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  • IRS taxation of online game virtual assets

    Interesting article:
    If you are a hard-core player of virtual worlds like World of Warcraft, Second Life, EverQuest or There, IRS form 1099 may someday soon take on a new meaning for you.

    That's because game publishers may well in the not-too-distant future have to send the forms--which individuals receive when earning nonemployee income from companies or institutions--to virtual world players engaging in transactions for valuable items like Ultima Online castles, EverQuest weapons or Second Life currency, even when those players don't convert the assets into cash.

    Read Full Article Here
    Diplomacy is the art of saying "good doggie" while looking for a bigger stick.

  • #2
    Re: IRS taxation of online game virtual assets

    With taxation comes representation. Recognized income from virtual worlds just opens a huge pandora's box of ownership rights. If I've reported income for an item and the game is shut-down and the item goes "poof" is that now a loss? What if a hacker steals my item or floods the market destroying its value? If I spend 10 hours obtaining an item, am I self-employed and can write off my expenses on the game, internet etc???


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    • #3
      Re: IRS taxation of online game virtual assets

      Yeah, a complicated subject here, that if incorrectly applied may spell the end to MMOs. I totally get taxing something like second life, or the EQ server that allows these kind of real money transactions. In these games/servers, that property belongs to the player (especially Second Life). In other games, RMT is not officially allowed and some games (Eve specifically) go to great lengths to ensure the player knows that all virtual property is owned by the game company. In Eve, for example, the model might best be described as; you pay CCP a monthly service charge which in turn allows you to play in their sandbox with their toys. I can not see how something like that can be taxed.

      I'm sure the industry is watching this develop with dread.
      Do or do not, there is no try....
      -- Yoda, Dagobah

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      • #4
        Re: IRS taxation of online game virtual assets

        Funny that you should post this, because just this morning I was having a discussion over whether converting MMORPG clients for asset farming is a DMCA violation or not.

        Very interesting stuff...

        Insofar as taxes are concerned, wow. I wouldn't want to have to deal with that.
        A policy of freedom for the individual is the only truly progressive policy. -F.A. Hayek

        "$250,000 a year won't get me to Central Park West."

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        • #5
          Re: IRS taxation of online game virtual assets

          Personally, I think the article is a load of bull, and the economics/law people claiming to study it are loons. I could see taxing real money trades in games, but if I kill a monster and it drops 3 copper, that's impossible to tax. The logic that's used, all income, "from whatever source derived," is taxable, is flawed from so many angles.

          If anything like this passed, you can bet I'll be the first person making sure the congressmen's kids paid taxes every time they played Monopoly, Life, or any other game with fake money/assets.
          [squadl]
          "I am the prettiest african-american, vietnamese..cong..person." -SugarNCamo

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          • #6
            Re: IRS taxation of online game virtual assets

            The fact that assets in MMORPG's have legitimate value is what seperates them from the play money of Monopoly et. al.
            A policy of freedom for the individual is the only truly progressive policy. -F.A. Hayek

            "$250,000 a year won't get me to Central Park West."

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            • #7
              Re: IRS taxation of online game virtual assets

              I propose an immediate tax cut for warriors level 55 and up, with a 300 copper rebate to all other players. It's your gold, after all. You should keep it.
              In game handle: Steel Scion
              sigpic

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              • #8
                Re: IRS taxation of online game virtual assets

                ^lol

                i concur!

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                • #9
                  Re: IRS taxation of online game virtual assets

                  Funny I have a homework assignment that I got today on this subject. Was going to share it but I see Apophis beat me too it. I think it is an interesting idea but I can't see how it would ever happen. But stranger things have been passed...

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                  • #10
                    Re: IRS taxation of online game virtual assets

                    Originally posted by xTYBALTx View Post
                    The fact that assets in MMORPG's have legitimate value is what seperates them from the play money of Monopoly et. al.
                    What legitimate value? Now, if I sent some guy $50 in the real world to buy a sword in the game, I could see that. But if you're saying that killing a monster for a sword I want my character to have means that item has legimate real world value, I could make the same argument that trading me the Electric Company for Illinois Street also has legitimate value; both are imaginary assets that someone wants.

                    The logic is very flawed from many angles. Just look at it this way: it's not me earning gold and items in the game, it's my character. I'm not out slaughtering dragons and taking home piles of gold coins, my character is. I'd like to see the government attempt to tax a few million imaginary people (and orcs, trolls, elves, etc). And, if they attempt to use the argument that since I'm playing my character I am actually the one doing these things, then that opens up a skyrise full of doors that lead to messes. Now we get to tax actors for incomes the characters they portray on screen make, right?

                    It's a silly idea at a silly law, and just goes to show how messed up this country can be; it falls along the lines of me going to jail for shooting a burglar invading my home. Unless you're a RMT (Real Money Trader), you don't make any actual income- in fact you actually lose some of your income in order to play these games. The only thing "tangible" from the game is that you're entertained for the few hours that you play.
                    [squadl]
                    "I am the prettiest african-american, vietnamese..cong..person." -SugarNCamo

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                    • #11
                      Re: IRS taxation of online game virtual assets

                      Does this mean that we can pay our taxes with ISK now?
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                      • #12
                        Re: IRS taxation of online game virtual assets

                        Originally posted by SmokingTarpan View Post
                        What legitimate value? Now, if I sent some guy $50 in the real world to buy a sword in the game, I could see that. But if you're saying that killing a monster for a sword I want my character to have means that item has legimate real world value, I could make the same argument that trading me the Electric Company for Illinois Street also has legitimate value; both are imaginary assets that someone wants.

                        The logic is very flawed from many angles. Just look at it this way: it's not me earning gold and items in the game, it's my character. I'm not out slaughtering dragons and taking home piles of gold coins, my character is. I'd like to see the government attempt to tax a few million imaginary people (and orcs, trolls, elves, etc). And, if they attempt to use the argument that since I'm playing my character I am actually the one doing these things, then that opens up a skyrise full of doors that lead to messes. Now we get to tax actors for incomes the characters they portray on screen make, right?

                        It's a silly idea at a silly law, and just goes to show how messed up this country can be; it falls along the lines of me going to jail for shooting a burglar invading my home. Unless you're a RMT (Real Money Trader), you don't make any actual income- in fact you actually lose some of your income in order to play these games. The only thing "tangible" from the game is that you're entertained for the few hours that you play.
                        Well, I don't disagree with you that such a policy could be poorly executed, I'm not convinced that you've nailed the logic here. How you gained the asset, through an avatar, third party, whatever, is completely irrelevent.

                        If Oprah Winfrey gives you a $30,000 car, and you don't sell it for cash, it still counts as $30,000 income. If you buy a house worth $100,000, but then identical homes in your neighborhood start selling for $200,000, then the property taxes you pay will be based on owning a $200,000 home, even if you have no intention of selling it. Of course, there are generally certain exceptions for certain kinds of income situations and what the property is being used for, and I'm sure that if any such policy for electronic gaming assets were really seriously being discussed, it would have these same kinds of exceptions, too.

                        The article linked tells us a couple of important things, though. It's not the IRS saying "you guys have to make a plan to deal with this," it's the gaming people saying they recognize that a significant amount of real money is being used to purchase electronic assets through their systems, thus imbuing these assets with real value.

                        I think the estate transfer idea kinda nails the issue. If I die, and leave everything I own to someone, under the law they have to pay taxes on it based on the value it would have on the open market. If I'm a famous painter and I leave a painting that has never been sold but could be worth millions, then they're going to pay taxes based ont hat value, regardless of whether they intend to sell it. If there was a market in place for an EverQuest castle that could generate them $250,000 in income, and they become the new owner of all my assets, including my castle, then they just got that income.

                        I do not believe that killing a dragon and finding a magical sword in a video game will ever cause you to have to pay taxes on that sword. Much like finding gold on your own property, I think that in and of itself it would not count as "income." But if it could be sold for a million dollars, then your relatives will have to do something about that when you die.
                        ---
                        Sources say the Dow Jones' decline is directly related to Dethklok front-man Nathan Explosion's constant deleting of potential new albums.

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                        • #13
                          Re: IRS taxation of online game virtual assets

                          Originally posted by CingularDuality View Post
                          Does this mean that we can pay our taxes with ISK now?
                          I'm not sure, but I had my Cormorant blown up a few days ago, so I do plan on filing that as a loss on this year's tax return. :)
                          Diplomacy is the art of saying "good doggie" while looking for a bigger stick.

                          Comment


                          • #14
                            Re: IRS taxation of online game virtual assets

                            Originally posted by Switchcraft View Post
                            Well, I don't disagree with you that such a policy could be poorly executed, I'm not convinced that you've nailed the logic here. How you gained the asset, through an avatar, third party, whatever, is completely irrelevent.
                            I don't think it's actually irrelevant, though. It's my character that has the item, not me. If I'm responsible for the make-believe items that my make-believe character gets, then I could similarly argue that an actor is responsible for the make-believe items that his make-believe character gets in a movie.

                            If Oprah Winfrey gives you a $30,000 car, and you don't sell it for cash, it still counts as $30,000 income.
                            Except that a car is real, regardless of whether or not I do anything with it. Game items and characters cease to exist the moment you pull the plug. It's a weak argument, true, that could be countered by bringing up all sorts of temporary ownership things, like a cup of coffee.

                            However, the point is moot due to the fact that I don't actually own anything I get in the game, make-believe argument or not. Take World of Warcraft, for example. When you play, you agree to an EULA. In that license agreement, it's stated that you are not the owner of your character or items, Blizzard Entertainment is (the people selling their characters/items are actually in violation of that contract). Most games have an EULA like this, with a very few exceptions such as Second Life. All you're doing is paying a monthly fee for access to said character; ownership never changes hands. It's essentially a rental/borrower's fee; I don't believe that can be taxed as income.
                            [squadl]
                            "I am the prettiest african-american, vietnamese..cong..person." -SugarNCamo

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                            • #15
                              Re: IRS taxation of online game virtual assets

                              Excellent point. I was unaware that selling those items for real money would be in contravention of a contractual agreement. I do believe that games that allow you to spend real money on purchasing an item might lead into such a taxation problem in the event of an estate transfer, but if Blizzard "owns" the object you aren't allowed to sell, then you're right, I can't believe it's a property tax issue.

                              Everything I'm finding on this subject tells me that gamers are discussing this kind of thing far more than the IRS ever has, so I don't think anyone really need worry about this kind of thing at the moment anyway.
                              ---
                              Sources say the Dow Jones' decline is directly related to Dethklok front-man Nathan Explosion's constant deleting of potential new albums.

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