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Games Entertainment

Dragon Slayers or Tax Evaders? 40

Posted by Zonk from the i-don't-want-to-fill-out-tax-forms-for-killing-a-kobold dept.
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."
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Dragon Slayers or Tax Evaders? More

Dragon Slayers or Tax Evaders?

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

    • 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".

  • You know, I just might hate MMORPGs and MMORPG "analysis" enough to be "the game player who officially invited the agency to visit the world of MMOs and gave the feds the opening to tax virtual income". I might have to change my legal name afterwards, though. Hopefully provoking 2 million people into burning my house down isn't considered insurance fruad.

  • Business Expense (Score:4, Insightful)

    by Supurcell ( 834022 ) on Friday January 06, 2006 @07:19PM (#14413146)
    Can you write off the monthly fee as a business expense?
    • Yes, if he reports the income on a Schedule C. However, in order to write off 100% of the monthly fee, he needs to be able to "prove" that he plays his MMORPG only to make money, not just for the fun of it.
      • So when you have a career you enjoy, you are unable to write off business expenses?
        • I said "not just for the fun of it". That means that every time he plays, he intends to generate revenue from his efforts.

          In an obscure situation like this, it would be hard to prove (or even disprove) such intent. The best way to prove it would be to show steady income from sales of MMORPG items that is consistent with the hours played. For instance, if he plays for 200 hours but only makes about $50 from the sale of one item, the IRS auditor may not believe him.

          Of course, this whole argument is aca

      • Re:Business Expense (Score:3, Informative)

        by dougmc ( 70836 )

        However, in order to write off 100% of the monthly fee, he needs to be able to "prove" that he plays his MMORPG only to make money, not just for the fun of it.

        Somehow, I doubt it.

        After all, many of us have jobs/businesses that we consider `fun' ... but we can still deduct legitimate business expenses.

        Ultimately, the IRS sees the difference between a hobby and a business that a business makes a profit (or at least it's intended to make a profit, and I believe that it needs to do so at least 3 out

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

      I would imagine so if the account in question is used strictly for commercial purposes and never for personal entertainment. I recall rules of this nature with respect to home offices.
  • Ohio still has a little box on their income tax form that says:

    (paraphrased) - whatever you bought online this year you owe us taxes for. Please fill out the cash you spent in this little box and send it in.

    Guess how many people actually volunteer that information? ;)

  • Monopoly (Score:2, Insightful)

    by IMarvinTPA ( 104941 )
    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
    • When the game ends and you lose control of Park Place, you can write it off as a loss and count it against your income. Most businesses depreciate their assets over time for this reason.

      * Not sure about the conversion factor of Monopoly dollars to US dollars
    • Reminds me of one of the deleted scenes on the DVD for the movie Rat Race [imdb.com] where the group of high rollers are in the casino playing Monopoly using real money...
    • If you're playing Monopoly with a bunch of other people and you buy Park Place with Monopoly money, but somebody then offers you $5000 in real-world currency for control of Park Place, then you would declare that $5000 as income. Really, the concept isn't that strange. Just because income came as a result of a game, it has nothing to do with in-game economics or taxing your game playing. It's when you take the game item and sell it in the real world that it is subject to tax just like anything else you s
      • No, the real question is, is the 800g in WoW gold that I give to Joe for his Krol Blade taxable. IE, does Joe have to pay US dollars in tax for what is arguably mere barter that happens to be within a game.
        • No, the real question is, is the 800g in WoW gold that I give to Joe for his Krol Blade taxable.

          As long as you don't convert it to real-world currency, then it's just a game. So the answer is obviously no. Anything other answer is too much FUD-factor and sensationalism designed to sell banner ads.
           

  • Some comments (Score:4, Insightful)

    by Restil ( 31903 ) on Friday January 06, 2006 @08:27PM (#14413655) Homepage
    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

    • Re:Some comments (Score:4, Funny)

      by Aranth Brainfire ( 905606 ) on Friday January 06, 2006 @10:28PM (#14414495)
      "Virtual property has no actual real world value. Yes, you can sell it to anyone foolish enough to pay for it..."

      Ah, so many meatspace items/services I could apply this to...
    • 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.

      And yet, ironically, if you decide to ignore your tax return, becuase you don't care about getting a few hundred bucks back at the end of the year, and consider the loss part of the "convience cost for not filing a tax return", they will hunt you down and FORCE you to fill it out just so they can give you the money that you are owed. Happened
    • Stolen property has no actual real world value. Yes, you can sell it to anyone foolish enough to pay for it, but for the citizen obeying the law, there will never be a financial attachment to the "value" of stolen property.

      And yet it is taxable.
  • Granted that the EULA is pretty much forgotten by the player, but I suppose this is how most (not all, since there's always Second Life) MMOs get away with tax laws: the company owns everything, and places no value on all goods. If need be, the game companies can just slap on an "instant death upon equipment" penalty on all goods and everything will all of a sudden be worth $0. In that case, the players will not be able to complain about anything (legally), since all goods are "owned" by the game developers
    • Second life is also strange because players can make and design items,skins,houses,scripts,etc... The company that runs the game can and probobly does create some of the items in the game but a lot of the items in the game are player made.
  • Virtual objects [within online games], by themselves, have no value. Thus, the aquisition of such an object should not and cannot be taxed. Having control over the object is what is of value. When you buy or sell the object, you are transferring control of said object. It's simply an add-on on service. Furthermore, there should be no special provisions for taxing income made from this service. It should be treated the same as income from any other job.
  • and if I sell it within 2 years, do I have to pay 20% extra in capitol gains tax?
  • *yawn*

    Just how many times will this story be posted to Slashdot? This has to be about the tenth time since April 15, 2004.

    Nothing to see here folks, move along.

  • Holy crap, what a way to earn a living... (Score:3, Funny)

    by clambake ( 37702 ) on Saturday January 07, 2006 @02:10AM (#14415378) Homepage
    Imaging a whole new world of money laundering... Invest your cocaine money into The Cup Of Dorgama (+23 charisma AND can cast Holy Fire).
  • If I start a guild, could I count all the memebers as dependants, along with mounts?

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