Can I offer points for participation to be redeemed for discounts and cash back rewards?

A purchase is just one of many actions that could qualify as consideration.

Luckily, there are many, many similar programs (frequent flyer programs, etc.) for you to model your rewards program on.

Even with the legal considerations, don't worry because this idea is nothing new or particularly risky, and many online retailers and bloggers run illegal lotteries frequently (I have seen a lot of sketchy promotions online in the past 10 years and have not heard of many incidents of regulation... but of course you don't want to count on "everyone else is doing it" as a legal defense!). To do things the right way, it's best to check with your lawyer to make sure your contest rules are on the right side of illegal lottery laws.

http://www.yourlegalcorner.com/article.asp?Cat=Internet%20Alert&ID=27 seems to have some good information but I definitely recommend talking to a lawyer who can review your particular points program.

The best book I read recently on this was Game-Based Marketing by Gabe Zichermann and Joselin Linder: http://books.google.com/books?id=4Emhp4lGRgIC&lpg=PP1&dq=game%20based%20marketing&pg=PP1#v=onepage&q&f=false

Also consider hiring a gamification consultant to help structure an exciting, balanced program that rewards the behaviors that will help grow your community and company.

Hope that helps!

There are laws for pretty much anything these days, however the one you mentioned is the one you need to keep track on. If you compensate anyone in the amount of $600 or above, you need to send them a tax form to report that income and report it in your own taxes.

Do you envision anyone on your site able to rake up that much for writing reviews? Chances are, NO. I would not worry about it too much, just keep an accurate record.

Also, consider other forms of rewards. Perhaps you can enter them into a contest with each review and then draw an iPod or something similar. I offer free subscription upgrades -- that's my currency. Cashback and points have been done too much and people are getting quite savvy about it. Get creative -- capture their fancy. Ask what you users would like and see if you can give it to them.

Best of luck!