US Congress launches probe into virtual economies

I would say read everything and use the link, you will see the official view of L by the lindens, I don't agree with the statement made by the linden, as there is value of L but I think this is a statement made to protect the company from legal action for allowing gambling to take place. As soon as the official word is that L is money then there is a violation of the gambling law taking place.

I think since the $L has no official value by LL's terms of service means it has no taxable value. It's when you cash out it becomes income, plain and simple.

Look at it this way. Let's say instead of Lindens, SL consisted of trading faerie lingerie. And LL agreed to pay us $1/100 virtual pounds of faerie bedroom garb when we cash out, but said the lingerie had no real value in their TOS. I don't think the IRS could then come in and start taxing us in faerie bras. Let's bear in mind the real value of Lindens is what LL is willing to pay us in cash for them.

L$ is a commodity, not a currency.

(1) Money does not need to change hands for a transaction to be taxable. If I cut your grass in exchange for you cleaning my house, each of us must pay tax on the value of the services we have received. This is regardless of the fact that no money has changed hands. If I write you a script in exchange for a piece of digital artwork you have created, it's the same thing. Taxable, despite not money having been exchanged. This is a common and well-known feature of all taxation codes I know of. Tracking sales by way of the L$ "chits" simply allows for more accurate bookkeeping.

(2) The new gambling law requires wagers be made with something "representative of value", which L$ are. Therefore, SL casino owners *are* (and have been at least since LL took over the L$ trade business) breaking the law. Note that LL has admitted that L$ have value. The fact that SL casino owners are breaking U.S. law is pretty much indisputable. The only question is whether LL also is breaking the newly-signed law by facilitating the exchange of cash for tokens.

(3) Users should absolutely be able to use SL business expenditures against their in-world revenue. Figure out the L$ you've spent supporting your business (upload charges, rent, etc.), convert that number to US$ using the average L$ exchange rate for the day the transaction was made. Bingo. There's your business expense. Provided you also figure out your L$ revenue in the same way.

I could see a potential semantic loop hole.... Bartering is the exchange of goods and services without the use of money. If I wash dishes for a friend and they bake cookies and give me some... are those "goods and services"? If one of the parties is Ms. Fields... perhaps.

If I buy groceries and my roommate cooks dinner, is that a taxable barter of goods for services?

This kind of stuff goes on all the time. I, personally refuse to believe the IRS is expecting us to fill out 1040X's every time we return a favor.

The question is at what dollar value does this become an issue. If one party is writing off the costs of labor and materials to supply a favor to another, obviously any benefit they obtain from that write-off should be reported. Is the dollar value significant per transaction? What about in total for the taxable period?

The IRS, I'm sure, would prefer to have everything reported. There is a point at which this becomes absurd and insane however.

And where do transactions in SL fall on that spectrum for most people in SL? Somewhere in the middle probably.

According to IRS Form 1099-MISC, (for Miscellaneous Income) and Schedule SE (for Self-Employment Income) the threshold is...

$400 per year.

If you make more than $400US by cashing out L$ for US dollars, you would have to declare that as income for tax purposes. You could probably offset that with the costs of SL; Premium Fee, Tier Fee, perhaps a portion of your high-speed internet service, etc.

Is anyone here a tax professional? An Enrolled Agent? Is anyone here taking $400USD out of SL every year? I'm not, but if you answer Yes to #3, see #1 or #2!!!

As for barter exchanges... it would appear that these sorts of things qualify as taxable events, but I would agree that they are hard to actually charge.

Always Fun!!

Max

I think some of you really need to speak with an accountant....

The IRS doesn't care about these little profits or losses if you're in SL as a hobby, or as a fun 'undertaking' where money is made and lost. ...SL needs to be your job. You need to have a real buisness.... IRS is not going to care about you reporting $72 and making $100.... You need to make at least $600USD before you have to claim income. (I never heard it was $400... my accountant told be $600.. but either way, point is, $400/600... that's substantial)

In relation to taxing and claiming services... I don't really know how someone can get taxed on receiving a service. But I do know I plan to claim every time I donate my DJ services in SL. In RL, I get anywhere from $25/hr to $200/hr DJing. In SL, DJing is worth anywhere from $0L to $3000L-5000L on a good day.... about $10-$20 USD....

The point is, lindens, & everything in SL DOES NOT have value. THE REAL WORLD is what the gov't taxes. INCOME is what is taxed!! When you make money, its taxed!! The ONLY time you are taxed for anything you do in SL is when you cash out and collect your USD income!

The gov't is questioning whether to change this current law, but as it stands now, SL, lindens, land, and everything is worth absolutely nothing. When USDs appear in your paypal, that's when they have value. That's when you have made income.
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On another note. LL is saying lindens are not tokens or real money and casinos are legal just to cover their asses. However, it is completely illegal....there is no getting around it. LL is relying on semantics and wordplay. When the IRS sees USD income or losses reported from people, and that those fluxuations are from gambling in SL, that's when there's big trouble.