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Virtual Economies Attract Real-World Tax Attention 247

Posted by kdawson from the tax-haven-in-Second-Life dept.
doug141 writes to point out a Reuters story on the attention tax authorities are beginning to focus on virtual economies. From the article: "Users of online worlds such as Second Life and World of Warcraft transact millions of dollars worth of virtual goods and services every day... People who cash out of virtual economies by converting their assets into real-world currencies are required to report their incomes to the U.S. Internal Revenue Service or the tax authority where they live in the real world... 'Right now we're at the preliminary stages of looking at the issue and what kind of public policy questions virtual economies raise — taxes, barter exchanges, property and wealth,' said Dan Miller, senior economist for the Joint Economic Committee of the U.S. Congress."
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Virtual Economies Attract Real-World Tax Attention More

Virtual Economies Attract Real-World Tax Attention

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  • Finally. (Score:2, Insightful)

    by Hubbell ( 850646 )
    I'm surprised this wasn't done years ago when people were making real money off of Ultima Online and Asheron's Call. Good AC accounts, like Animal the first level 126 Battlemage which went for $5,000, were going for thousands during it's prime and even a year or two afterwards.

    • Re:Finally. (Score:5, Interesting)

      by SatanicPuppy ( 611928 ) * <Satanicpuppy.gmail@com> on Monday October 16, 2006 @02:04PM (#16455671) Journal
      What would the tax be, exactly? For the most part, most states don't require sales tax on internet purchases. And if you sell accounts for more than $400 bucks, then you should be reporting that income to the IRS anyway, same as with any other income.

      I don't see any need for a special case. You make money off it, you're supposed to declare that money and pay taxes on it. Goes without saying that most people don't, but that's just an enforcement issue.

      • Re:Finally. (Score:4, Informative)

        by Anonymous Cow herd ( 2036 ) on Monday October 16, 2006 @02:40PM (#16456345) Homepage
        What would the tax be, exactly? For the most part, most states don't require sales tax on internet purchases.

        Most states also have what are known as "Use Taxes". Wiki here: http://en.wikipedia.org/wiki/Use_Tax [wikipedia.org]

      • Re: (Score:3, Insightful)

        by truthsearch ( 249536 )
        But enforcement is the issue they're trying to tackle. Enforcement is basically handled by either withholding or reporting (e.g. form 1099). It sounds like these virtual world companies aren't reporting (we definitely know they're not withholding). So the government will either tax the virtual world and trading companies or force them to report payouts. Don't be surprised if in the next few years they ask for your SSN. I recommend getting an alternate tax ID if they do enforce reporting and you still w

        • Re: (Score:2)

          by arivanov ( 12034 )
          Play as a company and expense all off your equipment and bandwidth purchases.

          Dunno about the SSN, but I will be surprised if next year all major online games will continue to insist on a registration by a person.
          • Play as a company and expense all off your equipment and bandwidth purchases.
            Can't anymore. IRS has closed that "loophole". You may only deduct expenses incurred in the course of your majority source of income. That is, if you're not earning your living off selling Warcraft accounts, you can't deduct shit. Sucks for people like me who get 40% of our income off freelance work.

            • Re: (Score:2)

              by arivanov ( 12034 )
              Possibly. Dunno about the US.

              In the rest of the world if you register DunMalg LLC which does consultancy, freelance software and WofW "Character Development", the local equivalent of the IRS will have to allow you to claim expenses regardless of how much time you spend on each of these in a given taxation period. You will have to do proper company accounting though.

      • Re: (Score:2, Interesting)

        by mysidia ( 191772 )

        What would the tax be, exactly? For the most part, most states don't require sales tax on internet purchases. And if you sell accounts for more than $400 bucks, then you should be reporting that income to the IRS anyway, same as with any other income.

        Income Tax. For US citizens, the government has a tax for your worldwide income.

        I for one am concerned of the possibility they might deem your exploits in-game to be taxable income, payable in US dollars, for instance, the moment your character enter

        • Re: (Score:3, Funny)

          by Typhon100 ( 641308 )
          • You really don't have to worry about that... you don't get taxed on things as they increase in value, just when you cash out on them (imagine buying a rare baseball card; as it increases in value you don't have to pay taxes on that)
          • Where are these boars that drop 200g!?!?

          • Re: (Score:2, Insightful)

            by mysidia ( 191772 )

            Hm.. I think the trade of the gold for a sword may separately be taxable as barter exchange [irs.gov], oh boy -- you may note, that income from barter or exchange is not deferrable for tax purposes, beyond the end of the year, and estimated payments may be required.

            Otherwise, you could start a consulting business and delay taxation of your business profit, by having your customers pay you in Barrels of Whisky, Japanese Yen, instead of dollars, E-gold or World of Warcraft money. But according to the IRS, the inco

        • I for one am concerned of the possibility they might deem your exploits in-game to be taxable income, payable in US dollars, for instance, the moment your character enters the game, slays a boar, and gets 200 gold pieces off the corpse, that generates an earned income taxable event, and possible self-employment tax liabilities.

          If it made any sense at all then wouldn't it make more sense to tax the gold pieces? If you make 200 gold pieces from killing a boar then the government gets x% of that. If the gove

        • Income Tax. For US citizens, the government has a tax for your worldwide income.

          True enough, however, that means players can now deduct ISP costs, game purchase prices, monthly access fees, computer equipment depreciation, etc from their income tax since these are all required to make money in an online world. The gov is salivating all over the income potential without thinking about the THEN fully deductible costs associated with earning said income!
          • that means players can now deduct ISP costs, game purchase prices, monthly access fees, computer equipment depreciation, etc from their income tax since these are all required to make money in an online world.
            Only if it's your primary source of income. They disallowed the deduction of expenses incurred earning a secondary income a couple years ago.
      • I believe the limit for reporting income is $600 on a 1099.

    • Ebay is the key (Score:2, Interesting)

      by ackthpt ( 218170 ) *

      I'm surprised this wasn't done years ago when people were making real money off of Ultima Online and Asheron's Call. Good AC accounts, like Animal the first level 126 Battlemage which went for $5,000, were going for thousands during it's prime and even a year or two afterwards.

      You, nor many others are really getting it. They're not going to tax your stuff in game, they're going to figure out how to shackle eBay with a scheme to report all your personal sales to the IRS, then tax you on them. Won't matt

      • Re: (Score:2)

        by Wansu ( 846 )


        You, nor many others are really getting it. They're not going to tax your stuff in game, they're going to figure out how to shackle eBay with a scheme to report all your personal sales to the IRS, then tax you on them. Won't matter whether you're turning a profit or not, they'll want a cut of it.

        On principle, selling your stuff on eBay ain't no different than selling it on a local newsgroup, newspaper classified ad page or a flea market table. They don't typically try to tax such sales.
    • Your post gives me an idea.....

      Used slashdot handle "lottameez" for sale, just $5000-US.

      This lightly-used handle is about 2 years old with an ID in the low 800K's and comes with Excellent karma. Occasional moderation and meta-moderation privileges provided. Clever sig not transferable.

  • Well (Score:5, Funny)

    by Kelz ( 611260 ) on Monday October 16, 2006 @01:56PM (#16455485)
    Given that it is against the Terms of Service in WoW to exchange in-game currency or items for real life currency or items, I can't see that there would be any legal standing here.

    Also, I believe Second Life's ToS [secondlife.com] explicitely states that Linden dollars have no legal value, also trumping any sort of tax law.

    But then, neither was the income tax...

    • Re:Well (Score:5, Insightful)

      by drsquare ( 530038 ) on Monday October 16, 2006 @01:58PM (#16455521)
      Whether the game manufacturers say it has legal value or not, if you cash in, that's income, and you have to pay tax on it.
      • Whether the game manufacturers say it has legal value or not, if you cash in, that's income, and you have to pay tax on it.

        That simply is not true. You don't have to pay any income taxes on it if they don't know about it. Saying that you must pay taxes is like saying that you can't buy drugs. Sure you can. You just take some level of risk in doing so.

        • Re:Not True (Score:4, Insightful)

          by Maxo-Texas ( 864189 ) on Monday October 16, 2006 @02:18PM (#16455919)
          The "level of risk" you speak of is "the risk of punishment including fines and prison time for not paying taxes that the government requires you to pay on income". You implictly acknowledge that you can be punished for failure to pay in your own post. ironic, no?

          So , actually it simply is true.

          If you sell drugs, you are required to pay taxes on the income.

          Remember, it was good enough for the original mob Al Capone, it's certainly good enough for you with the loot you got off your MOB.

          • Remember, it was good enough for the original mob Al Capone, it's certainly good enough for you with the loot you got off your MOB.

            Al Capone wasn't equipped with Godslayer of Hit Points ;).

            • Al Capone wasn't equipped with Godslayer of Hit Points ;).
              Good ol' Dug Fin!
              Much cooler than Dick Saucer. "Sauuuuuuuceeeeeeer!"
        • tell it to Al Capone
    • I think the US government overrides a small corporation's terms of service.
    • ...income made in the USA is subject to federal income tax. Even your friendly local crack dealer technically owes income tax on his illegal drug profits.
    • Since Blizzard doesn't engage in any in-game merchandise transactions for real money, I don't think they're the ones the US Government would be trying to tax. Blizzard pays taxes on their income and that amount is reflected in the subscription fees.

      So who is the government trying to tax? Offshore gold farmers? One-off eBay sales? Who, of the relatively few Americans who do this, would even claim this as income?

      This seems like an issue best left to gaming companies anyway. It's not a developer's b
    • True, Linden Dollars HAVE no legal value themselves. However, Linden Labs/Second Life has a page stating the exchange rate for a Linden Dollar to some other real-world currency. The exchange rate is updated daily and determines how many, for example, L$ (the shortcut for a Linden Dollar, IIRC) a user can get for a US dollar.... AND VICE VERSA. If a user has thousands of L$ in their Second Life account, they can exchange that for a real-world currency, via a check or a deposit into a PayPal account (other
    • I am going to send the IRS 3 gold every time I sell a Flask of the Titans.

  • Gov't Regulation (Score:3, Funny)

    by DrWho520 ( 655973 ) on Monday October 16, 2006 @01:57PM (#16455505) Journal
    Dear God, no! Not that! Engineers will never be able to keep up with the Alchemist or Taylor lobbiests!

  • Losses (Score:4, Funny)

    by mugnyte ( 203225 ) on Monday October 16, 2006 @01:58PM (#16455523) Journal

      Any time I'm due to pay taxes, I'm going to claim a loss on my virtual accounts to balance it out. Wheee!

    • Re:Losses (Score:4, Insightful)

      by Morphine007 ( 207082 ) on Monday October 16, 2006 @02:13PM (#16455837)

      yeah, seriously. If you "invested", say, $10,000 worth of online currency into, oh... I dunno... this [slashdot.org] does that mean you can claim that online currency's worth as a loss?

      To answer my own question: no

      Now for a better question: suppose you first bought that $10,000 worth of online currency and "invested" it into that EVE Online ISK scam and lost it. Can you then claim your $10,000 investment as a loss? Since you invested the money into a business (some might argue this, but I'd argue right back that the EVE Bank had more chance of succeeding than some dot coms), with the expectation that it would make a profit (online) which you could then sell for real money (and hence pay tax on), but instead lost it?

      I mean, just how different are these two scenarios:

      • you invest real money into a business which makes a product, this business fails and you claim a loss
      • you invest real money into a virtual business which makes a product, this business fails and you claim a loss

      These are the reverse of the two scenarios the IRS wants to capitalize on:

      • you invest real money into a business which makes a product, it succeeds, you make money and pay tax on it
      • you invest real money into a virtual business which makes a product, it succeeds, you make virtual money which you exchange for real money and pay tax on it

      Where does the line get drawn?

      • Don't they tax international money transfers at the moment? How would they check that a US player doesn't transfer funds to a Chinese player or whatever?

        (Correct me if they don't actually tax international transfers)
    • If they consider selling wow accounts as capital gains, you could factor in costs per month. So if i sold a level 60 character for $300 but it took you a year to create him and factoring $20 month charge. Your taxes would be on 300 - $20 * 12= $60. Oh wait we are talking about the US tax code, you'll pay taxes $300 because the gamer community doesn't have enough money to bribe the politicians.

  • Holy crap it's the Grinch! (Score:3, Insightful)

    by Deliveranc3 ( 629997 ) <deliverance@level4 . o rg> on Monday October 16, 2006 @01:58PM (#16455525) Journal
    Timmy: WOW a +2 Vorpal SWORD SWEET!

    IRS: Hey Timmy...

    This is increadible they are taking one of the LEASE PLEASANT ASPECTS OF REAL LIFE and imprinting it on the virtual world... for no reason, they can just tax the sale of the goods!
    • They tax Income. Period. They dont hate MMORPGs, they just hate that some people are generated large revenue streams and not paying taxes on it.

      If you had some other way of converting virtual items into real currency the IRS would tax that too if you made money off of it. They dont have a 'thing' for MMORPGs.
    • "This is increadible they are taking one of the LEASE PLEASANT ASPECTS OF REAL LIFE and imprinting it on the virtual world... for no reason, they can just tax the sale of the goods!"

      Well, maybe we can have it go both ways. The real world might be improved by having guys dressed like Gimli scattered over the lawn killing rabbits. Or we can have crowd of griefers lurking at the key entrance points to all of our cities and towns (instead of just at Detroit like we have now). We could have real-life gold far

  • Time for a new Classes and professions (Score:5, Funny)

    by LiquidCoooled ( 634315 ) on Monday October 16, 2006 @01:59PM (#16455547) Homepage Journal
    Lawyers, Tax inspectors and accountants.

    Myself, I am a level 47 beancounter, I defeated the IRS during a daring raid. Many of my friends died in this battle :(
    • I call BS.

      You can't REALLY defeat the IRS; you can stun it, you can even perhaps get away - but nobody actually WINS except them. I don't care if you have the Sword of 1000 Truths.
  • Congress is awash in money. The only problem is that they waste so much of it. Is there really a need to find new ways to rob us?

  • Another step towards blending games into reality (Score:4, Insightful)

    by tont0r ( 868535 ) on Monday October 16, 2006 @02:00PM (#16455569)
    I always felt there would come a time that if someone stole your 'virtual item', they could be arrested for stealing. This will be one more step towards reaching that goal. Because now this is something you would pay taxes on. But how does one decide how much to tax? Is it considered 'investing' if you decide to buy all the WoW gold you can and then raise the price of it when you resell it? Because in all reality, Blizzard can just change the amount of gold you have in their database and poof its gone. And how do you handle hacks and what not? Will that become illegal if you sold 'gold' that you achived through hacking?
    • Wouldn't this have to depend on whether the "stealing" is considered part of the game? No one's ever been arrested for stealing the blinds in a poker game, or stealing 2nd base in the World Series. But if you hack into a WoW server and give yourself 10 million gold, that might be against some real world law...

      Will we get to the point where real-world courts are asked to decide whether someone's action in an online game constitutes cheating? Who defines cheating?

      I could see this ending up like card counti
    • It's getting more real than we may like to contemplate.

      These game writers are essentially bankers. They are printing virtual money with no real limits, and now there appears to be enough connections ( permitted or not ) to real money that they are increasing the real-world money supply ( M1 ). They are not, at the same time, increasing the supply of tangible real-world goods.

      The increase in the money supply without a proportionate increase in real-world goods causes inflation. Inflation is usually
      • They are printing virtual money with no real limits, and now there appears to be enough connections ( permitted or not ) to real money that they are increasing the real-world money supply ( M1 ). They are not, at the same time, increasing the supply of tangible real-world goods. The increase in the money supply without a proportionate increase in real-world goods causes inflation.

        Is a movie a tangible, real-world good? Or a song? Much of the American economy already depends on such things. I would say tha

        • In order to answer your question, you have to clarify what you mean by "movie". If by "movie" you mean "a piece of film or other object that, perhaps when manipulated by another device, creates sounds and images" then a movie is in fact a tangible, real-world good. If you mean "the images produced by such an object" then no, a movie is not a tangible thing, but is an entertainment service. That is, playing a movie many times may have entertainment value, but it does not increase the number of pieces of film

      • Re: (Score:2)

        by Twanfox ( 185252 )
        I disagree that they're essentially creating real world inflation. I base that belief on the fact that, no matter how much virtual assets exist in the world, one can effectively consider the real world currency ammount to remain the same during a small period of time. If 500 billion gil/plat/etc were injected into a VR economy, the change to the RL economy is nil. HOWEVER, the exchange rate from VR currency to RL currency is devalued (more VR currency per RL currency unit) because it is exceptionally easier
    • And are you to get arrested for murder when you kill their in game character? (Arrested out here in the real world that is...)

      all the best,

      drew
      Come on slashdotters, you know you want to...
      http://www.nanowrimo.org/modules/newbb/viewtopic.p hp?topic_id=4146&forum=171&post_id=61131#forumpost 61131 [nanowrimo.org]

  • Ummm.... (Score:3, Interesting)

    by porkThreeWays ( 895269 ) on Monday October 16, 2006 @02:02PM (#16455615)
    This may have been an issue at one time when I actually knew people making a living on EQ. However, I really doubt it's a huge deal today. Because of the international aspect of most of these games, lots of people with lots of time on their hands have time to make most items and currencies almost worthless in real money. I used to know 5 people who supported themselves on EQ transactions. Today, I don't know any who support themselves via mmorpg.

  • Um, Duh? (Score:3, Interesting)

    by Omega ( 1602 ) on Monday October 16, 2006 @02:04PM (#16455665) Homepage
    Almost any time money changes hands it is subject to taxation. I don't get why selling a "virtual" item shouldn't be subject to taxation as well? I mean, if I sell software online only -- that's virtual too, right? So doesn't sales (or at least income) tax apply?


    The real question is, "Is selling virtual property" subject to capital gains taxes (like selling a second home or shares of stock)? There's an argument to be made there -- and I'd be curious to see what Congress says.

    • Right now I'd say that this is a virtual environment, and cashing in and cashing out are essentially investing (though they might be considered gambling). If you were to track individual sales and purchases, you might get away with claiming cap gains, but if you put money in, "played," then cashed out at the "end" it would look like gambling, or worse - income. The latter would require you pay self employment taxes. The former would require you to claim it was an entertainment rather than a job.

  • Yeah, but (Score:3, Interesting)

    by Lord Kano ( 13027 ) on Monday October 16, 2006 @02:04PM (#16455677) Homepage Journal
    Is it considered earned income or a capital gain?

    From a tax perspective, there's a huge difference.

    LK

    • Re: (Score:2)

      by Pop69 ( 700500 )
      Depends how long you play the game for.

      If you play an account for 6 months, sell, rinse and repeat than I'd have said income tax as it's a trade.

      Play for 3-4 years and sell up on quitting then it's a capital gain.

      Of course, if they tax it as income tax then you should be able to deduct your expenses, cost of game purchase, monthly fees for game, proportion of ISP charges, etc.
  • Just remember to deduct your expenses toward creating your virtual wealth. Buying the retail box or download, the monthly service fees, upgrade fees when new content is released, etc. should all be legit deductions to such a tax.So should some percentage of your electric bill to power the computer. Maybe part of that nice new desk, chair, and all that too. If they want a tax, they better recognize the business expenses we're ging to to create that income, virtual or not, and if they leave the deductions par
    • I know that, say, a crack dealer, is supposed to pay income tax, even though his business enterprise is illegal.

      Can the crack dealer write off his bail bonds, 22" dubs, and Escalade sound system as expenses? How about those crack whores - as an entertainment item, usual and customary in his line of work? I doubt the IRS will accept those deductions.

      So, if selling in-game items in the real world is "illegal" (against the TOS), can you have legitimate expenses?

      Any accountants for crack dealers out there

  • Given that most gold farmers appear to be Chinese. (Score:3, Funny)

    by Channard ( 693317 ) on Monday October 16, 2006 @02:07PM (#16455731) Journal
    .. I don't think this will have as much impact as they think.

  • Taxation, good luck (Score:5, Insightful)

    by Shihar ( 153932 ) on Monday October 16, 2006 @02:09PM (#16455761)
    The only case where I can see taxation having any success is when a company facilitates it in a direct way. So, if I can cash money out of the game directly, you might very well be forced to pay a tax in the same way you are forced to pay a tax when you get a paycheck from work.

    That said, that sort of transaction where a legitimate business is facilitating a cash transfer is pretty rare. The real money trading hands in MMORPG economies is almost exclusively person to person transaction, non-legal companies, or legal companies outside of the US. In all of those cases you are about as likely to get a drug dealer to voluntary tax report his taxes as you are to get some guy working over e-bay to report his income.

    The only reason I can think of to voluntarily report MMORPG income is if you are making so much that it makes up a substantial part of your income. In that case, you might report some fraction of it just to avoid looking like a drug dealer.

    I expect the vast majority of people to simply ignore any efforts to improve taxation about as easily as they ignore laws against a few guys playing poker on Friday night and smoking small quantities of marijuana. Yeah, those activities are illegal if you are caught, but unless you are running an underground casino or smuggling pounds of drugs, no one really cares and the penalties for being caught are a slap on the wrist.
  • if you made a bunch, expect the IRS to be coming after you... income is income, and unreported income still can mean trouble!
  • Let's say you accumulate items worth say $1000 if you sold them - does the act of accumulating them cause the income or does it exist only if sold? Can you deduct the cost of playing? What happens if you trade an item in game? Did you just create a sale?

    While this may seem trivial, those are the type of issues I see the IRS struggling with when deciding what constitute income and when is it earned.

    Personally, if no cash or other goods of value are traded only online and not for cash or other goods / servi
  • I'd rather we declare war against these buttheads rather than sending them past due tax bills. Gold farmers destroy the economies of games like Warcraft, at least they make like damned hard on honest in-game farmers. They depress the prices on the resources you harvest and increase the costs of the auction house goodies you're looking to buy. I wouldn't mind seeing some of these guys waterboarded.
  • ...is to vote. Or have gaming lobbyists.

    There are other types of income with real-world value that the IRS doesn't go after. What about frequent flyer miles? My employer buys my tickets to go to meetings, as abusiness expense and I get the mile. I have enough to fly around the world first-class, but aren't required to report them on my taxes.

    • Actually, they did go after them in the 90's. But for political reasons, IIRC, they backed off slightly. Still, it's not as though they couldn't tax them if they really wanted to. They're certainly income for taxation purposes, they just may be specifically exempted.
  • This seriously would have sucked when I was selling stormshields, etc. on ebay three years ago. The only way the gvmt is going to even attempt to regulate this is if they weed their way into Ebay/paypal and monitor stuff from the inside.
  • It doesn't sound like they're taxing what you have in the game. They're just taxing you if you sell your game assets and make real-world money. This isn't something new. If I sell something for profit, I get taxed on the income, no matter how worthless the item is that I sold.

  • Does this mean... (Score:3, Insightful)

    by Samurai Cat! ( 15315 ) on Monday October 16, 2006 @02:34PM (#16456227) Homepage
    ...those folks can write off their WoW account fees, and depreciation on their computers, etc. as "expenses"?

    • Right question: can they write it off without getting audited?

      Cue Gene Hackman: "I don't care about an indictment. I just don't want them getting a conviction."

  • I, for one, demand that the devs give the taxpayers some love and nerf the IRS. Everybody bump until we see some blue text!
  • So pay them those taxes, but if they demand, make your demands too: deduct the costs of playing: cost of PC, cost of electricity, cost of buying the game, cost of monthly subscription fees, etc. :)

    BTW, how will they know you had any income ? Who will tell them that you are playing, what is your character's id and how much money you made with it ? Will they ask every player's all data from the game maker ? Can they ask and will them give ?
     
  • Next they'll consider "/random 1 100" as online gambling.

  • In the event that you have set up a business model that sells virtual equipment/accounts from an online game you would treat your business as you would any other service oriented business. Income would be generated at the time of sale rather than at the time of acquisition of an item since market pricing would provide fluctuations in the value of the commodity. Accounting for your machine, home office expenses, percentages taken for online payment options, advertising, game costs, etc. you would file unde
  • And with the virtual taxes that the government collects, what services will they provide? I forsee:
    • Public works - highways that use 5 times the number of prims that a private highway would use, are unnecessarily and inefficiently scripted, and go nowhere anyone wants to go
    • A standing army - to protect Second Life from hackers (or to invade SWG)
    • Welfare - L$ supplemental income for people who can't script well enough to support themselves.


  • Is there really nothing more behind the desire to collect additional taxes?
  • Government officials find something else to tax, news at 11.

  • Foreign Accounts (Score:3, Informative)

    by TheoMurpse ( 729043 ) on Monday October 16, 2006 @03:49PM (#16457477) Homepage
    It seems to me that, if we are going to consider that money in virtual worlds is taxable, that it should be treated like money in foreign accounts. I'm not a tax lawyer, but if you have more than US$10,000 in aggregate in foreign accounts, they may be taxable and you may have to file a U.S. Treasury Form TD F90.22-1 annually. A foreign country is defined as geographic areas located outside the US, Guam, Puerto Rico, and the Virgin Islands. Granted, this may invalidate prior case law where the internet was defined as being within the US, but I think it is very important to set a precedent that the internet is one unit that encompasses the whole world, and to rule that the entire thing is located within the US is folly.

    The simpler solution is to say that while the virtual possessions are still virtual, they are worthless. However, once you make real money off of them by selling, the sales are taxable in the same way that plants you have grown on your property are not taxable, but as soon as you sell them the revenue is taxable. Otherwise, this situation is parallel and displays the idiocy of taxing virtual possessions as capital gains:
    MMORPG : FPS Tournament ::
    virtual gold : frags ::
    cashed out value : tournament winnings.
    Isn't it absurd to say you should be taxed on frags gained in pursuit of a tournament victory? Or, to put it in terms more old people (read: legislators and judges) would understand:
    MMORPG : tennis tournament ::
    virtual gold : points ::
    cashed out value : tournament winnings.
    Now, does Maria Sharapova get taxed on points she won in a match? NO! She is taxed on tournament winnings only. Thus, by analogy, a gamer should be taxed on real earnings made by "cashing out", and not by what he possesses in the virtual world.

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