Dragon Slayers or Tax Evaders?

Julian Dibbell has a piece on the LegalAffairs site exploring the possibility that MMOG transactions could be taxed. From the article: "June 2003. I set myself the following challenge, posting it on my web log for the world to see: 'On April 15, 2004, I will truthfully report to the IRS that my primary source of income is the sale of imaginary goods--and that I earn more from it, on a monthly basis, than I have ever earned as a professional writer.' In the course of this project, I made a total of $11,000 selling on eBay the items I won playing a game called Ultima Online, $3,900 of which was in the final, most profitable month. I reported my profit to the IRS, and I paid the requisite taxes. But after I did so, a troublesome set of questions continued to nag at me--for which even IRS publication 525, entitled 'Taxable and Nontaxable Income,' couldn't provide answers."

Comments

He is selling a service

[cspring007]

People make income from intangible goods all the time.
Its called the service industry

Re:He is selling a service

[Scarblac]

Heck, even money on your bank account is imaginary in exactly the same way that online game money is. It's just that more people accept it, for more things - but there is an exchange rate now, so it doesn't matter much.

In at least some ways (socially for many people, and monetarily, as stories like this show), MMO games are closer and closer to being "real life".

Business Expense

[Supurcell]

Can you write off the monthly fee as a business expense?

Monopoly

[IMarvinTPA]

Does this mean I need to tell the IRS about every time I buy or sell Park Place?

What happens when it looses its value because the game ended?

IMarv

Some comments

[Restil]

Virtual property has no actual real world value. Yes, you can sell it to anyone foolish enough to pay for it, but for the player playing to the TOS, there will never be a financial attachment to the "value" of virtual property. This might, in part, be why most of the game companies refuse to allow the sale of virtual property in meatspace, in spite of the fact that it happens anyway. As long as their stand is the property has no real world value, and any such transactions are unauthorized, the IRS is unlikely to get too interested. It also means they can cancel an account and not be liable to the player for the "real world value" of the property his characters have managed to obtain.

Of course, players that spend 16 hours a day playing games and accumulate a significant stockpile of high quality game items, instead of working a real job and obtaining such tangable objects in real life, might consider that the value of the in-game property they've obtained should at least partially compensate the value of the time they've waste.... er... spent playing the game, so that instead of treating it as addictive consumable entertainment, which has little to no real world value once spent, they treat it as tangible, if virtual, compensation for hard work. Be that as it may though, the player has no authority in determining the value of the virtual property. That right remains the sole discretion of the company that manages the game, and since the monthly fee paid is a service charge only, and not considered an investment in the company, the value of the money spent does not obligate the player to a stockholder status, nor does the hard work "working" toward obtaining virtual property give any real world value to it.

So some player decides to ignore the TOS and sell his virtual property on ebay anyway, and someone has enough money to waste to justify paying for it. It now comes time to report these "earnings" to the IRS. Fear not, the IRS will take your money, no matter how you obtained it. They don't really even care of the source was illegal, just as long as you report it accurately. They're unlikely to care if you had to violate the terms of service of some company to obtain the ill gotten income. On the same note, they're unlikely to pursue the game as a source of untapped tax revenue since because the majority of players will never engage in commerce outside of the game environment, there will be no real world value attached to the property for the players involved. After all, those items which are purchased and/or sold in meatspace can be removed from the game at the slightest keystroke of a game master, and there would be no recourse or compensation expected by the players involved. And this is the way it HAS to be. Otherwise, If I sell you a super glass sword of shattering for $1000 and 5 minutes after transferring it to you in game, some newbie thief comes along and steals it from you, can that player be prosecuted for a $1000 theft? So far, I've yet to see this happen. And as long as that doesn't happen, there's no recognizable real world value to any of the in-game property, and the IRS is not going to bother getting involved. They'll pay more attention when you quit the game and start working for a living.

-Restil