Are Lindens Currency?

I went away for a week, come back, and find out gambling's been banned. The news was big enough that I heard it on the radio.

This is the thing I don't get about the whole gambling ban. If someone could enlighten me, I'd appreciate it.

My brother had a casino party at a convention. He knew if he played for money, he'd be breaking the law, so he printed up his own currency ("Whoopee Bucks" and gave guests a certain amount and let them trade those for chips at each of the games and cash them back into Whoopee Bucks at the end of the night.

I've also been to charity 'casino' events where you likewise gamble for scrip, and at the end of the night, you can use the scrip to 'buy' actual stuff. I got a T-shirt that way.

If I put the T-shirt on eBay (which I'm thinking about doing!), am I then violating gambling laws all of the sudden?

So are Lindens the equivalent of Whoopee Bucks? Or are we acknowledging that Lindens are actual currency? And if we do that, are we going to get taxed on it next?

The Terms of Service States Linden Dollars are not currency and have no real value, but now that is no longer true. Technically, your brother broke the law too, it's against the law to play in any pachinko like gambling (Pachinko if you don't know is a way of gambling loophole in Japan, where you play with small metal balls and cash those in for money at the end). Thats how Second Life was found violating the Illegal Gambling Act.

The Reason that lindens Are covered in the new gambling legislation is the same Reason that Chips and Plaques Used in Casino's are covered, they are considered tokens of exchange that are redeemable for cash.
They are Not Considered cash, Nor are they made into cash by the legislation.

In your brothers Case, the "Whoopie Bucks" are treated exactly the same Under the Law as the chips issued you in any Casino IF there is at any time a point where the bucks could be redeemed for Currency or Prizes. If this is the case then he Did probably violate the gambling laws. If it was all for fun, and no Cash, or prizes were awarded, or a single prize was given for the Most "Bucks' accumulated, then the Law is not so Clear. In the Just for fun Scenario, where nothing of real world value changes hands, the whole event would be legal, If a single prize was awarded, then the Games would be legal If a single Skill testing Math question was asked as a requirement of Claiming the prize.

Angel.

Well, if I read the OP correctly, "Whoopee Bucks" never converted to money, and you couldn't use money to buy "Whoopee Bucks" so it was a totally closed system. Now, I personally wouldn't run out and set up "Whoopee Lindens" right at the moment, but my guess is that it will eventually be permissible to give (note: "give" tokens for in-world games of chance as long as those tokens cannot be purchased directly or indirectly using online funding sources that use real currency. (The L$ obviously doesn't qualify, nor any token one might buy with L$s.) It becomes slightly problematic if Whoopee Lindens can be exchanged for something of value, because then it's essentially a sweepstakes--which is not gambling, but requires some fairly carefully worded disclaimers and absolute compliance with "no purchase necessary."

In light of recent developments with wagering in Second Life, I was wondering that since LL is apparently deeming L$ currency in terms of the newly enacted internet gambling law,
--evidently the issue is with the servers being based in San Francisco, and the exchange of US dollars to L$ and back again,--( athough I take issue that since the creation of the game gambling has taken place and it stands to reason that maybe their financial institutions as well are based out of San Franciso) thereby violateing existing California Gambing Laws against profiting from gambling in California at the time, henceforth opening themselves up to lawsuits from residents who suffered gambling losses in the past, since they knowingly allowed and aided a criminal enterprise. but I digress---

Are they also researching and taking steps to protect the slexchange from falling under violations of money laundering and newly enacted anti terrorism laws? per LL statements on the website

Second Life has its own unit-of-trade, the Linden Dollar. Residents use their Linden Dollars to pay for goods and services provided by other Residents. The Linden Dollar can also be exchanged for U.S. Dollars and other foreign currencies on a number of different websites, including right here via the LindeX exchange.

The LindeX buyer's and seller's fees are not related to billing and trading limits, they are fixed and everyone is subject to the same fee schedule. Only the rolling 24 hour and rolling 30 day limits vary.

These limits exist so that we can better accommodate the needs of our Residents while mitigating our fraud risk

appears to me that the US$ amount for both daily and monthly limits at the higher levels are over the amounts allowed by law unless a myriad of forms were completed, does this happen? Are they in complete compliance with federal foriegn currency transactions regarding every country their users reside in?

My head hurts --

good thing I live in Las Vegas-- time to cash out and go to the Strip

I find it funny that the Lindens claim the L$ has no value -

However, they broker Sales of Lindens on LindenX

and they even Print their own Lindens for sale via Supply Lindin.



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Kind of talking out of both sides of their mouth.

LindeX --- whatever the hell the call it

Correct. A few people kept them as souvenirs and I think some people even brought them back when he threw the casino party a second time at a different convention, but they were never bought or sold for real money.

So, because Lindens can be converted to currency, this makes them subject to gambling regulations, but does not necessarily make them currency, is that how it works? Just trying to get a clear picture here.

What about random chance games for prizes such as SL clothes or objects? Particularly if those items were set as nontransferable and therefore couldn't be converted to cash? Would that violate gambling regulations or not?

"So are Lindens the equivalent of Whoopee Bucks? Or are we acknowledging that Lindens are actual currency? And if we do that, are we going to get taxed on it next?"

No they are nothing like whoopee bucks.

And YES, you already have to pay taxes on in world earnings. Just not purchases at this point.

"What about random chance games for prizes such as SL clothes or objects? Particularly if those items were set as nontransferable and therefore couldn't be converted to cash? Would that violate gambling regulations or not?"

That isn't gambling and as such, is fine. Gambling requires "wagering money or something of material value on an event with an uncertain outcome with the primary intent of winning additional money and/or material goods" (wikipedia)

If you had to give some SL Clothes to win some SL Clothes, that becomes gambling.

Colette Meiji: where/when did they say they have no value?

I think what people are suggesting is that if the L$ is real currency then tax will be payable on L$ (not US Dollars). So every single premium member would have to pay tax on their weekly stipend even if that money never leaves the world.

The L$ has no more value than a casino chip for the purposes of the gambling ban.

WE trade them for cash. LL will not accept L$ but will sell it to us. For you to pay LL means you need to sell the L$ to another Resident then pay LL with USD.

The L$ is STILL worthless.

~Jessy

L$ isn't a currency. It is a Unit of Trade like in stocks.

Yes, LL brokers the sale of L$ via the LindeX. It would be horribly bad business practice for them to buy it back.

you cleared that up---then I can still gamble in sl because the us law at question prohibs using us funds but nothing else

Where exactly do you see them claiming that?

The issues of L$ being currency or not is beside the point. The US tax code requires that you declare and pay tax on your worldwide income. If you are a US resident, that means unless you have a thriving moon rock mining business, you must declare all income including that made in SL.

Now the question of what "value" a L$ has is another debate, but since you can click a few buttons and convert them to $US, the IRS is going to take a pretty dim view of any arguments that they have no "value".

Your stipend would not be subject to tax since it is basically a partial cash back for the US$ you pay for premium membership. At the annual rate of $72 US you get 15600L$ (300 per week) = $54.35 if you were to convert them back to $US. You are not deriving any income (since it was your money to start with).

Ithink Lindens say it prety clearly L$ is a currency and has a market value:

From TOS:

Section 1.4 answers the question if it is a currency:

"Second Life "currency" is a limited license right available for purchase or free distribution at Linden Lab's discretion, and is not redeemable for monetary value from Linden Lab. "

Section 1.5 answers the question if it has a value:

"Second Life offers an exchange, called LindeX, for the trading of Linden Dollars, which uses the terms "buy" and "sell" to indicate the transfer of license rights to use Linden Dollars. Use and regulation of LindeX is at Linden Lab's sole discretion. "

Er, no, sorry you can't. The TOS have now been rewritten to ban ALL gambling, since determining who is getting paid in US dollars and who is getting paid in another currency is way too much of a headache to track.

Whether or not gambling is legal where you live, it is no longer legal in Second Life.

No this is very much the point. Again, the L$ has no value, it is not taxable, the US dollar does have value, the US dollar therefore is taxable. When you cash out your US dollars, then you have taxable income. Whilst they are in L$ format, you don't have taxable income.

I'm not entirely sure if that's true, though. I'm not an IRS person (are you?) but I'm assuming that Lindens only become taxable when they are actually converted to cash, since they don't have any actual 'value' outside of the SL world until such conversion happens. The sections of the TOS that have been quoted seem to confirm this.

Lindens are the equivalent of Whoopee Bucks

HELLO. there can be NO VIOLATION on the part of LL yet because there have been NO REGULATIONS DEVELOPED OR ADOPTED YET!!!! Part of the law is a mandate to develop the regulations. It was supposed to be within 120 days. The agency responsible has already passed that mandated time limit and has requested extensions because they haven't been able to come up with the required regulations. They have not given a date when they will be ready. Read the law.

Nobody reads the danged laws!! They only quote what the "HEAR"!!!!!

HELLO!!!!!!!!!!! - there can be NO VIOLATION of the UIGEA on the part of LL yet because there have been NO REGULATIONS DEVELOPED OR ADOPTED YET!!!! Without the regulations there is nothing, repeat nothing to enforce!

A major part of the UIGEA was a mandate to develop the regulations. It was supposed to be within 120 days. The agency responsible has already passed that mandated time limit and has requested extensions because they haven't been able to come up with the required regulations. They have not given a date when they will be ready. Read the law.

What about the Wire Act? It doesn't apply at all.

Read the law!

Nobody reads the danged laws!! They only quote what they "HEAR"!!!!!

Myths and more myths:

1. The terms of service claim that Linden's aren't currency: FALSE

The terms of service describe Lindens as a fictional currency. By itself, that says nothing about whether or not Lindens can be considered a private, alternative currency. That's a legal question, not addressed by the terms of service (and which I'm not qualified to answer).

Wikipedia has useful articles on private currency and alternative currency.

2. LL claims Lindens have no value: FALSE

LL says that they will not redeem Lindens for monetary value. That says nothing about whether or not they have value. All it says is that LL has no obligation to buy Lindens from anyone under the TOS.

Something has value if there are other people who want it, and willing to exchange other things of value for it. LL has no control over that.

3. If they're not currency, you don't have to pay taxes on them (under US tax law). FALSE

US law generally considers profits from barter to be taxable income. If I buy Apple stock, it goes up in value, and then I exchange my Apple stock for a car, using the new stock price, that's a taxable event. The fact that no money was involved is irrelevant. I've taken an unrealized capital gain (the Apple stock) and realized it with that trade, making the increase in value taxable.

4. The stipend is taxable if Lindens are currency. FALSE

The stipends are like a rebate. They're something you get in exchange for the fee you pay LL, and hence they're not profit, not income.

5. The US internet gambling law only applies to US dollars. FALSE

It applies to anything of value.

Just when I thought I understood what was what along comes Kidd Krasner to confuse me all over again

Ok I'm sitting this one out now.