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Reader Comments (31)

Posted: Jan 13th 2009 5:00PM J Brad Hicks said

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Reductio ad absurdem: And since you're paying either a monthly fee or a per-transaction fee (and then going through the motions of a game) in exchange for a randomized outcome, and some of the possible rewards of that randomized outcome are goods with a real-world sale value, what you're really reporting is your income from gambling. This allows you to offset the cash value of your MMO "income" by the amount of your monthly fees and any other money you paid the MMO company. But it creates a problem for the MMO companies: gambling over the Internet is illegal in the US.

To say the issue "needs clarifying" is an understatement.

Posted: Jan 13th 2009 5:09PM (Unverified) said

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There is still a huge difference between a TOS violation and committing fraud. While selling Gold might be against a TOS, it can't be consired fraud as long as you make sure to report your earnings.

Posted: Jan 13th 2009 6:01PM Angelworks said

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Can I pay with virtual currency?

Posted: Jan 13th 2009 10:55PM (Unverified) said

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No :) That's the difference between Currency (which is essentially a form of money) and Legal Tender (which is a specific subset of Currency). Likewise you can't pay a US tax bill with gold bars, Euros, or Malaysian Ringgit -- as none of them are Legal Tender in the USA.

Paper currency required the Legal Tender act of 1862 because Americans refused to accept payment in paper by the government prior to that, and the act was required to compel them to do so. This act was ruled unconstitutional, but the ruling was eventually overturned in a series of cases ending 1884, eventually making US paper money constitutionally Legal Tender.

By definition, Legal Tender is a form of money which cannot legally be refused in the settlement of a debt (In other words, if you offer payment in Legal Tender, you cannot be sued for non-payment - the payment *can* be refused, but if so, the debt is considered settled so far as the law is concerned).
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Posted: Jan 13th 2009 9:19PM (Unverified) said

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If my income(or loss) is taxable, then... surely my expenses ( tier and premiums ) are allowable deductions!
Really?...

Posted: Jan 13th 2009 9:24PM (Unverified) said

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Some expenses would certainly be deductible. Some would not. Not all expenses are validly deductible if you're running an atomic business, after all.

Part of the problem here is that while the IRS seems clear about all of this, nobody else is -- and that causes a loss of faith in the overall tax system, as well as a lot of lost collections.
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Posted: Jan 14th 2009 7:06PM (Unverified) said

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(last attempt)
(Tat, I know you probably get all the comments even before I confirm
them cause you've answered some before I confirmed them, I'm sorry about all the small variations, I only noticed the
errors when the confirmation emails arived, I'll just be confirming a
single comment)

Virtual money is just like real money? How is the double taxing of
earning virtual money, and then getting that money converted to real
money justified?

Could this give birth to a new form of griefing where the attacker
sends something of big value to someone's lost /unattended ALT and
then does an
anonymous denounce that the person is doing tax evasion to send them
to jail IRL? (actually, that would probably be an extension/variation
of the
attack involving sending the person tons of L$ bought with a stolen
CC...)

Posted: Jan 19th 2009 5:24PM (Unverified) said

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It will be interesting to see how they hope to track down on the (many, if not majority) of SL account holders who go to great lengths to disguise their RL identities.

I know of a few people who transfer funds earned to alt accounts, who then cash out via PayPal or other means (after converting to USD via LindeX or similar).

Virtual World forensic accountants will be in high demand in the near future!

Posted: Jan 19th 2009 5:55PM (Unverified) said

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Some people go to no less trouble to try to hide what they're doing with *real* money from the IRS. That's a large part of why the tax-code is the way it is.
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Posted: Jan 19th 2009 7:35PM (Unverified) said

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hahah! Yes, I guess that's quite true.

I suppose we can expect the Treasury Department to devote resources towards tracking down these virtual world tax evaders. Something like a sledge hammer to kill a fly comes to mind!

Posted: Jan 19th 2009 7:49PM (Unverified) said

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Well, that is much of what this report is about. The IRS recognizes that game-gold and unbound items are all taxable under their existing rules and regulations, and are encouraging exploration to determine which areas are simply too low-yield and large-effort to be worth enforcing.

In order to be exempt from taxation when the tax code says otherwise by default, there has to be official policy that says so.
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