virtual earnings

[jainen]

Disclaimer: This is part of a series of posts that forum moderators have identified as containing “bogus information.”
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You crawl through the ice dungeon and battle the arctic ogre lord. You loot a cache of magic potions and an enchanted sword, which you profitably trade for more powerful spells and armor. Line 21 miscellaneous income?

Absolutely! Relying on Code section 61 which says all income is taxable “from whatever source derived,” the IRS is planning to tax the virtual earnings of EverQuest players. Dan Miller of the congressional Joint Economic Committee says new regs are in the works to deal with the vast unreported profits accrued by Internet gamers. Cyberspace worlds like EverQuest and Warcraft have significant tax issues for U.S citizens. Miller says Congress is already addressing the “factual technical questions” for the new source of revenue.

[Brad Imsdahl]

Actually, I just watched a PBS show on this where players of online virtual reality games were buying and selling virtual reality items on eBay with real money. They were talking about how the virtual reality worlds are developing economies with virtual reality money, and that sometimes people use real money through eBay sales to achieve their online goals. I would say that is most defiantly a taxable transaction. I would call the virtual reality items intangible assets.

[Brad Imsdahl]

Then you have to consider the question, What if I pay real money for a virtual reality item on eBay, and then sell it for something else online and get paid with virtual reality money? Then use my virtual reality money to buy some real in the outside world?

Would that transaction be taxable?

[OldJack]

Would that transaction be taxable?

This would be a "shame" transaction since you only accomplished a laundry of money with your conversion of real money to virtual money and then to property. Yes... you would owe taxes on the gain from the difference in the conversion rate on the money laundry scheme. The criminal penalty is upto $1 million, upto 20 years in jail, or both.

[Matt Sova]

Address

Does the IRS address the letters to these Everquest players like this:

John Doe
C/O Your mom's basement
123 Main Street
Anytown, MI 12345

[Brad Imsdahl]

This would be a "shame" transaction since you only accomplished a laundry of money with your conversion of real money to virtual money and then to property. Yes... you would owe taxes on the gain from the difference in the conversion rate on the money laundry scheme. The criminal penalty is upto $1 million, upto 20 years in jail, or both.

I don't know why it would be money laundering if you reported the transaction on your tax return.

Say you and I are playing monopoly. The goal of the game is to bankrupt the other guy. Say I have Boardwalk and Park Place with hotels on each. You land on Boardwalk and don’t have enough monopoly money to pay my rent. I say give me $50 in real money and you don’t have to pay rent due in monopoly money.

Is that money laundering?

No.

Is it a taxable transaction?

Yes.

[OldJack]

Say you and I are playing monopoly.

Well there you go again! Changing the facts to suit your own purpose. The transaction we were discussing did not include any real person except you (and I'm not sure of you) and now you want ME in the transaction. Shame on you. In the other transaction you washed money to buy property all by yourself and you deserve to go to jail especially if you do not report the million in gain you want to hide.

[DonPriebe]

But if it were Monopoly ...

<Shame on you. In the other transaction you washed money to buy property all by yourself and you deserve to go to jail especially if you do not report the million in gain you want to hide.>

... you could have had a "Get Out of Jail Free" card.

[Brad Imsdahl]

Well there you go again! Changing the facts to suit your own purpose. The transaction we were discussing did not include any real person except you (and I'm not sure of you) and now you want ME in the transaction. Shame on you. In the other transaction you washed money to buy property all by yourself and you deserve to go to jail especially if you do not report the million in gain you want to hide.

Virtual reality games are played between real people. They create characters in the virtual reality worlds that interact with the virtual reality characters of other real people. These games have virtual reality economies with virtual reality money. What I said was that some times, people go outside the game to buy and sell virtual reality items with real money on eBay.

I can see where it might be tax evasion if the transactions were not reported on the tax return. But how is it money laundering, which carries the idea that it is illegal even if it is reported on the tax return?

[newbie]

I have a client that sells virtual poker chips. He makes a decent $.

[OldJack]

I can see where it might be tax evasion if the transactions were not reported on the tax return.

Well anyone with any common sense knows you are up to no good when you convert real money into virtual money and then back into real money. You obviously washed that virtual money and probably did it with newbie's poker chips and a slight of the hand. Not reporting the virtual money conversion profit is virtual fraud with even a worse penalty than tax evasion. Where is your ethics man?

[Brad Imsdahl]

I really do not understand your point OldJack. Virtual reality money is worthless. Its a game, like monopoly. The items purchased in virtual reality are not real and are also worthless. The value of such things have no tax implications.

It is only when you start to pay real money for the virtual reality items on eBay that they become taxable. So again, why is that money laundering? Why is that any different than you paying me real money when you land on Boardwalk and can't pay me in monopoly money?

[OldJack]

I really do not understand your point OldJack.

Brad... you really need some time off from this board. Do you think Jainen is the only one pokin fun at you?

[ChEAr$]

Be careful

Brad... you really need some time off from this board. Do you think Jainen is the only one pokin fun at you?

what you wish for, you might just get it. Like time off from this board,
starting January,.... otherwise called "tax season".

Holiday ChEAr$,
Harlan Lunsford, EA n LA

[Brad Imsdahl]

Practical Jokes

Brad... you really need some time off from this board. Do you think Jainen is the only one pokin fun at you?

You pulled a good one on me. Just a little warning story, however, for those who try to pull one over on me….

When you are the lead editor, sometimes your writing staff tries to get under your skin with creative writing. Paul Roberts tried doing this to me many years ago. He was in charge of answering content questions on our books. After doing the research and finding the answer, he would submit the letter for my approval before sending the answer off to the customer.

One day he gives me a letter about some ridiculous nit picky criticism concerning a statement in our book. I don’t even remember what it said anymore, as I immediately went into a rage about how this customer had no business being in the tax business with that kind of comment. After letting me go on and on, making a fool of myself over the bogus letter, Paul finally reveals the truth, to the laughter of everyone else in the office.

I’m not the kind of guy that can just let things go. Two can play this game…

It had been about two months since we had started shipping our latest version of the book to customers. It was also one of the first years we offered the book on CD in PDF format. One day I told Paul I needed to update his computer for something, as I was also the office computer guy for everyone at the time. I had doctored a PDF file of the front cover of the book so that the 38.6% tax rate (the top rate at the time) in the tax rate schedule was 36.6%. As the book CD could be loaded on the hard drive, I went in and replaced Paul’s PDF file with this doctored file.

I then proceeded to go to hotmail.com and opened up a new email address from a Garcia Luapaytog (Got Ya Paul spelled backwards) and sent an email to our content questions email address. Garcia Luapaytog was an angry customer who had used the front cover tax rate schedule from our CD with the wrong tax rate to calculate a tax return by hand because his computer software had yet to arrive, and his million dollar client needed his return done right away. This customer only had the CD and not the hard copy book that obviously had the correct tax rate schedule. With a W-2 of several million, obviously the tax rate at 36.6% had calculated a much lower tax than 38.6%. The IRS found the mistake and issued a balance due notice for the underpaid tax. This customer was angry at us for making such a bad error on our CD that is now costing him a big embarrassment with his client.

I called the owner of our company letting him know that it was a joke. When Paul got the email thinking it was real, he checked it out and discovered that his CD version on his computer was in fact wrong. I purposely came in late that next day to give Paul several hours of intense anxiety. The owner simply told Paul to wait for Brad to get in before doing anything.

When I finally did arrive for work, Paul said there was big trouble. He showed me the email from the angry customer. I read it. I looked at the guys name. I turned the letter around for Paul to see again and asked him to spell the guys last name backwards.

Paul learned his lesson to never again play a practical joke on me.

Now, how do I get back at OldJack?….Hmmmnnn let me see……