Virtual Income, Land Barons, and the IRS

No they don't. Only to the US I think. At least not to my country.

Don't forget... GOM is located in Canada. If you sell Linden dollars on GOM, you're not earning money in the US.

I may be wrong Moon, but from what I read on the site I was under the impression that as long as the atm's banked through the same electronic systems such as Plus and Star and a few others it was available anywhere in the world.

Shadow

Kathy to be honest you only need to keep track of what you deal with on a 3rd party website as LL does not transact in RL cash other than to pay for thier service.

So any exchange of funds is delegated as a 3rd party agreement for us to exchange goods within the virtual world. In essence the actual making of money is based on seperate agreements made outside the realm of SL. Thus if the agreement is to transact funds through GOM your dealing in Canada. If the agreement is with IGE, that can be varied considering their home office is now located in Hong Kong.

I think its funny the concepts are so simple a 5yr old could understand it but people tend to want to blur the lines because they think Linden Labs has something to do with it when in actuality it not LL but the players dealing out side of SL.

Oh well,

Shadow

HAHAHA You end your post with a threat. Nice! Too bad you don't have a clue what your talking about or any facts to back it up. Yet again someone goes off the deep end into ignorance.

I dont earn my dividends on Wall Street. The deal is brokered there but the value exists prior to that.

GOM acts as the broker, the transaction facilitator for conversion. When you go to the bank to cash your paycheck, you bring with you a piece of paper that has no intrinsic value. It represents a contractual promise to transfer property, currency, from one party to another. The money itself is not earned at the moment of conversion in the bank, or on GOM.

I can channel my income in various ways but that doesnt change its origination. That is why the fruit of a crime remains rotten even after laundering.

My legal experience tells me that the IRS would not be interested in what could be designated as "hobby income," however, when looking at a 6 figure yearly income we look at a different category.

You dont have to be a citizen or resident of the US to be subject to US taxation as long as the source of the income originates in the US.

First of all Kat, how do you know the income is coming from the US? It seems to me that Linden Labs itself is just a broker connecting people in different places with a easy to use interface. There is a large international contingent of players from around the world that have bought and sold land on the market. Do you claim that the income is coming from LL (based in the US) or is it coming from those doing the actual transactions?

I didn't like the threat either, and I wonder what the original poster's agenda is. However, you're pretty confused. Title 26 of the U.S. Code, in fact, states what k. Moonflower claimed. IRS code tends to be unambiguous when defining income.

She's also correct in that while the IRS would not be interested in pursuing someone's hobby income, they would be interested in pursuing a case and setting a precedent if the "industry aggregate" income exceeds certain levels. A six figure USD personal income is a good indication.

She's also correct in that the source of value generating the income exists in the U.S.: server resources and proprietary software. On that basis, the IRS might make a case.

As far as LL's role in all this, it's not precisely clear. However, one precedent that could work is tiered rental arrangements: income is generated from property rented from and owned by another agency. Land barons do not own the SL property, they "rent" exclusive rights from LL and can sell those rights and their rental contracts to third parties. There are specific IRS procedures relevant to these tiered income arrangements.

Generally, in the US, income you earn inside SL is not taxible unless you convert it to RL$. Then the "income" amount would be the difference between the RL$ you put in and the RL$ you get out.

If you operate a business (i.e., you file a business tax return or schedule) you would be able deduct the costs of your computer and internet connection. But only if you use them primarily for business purposes. (You would of course need to really be a RL business, not a pretend business inside SL.) Depending on your situation, as a business, you might file using accrual accounting or cash accounting. If you are an accrual accounting tax payer, and you use SL as an integral part of your business, then fluctuations in your in-game L$ might be technically reportable.

The best analogy I can think of is baseball cards. The income you make from SL would be reportable in the same way as income you might make from trading baseball cards. If you buy baseball cards and sell them for more than you paid for them, the difference is "income". If you make enough money trading baseball cards, you will have to report that as income.

You don't have to report an increase in the value of baseball cards you own as income unless you are an accrual accounting business. If I trade you one Pete Rose for 100 Babe Ruth's, I haven't made any money at all until and unless I sell the Babe Ruth's.

If you are actually making significant money playing SL, seek tax advice. (DO NOT believe me, I'm just a character in the game.)

Buster

I have practiced law for 15 years, was in the tax honors program in law school, earned the equivalent of an LLM in Taxation (Master of Laws) at the same time that I earned my JD (Juris Doctor.)

What's your background?

Professional Forum Troll

kthnx

Uhh, ok Moonflower.

So you're saying because the money is earning on servers which are co-located in the US you have to pay US income taxes?

Or what are you saying?

Because it's not LL that's paying you for collecting monopoly money, it's GOM and IGE.

I'm a 12 yr old girl who lives in nigeria in need of some money to reactivate a lost bank account! Can you help me? Please send $10,000 USD I accept paypal.

**for those who might not notice, this is a joke**

Consider it a thought, or a promise, rather than a threat.

Maybe it is the former prosecutor in me, and maybe it is also my conviction that the law must apply equally to all. I abhor disparate treatment where equality should apply, as those who have read my posts have seen demonstrated time and again when I voice my objection to dissimilar treatment in SL.

I think the gist of Katykiwi's argument is that as soon as you get something that the IRS could conceivably construe as having "value", they'll want to tax you on it. They would further argue that, yes, since the servers etc and Linden Lab are located in the U.S., the "item of value" could be said to be earned in the U.S. Whether that's true is another point entirely, and something that has not yet been tested in court (to the best of my knowledge).

From the sounds of things, the IRS doesn't care whether you've earned cash, stocks, L$, or lawn mowing services. If a "market value" can be established for the item, it's fair game in their eyes.

Of course, I don't have an LLM in taxation law.....

I do not know why people are looking at LL. Follow the money to the 6 figure income earner. That is what is at issue, not LL.

This is really simple for folks in the U.S. You have to report any financial gains. If your grandma gives you a $100 check for your birthday, then you're required to claim the gain. There's a section for gifts such as this. That's what the IRS requires, however most people don't comply.

In addition, some states require sales tax to be paid when making online purchases. So, if a user pays US$ to purchase land, they should charge themselves the appropriate local sales tax. As example, do a Google news search for tobacco tax Michigan. Basically, the state won a court ruling that forced internet tobacco sellers to provide a list of a customers from Michigan. The state is in the process of collecting unpaid sales tax from those customers. Michigan wasn't the only state, just the one that comes to mind. Of course, the states did this because tobacco carries a much larger tax burden than regular goods, so the states were losing tax income as more customers circumvented local tobacco taxes by purchasing online.

Are you warning people about earned income and tax liabilities or are you grinding an ax? If the former thats a good thing....if the latter it's petty....Anshe isn't the only person pulling serious money out of SL.

Katykiwi and Ulrika, all my income is declared and taxed according to my local tax law. So go reporting to IRS as much you want. You will probably hit some of my competitors in SL or even yourself, but not me.



On monday I am going to see what my lawyer has to say to this threat. Since you, katykiwi, have practised law so many years you should know that this is attempted blackmail.

@_o Burned

It's not blackmail, she would have to be demanding hush money or something in order for her to keep quiet.

heh.. Anshe in Germany did land biz with us in Belize... so that income at least was safe from the greedy mitts of the IRS.....

Very interesting thread...

I suspect katy is a sworn officer of the court and as such I would be inclined to attempt to understand what she is saying.

Like Shadow, I operate above board and file taxes, and will of course be reporting income received from the sale of my previous ownership interest in SLEx from both Apo and Ans. Ch.

Just another day in paradise...


_/_/

No.

k. Moonflower did not try to extort money or property from you. Or if she did, you have not revealed that, and neither has she. Her comment on my post reveals another motive, that of qui tam action. That means an action brought by a private citizen against an agency or individual who has violated a government regulation when a statute exists to provide a remedy for such a violation.

Your lawyer will likely tell you that the best way to defend yourself is to make sure that you are following legal procedures in Germany and the United States regarding income associated with an American corporation's product.

edited to add a missing word

The link Moonshine posted way back in this thread lists the income tax treaties between lots of countries and the US. This includes the UK, Germany etc.

UK one - http://www.ustreas.gov/offices/tax-policy/library/uktreaty.pdf


It's obviously in legalese but is concerned with issues such as residency and the presence of bricks-and-morter businesses. There are no good quotes to be picked out of 39 page legal document.

German one - http://www.irs.gov/pub/irs-trty/germany.pdf

As a tax lawyer I presume you know about these treaties...