Can a SL resident be sent a 1099?

Assume you have paid someone a large sum of money on SL, can you stick them with a 1099?

Presumably, you paid for work performed. The IRS rules for a 1099 are that you paid someone in excess of $600 for services performed (unless it changed while I wasn't looking). The trick will be...getting their SSN

Fetuses don't have a SSN either, yet numerous courts have found them to be people. So, why not?

only if it was out of Second life..to the irs it looks like you bought lindens is all..

EDIT:you may be able to get an investment loss and use it on the itemized deductions though as an expense..if you are using your avatar as a company..but the person you paid would be considerd part of the thing you invested into more or less and not another person..not unless you conducted business out of world..

i'm not tax expert or anything like that..so i wouldnt take it as golden ..i'd look into t more for sure..

I massive raid by Federal Agents and treasury people and the seizure of all servers and computors owned by LL would be a smart start. Of course the French can send an observer or 2 to watch while this goes down

hahaha

well you can only claim them after they are born..but you can claim the medical bills while pregnant..

At the present time there is no requirement to give them a 1099. All you have done is give somebody a large quantity of game tokens; they don't turn into real money (and thus interest the IRS) until the recipient sells the L$. As somebody else pointed out, there is also the problem of obtaining an real-world identity and Social Security number; a 1099 issued to an avatar name won't mean much in most cases. (Though I have considered registering my avatar name as a DBA - doing business as.)

Various governments, including the US, are looking at the matter of virtual worlds and virtual economies, so that could certainly change in the future.

Payment of money, yes.

Payment of $L - no.

$L can be purchased like Disneyland tickets for your enjoyment for money. The receipt or credit card billing when you purchase them does not indicate another Second Life resident.

$L can be sold - sort of. When 'sold', you do not give a receipt to whomever they were 'sold' to.

$L could, possibly, be appraised. However, appraisal might be sort of like appraising "Disney Dollars" - even though the "Disney Dollar" with Mickey on it, that sort of looks like a dollar and is accepted in Disneyland looks like money... it sure isn't. Appraisal would be based upon other factors. Just try getting someone to accept a Disney Dollar in North Dakota, for instance. Maybe they would feel it was worth a penny. Maybe not.

So no, you can't 1099 anyone as far as I can tell - there are no receipts proving the transaction, and what transaction that *can* be proven is with something that would likely appraise to be pennies (micro-pennies?) to the dollar.


If someone used $L to rip you off, though - that's another story. Contact LL governance, or internet fraud prevention organisations in RL.

"Stick" them with one? Surely not, unless you already know their SSN and such. I seriously doubt LL will cooperate with someone on that kind of issue.

Makes me wonder why you would commission over $600USD worth of work without an RL contract in place....


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Not for internal payments in L$, no. For all you know, 100% of that payment may never leave SL again, but instead all be blown on non-tangible in-world purchases. The IRS tends to get involved only after the person attempts to cash out their L$ hoarde and convert it to real money again.

I have one big client that I recently did a lot of work for last year, and got paid by check, externally. And I got a 1099 from them, as I had fully expected to. We had a full RL work contract for that work, with all the usual mundane datails.

LL makes monthly transaction reports available, listing all your purchases of L$ from Lindex and all cash-outs, so you can provide a legal paper trail for in-world income that you have cashed out. But as far as I know, they don't have your SSN and don't report that to the IRS. That is the taxpayer's responsibility, to report it correctly.

Can you, may you, should you, must you? There are really several different questions.

If you have the SSN (or other TIN) and address, you can. If you don't, you'd need to try to get that information. If they refuse to prove an SSN, I think you can still file the 1099, but it may not do much good. If you don't have the address, I don't think electronic delivery would qualify unless you already had an agreement that the recipient would get electronic delivery.

May you? It depends why you paid them. If you paid it as a gift, then there's no justification for the 1099, and it would be improper. If they worked for you in a way that would qualify as an employer-employee relationship (unlikely, but theoretically possible), then it would be improper; you'd have to use a W-2. If you're paying them for personal services, where you're not running a business, then it's inappropriate (but I'm not sure if it's considered illegal).

Should you or must you? Again, it depends why you paid them.

Does the fact that it's in Lindens matter? Nope. Payments that include noncash property can still be reported on 1099 forms, using the fair market value. (See section N of the general instructions for form 1099, http://www.irs.gov/pub/irs-pdf/i1099gi.pdf.) I think you'd have a really difficult time proving that the fair market value is anything other than something between the max and min LindeX exchange rates on the date that payment was made.

What the person does with the L$ isn't really relevant. The IRS may not be equipped to find out about it as long as it remains in-world, but that wouldn't invalidate an otherwise valid 1099 issued for such a transaction.

Look at it this way. Suppose I see some design work in-world that I really like, and hire the artist to produce a logo for my company web site. The artist completes the work, delivering an acceptable logo as a texture which I download. I turn around and pay the artist $1000US worth of Lindens. If I'd paid cash, there would be no doubt that I'm required to issue a 1099-MISC (assuming the artist is in the US and not incorporated). If, instead, I bought the artist a new computer for that value and shipped it as payment, I'd still have to issue the 1099-MISC - it was payment in property instead of cash, but payment nevertheless. By paying in Lindens, I'm paying with transferable licenses - intangible, but still valuable.

myself i would just write it off as a loss or an expense..if you are sending out 1099 misc forms you are self employed in some way..

just say you invested in this computer software and it didn't pan out for my business
tool deduction..
there has to be something on that long list of items when you do itemized deductions to write off 600 usd..

The existence of the Lindex invalidates this argument. There's a clear market with several hundred thousand US dollars worth being traded on a daily basis. Just because many people wouldn't buy it doesn't mean it has no value.


Your SL transaction record, downloadable from the website, is adequate proof.

the only thing with the market is you can only monitor the market..
in world whatever happens would be like it sitting in a mutual fund..you can use the in and out but not the active stock..in other words you..you can't write off what a trader is doing until it's been done and you cash out..
only when you cash out do you see the loss or profit..
your transaction history would be good for showing lindens purchased..the rest that is in world would be invalid i would think..

unless you have an RL relationship that you are going to be conducting business in this manner with the other person..more like doing things in trade than currency..

but like anything..i could be wrong too lol

If you've paid over a certain minimum, aren't you required to do so? Yes...most likely a 1099-MISC I'd imagine, per: http://www.irs.gov/efile/article/0,,id=98114,00.htmlIt doesn't matter what form the compensation took (prize, $, check that was never cashed, L$, barter).

Oh look! Further down...So it is $600 or about L$160,000? Worse, you were required to deliver their copy by January 31st, while you must file the IRS copy by Feb. 28th. I haven't looked for your penalty for late notice...

From what I read, if someone doesn't provide their TIN, then the IRS might send you a CP2100A Notice and then you would have to do backup withholdings for them...That was from: http://www.irs.gov/businesses/small/article/0,,id=98151,00.html (Which is also the top link in their "Virtual Small Business Tax Workshop Supplement" page...)

So it's no different than any other freelancer you might pay over $600 USD (no matter what form the $ was converted to), contact them for their SSN/TIN, file as you normally would with your EIN...

I see the conversation has turned to value of L$, that doesn't matter to the IRS, they only care about the USD value paid (at the time paid, or average for the tax year I imagine would pass an audit--no you wouldn't be able to write off exchange fees since you could have paid via cash, check or paypal instead of L$ easily enough).

BTW: If anyone pays me that much? I don't live in your taxable district, wherever that might be! Just kidding, I appreciate my street being plowed and trash being picked up, my state's services and most of the national ones too...

And no, I'm not an accountant, I've just worked for myself for most of my life and file heavy enough returns I have to pay extra postage and write it off on next year's taxes, LOL! I've had many 1099's of different types, paid self employment tax and had to file icky quarterlies too...

Oh, and for info on value of L$, this might be of interest?

only if his company were doing business with this person..
not his avatar..or the other persons avatar..
and the only way to do that is outside of what the irs will look at as a game..
they have to have some kind of RL tie..

unless he paid the person with a check from his company to record it as either coming from him as the business owner with a company check or some kind of record that the payee recieved from that company..cash he would need a cash receipt from payee showing expense for the company..
otherwise it's no more valid than a cash transaction at walmart..

You would be. Mutual funds are a totally different beast, and they do report capital gains to shareholders. And barter can be taxable.

The only RL tie needed is that there's a RL person controlling the avatar, and the RL person is subject to US taxation.


What makes you think a cash transaction at walmart isn't valid?

it is valid..as a company purchase you need a receipt when dealing with cash so it can be reported..
and some way to show it was the company buying it..A ledger most times..

they spent 600 usd.. with no record of who is on the other end..but an avatar name..

how do we prove who the other person behind the avatar is?
Real life information or some kind of contact..If you can't get that...
Then what do we use to report the expense?
a receipt..
If they can't get that then how else would he show the company spent the money?
itemized deduction..
They could say an investment into software for learning to improve business skills or investment into something like the linden..

all i am saying is he is not gonna fall under all these penalties and IRS rules for a one time 600 USD spend..it's in a virtual world with no rl ties of any kind to anyone while paying for something that is still sitting in a virtual world..

they are better off finding a loss or expense someplace else..unless the person on the other end wants to give up their SSN# and take a 1099..

so the investor actually has to report ups and downs of a mutual fund to the irs while the money is still in stock like it was income even though they didn't get any of it yet?

i think i may have worded something wrong when i was speaking about mutual funds as an example..
it was a bad choice on my part lol

i was looking at them more as a tax shelter more than anything..i guess i should have said tax shelter

This is kind of jumbled, and not making much sense. You don't need to prove who the other person is. You don't report individual expenses, you just record them. Itemized deductions aren't used for expenses by a business. The LL transaction record is proof that the company spent the money. You're using two different meanings of the term 'investment'; investing in Linden's isn't an expense. Whether the Lindens remain sitting in a virtual world is irrelevant; what the recipient does with his payment afterward doesn't matter to your transaction.

What does matter is that if you pay more than $600 to someone else, as a business expense in exchange for some service, then you're obligated to either issue the 1099 or determine that one isn't required (if, for example, the other party is incorporated). You don't have a choice in the matter. If the other party won't furnish a TIN, you take out withholding tax. You can't just make up something else, because the point of this, from the IRS perspective, isn't merely to allow your deduction, but to ensure that the other person pays the proper tax on the income.

Will the IRS catch this and do anything about it? Unlikely, at least this year. But not for the reasons you state.

No. The investor's money isn't in stock, it's in shares of a mutual fund. The investor doesn't have to report the ups and downs of the mutual fund itself.

But when a mutual fund sells stock, that's a capital gain or loss to the fund which can be passed along to the fund's shareholders. It can be a blood nuisance to some investors who get hit with paying taxes on capital gains distributions by a mutual fund, even though the investor has lost money with the mutual fund.

A better example is simply investing in stock. If the company doesn't pay dividends, then you don't have a taxable transaction until you sell the stock. I'm sure many people are thinking along these lines when they say you don't have to worry about Lindens until you cash out. However, buying stock can't be equated to buying Lindens, because a) when you buy Lindens, you maintain direct control over the assets, and b) the corporation is paying annual taxes on its own profits.

There is no way that $L appraise to be the same as USD per LindeX rate.

Accounts can be canceled for any reason or no reason. The LindeX exchange rate could run to 250 because someone at the Company didn't pay attention. Payment processing could mess up and start handing out tons of free stipends - any number of things. Furthermore, you *can't even cash back out* $L you have purchased - don't forget the money laundering rules.

Fantasy? All of the above have happened in the last six weeks.

As such, $L are far more risky than government-backed USD and any honest appraisal should reflect that. It's not 'could you cash out' it's 'did you cash out' and how successfully.

Consider: if you had any real sort of sum in $L (one million USD?) you couldn't sell it at all without tipping the market on its head.

$L have an inherent ridiculously low value - not too terribly different from those tokens you get at the movie arcade. Sure, they may have cost a quarter each, but come on - unless you find another arcade player to buy them they are worthless. Cost times risk. No getting around it.

* * * * *

Furthermore, the IRS is not necessarily going to accept so-called expenses. Say you just spent $L 200k on avatar clothes - time to expense it! I don't think so. Or maybe you paid some kid to decorate your imaginary island... yep, explain that one to an old school auditor.

At some point the IRS is going to call foul, and say you can't claim business expense for playing an expensive video game. The burden of proof will be on the person trying to make the claim, and good luck with *that*.

Everything you say here is true, and one could say that's why the L$ is worth less than half a US cent.

But the IRS relies first on Fair Market Value. The value of a stock is determined by the prices at which it actually trades, not the value assigned to it by an expert stock analyst - even though the analyst may have a much better answer as to the stock's "true value."

So it really doesn't matter that speculation or other factors distort the value. An exceptional fluctuation could, perhaps, be argued out of the picture for that one day, but not to discredit the entire exchange as a source of FMV.


This isn't really relevant. The fact that Steve Jobs couldn't sell all of his Apple stock for the same price I could get today for 50 of my own shares doesn't mean that my price isn't representative of the FMV.


This is really a different subject, not related to the L$. But if the IRS says you can't claim business expense for playing a video game, then your response is that they can't tax you for winning it.

Yeah, it could be difficult explaining the expenses to an auditor. And this whole discussion is hypothetical, because currently the IRS doesn't have the ability to get the data and start taxing and auditing at the L$ transaction level. Plus, as you point out above, the value of the L$ is so low that the majority of transactions are below their radar screen. But if and when they start, they'll have an understanding that if you're making a profit in the virtual world, you may have expenses in the virtual world - the two go hand in hand. Whether some specific expense is a legitimate business expense is a case by case issue.

What it's likely to come down to is this: If you want to treat your activities as a business, then use the avatars involved strictly for business, and use separate alt avatars for recreation in SL. This will simplify the task of proving that everything spent by the business avatar is really for business. Otherwise, treat your activity as a hobby and be willing to live with all the limits on deducting hobby expenses.