Virtual Income, Land Barons, and the IRS

I think its wise that you do consult an international tax or legal specialist. Do you understand that blackmail relates to one trying to extort money from you, which obviously I am not.

Your reaction is odd considering that I gave you free legal advice about not publishing self incriminating statements.

Since you state you are paying all the taxes you owe, then you have no worries. Right?

Edited to add this afterthought:

I consider my legal opinion on these tax issues to be of benefit to any member of the SL community who derives income from SL. Yes laws differ from state to state, from country to country, and because you satisfy the taxing authorties in one jurisdiction that does not mean you satisfy them all.

There do exist treaties and reciprocal agreements which may mitigate tax reponsibilites between some jurisdictions.

I counsel all to be aware, and that is the extent of my message. Saying "dont piss me off" in jest may have been in bad taste, ok, retracted.

Merwin is correct, I am an officer of the court in 4 states and the Federal Courts. I take that responsibility seriously. In recent months there has been rapid growth in SL and many are making money as a result. I dont begrudge them. Would it be better for me to remain silent rather than advise members to consult a tax specialist if making a 6 figure income from SL? I cant see how anyone would conclude that it is better to not know.

You cannot earn money in another country than the one you live in unless you are employed by a company in that country.

Businesses that trade with another company make the money in the country they are based, unless they have a division in the second country.

Specifically in Anshe Chung's case, I think she is from Germany, so she would owe taxes to the German government. She may or may not have a first job, but supposing she does, she owes tax only on the total profit from the first and second job combined. So if she moves US$ 10m this year but makes $10,000 profit, plus another $10,000 from her first job, she owes tax to the German government of $20,000. And then they doubtless have their own contributions scale, so they might say everyone netting $20k or less pays 10% or something, and then that's what she pays.

She is fine as long as she declares her extra income and pays what tax the German government asks.

The US taxes non resident aliens on income if the source is within the USA. You do not have to live in the US, you do not have to step foot on its soil.

Doesn't most of Europe have like... 50% income tax for all their social programs?

As for me, although my income from my shop pales to Anshe, I will be reporting to the IRS this year. In fact, I'm looking into filing as a small business, deducting computer parts, ISP costs, video games, subscription fees, and other expenses.

Now, this will have me probably getting back more money than I owe... what a shame.

The source of play money is the US. The sale of the play money takes place in Canada, so the source of income is *not* the US.

If you're arguing that the source of the income is from the US because the items being sold originated in the US, that argument has no merit: if I sell my Chevy in Canada, the source of income is Canadian even though the item originated in an American factory. The play money (not being legal tender) belongs to me, a Canadian, and is sold in Canada as a private sale. American tax laws don't apply.

The GST would apply then, between Canadians.

On second thought maybe not, because Linden dollars are delivered in the USA and Paypal pays in Canada. I don't think the GST applies when you buy money. Any Canadian legal experts out there? Income tax laws would apply though Im sure.

if you're really concerned, talk to a tax lawyer. i suggest you stop speculating. this is not a forum "shut up". i'm pointing out that if it is a concern for you, that you should get real information instead of guessing. the irs has no sense of humor, and isn't very forgiving of mistakes - especially if they can prove you could have known better.

if you're going to claim the money is being earned in canada... you may have to deal with bringing it back into the states.


from http://www.irs.gov/newsroom/article/0,,id=108276,00.html

Can we really consider a # an asset?

It says when i log in I have 30,000 l$. But that's just a number. How is that an asset?

Also, Anshe is not american so does she have to pay american or canadian income tax?

Or, if does all the transactions via IGE which is based out of Hong Kong, does she have to pay Hong Kong income tax?

Whatever the case, Stoneself is right when he says: we're all talking about things we have no idea about. Unfortunately, I don't think *anyone* has a clue what the answers are to these questions.

Singularity, indeed, eh Huns?

There are a lot of ways to earn money besides being "employed". Generally, the litmus test is whether you are actually present in the that country or not, rather than whether it is "employment".

probably, especially if it can be converted into us$.

i think tax, divorce, and probate lawyers would have a clue. i have enough lawyers in my family to say that people will argue about the damnedest things as assets. if someone puts a value on something in divorce or probate, the irs is willing to tax it.

on a first pass i'd listen to katykiwi.

Canadians don't pay GST on a transaction with an outside-Canada entity. Non-Canadians don't pay GST on Canadian exports. (There is no GST on cross-border transactions in either direction.)

GST is a VAT -- Canadians pay GST on goods and services, but businesses and middlemen deduct the total amount of GST they pay from the total amount they collect, and pay only the difference.

An interesting effect is that when a Canadian company exports, they bring in money that has no GST collected on it. Then when they spend that money buying materials (or office supplies, or whatever) inside Canada, they pay GST on that. Deduct the GST they collected from the GST they paid, you get a negative number and they get a refund for the GST they paid on raw materials and office supplies.

Whether by design or not, this acts as a subsidy for exports.

PST is another matter.

Buster

You're applying Aristotelian logic to the law. Meritorious or not, the IRS doesn't follow your logic. They follow the laws and procedures of American tax collection, occasionally amended by agreements with other nations.

btw, your argument about selling U.S.-owned and registered automobiles in Canada is wrong. Above a set value limit, you will pay fees and assessments to the United States, although some of those F&A's are indirectly compensated by reciprocal agreements between the two nations.

Thats the interesting, and many feel offensive, aspect of the internal revenue code. The US does not tax income per se, it taxes value.

This goes back to my original statement. If I receive payment in services, or property, rather than traditional cash as we know it, then I pay an income tax on the fair market value of what I receive.

So lets say my employer decides to pay me in jelly beans rather than dollars, or he pays me in computer electronics, or he pays me in hours of long distance telephone calling, or he pays me in number of house cleaning services, or he pays me with a credit in Linden dollars...the IRS taxes each one of those items using its fair market value.

The SL virtual world is legally tied to the physical location of Linden Lab and is not an autonomous insulated unknown unidentified cyberspace. It is a business entity. When LL relinquished the copyrights to items created in world, it gave something of value. The designs, the tringo games, created by members can be sold because what exists in world has market value even if we cant touch it.

Whether LL is acting as a broker is an interesting thought to ponder. It may be that taxation would be transaction specific, making tracking and enforcement a nightmare, but difficulty with enforcement and tracking has not stopped taxing authorities in the past.

Even on the state level of sales taxation, online businesses are required track individual transactions and charge sales tax based on the revenue laws in the state of the recipient, not the buyer and not the seller.

One may argue at which point Linden dollars become currency, but since the IRS taxes the value, and not the physical shape, it really does not change the circumstances.

Here is yet another example of the abstract view the IRS has on the taxation of value.

For years the IRS has wanted to tax imputed value. That would mean for example that if I chose to paint my house myself rather than hiring a painter, then the IRS would tax me on the amount of money I saved by doing the work myself.

So hypothetically, lets say the painter would charge me $1000 to paint my house. If I paint it myself, I am saving that amount. and using the concept of imputed value I have a gain. My gain would be measured by taking the 1000 the painter would charge me, less the cost of the paint supplies, and the balance would be the taxable amount.

I kid you not. As offensive as this concept is, the IRS has been pushing for the taxation of imputed value in precise examples like this, but Congress has not allowed it.

Its not the shape or form of the property that is taxed, its the value....and Linden dollars have a measurable fair market value.

I have to wonder, though, why the heck do we have an IRS to begin with?
It's like the government doesn't WANT us to create value and stimulate the economy, and so it "fines" us a percentage of our income!

I would guess the tax laws are the same for people making gift baskets and selling them on ebay. GOM and IGE and the players making sales are the ones who have to file.

I plan on filing any income I derive from SL on my federal income taxes. We don't have state income taxes in Florida, and I'm selling intangible items so they are exempt from sales tax.

Having said that, I consider what I do here in SL a hobby. If my currency exchange takes off, I may consider incorporating, but in all honesty the money spent on that would eat up any profits made in SL.

The reason income tax is taxed is because it's easier to track.

I'd prefer everything was done via a value added tax in this world, so those who consume more have to pay more, but a) our world economy is based on consumption (sad sad) and b) black markets would develop.

Noted writer Julian Dibbell did an experiment a couple years ago to see if he could make a living selling virtual goods. Daniel Terdiman reported on his efforts in Wired News. You'll note that in the opening paragraph he states he filed a claim with the IRS for the income he realized from his sales. The only data point I know of.

For what it's worth, last year the IRS published revenue ruling 2004-112 concerning virtual trade shows.

The IRS concluded that income from any "semi-permanent" online sales presentation of commodities, virtual or real, does not fit under the general tax code safe harbor for qualified convention and trade show activities, and is taxable. The IRS concluded that such sales do not qualify as a trade show, because there is no in-person, face-to-face component.

The situation needs further clarity regarding online sales of virtual commodities within game platforms, but it's clear the IRS is increasingly attentive to these activities.

Yup! The IRS acronym exists in portuguese as well, except yours is a government institution, while ours is the name of the tax.
Imposto sobre o Rendimento de Singulares - singular person tax, as opposed to a corporate "person".

Has anyone even attempted to establish fair market value for their $Linden holdings? I wish I could say this is beyond ridiculous, but that has never stopped the I.R.S. before.

As for me, I realized there was a problem when I reached the point of being able to make mortgage payments from the $Lindens I cashed out, so I chose to step out of the economy. I came here to live out my dreams, not come up with a new way for the government to decide I'm a criminal.

The advice I recieved was to report the actual $US I made as hobby income. I also reported all my expenses for playing SL as deductions.

I thought this was kind of interesting. Sorry if someone has mentioned it already.


Yahoo Article Here