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

Will Target Australia sell the next GTA game upon its release?:

Shout box

You're not permitted to post shouts.
Andrew EisenYeah, wherever I play it, I'm not bothering until the entire game comes out. I don't care to play games in chunks.08/01/2015 - 2:46pm
Matthew Wilsonthan play it on ps3. its worth playing, at least when epasode 5 comes out in 6 to 8 weeks08/01/2015 - 2:39pm
Andrew EisenI'd prefer to play on console.08/01/2015 - 2:36pm
Matthew Wilson@AE you have a pc, buy it there.08/01/2015 - 2:33pm
Andrew EisenBut! My sister did buy me a PS3 for Christmas so I might play it yet!08/01/2015 - 2:16pm
Andrew EisenYeah, I'm hearing a lot of great things about that game and I'd love to give it a go. Too bad it's For Everything But Wii U.08/01/2015 - 2:13pm
Matthew Wilsonmy god....... people need to play life is strange. its a very very dark version of twin peaks08/01/2015 - 12:56pm
DocMelonheadLook, I know that you guys wanted to study Gamergate; hell, one of your writers were Interviewing KiA on the subject (He's been banned from GamerGhazi). Sadly, the minorities veiwed Gamergate the same way as WBC at best, and Nazis at worst.08/01/2015 - 12:31pm
DocMelonheadIP wanted you to know that GamerGate is about Harassing minorities into submission, not "Ethnics in Journalism". It been a year since the Zoe Post was published and sparked a hate mob on Zoe Quinn.08/01/2015 - 12:28pm
DocMelonheadThat what's IP's goal is here in regard to gamergate: to get you guys to disassociate yourselves from the harassers that made all those claims up to threaten the advocates of social justice for minorities.08/01/2015 - 12:24pm
DocMelonheadIP tries to demonize all of GamerGate and it's supporters, along with those who didn't outright condemn it as a cover for a hate mob full of bigots.08/01/2015 - 12:20pm
MechaCrashNo, IP is trying to dehumanize you, I'm just pointing out that you're a hypocrit who makes bad faith arguments.08/01/2015 - 11:56am
Andrew EisenAnd I'm off too. Play nice, y'all!08/01/2015 - 11:33am
Andrew EisenIn short, discussions of ethics in journalism? Totally fine. Said indie dev's sex life? Not okay.08/01/2015 - 11:31am
james_fudgeTry talking when you have hundreds of people tweeting at you at the same time :)08/01/2015 - 11:30am
Andrew EisenAnd yet, when 30-seconds of research showed that there was no relevance to said indie dev's sex life, many people kept talking about. Hell, still do to this day. I had a guy on Twitter pester me about this nonsense for an entire day last weekend.08/01/2015 - 11:30am
james_fudgeWhatever dude, you're here posting. No one's stopping you.08/01/2015 - 11:30am
Goth_SkunkBe advised: In approximately 30 minutes I'm heading out of town for an obligatory family reunion. This is being stated so that none can interpret my upcoming 24 hour hiatus as a tail-tucking turn from discussion.08/01/2015 - 11:28am
Goth_SkunkEven now, IronPatriot, MechaCrash, and Craig R. continue to attempt to shout me down and dehumanize me.08/01/2015 - 11:25am
Goth_SkunkWhat transpired afterwards was a concerted effort to shout down and dehumanize those trying to bring these matters out into the open. I remain utterly convinced of this to this day.08/01/2015 - 11:24am
 

Be Heard - Contact Your Politician