Paul L. Caron

Tuesday, July 29, 2008

Tax Consequences of NYU's "Cash for Class" System

The ABA Journal, Above the Law, and New York Post report on how NYU law students pay their classmates for slots in oversubscribed courses.  NYU does not maintain add/drop lists, so a student seeking to enroll pays a student to drop the course and then immediately adds the course.  Do you think the students who receive payment for dropping courses report the income?

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Since the proportion of the fair market value of the more heavily demanded course to the fair market value of the seller's right generally to take courses toward a degree at NYU Law is highly uncertain, the students may be able to account for this payment on the open transaction doctrine and not have even gross income (i.e., gain) unless they receive more from selling courses than they receive in tuition. However, the payments are likely taxable income to students whose tuition is being reimbursed.

Posted by: Anand | Jul 29, 2008 9:30:46 AM