Virtual Income, Land Barons, and the IRS

OH GHOD quick somebody hide all the applications from ALBY quick!!!!

Guess Kathy Yamamoto was right. Its just a matter of time until we get her 'uniform justice' from PLAYERS. Haha. Wow.
OK - Has anyone else heard of this system and HOW did i miss it? How can I join this secretive jury?

Talen, since I brought this to the forum let me 'splain myself. I appreciate what Katy has done. These are issues that should be discussed. My concern for her is that it is offering opinions and information that can be construed as legal advice. Just because you did not view it as such does not make it as generalized as you think. I understand that there is some interpersonal back-and-forth that I am not a part of but since I brought it up I felt I should comment.

One other thing -- please don't delude yourself to equate this to protections under the First Ammendment. This has nothing to do with the First Ammendment. Whether you join the military or pay your dues to the bar, you play by their rules or you no longer belong.

things other than currency can have value. they don't have to pursue the l$ as currency.

Actually Stone in relevance to this whole discussion about taxation yes they do have to pursue L$.

Why?

Because all textures and scripts are owned by the individuals yes?
They all reside in SL yes.
But at the same time they also reside 9 times out of 10 on the individuals PC.

So to "Value" a Texture or a "Script" the associated value can be defined on an independent level per each user.

However, Items in world cannot be valued as per the statement of the TOS. Meaning if tomorrow Phillip got up and had a wild hair up his ass to totaly erase the grid and start over. Then what happens to all the Items you had that were stored in SL??

Everything would be Lost wouldnt it?
Land
Money
Textures
Scripts
Prims
Skins
You name it GONE...

So again how do you assign a value to something that has no tangeable lock down.
Such as Currency.
A Prim
Things that are inherent to the SL Database Grid.
You can't because without a tangable to back these Items up they are nothing more than data streams.

Now this may all change if Phillip ever goes public with the source code but.
Still yet an intangable all the things created within the "Architecture" of SL cannot be independently valued as it cannot be utilized else where. Again the Value cannot be assigned because of the sytem that it is contained within.

However, textures can be valued. They are produced on platforms that are widely usable.
Scripts, Yes, even they can be, as they can be adapted too other platforms.
But to gain value they have to be exported to a widely used platform that could be replicated.

Real Life most countries treasurys are backed with tangeable commoditys such as Gold/Oil/Steel. Resources if you will, that are valued on the world consumer trading market.

So, for the IRS to be able to appropriately pursue anyone in SL they would have to assign values to things.

Well if they assign a value to Linden Dollars then they just forced Linden Labs to stay open forever unless the US or some other country comes and takes them over.That kinda happens when you recognize a soveriegn nation.<< not a viable option.

So they have to pursue the things that can be assigned Value.
Such as user created Textures, Scripts and Transactions Users use to gain Real Life Cash.

I have now given you many of the variables involved Stone, and the reasoning why "Taxation" per the definition of you and others cannot be pursued. So now its your turn without using ambigious sources to define why they can.

Because right now from what I have reviewed of US Tax law and through conversation with appropriate officials there is no way unless the US becomes a Dictatorship and institutes unfair trade practice laws.

Your up...

Shadow

Dear goodness people such a to-do...

Tax law is very black and white, it's based on income. Add any money in your bank account you MADE FROM second life to your year's wages. Then work out if this exceeds any of your government's tax brackets.

The taxman doesn't give a damn how many "lindens" you have, or what virtual binary data someone else has on their servers. Who cares?

Dollars and cents people. What did you take HOME this year, and what's the tax bracket for that amount of dough? Stump up...

Thank you Jsecure.
I tried to make it that simple.
But couldn't, they kept wanting to spin it of on "What if?" tangents.

Shadow

Oh yes...

There's always a what if...

Ok, this may have been discussed earlier in the thread, but the thought crept into my head when it was mentioned that, as things stand right now, you can't be taxed for your ingame holdings, but only for what you actually make in RL money from the game.

What is to prevent someone from using Second Life as a tax shelter? Someone converting their money to Lindens and holding it there to keep it out of the view of tax officials, especially for between-country expenses since, as has been discussed earlier, ingame currency as it is has no value until it is converted? It's too early in the morning to work things out fully in my head, but I'm curious if this could actually be a viable concern, should someone come up with this idea and be able to make it work? Could LL be held liable for being said tax shelter?

Just a morning thought.

Question is Nala would you want to take that chance?
I mean really considering what I said previously about Phillip getting a wild hair up his ass and killing it all?

To answer your question, yes it could be

To be smart about it do you think its really wise to try it?

no, no, NO. Linden Labs and SL cannot be a tax shelter. You store your money where you want, but you will be taxed:

* WHEN money comes into your posession (i.e. wage packet). You can spend those wages on Lindens if you want, but you still have to pay your cut of your income.

* When you cash out Lindens. Let's say someone pays you for goods and services in Lindens. You have NOT been paid yet, there is no such thing as a linden. It's in your head. One database statement and your few binary bits are altered to something else. Cash your lindens out via GOM then paypal for instance, and PayPal pays you money. We call that INCOME. You pay on that.

You can stockpile this imaginary "linden" if you want, but as soon as you get your hands on MONEY you will be taxed.

havent happened to me yet

I am quite comfortable with all that I have posted, and have no worries about it. But, I thank you for your concern for my welfare.

In a sense Jsecure your correct in that as eventually it will get taxed however, on the flipside it can be construed as one simply based on time. If I kept all my lindens in SL for say a period of two years. In that time I amass a great quanity, well due to the fact that it was in SL I did not have to pay for the taxes those two years as I didnt take it out but you are correct in the statment that if I take it out its income and Id have to pay taxes against it.

But here is the neat thing about it all.

I keep the money there for two years.
In that time 10k worth of lindens go from $40 US to $80 US, well in all honesty I have doubled my possibility of reward.. Sure I will have to pay taxes on it but, wouldnt it be nice to pay taxes on $200 versus $100 for the same amount?

Im just futzing around now but was an interesting thought none the less..

Shadow

copyrights are intangible, and they have value.

as illustrated in the case of barter, things can have value (even intangibles like services) without going through cash.

where have you been? the us greenback isn't backed by anything material.

It's backed by the "full faith and credit of the United States." In other words, it's backed by the collective best wishes of most of the world's population. Is that worth something? Sure, when you consider that any economy, global or national, is largely a sociological phenomenon. Worth more in many circumstances than gold, silver, or steel. Oil? That's a tougher question.

As far as all else, if you converted earned Lindens into national currency, then you have declare your profits and go through whatever revenue process applies. Period.

How did everyone handle their SL fortunes with the tax man?

That's same for every country, the question is: Why the hell should I move my income from SL/GOM/PAYPAL back into my country to tax (28% in this one), when i can simply never move that capital back to my country ? And if it ever grows to a huge enough amount i'd rather find a lowtax country and register a company over there rather than donate 1/3 to my "old fasion" govt.
Corporations seem to play the international game of competion, governmets on the other hand think they can run their own games. Currently the difference in tax rate between norway and ireland is over 50% (28% vs 12%, and they wonder why the GDP isn't moving LMAO).

Then you shouldn't do it.

Is the income earned in Canada when L$ are exchanged for real-world currency?

Is income generated in San Francisco? Will the California state taxing agencies come after SL players? Does San Francisco have taxes that would apply?

Or is the income generated in SL residents' home states or nations?

Katy...Cool - someone who knows about taxes

I have a couple of questions (and yes they are fair and honest questions - not trollbait) because I have been looking into whether it is worthwhile for me to declare any SL income over the next year.

1st of course is that Linden Lab states that the L$ has no value (I would imagine as an ass covering incase the whole thing goes kapoot tomorrow) - so working out where and when the value actually occurs has confused the hell outta me - is it at GOM in Canada? or is it here when the funds actually reach my bank account?

2nd one was that looking over some of the hoops you jump through to start a business in Nevada it said it was only needed if the income gained was over $24,000 - or did I read that wrong (legalese may as well be another language - it takes 3 reads just to get half and understanding of whats going on sometimes).

Siggy.

Mojo woke up an old thread Siggy, but... Yes Katy, please give us some legal advice so we can properly file our taxes. We sure would appreciate your professional guidance.

The income is earned, as my CPA loves to say, in my pocket! Once it's there (pocket as in US Account) I have a taxable event. I think we're getting stuck on the word "income". It's any US$ that are legally taxable events re: the IRS. (Have no idea about other countries, and the physical location of GOM or IGE are not a factor, once the US$ is in US).

That's why I keep me 1.2million L$ inGame. Once I exchange for US$, that's a taxable event.