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How Long Till Virtual Currency Taxation? 166

Posted by Zonk from the please-stop-talking-about-it dept.
GameDaily has a piece on the thorny issue of taxing virtual currency. From the article: "The current tax law has a clause, #525 to be exact, entitled 'Taxable and Nontaxable Income.' This verbose, meandering clause describes all manner of abstract (legal, illegal and otherwise) means by which you can earn income. Some of these obscurities can only be taxed by the speculative and vague term, 'fair market value.' ... This clause also includes a statement about goods acquired through barter or won (prizes or cash) in a game. Technically speaking this means those 'earnings' are taxable the very moment someone comes into possession of them, regardless as to whether or not they are sold for money. While no one knows the exact worth of all the virtual assets floating around the MMO gaming-verse, estimates for the sale of these goods range as high as $880 million a year. Step back and think about that for a minute... EIGHT HUNDRED AND EIGHTY MILLION! That's a crapload of real world money! Money made during what can be considered the infancy of the genre. Can you imagine how exponentially greater this amount will be in a few short years? "
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How Long Till Virtual Currency Taxation? More

How Long Till Virtual Currency Taxation?

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  • Someday But Not Yet (Score:5, Informative)

    by BenEnglishAtHome ( 449670 ) * on Monday May 01, 2006 @02:48PM (#15239233)

    Taxing in-game earnings has come up before and it'll come up again. In the U.S., the Internal Revenue Service will eventually take notice of the phenomena when someone who makes lots of real-world money by selling virtual goods gets audited by an ambitous Revenue Agent. Until then, unless you're actually converting virtual goods into real greenbacks, there's not much to say on the subject. Any scaremongering about taxable events occurring inside a game is just FUD. It may be fun to talk about, but I notice that no one has yet made the news after obtaining a private letter ruling. Until someone sparks a written determination from the IRS [irs.gov], this is really a non-issue. Someday it'll be an issue, but not for a while.

    • Remember, they all very carefully include, "none of this is your property."

      Blizzard owns the character. Blizzard owns the character's gold. Blizzard owes the taxes, if any, on the gold. Not you. Conviently, since it is just bits on a server that Blizzard owns, and the fact that Blizzard does not sell those bits (they sell access to the bits) they could easily argue that the value of the bits is $0.00 and tell the IRS to stuff it.

      The IRS could get away with hitting up a gold seller if the gold seller didn't
    • Wouldn't it be cool if the US Government bought up a huge chunk of land in WoW and declare it a national park?
      • Why not spend the $ for a couple months worth of WoW and buy a duck stamp instead? Very pretty art work as well on them... Of course, lots of things are taxed under the pitman-robertson act (sp?)
      • Yeah, there could be endangered species and everything. You can't hunt Stranglethorn Raptors or something of that degree. If you do, they slap a heavy fine on you and lable you a poacher unless you pay up... or until you grease a few government palms with a few silvers.

        Next thing you know, oil derricks are going up everywhere and the Auction House is being policed for contraband. Elves in tinted sunglasses and black suits are on the street corner tracking a gnome who is notorious for selling faulty dynam

      • Wouldn't it be cool if the US Government bought up a huge chunk of land in WoW and declare it a national park?

        As long as they set it up as a Wildlife Orc Preserve with hunting rights to all Alliance, that'd be fine with me!

        Don't forget the sign: 'No totems allowed on premises!'
  • I know that X million people are playing such games as WoW, but a lot of players sort of keep in their "circles." People who don't play the games don't really know much about them or the "cash value" of the assets. It will be a while, if ever, before there are any issues about this brought up. It will take everyone playing WoW, including the legislators, before anything like this even can happen. But where there's free money, and they know about it, it *WILL* be taxed.
    • It will take everyone playing WoW, including the legislators, before anything like this even can happen.

      LOL, oh the image that gave me...I'd love to see Democrats and Republicans goin at it in WoW. Imagine Bill Frist complaining about server down time and Chinese gold farmers on Fox News. That would be a strange world indeed.
    • More mainstream. So like maybe BusinessWeek [businessweek.com] running a cover story on virtual economies? With the magazine cover being an image of Anshe Chung, one of Second Life's biggest realtors?
      The real question isn't the IRS's awareness - it's the amount of virtual money being turned into real money. I doubt you will see taxation of in game transactions, but sure real world money earned through virtual sales is taxable income. In the case of something like Second Life or Sony's Station Exchange you could argue that any

  • I can see it all now... (Score:5, Funny)

    by Rob T Firefly ( 844560 ) on Monday May 01, 2006 @02:53PM (#15239279) Homepage Journal
    You slay some MMO monster, and it drops a small pile of gold, jewels, and several IRS forms for you to fill in.
    • You have slain the goblin!

      > l in corpse
      You find 10 gold coins. IRS collects 2 of them.
      • You find 10 gold coins. IRS collects 2 of them.

        If the IRS only took 20% of your income, you'd be doing pretty well. I imagine any tax on gold would be progressive:
        You find 100 gold coins. IRS collects 32 of them.
        You find 1000 gold coins. IRS collects 460 of them.

    • And this why you need Turbo Virtual Tax 2006 NOW! Only $29.95. State virtual taxes not covered in this edition. Also does not cover taxation by king's men, magical losses, or deductions for limbs or other body parts lost to grues under Section 2.427 of the Virtual Tax Code.
    • Buy online gold from the government! It's the patriotic way to cheat!
    • ...and several IRS forms for you to fill in.

      Oh, man, I don't even want to think about the paperwork necessary to pay taxes to both Pittsburgh and Paragon City. I'd keep it all in some offshore account, but I'm positive Lord Recluse is skimming off the top...

    • All you have to do is sacrifice them, forms and all. The government wouldn't dare to tax your transaction with God, would they?
    • What is the IRS going to DO with stores of in-game currency? Are they going to use it to pad the defense budget, to obtain milspec +6 orcslayers? (Actually there are some neat weapons they can use in Eve Online...)
      • Speaking of EVE Online, I think that qualifies as a legitimate first example of virtual taxation, entirely within the game universe. Player-run corporations which are de-facto nation-states are equipped with some options for directly taxing the income and transactions of their members, although back when I actually was playing, the tools were ridiculously clunky and effectively useless for real revenue-generation.

        It's remotely possible that they fixed it since I dropped EVE like a hot rock a few months aft

  • Why it won't happen... (Score:3, Interesting)

    by thebdj ( 768618 ) on Monday May 01, 2006 @02:55PM (#15239293) Journal
    I will point the government to the EULA which typically state you are not allowed to sell these assets for money. Granted a large number of people do, but most of the EULAs for MMOs prevent people from selling goods or accounts. So, since you are not allowed to sell your accounts, it seems pretty hard to tax them. Also, this would just add another layer of trouble to tax agencies. They would have to retrieve account information from the companies running MMOs and then calculate how much money the accounts are worth at FMV. This would present issues since this varies by character levels, item levels, amount of virtual currency, class of characters, etc.

    I think there are a great many things limiting the taxation of this "income." So, don't worry. This will not happen anytime soon.

    • Re:Why it won't happen... (Score:5, Insightful)

      by kclittle ( 625128 ) on Monday May 01, 2006 @03:03PM (#15239374)
      Al Capone was not allowed, by law, to sell bootleg liquor. He was, however, legally required to pay taxes on the income. He failed to do so, and went to prison for tax evasion...
      • Yes, but he did sell liquor and did avoid taxes. The idea presented here is taxation without having sold the account. The items have a FMV, so therefore are taxable is what we are debating. If you sell anything legal or not in the US, you are liable for the income made from it. So as you see, your analogy isn't quite right.
        • And is it FMV as of a certain time? Cumulative?

          What if your character acquires a bunch of gold and then gets it stolen? Are you liable for your total gain? Or what you had at 12:59PM on December 31st? And if taht, what if you just go bury the gold somewhere and go get it again after midnight?

          And what happens if your character acquires a bunch of gold and then your computer crashes, you lose your passwords, and you can no longer log into your WOW account? Do you still pay taxes on that virtual money you
          • From the H&R Shrek tax advisors website:

            "If you file a virtual W-2, the IRS will withhold gold taxes before you get paid."

            "If you elect to get paid under a virtual 1099, there is no withholding but you must pay taxes quarterly including 15.3% for Unsocial Warrior Security (UWS)."

            "And if you file a Form 666, the IRS must celebrate a Black Mass while having a virgin recite the Tax Code backwards without error at midnight before they can withhold any taxes. Any mispronunciation, and there is no penalty to

      • The reason why Capone was busted on tax evasion and not murder, extortion or some other crime is because tax evasion was a federal offense, while the others where state. This allowed the prosecutors to select a jury from a larger area, (outside of Capone's turf,) so they could get a jury that would actually convict.
    • To add to the other replier... in many states not only can you get poked for possession of illicit drugs, but you can also get additionally poked if you have not paid the tax on them [milwaukeephilatelic.org].

      Point to the EULA all you want but the fact remains that State and Federal Law trump virtually any EULA.
      • I will tell you the same thing I told the last guy. You HAVE to sell something in order to make money. We are talking about the idea of being charge taxes on the FMV of your items and characters. These are two different concepts. If I break a EULA and sell my characters on eBay then the government has every right to tax that as income since I did make income on selling goods.

        My point is that they cannot assign an FMV to your items if they technically have no FMV. What you are mentioning is from respe
        • Uh, no. You have to sell the asset to convert it to money, but you do not have to sell the asset in order for it to be taxable.

          If you and I do a barter transaction, say you perform some service for me and I pay you in (real world) diamonds, then that moment is the taxable event, not the later time when you actually sell the diamonds. It should be fairly obvious that if you couldn't be taxed on anything until you turned it into actual dollars, there would be a gaping loophole in the tax code. (Example: I arr
          • Now, you might argue that the EULA prevents sale of gold. But it actually does no such thing, as evidenced by the fact that gold is sold every day. The EULA merely sets up a contractual situation where you are breaching your agreement with the MMO operator by selling the gold, and that presumably there might be sanctions against you if you are caught doing it.

            Actually, the MMO EULAs I've read have stated that everything on their server is their property. In that case, it's possible that selling virtual
            • >Actually, the MMO EULAs I've read have stated that everything on their
              >server is their property. In that case, it's possible that selling virtual
              >gold and items to people for real world money is [criminal] fraud since
              >you're selling something that doesn't belong to you (and you've in theory
              >agreed it doesn't belong to you buy "signing" the EULA at login).

              Ehh, you are completely messing up things. The sale you talk about in regard to "fraud" and so on, is the actual sale of something in that
    • So, since you are not allowed to sell your accounts, it seems pretty hard to tax them.

      Actually, the IRS is very clear that you're required to pay taxes on income, regardless of if the income was legal. You're also allowed to, for instance, claim deductions for any bribes you've paid, if such things are a normal cost of doing business in your area.

      They would have to retrieve account information from the companies running MMOs and then calculate how much money the accounts are worth at FMV.

      They'd pro
    • For games like WoW, I'm inclined to agree. For something like Second Life or Project Entropia real world cash made is certainly taxable income. It's not a far stretch to make the transaction that turns your virtual money into real money taxable just as any other Internet sales transaction is potentially taxable. The same goes for Sony's Station Exchange service.
      The real weirdness would be something like property taxes in Second Life. The total valuation of virtual property would have to be a hell of a lot h
  • Ssshhhhh!! Maybe if we don't post stories about it nobody in the IRS will notice and I keep up my full-time job at the auction house!

  • So many questions... (Score:3, Funny)

    by Volante3192 ( 953645 ) on Monday May 01, 2006 @02:56PM (#15239304)
    Will the IRS allow a one time, tax free gift to your in-game spouse for up to 100k plat?

    If you destroy a no-drop item can you get a refund?

    How bout deductions for funding your own crafting business?

    Are repairs business expenses?

    So many questions... and why do I think all the CPAs are going to be Druids?

    (Sorry, no WoW experience, all EQ1 based references...cept the repairs)

  • It'd be easier (Score:4, Interesting)

    by the_skywise ( 189793 ) on Monday May 01, 2006 @02:56PM (#15239309)
    to just tax the transaction point at which point you have to convert the virtual currency into the real thing. For instance, an EBay or paypal sale. It's easier (and more profitable) to tax all of EBay sales or paypal transactions.

    If virtual currency ever gains real value (that is... you'd accept your paycheck in WoW gold instead of cash) then you might see taxation systems required to be in the game. But I doubt that will ever happen (Okay that's 50 gold pieces for the broadsword and I see you live in California so that'll be an 8% sales tax rounded up or 54 gold pieces.)
    • And the key point is - all Ebay sales are already taxable (and at the nasty "collectables" tax rate, too). Therefore, selling WoW gold or whatever on Ebay is already taxable.

      INATL, but AFAIK any "collectable" you sell is taxable, at a pretty high rate (28% IIRC), on the entire amount you get for the sale of the item less what you can prove you paid to acquire the item. However, there's a difference between what you're tecnically required to pay taxes on and what the IRS actually cares enough about to inve
      • But I was thinking of a sales/transaction tax above and beyond income sources. (Though I guess that makes this whole thing a moot argument...)
  • (I am not an economist)...

    There are certainly parallels between virtual economies and certain forms of commododities trading:

    • The traders acquire commodities "on paper", totally intangibly. (Has a CBOT purchaser ever actually taken delivery of 2,000 tons of orange juice concentrate?)
    • The system within which all this buying and selling occurs is pretty much self-contained.
    • The fundamental method of buying and selling is a bid system.
    • Trades in some systems occur in non-US currencies.

    So, is an MMO virtual ec

    • Re:IANAE... (Score:3, Insightful)

      by Znork ( 31774 )
      "There are certainly parallels..."

      There are also, however, some very large differences; the first and foremost being that there is no fundamental scarcity (nor is it desireable to have such) of the virtual items in question, leaving them ultimately worthless.

      I suspect the economic effects of allowing interaction between game and real economies may actually be damaging to the real economy; it opens up various speculation effects, and can create massive fraud distortions (for example, say some nasty people en

    • Re:IANAE... (Score:3, Informative)

      by Babbster ( 107076 )
      The most fundamental problem is that the people selling these items and gold are not the owners of the property, nor are they representatives of the owners of the property (such as on a stock exchange). The EULAs for MMOGs usually specify that users have only those rights granted to them, limited to use of the game on the developer/publisher's terms and that the folks running the MMOG retain all rights to the game (and, thus, everything in the game - including the individual characters). For the virtual i
      • >The most fundamental problem is that the people selling these items and
        >gold are not the owners of the property, nor are they representatives of
        >the owners of the property (such as on a stock exchange).

        Nor are the "seller" claiming to be the owner or claiming that the buyer will become the owner. The sale is really about a transfer of the item within the game, which actually is perfectly allowed by the ones hosting the game. It is not a sale of any physical property which you seems to think and co
    • Has a CBOT purchaser ever actually taken delivery of 2,000 tons of orange juice concentrate?

      Yes - 100% of contracts are delivered to someone. And that's where your analogy breaks down. All of the actual commodities trades (as opposed to stock market futures and the like) involve a contract for tangible assets with value in the real world. While most of the trades during the life of a contract involve speculators, the contract eventually connects a physical producer with a physical consumer.

      The market for
      • While most of the trades during the life of a contract involve speculators, the contract eventually connects a physical producer with a physical consumer.

        That's true to a certain extent, but the argument could be made that the bits and bytes representing the "+4 Sword of Slashing" are as real as any other software. For example, a software company could have a rented computer on which they store their code and make contracts regarding that code. So, it's possible not to own the "physical" hard drive but
        • It's the difference between tangible and intangible value. Corn has the former. A million-dollar stamp has the latter. The difference is certainly important in the tax rules. It's also important in economic theory (and in how the markets are structured), though the value of just about anything is party intangible.

          The unique thing about the +5 Sword of Slashing (perhaps as opposed to other software) is that it costs the MMORPG company nothing to make, so there's no control over supply. And unlike baseba
    • those trades are made with 'hard currency'. I really doubt that SWG 'credits', and various game 'gold' would readily equate to 'hard currency'. Sure, they can tax my swg 'credits' if they wish to take payment in SWG 'credits', CoH influence, CoV infamy, or Auto Assault clink.
  • As long as I'm paying my virtual tax in virtual currency. I'm sure the creative folks at the IRS will be able to figure out what to do with 1 billion gold. Maybe we can even get a bridge from Alaska to Kalimdor out of it.

  • um.. (Score:3, Insightful)

    by argStyopa ( 232550 ) on Monday May 01, 2006 @03:09PM (#15239430) Journal
    Not to sound like a complete radical, but why don't we ask ourselves why the government is entitled to step in and get 'a piece' of a private transaction between two people to begin with? The medium is irrelevant.

    If I trade you two chickens for a goat, are they entitled to take for themselves the drumsticks off one chicken and one udder from the goat? That's stupid.

    Almost as stupid as everyone taking it for granted that if I pay you $10 to mow my lawn (or $100,000 to build my house), somehow, the government is entitled to a cut of that payment.

    The moment they start taxing my 'virtual gold' I'm paying my IRS bill in WoW silvers.

    • Re:um.. (Score:5, Insightful)

      by Renraku ( 518261 ) on Monday May 01, 2006 @03:30PM (#15239617) Homepage
      The government is entitled to take whatever they please as long as they can write it into law and enforce it.

      Do not confuse 'right and wrong' or 'justice' with 'law'.

    • Re:um.. (Score:2, Insightful)

      by ect5150 ( 700619 )
      While most governments may not make 100% efficient use of tax dollars, how else do you think roads get made? Police get paid? Firefighters get paid? Public Transportation get made? Laws get made for the purpose of proecting your own private property?

      If I trade you two chickens for a goat, are they entitled to take for themselves the drumsticks off one chicken and one udder from the goat? That's stupid.

      While you might not like it, I think you'd like it even less if the other fellow beats the shit out of
      • While most governments may not make 100% efficient use of tax dollars, how else do you think roads get made?
        Automobile taxes; gas taxes; license fees for vehicles.

        Police get paid?
        Property taxes. Income taxes.

        Firefighters get paid?
        Again, local property taxes.

        Public Transportation get made?
        Now you're getting into the realm of fantasy spending; I live in a city where "public transportation" is more than 80% subsidized, and while occasionally rush-hour buses are full, *most* buses you see trundling around t
      • While most governments may not make 100% efficient use of tax dollars, how else do you think roads get made? Police get paid? Firefighters get paid? Public Transportation get made? Laws get made for the purpose of proecting your own private property?

        Roads, police, public transit, etc., could all be funded for a miniscule fraction of what we pay in taxes... and could be done on a local level through non-intrusive things like user fees, sales tax, etc.

        Right now, the government in the U.S. consumes more than 5

    • Re:um.. (Score:2)

      by Surt ( 22457 )
      It makes sense for the government to tax private transactions based on the premise that by providing for the safety, security, and legal backing of the transactional system, the government is making your transaction possible. As an example of why you need this to have a civilized society, what do you do if the guy with the goat tries to walk away with your chickens without giving you the goat, particularly if he has better weapons than you do?

      The typical answer is to have a police force and a legal system

    • Yes, bartering counts as income (Score:4, Informative)

      by Steve Hamlin ( 29353 ) on Monday May 01, 2006 @03:43PM (#15239730) Homepage

      If I trade you two chickens for a goat, are they entitled to take for themselves the drumsticks off one chicken and one udder from the goat?

      Actually, yes. Well, not payable in drumsticks, udders or MMO silver, but....yes.

      You'd owe taxes on the excess of the market value of goat over the market value of the two chickens. If equivalent tranactions value the goat at more than two chickens, then you just made a profit, and probably owe personal income tax.

      Income doesn't have to be in cash, and bartering counts. An equal trade would probably be counted as a either [Revenue-Cost of Goods Sold=zero Net Income], or a like-kind echange of assets.

      Reportable on Schedule C (profit or loss from a business-sole proprietorship), or Schedule F (farm income and expenses)

      • It's been awhile, but IIRC it's even worse than you describe. Say, for example, that in exchange for mowing my lawn, I agree to do your taxes. According to the IRS, both of us are on the hook here for the full value of the services, instead of the one who comes out ahead being liable for the difference.
    • Not to sound like a complete radical, but why don't we ask ourselves why the government is entitled to step in and get 'a piece' of a private transaction between two people to begin with?

      At the root, it's because any government that didn't take a cut from it's citizens couldn't compete with governments that did. As a citizen of the Anarchist Dictatorship of RoyStgnr, for example, you enjoy a 0% sales tax, 0% income tax, 0% gift tax, and 0% capital gains tax... but unfortunately that leaves Our Benevolent D
      • Except that there are many countries that maintain their soveignty with virtually non-existant militaries. For example, Luxembourg spends 0.8% of GDP on military... Switzerland spends 1.8% GDP on military. Since 9% of U.S. GDP already goes to charitable contributions, there is no reason why a modern defense force couldn't be funded entirely by voluntary contributions.
  • Use the official conversion rate published by your government.

    If they don't provide an official rate you should be free to choose a reasonable rate, as the EULA states they may not be sold one could logically argue the exchange rate is zero.

    This may not work where there IS an official exchange rate.

  • Hype? (Score:2)

    by Tom ( 822 )
    Can you imagine how exponentially greater this amount will be in a few short years?

    Maybe, maybe not. It is just as likely that a few years down the road, we've come back to realizing that games are, first and foremost, games and meant to provide entertainment and fun - not income.
    Then again, maybe not. But right now, anyone claiming to know how it'll play out is simply a fool.
    • I suspect there is huge temptation for the game companies to "farm". They can do it instantly then sell through fronts. A few cases of this getting publicity (or even affecting the ingame economy) would kill the real money for bitmoney market.
  • I really love games in general and RPGs inparticular. That said, I have to question why topics regarding the "real world" worth of game stuff keeps coming up. I think people like to imagine that, after all the effort they've put in, there's some actual value to the end result. There usually isn't. But when there is, don't we get excited at the prospect? I think if we're honest with ourselves, it's just a rationalization for spending an inordinate amount of time playing a fun game.
     

  • Um... (Score:2)

    by Maul ( 83993 )
    When the giant dragon drops game currency, the player should not be taxed. The virtual currency has no real world value if it remains in the virtual world.

    It only has value once sold for real world money. When the player sells their virtual currency on eBay or wherever, someone pays them money for it. That is income, and should be reported and taxed as such. Why the hell do we need special laws for crap like this?

  • Capital Gains (Score:4, Insightful)

    by robbway ( 200983 ) on Monday May 01, 2006 @03:23PM (#15239547) Journal
    When you get an income, it gets income-taxed in the USA unless it is exempt. The fake-goods trailer was correct by reporting this income. I personally feel it should be taxed as realized capital gains, since it is worth nothing until sold for actual money. You should also be able to deduct the game cost. So, if game price is $50, and monthly fee is $10, and you sell something for $150 after 3 months, you've realized a gain $70. Plus, it is probably the seller's labor that is being traded (play-for-hire), not the virtual goods.

  • The answer is very simple (Score:4, Insightful)

    by SmallFurryCreature ( 593017 ) on Monday May 01, 2006 @03:25PM (#15239569) Journal
    There are two points the taxman could become intrested. The first is when you convert you ingame assets to real world assets. That would be counted exactly the same as normal income and for all the correct reasons. The amount to be taxed is the amount you gained in real world assets totally unrelated to the game value. If you pay me a million to mine 1 piece of gold in EQ2 then I would be taxed for 1 million. If I deliver you the holy armor of gnolls for 1 dollar then I would be taxed on 1 dollar regardless of the fact it costs a gazillion gold pieces in game.

    To avoid this, simply do not convert your in game assets to real cash.

    But what if so many people do it that the taxman decides to attribute a value to ingame assets. What if the taxman would say that a gold piece in game has value.

    Well then it is very very easy. Just pay the taxman in goldpieces. IF they are supposed to have a realworld value then you should be able to pay in them.

    I think it would open up a can of worms if they would set a virtual to real exchange rate that could not be easily matched. I am not certain how the american tax system works but for instance the value of land is usually not an absolute. It greatly depends on what it is worth on the market and not some fictional market you use to brag about your wealth but what cold hard cash you can get for it today.

    It would truly be a nightmare to setup. The goverment would have to constantly check what the real value is of cash in dozens of games. Not to mention that most games have an inflation that makes african countries look well adjusted.

    It could happen in theory but I think that the taxman has better things to do. The only people who need to worry is those who make money off their in game wealth. The taxman taxing the money you receive. Wow, what a concept!

  • If people are making such a big deal about the IRS being able to tax MMORPGs... why not apply those same rules to games like Monopoly? The players gain 'goods' through play - and unlike MMORPGs they actually have a physical presence.

    Constantly saying that the IRS is going to tax in-game transactions is just scaremongering. You can consider it taxiable income once its converted into real-world cash and thats what would be seen as the transaction. Saying that any changing hands or acquisition of anything wh

  • Since the article is focuses on U.S. tax theories, this post will as well.

    Publication 525 [irs.gov] is what the article refers to when it mentions "tax law...clause #525". This IRS publication is put out to help taxpayers interpret various code sections, case law, and the fundamentally vague term "income"

    In general, "income" has been spoken about by the courts as an increase in economic position, and if this increases, the tax man wants a piece of it. This includes amounts paid to you for the services of your

  • I was going to build out an online stock market in There [there.com]; I was also going to build out an online bank. I thought about it really hard and decided that the US Gov't would come in and do several things:
    1. Tax income
    2. Check if I am an equal-opportunity lender
    3. Review my bank for proper loan reserves
    4. Bring in the SEC to investigate trades
    5. Ensure that I treat customer information according to the Graham-Leach-Blyley Act (GLBA)
    6. Probably something to do with Sarbanes-Oxley, too
    7. Ask to see my records.

    In general, I

  • In any game where the exchange of game items or money for real money is prohibited (and there is evidence that the game owners expend effort enforcing that prohibition), this is not an issue, as the game money (or items) doesn't have a fair market value; you're prohibited by your contract with the company running the game from marketing the stuff.

    Chris Mattern
  • Look. It's a game. Just like monopoly is a game.

    Yes, both involve currency. Both involve game transactions. Hell, you could even slip another player $5USD for a few of 'his' monopoly bucks, or gold pieces, or whatever.

    Never, at any point, do you, the player, own the monopoly dollars, nor your WoW gold, or anything of the sort. For the entire duration of your time playing at Rob's house, Rob still owns every monopoly dollar; for the entire duration of your time playing WoW, blizzard owns your gold. You
    • It's a game. Just like monopoly is a game.

      You don't declare your Monopoly winnings? Call the IRS!

    • For the entire duration of your time playing at Rob's house, Rob still owns every monopoly dollar; for the entire duration of your time playing WoW, blizzard owns your gold. You don't take your monopoly dollars home with you, nor your WoW lewt.

      You never own 'your' game money. As such, you can't be taxed on it.

      What you say actually applies to real money too.

      People trade "real money" for WOW gold because they believe that it has some value for them within WOW.

      People trade their labor for "real money" because
  • awesome

    I can delete my 4 accounts and claim a huge loss to offset my taxes....

    How about

    They can tax it at FMV when it counts toward my assets for a loan? The credit union doesn't believe i have all that gold ;(
  • There are no in game goods, when you 'buy gold' for WoW, you are doing two things, first, you are violating the WoW ToS, second, you are paying for the service of having someone farm the gold and transfer it to you.

    The same thing is true of when I do contract programming. I never sell the end product, I instead sell my services, paying taxes on the income. When I program for myself, there is no income and no tax.

    For a more blatent example, there are people whose job it is to open doors and answer questions,
  • In other news, the U.S. Treasury Department has hired a software firm to create a special MMO where they will be able to "print" as many magic swords as necessary to pay off the national deficit.

    Seriously, though. Since it would be virtually impossible (like the pun?) to track all the magic swords and other assundary virtual objects, the more cost effective way for the government to manage this is via point-of-sale and income tax. That is, Ebay and other online payment systems will need to track all those l
  • If governments are going to tax virtual currency, then it'd be expected that social programs would kick in if your virtual income fell below a certain threshold. Translation: state-sponsered gil-buying.

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