IRS Should Look Into Taxing Virtual Goods, Says Tax Advocate

January 12, 2009 -

If you're running a virtual goods business in, say, Second Life, you may soon find yourself on the radar of the Internal Revenue Service.

The Washington Post reports that Nina Olson, who serves as the U.S. Taxpayer Advocate, has recommended to the IRS that it take a closer look at the exchange of virtual goods in online worlds, which she estimates at $1 billion annually. From the WaPo:

[Olson] told the agency that it should "proactively address emerging issues such as those arising from virtual worlds." Her report said that about $1 billion in real dollars changed hands in computer-based environments during 2005. Additionally, more than 16 million people are said to have active subscriptions in these worlds, "many of which have their own virtual economies and currencies."

But Olson said the IRS hasn't effectively been able to respond to taxpayer inquiries about how to report transactions associated with them. "Economic activities in virtual worlds may present an emerging area of tax noncompliance, in part because the IRS has not provided guidance about whether and how taxpayers should report such activities," said Olson's report. She suggests that to improve voluntary tax compliance, the IRS issue guidance addressing how taxpayers should report economic activities in virtual worlds.

GP: It's not entirely clear what Olson expects the IRS to gain from this line of inquiry. Anyone doing substantial business in a virtual world is already obligated by law to report their earnings, just like anyone running a real-world business. If a virtual goods vendor chooses to run his or her business "under the table," it would seem that they place themselves in legal peril.

UPDATE: New World Notes has a thoughtful analysis of how the IRS might look at the tax implications of Second Life transactions.

Via: Kotaku


Comments

Re: IRS Should Look Into Taxing Virtual Goods, Says Tax Advocate

Or the IRS could stop looking at taxing consumers and individuals ( 306 million based on the latest survey I could find) and levy all taxes onto businesses that employ a large number of individuals at the payroll level, and not tax consumers directly one bit, thus dropping the number of people they have to keep up with from 306 million to ~6 million (businesses that employ others) (20 million including small businesses)

It would save us annually at least a billion, and the IRS wouldn't have to chase after as many people. Right now businesses have to pay so many different taxes on so many different things, too, holding it at the payroll level (flat federal tax of x%, then a state tax that the states decide).

Of course, we'd have to keep import/export fees, but that's handled at the business level too.

Re: IRS Should Look Into Taxing Virtual Goods, Says Tax Advocate

The simple fact is that the IRS wouldn't have jurisdiction.  Second Life (or anything else) may have servers in the US, but it exists on the internet.  A place that is, and I quote, "No where, and Everywhere."  As such, something of this nature, would require a world wide tax organization.

Also, I have to agree with Cavalier, the calls from WoW players would be quite interesting.  IRS could sell the tapes of conversations for profit.

"If you really want to enslave people, tell them you are going to give them Total Freedom." - L. Ron Hubbard

Re: IRS Should Look Into Taxing Virtual Goods, Says Tax Advocate

 They could claim jurisdiction over US servers, ala the DRM enforcement methodology. And WoW players wouldn't be all that stranger than what they get now. Just off the top of my head, I'm sure legalized prostitution needs to declare all sex toys as business assets... and to use the former as a pun, other "assets" as well.

Re: IRS Should Look Into Taxing Virtual Goods, Says Tax Advocate

"Tax Advocate"? That is similar to "Root canal advocate" or possibly "Cancer advocate"?

I'm sure she gets all the boys.

Re: IRS Should Look Into Taxing Virtual Goods, Says Tax Advocate

 From the looks of that picture, she is a lesbian. A lonely, single tax-advocate lesbian.

Re: IRS Should Look Into Taxing Virtual Goods, Says Tax Advocate

Wait a minute: she's the TAXPAYERS' ADVOCATE, and she wants to find new ways to tax the payers? Shouldn't her job be to, I don't know, ADVOCATE on their behalf?

I can get behind making it clearer how and when people should report earnings so that they don't get caught with an audit, but finding new ways to tax people seems contrary to her title.

Saying that Jack Thompson is impotent is an insult to impotent men everywhere. They've got a whole assortment of drugs that can cure their condition; Jack, however...

Re: IRS Should Look Into Taxing Virtual Goods, Says Tax Advocate

Can I pay my taxes in virtual money as well? If so that would great cause its easy to make virtual money in Second Life.

Re: IRS Should Look Into Taxing Virtual Goods, Says Tax Advocate

This sounds like another case of 'rather then enforce existing laws, let's make new ones and take credit for solving the problem!'.

New laws get the new people credit, enforcing old laws gives credit to the earlier lawmakers.  Guess which is more advantagous to a politition?

 

Re: IRS Should Look Into Taxing Virtual Goods, Says Tax Advocate

Wow, this idiot doesn't understand current tax laws...  Granted, I only know a little bit due to still being in the first year of running a business, but how to run a business for dumbasses 101 says if you make any kind of money period, you are to report it.  No matter if it is a good or service, even though you can not donate services to non-profits, which I think is BS, but hey.  I understand that there are some dirty bastards that would take advantage of that, just like many big businesses take advantage of tax deductions, which is also BS when those deductions are to help a company grow, not pay the CEO and other execs more.

I think everyone has a couple laws that they think are stupid or unfair, but that is life.  No government is perfect because no person is perfect, especially in a government so heavily based off of religion...

Nido Web Flash Tutorials AS2 and AS3 Tutorials for anyone interested.
How to set Xbox 360 Parental Controls

Nido Web Flash Tutorials AS2 and AS3 Tutorials for anyone interested.
How to set Xbox 360 Parental Controls

Re: IRS Should Look Into Taxing Virtual Goods, Says Tax Advocate

Or...how's this for an idea. This is pretty fucking radical, too.

How about using tax money, on stuff that isn't bullshit. More money to go around then. I'd go even further, but I don't feel like getting into it. Cause apparently, there's some bullshit excuse that Socialism always means Communism.

Re: IRS Should Look Into Taxing Virtual Goods, Says Tax Advocate

They may be obligated to report their taxes, but assuming that what she said in the block you quoted is true, it sounds like the problem (or at least part of it) is that many people don't know how to report the money they earn from virtual-world transactions, and the IRS hasn't provided effective guidance on that point.
---
I'm not under the affluence of incohol as some thinkle peep I am. I'm not half as thunk as you might drink. I fool so feelish I don't know who is me, and the drunker I stand here, the longer I get.


---
I'm not under the affluence of incohol as some thinkle peep I am. I'm not half as thunk as you might drink. I fool so feelish I don't know who is me, and the drunker I stand here, the longer I get.

Re: IRS Should Look Into Taxing Virtual Goods, Says Tax Advocate

maybe she wants a tax on WoW gold (silver and copper) and MS messo. Or wants the irs to attempt calling all virtual worlds part of the united states.

but im with you gp i actually have no clue why she's driveing at

Re: IRS Should Look Into Taxing Virtual Goods, Says Tax Advocate

If the IRS seriously wants to start taxing raid loot, they're going to get some very interesting calls about the quality of leadership and co-workers.

Seriously though, this looks a lot more like it's aimed at say, Second Life merchants, that kind of thing.

 
Forgot your password?
Username :
Password :

Poll

Has a video game ever made you so mad you broke the controller?:

Shout box

You're not permitted to post shouts.
MechaTama31to be done, and some people really need jobs.07/11/2014 - 5:41pm
MechaTama31Info, I think you don't really understand just how crappy a lot of the jobs are that provide the "basics" that you assume will just continue to be produced under such a system. There's very little pride or prestige to be had from such jobs, but they need07/11/2014 - 5:40pm
Andrew EisenMaskedPixelante - That's probably because it's now available on the Wii U eShop for $8.07/11/2014 - 5:18pm
InfophileThat's not how human psychology works. It's all about "Keeping up with the Joneses." When everyone around you has a new fancy smartphone and is talking about that cool HBO series, do you want to be the one left out?07/11/2014 - 4:05pm
Matthew WilsonThe issue is most people would settle for the basics and not work. That is why we would need very heavy automation to make a system like that work. Almost all labor intensive tasks would have to be done by robot.07/11/2014 - 2:32pm
InfophileOf course, that's a gross oversimplification. The idea, have a basic safety net that pays for what's needed to live. If people can find a job and are willing to work, they get more money which can be spent on comfort and perks.07/11/2014 - 11:33am
InfophileIt's quite possible to get an economy to work with a basic minimum standard of living. You just need perks for the people who do work. Everyone gets food and a home. Everyone who works also gets an iPhone.07/11/2014 - 11:32am
MaskedPixelanteIn the continuing adventures of "Stuff I figured would be overpriced on eBay but isn't", 15 bucks for a copy of Mario and Luigi: Superstar Saga.07/11/2014 - 10:04am
SleakerI didn't gather the same conclusion.. Seems like they are focusing on devices & services still, just not calling it 'devices and services'07/11/2014 - 8:57am
PHX CorpMicrosoft CEO readies big shakeup, drops devices and services focus http://www.theverge.com/2014/7/10/5887143/satya-nadella-microsoft-ceo-employee-email07/11/2014 - 8:45am
MechaTama31declared that everybody should have them. Somebody still has to produce them.07/11/2014 - 7:44am
MechaTama31I do mean the developers/governmet. And money is not the only thing of value. I am including the food, housing, etc that everybody is supposed to get for free under this system. In the real world, those things don't exist merely because an authority has07/11/2014 - 7:43am
InfophileAs automation gets better and better, the number of jobs absolutely required keeps diminishing. How many people these days do you think are actually needed to keep everyone alive? Most people just make our lives more convenient and entertaining.07/11/2014 - 4:43am
Matthew Wilsonthat kind of system only works when most people (around 70 to 80 percent ) do not need to work.07/11/2014 - 1:21am
TechnogeekConjured up by who, though? If by the players, then it's not really "on a whim" since they're kind of putting work into it. If you mean the developers/government, then hello and welcome to monetary sovereignty.07/11/2014 - 12:34am
MechaTama31I'm just saying, when everything of value can be conjured up at a whim, that's not an economy. That's a fantasy.07/11/2014 - 12:15am
TechnogeekHonestly, though, what I find most thought-provoking about the article isn't the guaranteed minimum income aspect at all, but a more fundamental point: that we treat poverty as a moral failing on the individual, rather than a design flaw in the system.07/10/2014 - 11:53pm
TechnogeekOr, if your concern is that people won't even bother to work at all if their basic needs are met...well, let me put it this way: do you really want people like that in the workforce anyway?07/10/2014 - 11:51pm
TechnogeekAlso, you raise a valid question, but I'd argue that as things stand we're artificially limiting the amount of "gold/silver" that could be produced. The whole "work a job you hate to pay the bills" thing meshes poorly with the entreprenurial spirit.07/10/2014 - 11:49pm
TechnogeekSeriously, though, it looks at how in-game economies work and what lessons can be applied to reality, focusing primarily on multiple currency systems. Such systems do exist in real life (food stamps, for example), although generally aren't seen as such.07/10/2014 - 11:43pm
 

Be Heard - Contact Your Politician