By: Will Schena
Savvy law students love taking advantage of benefits from their subscriptions. Students enjoy a variety of discounts, promotional deals, and terrific offers. Notably, law students who have their Lexis Nexis subscriptions paid for via their tuition have access to Lexis Points. Students earn Lexis Points by doing online activities that are meant to improve their legal research skills.
LexisNexis has a marketplace that allows students to exchange their points for gift cards, appliances, and even a golf cart. Moreover, Lexis used to allow students to exchange their points for various different cryptocurrencies. Students were able to buy a fraction of select cryptocurrencies for 350 points. Typically, that exchange would equate to roughly $5 worth of a crypto security, depending on the market value that day. (The previous evaluation is based on the fact that 350 Lexis Points is equivalent to $5 worth of gift cards).
The exchange of points for gift cards and other prizes raises a couple of different questions, some of which extend beyond the University setting: Should law students be taxed on the exchanges they receive online via Lexis Points? Also, should Americans pay federal income tax on benefits from credit cards and the like?
Whether or not students should be taxed the asset’s fair market value when it is acquired is unclear. Courts have debated in the past but ultimately have come to the conclusion that Americans do not have to pay for benefits from credit cards and the like. Typically, individuals must have some kind of ascension to wealth for their benefit to be recognized as income.
Sure, receiving a Starbucks gift card in exchange for some Lexis Points should hardly be considered an “ascension to wealth.” But what about jewelry? Lexis allows people who have accumulated a certain amount of Lexis Points to exchange them for gold watches. Would a student who is not using Lexis for business purposes have to pay federal income tax on the gold watch they received via Lexis? Probably not, but if they sold the watch, they would almost certainly have to pay capital gains tax.
The IRS has tried to draft the code to include everything it could into gross income. Interestingly, the Tax Court has decided that gift cards that have been redeemed for credit card points are not taxable. The I.R.C. § 61 definition of income is purposely broad, so this was a nice win for Americans.
A court may look to the precedent that tells us that certain benefits received from credit card points are not taxable income, but it may distinguish the use of credit card points from Lexis Points redemptions. For example, frequent flier miles that were collected from work-related travel were considered a secondary economic gain and not taxable. That makes sense, the gain happened only as a result of work related travel, it was a cost of doing business. However, there are still times when credit card rewards may be taxable. The previous article explains how a married couple manipulated a rewards program that allowed them to realize thousands in cash or cash equivalents. That is to say, even if cashback collected from a credit card comes at the expense of the user, there may still be times when the cashback or benefits are taxable. Lexis Points may be similar in that regard.
Conversely, it may be a little tougher to see the distinction with Lexis points. LexisNexis is most likely a benefit to students they are entitled to through their tuition payments. But, it is technically not “work-related” or really comparable to cashback. Still, since our tuition is so expensive, it’s not like we are amassing wealth from this deal with our school. But what about students who may have all their expenses paid for by their school? They have no cost associated with their Lexis account, and they are realizing an added benefit on top of getting a full scholarship.
Over my first year of law school, I accumulated roughly 10,000 Lexis points, which netted me about $140 worth of gift cards. Sure, this amount is not going to ascend me any closer to real wealth, but the fact that I can calculate the dollar amount of goods received means that the IRS should DEFINITELY be able to do it. I may not have a mega-yacht, but those gift cards were certainly put to use. Further, I’m not sure if there is an exact provision in the I.R.C. that would answer this question.
Overall, this a “tax world” (thank you to Professor Conway) discussion. This would almost certainly never be something that the IRS pursues. Even if it did, the IRS would likely publish a revenue ruling stating that students who redeem their Lexis points do not have to pay any income tax on what they receive. Unless a student was creatively gaming the system to their benefit, it is unlikely they would ever have to pay taxes on their Lexis Points.
Student Bio: Will Schena is 2L at Suffolk University Law School. In addition to being a Staff Member on the Journal of High Technology Law, Will is also the Secretary of the Suffolk Chapter of the American Constitution Society. Will studied Political Science at the University of Massachusetts Amherst.
Disclaimer: The views expressed in this blog are the views of the author alone and do not represent the views of JHTL or Suffolk University Law School.
