IRS to tax Virtual Online Property?

Entropia propertyIt’s no secret that online property in MMORPG’s (Massively Multiplayer Online Role Playing Games) are becoming a booming business, but it seems they may soon catch the eye of the IRS and other tax agencies who may be want to tax these property and goods sales just as freely as more traditional goods. From a speculative piece posted in the Jan/Feb issue of Legal Affairs (via Boing Boing):

The IRS has taxed barter transactions that are remarkably similar to the ones that online players engage in every day. In the late 1970s, for example, dozens of so-called barter clubs sprang up around the U.S., said Deborah Schenk, a tax professor at New York University School of Law. The clubs put out directories in which members listed themselves as providing accounting, window washing, or other types of services. Any member could buy those services with “trade dollars,” a virtual currency like Britannian gold pieces, and a member could earn trade dollars by offering his own services. By 1980 these clubs were handling an estimated $200 million worth of transactions every year, and the IRS took notice. In a 1980 ruling, the agency said that barter club transactions produced taxable income, even though no actual money changed hands. A 1982 law made enforcement of the ruling easier by requiring the clubs to provide the IRS with information about every transaction.

[…] When Mrs. Clardy [an IRS representative] returned, she was a bureaucrat transformed. “We just had this little discussion,” she said, almost giggling. “And it sounds to us like [the online trades you’ve described] would be… yes… Internet barter.” Here she paused, whether to catch her breath or to let the conclusion sink in, I couldn’t tell. “However,” she went on, “there are no regs, there is no code, there are no rulings, to rely upon. This is our opinion.”

Mrs. Clardy suggested I seek a more authoritative judgment. A “private letter ruling,” she assured me, was the IRS’s definitive opinion, in writing, on a particular taxpayer’s situation. And a letter ruling in my case, she believed, would probably be the closest the IRS had ever come to an opinion on the status of virtual income.

“The ramifications are enormous,” Mrs. Clardy exhorted. “Break new ground!”

Let it be no surprise that with each passing year, the IRS will find new ways to interject its way into your life, even as that moves online and into the gaming realm. Consider yourself warned.

6 Comments
  1. Well, they either have jurisdiction or they do not. If they don’t, such taxation would be unconstitutional.

    Though, that doesn’t seem to stop them now, so sure! Tax those everquest players till they stop playing or start paying.

  2. Congress renewed a moratorium on taxing internet transactions… so even if this is real property, it can’t be taxed.

  3. First, this has got to be well outside the scope and authority of Congress’s taxing power. Having posited that, allow me to say this: If the IRS imposes a tax on “virtual property”, I say pay them in “virtual money”. The former is just as real as the latter, and just as valuable, too.

  4. Hey, I was just thinking of money….do I owe now too? I had a dream the other night I won the lottery, how much do I owe for that?