear-cut when there is a separation between the entity earning the reward—the business—and the individual receiving the awards.

A whistleblower filed a report with the IRS last summer alleging that AmEx knowingly persuaded business owners to underreport their income and taxes, the Journal previously reported. The IRS allows whistleblowers to get a share of taxes the government collects because of information they provide.

AmEx has in recent weeks terminated at least a handful of vice presidents who oversaw sales teams that pitched the strategy, according to people familiar with the matter.

Other federal agencies had already been probing AmEx over the way it sells cards.

The Journal reported in 2020 that AmEx employees, under pressure to hit aggressive sales goals, misrepresented the costs and benefits of AmEx business cards to business owners.

The Justice Department’s civil fraud and criminal divisions are investigating AmEx’s business-card sales practices, as are the Office of the Comptroller of the Currency and the inspectors general offices of the Treasury Department, Federal Deposit Insurance Corp. and Federal Reserve. AmEx has said it is cooperating.

The IRS is working with at least some of those agencies, according to people familiar with the matter. It is examining allegations that AmEx salespeople used fake tax identification numbers when filling out card applications for small businesses, they said. Those numbers are also known as TINs or employer identification numbers.

Higher-ups told salespeople that many small-business owners don’t immediately know their TINs, and that using a dummy number like 123456789 could keep the application moving, according to the people familiar with the matter. The practice occurred from at least 2014 until 2018, they said.

An AmEx spokesman said the company no longer allows this practice. “Several years ago we allowed existing small business card members, who wanted additional American Express cards and did not have their business’ tax identification number readily available, to apply for a new card by populating the application with a temporary number,” he said.

Write to AnnaMaria Andriotis at [email protected], Richard Rubin at [email protected] and Heather Haddon at [email protected]