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BitCoin Mining, Other Virtual Activity Taxable Under US Law
chicksdaddy writes "Beware you barons of BitCoin – you World of Warcraft one-percenters: the long arm of the Internal Revenue Service may soon be reaching into your treasure hoard to extract Uncle Sam's fair share of your virtual wealth. A new Government Accountability Office (GAO) report on virtual economies finds that many types of transactions in virtual economies – including Bitcoin mining and virtual transactions that result in real-world profit – are likely taxable under current U.S. law, but that the IRS does a poor job of tracking such business activity and informing buyers and sellers of their duty to pay taxes on virtual earnings. The report, 'Virtual Economies and Currencies: Additional IRS Guidance Could Reduce Tax Compliance Risks' found that the growing use of virtual currencies like BitCoin and virtual game currencies warrants the U.S.'s tax collection agency to mitigate the risks. Those include efforts to educate taxpayers and the publication of basic tax reporting requirements for transactions using virtual currencies, The Security Ledger reports."
How many coppers is this gonna cost me?
What's a 'barron'?
Sheesh, evil *and* a jerk. -- Jade
Keep track of expenses (e.g., equipment, floor space rental, electricity consumption) that serve as the investment for the BitCoin mining. This comes off the bottom-line profit. Otherwise, you would pay 'income' taxes on your 'outflow'.
Why wouldn't it be taxed? There is no "on a computer" exemption to rules that we pay taxes on profitable activities...
You can't tax what you can't see.
vos nescitis quicquam, nec cogitatis quia expedit nobis ut unus moriatur homo pro populo et non tota gens pereat.
I mean, only going after Bitcoin miners vs. WoW players? I mean BitCoin miners are conservative, they eat a lot of power and deal with suspicious real world countries, like Panama. They don't come out in the daylight and they spend a lot of time speaking in tongues like "petaflop." I can imagine that the IRS will not have the ability to distinguish the two or to classify properly and therefore they'll start jamming up the process with arbitrary rules and procedures, of which nobody will have a clue as to how to traverse the veritable maze of traps and holes that the bureaucracy will produce.
Harrison's Postulate - "For every action there is an equal and opposite criticism"
Until I can purchase gas, groceries, and beer with Bitcoins or Battle.net Gold, it's not a real currency. I do know of one drug dealer in my area that accepts bitcoin, but he's not paying taxes on that income already anyway so fake money is fine for him.
On top of that, how do they plan on dealing with things like what happened in D3 a few weeks ago where literally trillions of gold was duped which could have potentially been worth over $100,000? Is duping gold in a game going to become equivalent to real world counterfeiting? If so, who's gonna be responsible to make sure it doesn't happen? I think these fuckers are opening a Pandora's box the likes of which they have scarcely seen before.
I got here through a series of tubes
IANAA (I am not an accountant), but capital gains are only when you buy something and then sell it at a higher price. Buying a bunch of computer equipment and making money by selling it would be capital gains. Buying a bunch of computer equipment and making money by selling the bitcoins it mines is just regular income. You can (and should!), however, deduct the cost of the equipment, etc., as business expenses. The distinction is important because capital gains are taxed at a lower rate than regular income.
So, if WoW gold is taxable revenue, that means depreciation of your gaming PC and MMO subscription fees become deductible business expenses, right? That should offset any added tax liability nicely.
0 1 - just my two bits
Should make sure their corporations are domiciled in a star system with a low rate of Corporation Tax
Donte Alistair Anderson Roberts - hi son!
Karma: Chameleon
Bitcoins are like the market.
Battle.net Blizzard has to much control.
It's taxes on transactions involving dollars only. If you buy WoW gold by selling in-game items, there's no expectation of taxation. If you buy WoW gold with dollars, there's a legit reason to tax that transaction.
I wonder if I can offset my income with the loss of my Neopoints when I closed the account?
The truth shall set you free!
Are ebay bucks taxable under income?
only if you sell the gold?? and there are limits to the deductible business expenses.
and if the IRS wants to be real dicks they can say in game stuff that you have costs $1M + usd so pay up now.
Does this mean I can pay my income tax with virtual currency as well?
yes you can with the chase online virtual currency bank. Only $20 /mo + $1 per transaction (up to $1000) and then 00.8% of transaction after that. Income tax payments are billed as cash advance and come with our cash advance fees.
If mining gold in MMORPG's becomes taxable then would you be able to pay in the currency of the game? Will you be able to pay in bitcoins for bitcoin mining?
Is there anything that the US Government won't try to tax?
The Lunatick, Carpe Corpus!
For the in-game currencies (WoW, EvE, etc), their value as far as the IRS is concerned is pegged to how much it sells for online. Thus if we end up paying taxes on in-game currencies it wil be because of the people who sell it out of game and thus associate a fiat currency value to it.
US Income taxes must be paid with US currency. This is what gives US (or any other nations') currencies their value. If you can pay in any currency, you would use the most efficient one. But if you must pay in a certain currency, then you have to get hold of some of that.
Have gnu, will travel.
While it's not really "news" that the IRS is once again looking for a source of revenue? I'd argue that there's a strange paradox with the whole thing. If the U.S. govt. starts taxing alternative virtual currencies, that indicates by extension they recognize them as legitimate.
I thought a big part of the whole battle for acceptance of these new e-currencies was the idea that the govt. would never recognize them as legal tender, out of fear it undermines the official currency it has control over via the Federal Reserve.
I don't think you can really have this both ways though.... legitimate taxable currency when it works in government's favor and not recognized as valid when it doesn't!
Senator: What good is this "electricity"?
Engineer: Sir, in 20 years, you'll be taxing it.
You were warned. It's only a matter of time before auction house trades are considered sales, because the virtual iyems can be converted to real-world cash by black market, and, increasingly, official cash conversion markets.
Remember: Government is voracious for cash to buy votes ladeling it out. Their only calculus is, "Will I get more votes than I lose doing this?". End of story.
(-1: Post disagrees with my already-settled worldview) is not a valid mod option.
If I were to do business in Japan and moved money in and out of a Japanese account for my business in Japan, does the IRS have the right to tax my business in Japan?
The IRS taxes on US business activity... in US currency. Not sure I agree with the IRS getting involved with something like this especially since I think they really don't understand what they are getting involved in.
Not that we spend more than we take in, or could possibly take in. No, it's people swapping WoW-bucks or Bitcoins or pesos or whatever that destabilize the bloated welfare states of the West.
I want to delete my account but Slashdot doesn't allow it.
One should pay these new taxes in virtual currency. Otherwise the government must establish an official means of determining an exchange rate which in turn legitimizes the virtual currency.
Up to $12,000 or so you can consider it hobby income, as long as you can prove you're in it more for the curiosity/hobby of it.
Honest question: can you actually count the cost of equipment and electricity toward the cost basis of your bitcoins?
There are ways to do it if you do it through a business. You could deduct some expenses and you could do the home office deduction. The computer would need to be owned by the business and used primarily for business purposes. There also could be depreciation and other fun involved. Frankly I doubt there would be much profit in it but that's a separate issue.
Note that claiming a home office deduction significantly increases your chance of being audited. It's one of the items the IRS looks for because it is abused so often.
Exactly.. when Germany joined the Eurozone, adoption of the Euro amongst the people was extremely low...
The solution was for the german government to demand that taxes be paid in Euro's... in one year the use of the Euro went from low percentages to high percentages.
"His name was James Damore."
US tax code requires you to hold an asset for at least a year before selling it in order to claim the capital gains tax rate.
That's for the long term capital gains rate. There is a short term capital gain rate too.
Until then, it's a number with no intrinsic value.
There is no such thing as "intrinsic value". There is either a market for an asset or there is not. Bitcoins have a market value (there are exchanges after all) and that is what the IRS would consider when evaluating how much income you made from mining bitcoins. Items are valued (usually) at the lesser of either cost or market value. That doesn't necessarily make mining or using bitcoins a good idea but they clearly do have a (volatile) market value.
The gain is the difference between 1) the selling price of the financial asset after the mathematics (or after WoW achievement) and 2) the purchase price of the intangible asset before the mathematics (or before the WoW achievement).
Precisely speaking that is an unrealized gain because it has not been coverted into cash or some other asset.
Can I pay my tax liability with monopoly money?
Only if you make real money do you have to pay.
Not necessarily true. The IRS may consider it income if it has a market value which Bitcoins do. Whether the asset is tangible or intangible is not relevant. You could receive an intangible asset like a copyright and in some circumstances that could be considered income.
Right now the numbers are small enough that the IRS doesn't much care but technically speaking mining bitcoins IS income and has to be declared on your 1040. Line 21 if nowhere else. In fact you have to declare income from any source, even illegal drug sales which is why Line 21 exists.
Until I can purchase gas, groceries, and beer with Bitcoins or Battle.net Gold, it's not a real currency.
Doesn't have to be a currency to be an asset. As long as it has a market value the IRS can consider it income. Bitcoins might be a bad idea (I think they are) but they can be exchanged for cash or other assets. The IRS will not remotely care whether you can buy beer with them directly or not.
I do know of one drug dealer in my area that accepts bitcoin, but he's not paying taxes on that income already anyway so fake money is fine for him.
Then he is in violation of the tax code. Specifically his income is supposed to be declared on Line 21 of the 1040 which exists specifically for cases like this. That is how they put Al Capone in jail - they nailed him for tax evasion. Income is supposed to be declared regardless or source or legality.
Especially if you names your company the Constitutional Liberty Tea Party Bitcoin Mining Operation Incorporated.
If you hold Bitcoins, they have no cash value, and thus are not taxable.
Not remotely true. Bitcoins have a market value and can be exchanged for cash. The rules are no different than those for barter. If you mine bitcoins you are realizing taxable income in the form of an asset with value and I promise you that the IRS will consider it taxable. You can be taxed on income in the form of assets other than cash. If you give someone (not family) a car they have to pay tax on the value they received. Happens all the time to winners of prizes.
There are 4 things.
Death, taxes, bitcoin crash and gold crash.
Gold will crash and it's going to happen very unexpectedly for all you people foolish enough to invest in commodities.
If you are into dog breading, I'd say that your particular tax situation is more comparable to that of a typical Chinese Restaurant.
It is any surprise that the government comes after every "profit" but they don't give you credit for every "loss"? Just ask someone who's been screwed by the apparent value of a stock option vs the real value....
It's certainly taxable - basically everything is in the US. IANAA, but I'd assume they work like paintings. Buy them for dollars and then sell them for dollars? Capital gain on a collectable (a brutal tax category). Make them and sell them for dollars? Business income (and you probably owe sales taxes too). Use or accept them for physical goods or services? Taxed like any barter transaction - you owe based on the economic value of goods received.
If you fix someone's plumbing and are paid with a chicken, and the IRS somehow learns of this, they're still going to want taxes on the transaction - taxed paid in dollars, not drumsticks.
Socialism: a lie told by totalitarians and believed by fools.
The IRS has ruled that all Monopoly(r) winnings will be taxed at the full capital gains rate
General Relativity: Space-time tells matter where to go; Matter tells space-time what shape to be.
As soon as the "virtual" currency is traded for something in the real world, I would call that a "taxable event."
If it's traded "in-world" then I would hope the IRS would leave you alone until you incurred a "taxable event" unless perhaps the "in-world" things were proxies for real-world things. For example, if there was an "in-world bank" that let you make "e-coin-of-the-realm" deposits and there was a real-world "liquid" market for "e-coin-of-the-realm" money AND the predominant use of "e-coin-of-the-realm" deposits were to hold "money" until it was cashed out "in the real world" vs. to "hold money" until it was later spent "in-world," the IRS would be right to consider treating such deposits as if they were a "cash-out" into the real world. However, they should (but likely won't) give people a break until they issue specific guidance saying "From [some future date forward] deposits into this bank in this virtual world will be considered the same as a cash-out for tax purposes, and here is why" and issues similar guidance for any other "online banks" whose transactions meet the same criteria (fair is fair).
Now, don't forget, you only have to pay for your profit. If you mine bitcoins for business, all direct business costs are generally deductible. Electricity, the costs of hardware that are dedicated to mining, etc. For in-game entrepreneurship that you later cash in on, any "real-world" expenses might be deductible if you could demonstrate that the expense really was a business expense not an entertainment expense ("good luck with that" for online games, but for non-entertainment virtual-goods/currency entrepreneurship I would expect you to have a fighting chance).
This can even provide a small tax-write-off against your personal taxes as long as it doesn't trigger "hobby disguised as a business" rules. If you are doing it as a hobby you can generally deduct up to your gross profit, leaving you with a "net profit" of no lower than zero. This means there's no write-off against your other income but at least you won't pay taxes on your "gross" gains from mining.
Knowledge is how to play a game, intelligence is how to win, wisdom is knowing what game to play.
We're here to make the NSA look good.
“He’s not deformed, he’s just drunk!”
Your haiku has grown a tumor.
Ezekiel 23:20
No one posted this yet?
Tax his land, tax his wage,
Tax his bed in which he lays.
Tax his tractor, tax his mule,
Teach him taxes is the rule.
Tax his cow, tax his goat,
Tax his pants, tax his coat.
Tax his ties, tax his shirts,
Tax his work, tax his dirt.
Tax his chew, tax his smoke,
Teach him taxes are no joke.
Tax his car, tax his grass,
Tax the roads he must pass.
Tax his food, tax his drink,
Tax him if he tries to think.
Tax his sodas, tax his beers,
If he cries, tax his tears.
Tax his bills, tax his gas,
Tax his notes, tax his cash.
Tax him good and let him know
That after taxes, he has no dough.
If he hollers, tax him more,
Tax him until he's good and sore.
Tax his coffin, tax his grave,
Tax the sod in which he lays.
Put these words upon his tomb,
"Taxes drove me to my doom!"
And when he's gone, we won't relax,
We'll still be after the inheritance tax.
I can also deduct my market losses from my taxes when the prices tank on the exchanges. Also, if they're declaring Bitcoin profits taxable, does this mean we can no start deducting mining hardware expense as well as claiming depreciation of the same hardware each year it's in use? Only seems fair to me.
This is no surprise to anyone who's studied Bitcoin in the slightest. Bitcoin mining, speculation and investment has many precedents in many other operations (currency trading, traditional mining etc). What's nice about Bitcoin is that when they want their slice, it has to be transferred explicitly. The can't just (mis)appropriate and divvy it out to wealthy bankers by the magic of inflation and the Federal Reserve.
If you are using a machine that would otherwise be off, don't you pay more in electricity to run the machine doing the mining than you earn? I thought previous reports have said this. (Maybe if you already have a server running it can be worthwhile.
While it does seem odd at first to tax this, *once one agrees to the idea of any income tax at all*, this seems perfectly reasonable. Bitcoins are transferrable to U.S. currency, and since you have to pay taxes on your salary, why wouldn't you have to pay taxes on any other income you received?
I beg to differ. The only reason they care about such things as selling Beanie Babies or trading cards is because to them, those objects are simply items of value, which don't function as a currency. When one is exchanged for U.S. dollars, the IRS wants a cut of the profits.
Bitcoin, Litecoin and other such inventions are designed and intended to function as substitutes for U.S. dollars. The plan for them is to allow buying and selling other goods of value (such as those trading cards or Beanie Babies) using the virtual currency. As long as the vast majority prefers to deal in the official U.S. currency instead, Bitcoin type e-money will be dealt with a little more like a stock or mutual fund -- where people want to buy and sell it in an attempt to come out with more U.S. currency than they started with. But there's an underlying design to allow for this stuff to work as a competing or even substitute currency for the U.S. dollar.
I predict the govt. WILL eventually decide to try to take down Bitcoin and variants as a "threat to National Security" (their favorite excuse for such behaviors).
That's a nice, terse statement of the paranoid conspiracy theory. Of course, there's no evidence for it. I'm not sure there's even an agency chartered to care about it. If banks started making unregulated loans in Bitcoins - making them "eurobitcoins" the Fed might care, but banks can already play games with "euroeuros" and any regulatory framework from the Fed wouldn't be bitcoin-specific.
If US citizens suddenly needed an alternative currency, Euros, or Canadian dollars, or Yen, or Pounds work fine as one. Yes, there are people who believe that all national currencies the world over are about to collapse, but the only sensible currency in that case is ammunition (and some bunker-dwellers actually do use ammunition as an alternative currency - go figure).
Socialism: a lie told by totalitarians and believed by fools.
Wonder when they are going to try and tax Linden dollar transfers
I sell quite a bit of scripts in Second Life which sells in Linden dollars then you can transfer that money to US Dollars via paypal at around 260ish lindens per 1 us dollar.
people like Anshe Chung was the first to make over 1 million us dollars in second life selling real estate and clothing
I do more like 100-300/mo
Does this mean I can pay my taxes in ISK now?
and are paid with a chicken
Even better, if you got a chicken for $3.50 worth of work a few years ago, and sell it today, while it's still worth one chicken, it's worth 7 USD, so the IRS will want tax on the $3.50 'profit' you made.
Inflation and capital gains taxes lets the government steal the same money from people at least three times.
My God, it's Full of Source!
OUTSIDE_IP=$(dig +short my.ip @outsideip.net)
Call it a conspiracy theory if you like, but I think it's a pretty legitimate summary.....
If U.S. citizens needed an alternative currency, that would be because the U.S. dollar started failing them, right? If that happens, it's pretty closely tied to other markets. We don't live in an economic vacuum..... I doubt converting to the Euro or Canadian dollar would be much of a solution.
At the same time, I really don't follow the logic of the "survivalist" types who want to hoard up ammo and believe that's the only sensible answer for "when it all falls apart". What's the real plan there? Just start shooting people to get what you need? If we're all so lacking in any kind of moral compass or care for anyone other than ourselves that absent of a strong central government, we're all going to revert to savages trying to kill each other to obtain their possessions? They may as well shoot me... I don't want to hang around anymore in that world.
I do, however, see where there could be very compelling reasons to switch to a decentralized currency, not subject to any arbitrary rules imposed by governments .... And by extension, I see why a government with a currency not really backed by anything tangible, would find this alternative a threat.
No. It's to protect your family and your possessions (food, water, working automobiles w/fuel, etc). When (not if) the economy crashes, all social services will break down. These things (among others) cease to exist/function: police forces, grocery stores (food supplies), water supplies, electricity... "law & order" will cease to exist and from then on out it is survival of the fittest. Is it starting to make sense now?
Oh, don't worry, "they" will. If you are in or around any urban area, you'll last 2-4 weeks at most with that pacifist attitude.
I read an excellent story on some guy's blog describing the chaos that ensued when the economy crashed in Argentina (I believe it was Argentina, I may be wrong, but it was a South American country). The story went down pretty much how I described it above, which is why I posted that comment. The only things that saved this guy and his family was the fact that he was armed, and they got the hell out of the city. He didn't actually have to kill anyone in self defense, but there were several occasions where people tried to relieve him of his property, and by having a rifle in plain view, he was able to keep what was his and run the rats off.
Scary stuff, straight out of Mad Max...
There are 4 things.
Death, taxes, bitcoin crash and gold crash.
Gold will crash and it's going to happen very unexpectedly for all you people foolish enough to invest in commodities.
Meanwhile, my stock in tinfoil has done nothing but go up since the invention of the internet.
When our name is on the back of your car, we're behind you all the way!
http://www.google.com/search?q=argentine+economic+crisis+blog
:)
Lots of fascinating reading there. Sleep tight
If U.S. citizens needed an alternative currency, that would be because the U.S. dollar started failing them, right? If that happens, it's pretty closely tied to other markets. We don't live in an economic vacuum..... I doubt converting to the Euro or Canadian dollar would be much of a solution
Every other time in fiat currency history, when a fiat currency has blown up, people have just switched to using a fiat currency that is fine (usually the US dollar). If they all fail together, then it's Mad Max - there's a reason the "who runs Barter Town" jokes are common on conservative blogs. But that hasn't happened before.
If the euro blows up by itself, they can use dollars, and if they get their at together before the dollar blows up we can then use neweuros (or marks, or whatever).
I do, however, see where there could be very compelling reasons to switch to a decentralized currency, not subject to any arbitrary rules imposed by governments .... And by extension, I see why a government with a currency not really backed by anything tangible, would find this alternative a threat.
Bitcoin: also not really backed by anything tangible. Bitcoin: subject to arbitrary rules imposed by governments. Currency is simply not that important - only a trivial amount of the nation's wealth is in the form of currency. Wealth is ownership of land and businesses, which have value just as long as law and order are maintained. When that stops, you'll need that gun in any case.
Socialism: a lie told by totalitarians and believed by fools.
But here (USA), the trouble is: You must calculate your capital gains in terms of dollars as well.
If I buy and sell commodities (or whatever) using gold, or a gold-backed currency, inflation is minimal. And so is capital gains. Even if I owe my year-end taxes in dollars, all I'd have to do is to convert some of my real currency into dollars and pay my taxes. Demanding that people compute capital gains in terms of an artificial currency allows a government, or in the case of the United States the Federal reserve to deflate the currency and create false gains.
And the US gov't wonders why corporations choose to move assets offshore to entities with stable currencies and/or minimal capital gains.
Have gnu, will travel.
If you think I'm wearing tinfoil you should look at the history of gold investments. Spot gold investments that involve playing the market can make money, but any long term investment in gold is always negative. Gold can't even beat inflation long term. It's the worst commodity in the world to invest in. Other than some small industrial uses it's basis is 90% emotion and 10% jewelry. Emotion decreases and the price rockets to match what people are willing to pay to wear it.
Not only that but none of it is EVER lost. Even the industrial uses of gold are recovered. Total lost metal since humans have been mining it is probably less than a ton. So you've got an eternal supply and constant increases in supply from mining (several hundred tons a year). Frankly if the world governments weren't hoarding 90% of the worlds gold supply the price would be near worthless (though industrial use would skyrocket).
And the one most important rule of gold investing is that no matter what, the small investor gets killed. The only people making money on gold are those selling or holding gold for small investors. Oh there is the occasional gambling win with short term investing but no long term investment in gold has ever even beat inflation and we have almost 100 years of trading to prove it. Gold was $200 in the $90's and once people put their money back into the market it will crash back to the inflation adjusted $200 again. It's the worst investment for a small investor you could ever make. You're better off investing in almost anything else. Hell, no small investor without accurate inside information should be investing in any commodity, they are as unpredictable as futures.
The slashdot summary is wrong.
In the actual GAO report, WOW was not even mentioned by name once.
In fact, at the very start, the report says :-
Transactions within virtual economies or using virtual currencies could produce taxable income in various ways, depending on the facts and circumstances of each transaction. For example, transactions within a "closed-flow" virtual currency system do not produce taxable income because a virtual currency can be used only to purchase virtual goods or services. An example of a closed-flow transaction is the purchase of items to use within an online game. In an "openflow" system, a taxpayer who receives virtual currency as payment for real goods or services may have earned taxable income since the virtual currency can be exchanged for real goods or services or readily exchanged for governmentissued currency, such as U.S. dollars.
TFA makes it clear the only people who may be taxed are the gold-sellers who sell in game goods for real money on third party exchanges/websites outside of the game.
The WOW 1%ers are safe.
That's one of the arguments against fiat currencies, yes. There isn't material value backing them up, just the government's word that "we're good for it".
And it is a silly argument. What backs up ANY asset is nothing more than the belief by people that it has value. What makes you think the promise to deliver the material backing up the currency is in any way an iron-clad guarantee? How can you be sure the other party actually has the gold to back up their dollars? Backing a currency with another asset like gold gives some people a (misplaced) degree of comfort but only because they really haven't thought it through. Having one asset (fiat currency) based on the value of another asset (gold) doesn't change what gives either one value (belief). Worse it makes it difficult to adjust policy to deal with economic ups and downs.
There are many important things that backers of the gold standard tend to overlook. The foremost is that the promise to (theoretically) exchange some amount of gold for a dollar is nothing more than a promise that can be broken. There is no way to force an unwilling government to actually hand over gold in exchange for dollars. Worse there is no way to truly be certain the other party actually has the gold they say they do. The "backing" is just theoretical. It's an IOU, no different than your "we're good for it" of a fiat currency AND it introduces a host of logistical, policy and administrative challenges.
Incidently, they go up in flames when the government backing them stops acting in a fiscally responsible way and attempt to monetize away their debt.
A gold standard (or equivalent fixed monetary base) does not prevent a government from doing irresponsible things nor does it prevent bad things from happening. Worse it does prevent governments from doing many necessary and responsible things especially during a financial crisis.
You can't own a number. A number merely is. BitCoin mining is the process of finding that number.
It also is an economic activity that results in gaining an asset. More on that below.
Since you can't own a number, a number has no value, intrinsic or otherwise. Now somebody might be willing to pay you to reveal a number. That's when the taxable event occurs.
Tidy argument but quite wrong. First off, it isn't just "a number", it is an asset in the same way the number that represents my bank balance is an asset. Bitcoins are an asset. An asset is ANYTHING (tangible or intangible) that is owned or controlled to that can reasonably be expected to produce future economic value. Bitcoins clearly fit this definition as they have a non-zero economic value to other people and they can be owned/controlled. Second, the earliest taxable event occurs when the asset is obtained/controlled ("mined" in this case) because it becomes property at that point. Mining is actually a fairly good term here because it is little different than if you dug gold or oil out of the ground. In formal accounting terms it is a current asset. The big difference is that oil or gold would be inventory whereas bitcoins would be considered cash or cash equivalents. When you acquire cash equivalents or acquire the reasonable expectation of receiving cash equivalents (accounts receivable), you are considered to have income. Income is taxable. So is property. It would be no different than digging up a coin you found on the beach because that is income.
Wouldn't the IRS tax Blizzard or the MMO company instead of the players, since in Blizzard's and others' TOS it clearly says you don't own the virtual property? That'd include the in-game currency and any transactions with said in-game currency.
I can understand Bitcoin, but not WoW or any other MMO.