World of Warcraft and Income Taxes

This is to initiate a conversation about how gamers treat and pay taxes. This is also to discover how the IRS is currently treating gamers who sell game items for taxes. I use this as an example because I think Steem Power can be seen as experience points are seen within a game world. Steem accounts can be sold in theory just as accounts in a game world can be sold, but there is no exchange facilitating that exchange. Steem Dollars can be exchange for Bitcoin, but so far not for fiat.

So to summarize:

• Steem Power can be seen as experience points in a game.
• Steem Dollars can be seen as WoW Gold is seen in gaming.
• Steem Dollars cannot so far be directed traded for fiat, but can be traded for Bitcoin.

So we can determine the fair market price for Steem Dollars to some extent by trading it for Bitcoin.

It appears gamers do owe taxes on their income.

If you're a World of Warcraft or Diablo 3 player, the federal government would like to have a word with you. Congress's U.S. Government Accountability Office (GAO), at the request of Senators Max Baucus (D-MT) and Orrin Hatch (R-UT), just wrote and filed a 23-page report on the tax implications of earning gold in MMORPGs. Seriously.

Most likely any money that comes to you via whatever third party Blizzard has set up will be classified as income since, well, that's what it is. You sold something and made a profit from it. It is up to person, not Blizzard, to report income for their annual income tax, as Blizzard is not an employer, just a facilitator of the auctions.

The IRS needs to offer clarification because this goes far beyond cryptocurrencies like Bitcoin where there are "miners". Gamers exist, bloggers exist, and many in between, and everyone on the Internet who makes money in some virtual space, gaming world, or cryptospace, or a combination, are expected to pay income taxes with no agreed upon best practices or guidance on how to do it. If you are a gamer playing a game and you happen to make a lot of real money selling your items on Poloniex are you now subject to the same rules that apply to Bitcoin miners?

Bitcoin mining is a service and is fairly automated. The guidance presented by the IRS focused specifically on mining, but was very narrowly focused on that. In addition, many aspects of the tax code are confusing even to the CPAs I've communicated with on Steemit.

What does the future hold for virtual activities and profit in virtual reality?

If I had to guess, I would tend to think virtual reality is going to be one of the major job creation areas. There will be many virtual jobs and many people doing virtual activities to earn an income of some sort. The question of how to tax this is left unknown or in a very confusing state. If the tax status is currently to be taken from the IRS guidance without any clarification then it would seem to discourage virtual activities which can generate income due to the accounting complexities and excessive tax burden/risk. Is that an intended consequence?

Time to consider diversification

If you do make money on Steemit, from Second Life, or any virtual activities, it is time to think about diversification. These spaces currently have excessive regulatory risks and at any moment the IRS or other agencies could decide to crack down. At the same time there will be bad actors who abuse things, or perhaps they will be agent provocateurs doing false flags to provoke tougher regulations on the rest of us. It would be sensible in my opinion to diversify just in case the possibility of a crackdown fueled by agent provocateurs does occur and I'll post about that in my next blog.

References

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1. https://us.battle.net/forums/en/wow/topic/20742965783
2. https://www.engadget.com/2013/06/19/congressional-report-says-you-may-owe-taxes-on-your-wow-income/
3. https://www.engadget.com/2011/08/05/the-lawbringer-qanda-on-diablos-real-money-auction-house/
4. https://en.wikipedia.org/wiki/Grey_market