Government Eyes Virtual Assets to Tax

Any day now, the IRS just may set up an office on Second Life.

Wondering if the government is serious about taxing virtual income and assets from online communities and games, such as Second Life and World of Warcraft? The question is not if, but when, says the senior economist with the U.S. Congress' Joint Economic Committee.

Dan Miller said as much at the State of Play/Terra Nova symposium in New York: "Given growth rates of 10 to 15 percent a month, the question is when, not if, Congress and IRS start paying attention to these issues," Miller said. "So it is incumbent upon us to set the terms and the debate so we have a shaped tax policy toward virtual worlds and virtual economies in a favorable way." Does that sound like someone from Washington or what?

If you've earned real money by selling wares on Second Life or World of Warcraft gold pieces on a web site, you're supposed to claim it on your income taxes. There's nothing new there. So the hubbub is really about whether and how the government will tax virtual assets, which have assigned values in online worlds but have not yet been converted to real money offline.

If that were to happen, it would mean quite a tax bill for the likes of Anshe Chung, a.k.a. Ailin Graef in real life, who claims she has turned a $9.95 initial investment into $1 million worth of Second Life real estate assets and currency—none of which has been converted into good ol' U.S. currency.

Miller promised at the session that an upcoming committee report will "look at factual technical questions" such as: What is a taxable event in the virtual world?

As the taxman prepares to cometh in this new direction, what do you think is a taxable event in the virtual world? Is it right to tax in-world assets that may or may not be converted into real income?

The debate's already started, so, by all means, jump in.