Can a SL resident be sent a 1099?

i see what you are saying..i am being a bit jumbled in my terms..mainly because when i do my own taxes i am filing as my own company or self employed ..doing that i end up doing personel deductions along with doing my self employment expenses on the other forms and i tend to cross the wires sometimes when i get to explaining things..

see the way i was looking at it was a business expense and trying to find the actual places along the way if he could not send out a 1099..
basically the same thing..trying to justify the money being spent to the irs to allow for the deduction..
if you can't show it as an expense you end up losing that twards your deductions..

i guess it is just confusing because it's SL or something for me lol
i'm looking at it as there really is not another person without some sort of service invoice..
just paying someone and a transaction record saying this guy paid that guy could mean anything..
unless it's just a matter of showing the business spent 600 usd

i also wonder what if the guy that got the 600 says ..what the heck is this for??

some guy gives me play money and you want to tax me? lol


the investing and loss part was only to do with the lindens.. not looking at investing and expense as the same thing..

expense would be the software example..investing example would be the purchase of the lindens.. it's not cheating because if it's still in world it's still in play..
just other options you could claim rather than one there is a slim to none chance of claiming..
unless the IRS were to get the information from LL on this person..

i'm used to dealing with people in the real world when it comes to taxes..all this virtual stuff is just too damn confusing and really adds a mix of screwyness to it all hahahahah
i'm even losing myself in this and it's only a 1099 we are talking about..

it's like going from the person that owns the company to the company to the avatar then to another avatar that has no information..
thats enough to make anyone say heck with it..fine me or whatever.. hahahahaha

i think i'm just gonna stick to RL and read up and research areas having to do with virtual worlds and barter.. it may make more sense to me..cause right now i just feel like ripping my hair out and it's not even my taxes i'm thinking about hahahaha

/me giggles, maybe it would be easier if you thought of things a little differently?
Desmond said "game" where the IRS says "Virtual Business" on their web page.
Where you say "avatar", simply substitute "account"?
Forget about "play money" and only think about the real USD that comes from it?
There is no "company to avatar to avatar with no info"... There is only TIN to TIN. They don't care about the between after all! They don't care if the manner is check or paypal or L$... They only care about your income, IE, seeing your USD balance increase.They don't need to, nor do you from what I read earlier. LL would never be involved since they aren't part of it at all. I don't remember my research from earlier, LOL, but basically you ask for their TIN info, if they don't provide it, you withhold as far as the IRS would be concerned? In reality, you'd simply pay an alt account instead? Either way it's not hard to expense paying for services is it, especially for those profiting enough to be paying people that much? (Don't forget advertising, upload fees/costs, computer depreciation, percentage of ISP bill, home office, etc?)

Only LL owns any L$, even though they are credited to the account you use. You do not own "your" avatar account nor the data associated in it. All your use of your avatar, the account and any data associated with it is at the discretion of LL and can be revoked without recompense at any time. This is how LL can ban someone without even refunding the L$ or USD amounts associated to that account.
To pay tax on earnings a person must own those earnings unequivocally. You only earn anything unequivocally when you cash out which is also discretionary.

This was discussed here before:

/327/c9/302011/1.html

Not exactly.

You own the licenses that the L$ represent. Because they're a license, they represent a contract between you and LL, and the contract gives you each certain rights. That includes LL's right to terminate the license for many reasons. Nevertheless, you are the unequivocal owner of the license. A rough, but familiar analogy is that if you pay for some software online, and then download it, you own the license to use that software, but you don't own the software.

You do raise an interesting, worthwhile question. While I believe you are the unequivocal owner of the license, I don't know that you couldn't win an argument that the terms of the license are such that the license doesn't represent real value. The LindeX and the way L$ are actually used would argue against this line of reasoning, but I don't want to dismiss it outright.

Doubt it would work. You have the ability to convert to USD or other currency on the day that it was paid/earned. If you are a US payer and you pay someone for services or any other exchange that qualifies for a 1099, you owe the person and the IRS a 1099 by Jan 31. Period. If you are a U.S. payer and you don't receive a valid TIN or notice of inapplicability, then you aren't supposed to pay the full amount until you receive it and you owe backup whether or not you paid out the full amount. You could always file an incomplete 1099 and take the penalty and ask for forbearance.

Applying these rules would be difficult in SL, but that really isn't the IRS's problem. A lot of the small cases are from the reciprocal side. They audit someone with lots of SL income and in the process get a list of people (avatars) that should have provided non-existent 1099s. Guess what? LL will have the names and provided addresses of those avatars in just a few days. A couple of weeks if LL has the backbone to stand up, but why should they? Easy money for the IRS. You will get a computer generated notice in the mail asking you to pay the fine for no 1099 and LL will get a list of avs with false addresses and names with orders to follow up. Bingo. A bunch of accounts suspended until they provide additional information. Damn few companies fight the IRS on ancillary requests because it has too much chance in evolving into a corporate audit.

None of this difficult, none of this a problem for the IRS. And it all happened back in the heyday of barter exchanges. That provided a firm set of rules and a firm set of audit guidelines that those businesses and members follow.

Every one that thinks it won't happen simply do not understand how quickly people being audited for their side of a transaction will drop the dime on the other side. If one person gives up a list of 100 (with attendant fines), they may end up only paying the interest on the unpaid amounts. That's why no coffeehouse with any common sense will fail to collect TIN information, even though they may only pay every third performer more than $ 600. One audited folksinger and here come's the notice, often asking for fines for every performance until you provide proof that you paid less. The onus is not on the IRS once you have been found to be delinquent on one instance.

Will it happen? Don't know. SL is really the smallest of populations and the real business community wholly within SL much , much smaller. But if it happens, all these sunny, they can't do it scenarios will vanish in a wisp.

My advice to any U.S. payer is to ask for TIN and be a bit hesitant, considering how rules change and stuff disappears in SL, to do business with anyone that is doing business at that level and still clinging to SL anonymity. I wouldn't ask someone with no ID or license to repair my front door and that evidently is going to cost just a bit more than that $ 600 (I know, probably a commercial firm and no 1099 required...)

No according to LL. You do not own your account or any data associated with it. Period. That does not leave room for owning licenses. You are granted "use" of a license and the associated L$. The IRS only are interested in things you own unequivocally.

No, that's what owning a license means. The license is the set of rights you have under it, which is not the same as the data or the account. You have the right to exercise or transfer the rights under the license, and that means you own it.

Whether you are right or wrong about the use of a license changes nothing.

Whatever the interpretation there is huge amounts of ambiguity and until it is resolved it is reasonable for residents to assume that the point of taxation is when you cash out - actually gain tangible earnings from SL. If the IRS or a court rules differently then the rules will change at that point and it is extremely doubtful that penalties would ensue for L$ spent inworld and USD spent on tier that originated inworld.
I would simply point to the TOS and say that LL told me they owned all the money until I cashed out and I believed them.

I agree with this. The main exception is if someone is clearly accumulating large quantities of L$ from business activities and delaying cashing them out in order to defer taxes. Even choosing to cash out a large quantity on Jan. 1 from business activities the prior year could trigger a challenge from the IRS.

But for the overwhelming majority of people, yes, I seriously doubt the IRS would impose penalties for only declaring what was converted to USD from L$. They may or may not impose interest charges. If you only declare what you actually have LL send you (e.g. via PayPal), and don't declare the USD that you gained and keep on account with LL, then that's a more tenuous. I wouldn't be surprised if they chose not to impose penalties on these cases as well, but I wouldn't be surprised if they did.

What the IRS will do and what they could do theoretically are two different things.

The IRS and the government can decide to do anything and call it legal and good - nothing you can do about it. They make the rules, they don't just follow them.
Does anyone really know if the tax department might not one day decide that you didn't pay enough or they felt you withheld something? Thats why everyone fears an audit - nobody gets any guarantees. Thats part of the reason why the system stinks so badly and everyone fears it.

We don't tend to worry about it all the time though do we? We tend to think that as long as we did a reasonable job that it will all work out right? For the most part that is true.

So I don't think that SL residents should it worry them too much if they don't record every L$ in or out of their SL experience.

If the IRS want to take the lid of this particular can of worms, I think they will find they become paralyzed by the sheer amount of data they will have to sift through to audit everyone. If it does not paralyze them then the tax rebates they will have to allow for loss of business when SL goes down and business purchases that never delivered, deductions for land, building, purchases etc will make requiring a tax return for L$ worthless for all except those few who make the Linden's own list of people of note earning above a certain threshold.
If the IRS were to take this route, in world transacting will pretty much stop en mass except for the few who earn enough to keep them in RL - who wants the headache of sorting out the end of year filings for L$100 here, L$500 there? when all they earn is enough to pay for their 4096sqm mainland store? Hiring an accountant will cost more than for their RL accounts most likely.
Most people are creating and selling stuff just for fun and are not going to want to have to deal with this headache and the IRS are not going to get any significant tax from them either.
It is far more likely that the IRS will say that the point of taxation is when you cash out and you should declare that as long as it is above a certain amount.

LL is not like other institutions that hold money on your behalf, they are not regulated to do so like banks and brokers etc. There is no oversight or specific handling rules that apply to them. They are not even licensed to act in that capacity and so they cannot be acting in that capacity for you.

When LL say they own everything to do with your SL account then you are OK to beleive that until they or you are told differently. If it were taken to court and decided otherwise then of course there would be no penalties for you - how could there be. If it took a court ruling to decide, how are you expected to know?

It is not as if you can buy things with your L$ or USD amount that is not SL related.
I cannot, for instance use even my USD balance to go shopping at Amazon or any other store. I cannot buy my groceries or pay my RL mortage/rent. It is locked to SL until you cash it out properly and cashing out is discretionary at LL's whim, not guaranteed.

I think for these reasons treating the cash out point as the taxation point is pretty safe and shows willingness to pay your tax burden which is usually all they require unless they have specific rules to cover the situation - which in this case they don't.
Any other option will be insane for everyone including the IRS.

BTW I am using "you" in the general sense throughout here in case that was not obvious.

They don't say they own everything.

And if we follow your logic, no one who ever goes to court over a tax issue would ever be assessed penalties, because they needed a court to decide. If you're really uncertain, you can ask the IRS for a letter ruling. If not, then you are responsible for the risk that your legal position won't be allowed by the court.


If you really believe that it's at LL's whim, then you'd always cash out asap. A reasonable person wouldn't leave more money there than necessary for immediate needs. And this is where I keep getting back to the case of someone keeping large quantities of earnings in-world.

Or, to look at it another way, do you really believe you have no right to the money at all? Does LL do PayPal transfers of your balance solely out of their own generosity?

You may disagree but the wording is all there in the TOS (the link I gave above contains my posting with the relevant parts) and is as yet unchallenged.
They clearly state they own the account and all data - of which your balances, name and assets are all part.
It also says that cash out is at their discretion - again all plainly written in the TOS.

I am not saying everything going to court would not involve penalties but this is new territory that has not had the rules clearly established. I doubt penalties would be given in that case until clear rules are established. This would involve LL having to change certain aspects of their business and the way they handle user accounts.

Granting Paypal transfers have nothing to do with generosity but LL could decide tomorrow that *you*, just *you* cannot cash out and stop you from doing it - they have done this to many people. They could also decide that allowing cash outs is too problematic for them and kill that feature. That is what discretion means in this context. Whether or not they can legally get away with it or not is not the issue - the issue is what they believe and what they are enforcing right now. What they are enforcing right now follows pretty much everything I have said. Until LL are told to operate differently and until the IRS say that what LL says about ownership of assets and capital within SL is wrong - we cannot help but go along with it and therefore have reasonable argument supporting a viewpoint of cash out being the tax point.
The reason we don't all cash out because of this is that it is shown for the vast majority of people that cash-outs happen and so we go with the percentages. Those who cannot live with that have already cashed out or do so as soon as they learn of it.

I suggest you try to get such a letter as you have described from the IRS. In order for them to even have a chance of being accurate you are going to have to write a huge study about how SL works for them to understand it properly.
Even then it is not guaranteed they will understand the concepts correctly. This stuff is barely on their radar as yet. Go see if your IRS web site has any information about SL on it so far - or even virtual worlds and how it affects income tax. I doubt you will find much if anything.

What they actually say, in the fine print, is "nor do you own any data Linden Lab stores on Linden Lab servers." They also say clearly that you still own the intellectual property rights.

Data means the physical data. The bits on the servers. The account means the set of rights for accessing their servers. None of these mean your account credit.


What it actually says, on the Process Credit page, is that you must be in compliance with the TOS. The TOS doesn't talk about your account credit at all.


It's not really a matter of what LL says. Even if we accept everything you've said about ownership of your account credits, it's still may be constructive receipt of income. If I pay you by check for a service, you've received that income, even though I can still stop payment on the check until you cash it.


I'm not in business in SL, and hence don't have standing to ask that type of question. But if I were in business, I'd just declare my income as I earned it and not try to stretch LL's rules in favorable way. At least not without consulting a tax attorney, and certainly not on the basis of someone in forum telling me that it's not taxable because LL can still change their mind.

Hardly. Many and probably most major business software says the same thing, including all accounting software that I sell and/or support (some starting well north of $ 20,000 before you pay me to install and implement) and all of these are amortized by my clients. The IRS is fully aware that software vendors do not sell anything but media and the right to use the software on it as long as all conditions are met. You still have something of value in their opinion and it is amortized over the useful life of the software.

FWIW, the TOS is counterbalanced by publicity. As long as LL has even a marginal interest in corporations coming into SL, they have the same issues as the software vendors - over vigorous enforcement for trivial reasons will kill that source of revenue almost immediately. No one buys into a place like SL is the word is out that they kill accounts with real resources for no valid reason. It would be seen only as the bankruptcy unfolds

I have been associated with two law suits involving the use of license and agreement abrogation (the controller of the company in both cases). There is an equity issue that underlies that process, whatever the agreement, and in the two jurisdictions of the cases, the judge had no problem with reaching through the agreement and granting partial compensation to the complainant (us). The real issue in both cases boiled down to whether it was worth it to call the lawyers which is where LL really has the advantage, as for most of us here, it isn't. The IRS doesn't care. They don't really care who would prevail unless and until it happens. Until then, the IRS will presume that you can withdraw your money at a rate that can be easily established and documented, and if they choose to tax this income, which is what it is, they will.

Hardly. Many and probably most major business software says the same thing, including all accounting software that I sell and/or support (some starting well north of $ 20,000 before you pay me to install and implement) and all of these are amortized by my clients. The IRS is fully aware that software vendors do not sell anything but media and the right to use the software on it as long as all conditions are met. You still have something of value in their opinion and it is amortized over the useful life of the software with their 'blessings'.

FWIW, the TOS is counterbalanced by publicity. As long as LL has even a marginal interest in corporations coming into SL, they have the same issues as the software vendors - overly vigorous enforcement for trivial reasons will kill that source of revenue almost immediately. No one buys into a place like SL if the word is out that they kill accounts with real resources for no valid reason. It would be seen only as the bankruptcy unfolds and they are desperate.

I have been associated with two law suits involving the use of license and agreement abrogation (the controller of the company in both cases). There is an equity issue that underlies that process, whatever the agreement, and in the two jurisdictions of the cases, the judge had no problem with reaching through the agreement and granting partial compensation to the complainant (us). The real issue in both cases boiled down to whether it was worth it to call the lawyers which is where LL really has the advantage, as for most of us here, it isn't. The IRS doesn't care. They don't really care who would prevail unless and until it happens. Until then, the IRS will presume that you can withdraw your money at a rate that can be easily established and documented, and if they choose to tax this income, which is what it is, they will.

It isn't how it works. They do not audit everyone. What they will do is send out notices based on information drawn from easily handled data files - probably LL will be tasked with coming up with something. Hundreds, perhaps a few thousand, of SL businesses will get a letter that assesses taxes and penalties based on that data with a nice envelope. All most people will do, as it will probably be in the range of less than 100 USD, will be tear off the bottom, write a check, and send it in. Strain? Some major and possibly completely legitimate investment vehicles have generated notices to tens of thousands of investors. The system is set up to handle it. It costs the IRS for two sheets of paper, a few minutes of computer time, and the envelopes.

Most people that have more money involved will probably call up their lawyer and some will trundle down for a desk audit with a low level IRS auditor and for their troubles will likely have the amount significantly reduced. Perhaps someone, or a few, will challenge the IRS's methodology for determining income or general position in court and it will most likely be an attorney that figures the publicity is worth the low likelihood of prevailing. IMO, and I have done taxes for a few years and have been involved in the process from one side or the other for now more than 20 years, is this will go exactly as far as the IRS decides it will go. LL is small potatoes with limited resources and there is no other significant player with an ox in the arena to challenge any reasonable IRS position taken. The IRS on the other hand will take the position that this is potentially source of hidden income down the road and will be willing to spend what it takes to set up the ground rules.

If I had a client (and if I still did taxes) and they got a notice, I would tell them to pay it if it were under $ 100. If moderately over AND they had good records AND they had an argument to reduce net income (as in, document tier and have an argument that say, 90 per cent of the prims on the property were business related), then set up a desk audit if it were worth their time. More, feel free to call a tax attorney, if you think you have principle and righteousness on your side. I think both will disappear in the first 15 minutes of that conversation...

Sorry, there is just no way I will beleive that we are going to have to start counting business prims in a micro-economy for the tax department. The day that starts, there will be no more micro-economy. Ordinary people who sell a few items for tier are not going to keep records for every single prim, L$100 transaction etc. It is not reasonable to expect it, especially given the fact the outside world considers SL to be a fantasy. This is not a real world environment despite the earnings having the possibility of being realised. There are going to be differences between SL the real world when it comes to earnings. Most people cannot even operate here under their own name.

My point is precisely that the IRS don't have a stance yet or rules - when they do it may be different but until then the most reasonable taxation point is going to be cash out time.

You may or may not have RL tax experience, but in this situation it is not possible for you to know any more than I what the IRS will do over this - there are simply no precedents otherwise there would be no ambiguity about it.

I think (note always my opinion being expressed) that it is unlikely anyone who declares cash-out income only will get into any problems in the future if the IRS spell out the SL VW taxation rules. However you cannot say that I am wrong with any certainty either.

We are not talking about large companies where the IRS see massive dollar signs in front of them and the time spent sifting through massive amounts of data to process tax returns and such is worth it to make sure maximum tax liability is assessed and paid. We are talking about sub-1000-dollar amounts for the majority of SL residents who don't even have a RL business registered. There is no incentive for the IRS to be interested in sifting that and the truly few who fly high above this are easily identifiable.

You may feel differently and thats fine but until you can point to a case where the IRS required every prim and L$ transaction for a tax return of a normal in-world business, your opinion is only as valid as mine.

I have no feelings of principle or righteousness and sure a getting the advice of tax professional is always the right thing to do. I don't see anyone saying different here.
However nobody is going to be able to say anything other than documenting your entire SL existence and turning it over with your tax return is going to save you from problems and liabilities down the road.
For those who wish to take on that task for earnings that only cover their tier and would not even keep them in groceries - good luck to them.

As I have said, I don't know whether or not the IRS will bother. If they do, however, you are simply wrong in thinking that SL is all that unique.

1. Income is a clearly defined item (come on, people, income is almost literally the starting point for the revenue code and is defined in myriad forms for an incredibly wide range of businesses with thousands, if not millions, of pages of case law behind and before it further defining the application and accounting) and when it is earned is also clearly defined. By all applicable code, income in SL for U.S. revenue code purposes is when earned, not when cashed out. There is no revenue code to support the cashed out position. Period. The only general exceptions is when there is no clearly defined way to quantify earnings and, guess what people, you can do this on an hourly, daily, and weekly basis in SL, no problem.

2. The prims is my idea, but the point is that to take a business deduction, you must show clearly that the expense is a business item. This is especially true when the item can and often does have dual purposes. The use of a home computer, the use of a personal car - in all similar cases you either have to clearly show that almost all use is for business (the prim count) or keep a log, one or the other. This is not new.

3. The IRS has a clear history in these cases of giving you the bill and leaving it for you to pare it down. The exceptions are when there is a large and vocal constituency that has a connection to congressmen. SL is pathetically small, the business community is much smaller, and there is no reason for the IRS to do otherwise than ask LL for a highest common denominator for businesses and business income and use that as the basis for an assessment mailing. You think you are too small? You are too small for the IRS to bother to remove you from the mailing list. Unless the original request has a lower boundary given by the IRS, the mailing will be pretty near all encompassing and more. And, yes, I have seen my share of them. Probably a few hundred, above and beyond the normal 1099, W-2 and routine assessment mailings, which I have seen in the thousands.

4. None of this is new. The sole issue on the government side is, is this worth the effort? The real issue is, does this have the potential for being a large source of hidden income that needs to be put on notice. Many of the comments here indicate that this is at least partly true. The other smaller piece of this is to put places like LL on notice that they need to have differentiated, trackable, and sufficiently historical records to survive an IRS request for information. That last small piece may come first and may have already happened, for all we know. This, folks, is what the conversation is about on the government side. Making sure businesses like LL are on notice about what they will have to provide. Is the data there? The rest is ho-hum normality.

5. No, none of this is new (again). In the 28 years that I have been involved in taxes as either a tax CPA, a general practice CPA, or as a corporate controller/consultant, I have seen a lot of issues far more difficult to figure out how they would be handled. Actually, IF the IRS comes knocking on the door, the issues are all, repeat, all clear cut from the application of tax code. I will put real money on this - I have no real problem identifying myself to anyone that wants to put down bets on how this plays out IF the IRS pulls the trigger (since I have identified myself as a self-employed CPA/consultant in the Annapolis-Baltimore-DC area with a RN wife who is the oncology center patient care coordinator at a major hospital and I have an interest in mythology, especially Native American and Celtic, any friend who has read my posts knows who I am, as would at least five or so of the staff at the Maryland Association of CPAs).

Finally, I will repeat - I doubt anyone will get a notice above USD 100. Those who really conduct businesses in RL with significant SL income will have already accounted for income and talked to a CPA, enrolled agent or attorney. For most of the others, it will not be much. And yes, it very well may lead to huge numbers of SL businesses closing down. Thems the breaks. It has happened to other, much larger RL businesses (check out what happened to one of the largest business constituencies when the IRS and the accounting profession changed how franchisers accounted for start-up franchise costs - several major chains closed up or virtually shut down in the first year afterward). This isn't even a consideration for how the IRS handles this. They have no reason to care. Probably the most vocal constituents are right here. And maybe some of the other trends seen in and about SL from LL are exactly because LL knows from their attorneys, accountants and daily notes coming across their controller's PC screen that the virtual business model in SL is a damaged one from the git go. That the economy in SL as it currently stands will not survive an IRS initiative. In that instance I agree with what you say. Most businesses by number will either close or accept a hobby status and pay tax on a moderate amount of income.

Solutions? If there is one, I would expect that it would be along the lines of having commercial avatars and LL requiring anyone with business revenue above a certain level to use one so that they could keep the record keeping to a minimum. It would also help the user in their own record keeping. Just a guess, as I 1) don't do taxes, other in corporate book reconstructions, and 2) do all my business in RL.

You seem to have missed the self-employed subcontractor category. When I was a self-employed subcontractor, I certainly got 1099s from my clients.

Why would a 1099 be inappropriate for a personal service?

Wouldn't you file a 1099 for a self-employed subcontractor doing, say, lawn maintenance or house cleaning? Aren't these personal services?

If you pay by giving stock, the declared value on the 1099 would be the value of the stock on that day.