the taxman cometh?

Cnet reports thatThis does not yet mean that LL will need your social security number and file 1099s when you sell L$ but it looks like it is coming.

I do fully expect that the IRS will at least attempt to do the same with Second Life, eventually. Whether they will actually succeed I am not qualified to speculate on, and I strongly suspect that even those who *are* qualified can't say with any certainty.

But really, I couldn't care less, at least in the sense that if it happens I am not going to try to avoid it. To me, the idea that I might have to pay taxes on what I make in-world is just not so very bothersome.

And in the future, when the server side is open-sourced and the SL grid is not centralized and controlled by a single corporate entity, the IRS will not have anyone to try to compell to give up that information.

I think that LL will retain control of the lindex. The IRS could just demand a list of transactions.

Well I hope someone remembers to tell them that their jurisdiction only covers 30 odd percent of the SL membership. They can keep their grubby paws off my info.

... this has been argued to death in thread after thread.

Yes, the U.S. Treasury has asked Congress about this.

No, there is no legal precedent that would permit them to start taxing Lindens directly.

Yes, U.S. Citizens, as well as the citizens of other countries, are already paying income tax on what they earn in Second Life, and the point at which they are being taxed is when they convert their Lindens (which are technically game tokens) into earnings or winnings in their native currency. Since this is a vastly more efficient method of taxation than trying to climb into the game and negotiate a fluctuating anonymized virtual economy marked in micropayments, there is no reason whatever to expect that the IRS or any other governmental agency from any other government to try to climb into Second Life directly and forceably insert their own instrumentation for trying to sort out which currency paid for the Lindens and who benefits from it.

And before anybody decides to switch the thread over to gambling:

Yes, the FBI has been in Second Life looking at casino operations. No, they have never found any application of United States law they could apply. No, internet gambling is NOT illegal in the United States, it's just illegal to gamble online in those places in the United States where it's already illegal to gamble in real life. And yes, there ARE places in real life in the United States where it's legal to gamble. And the new law recently passed by Congress simply makes it illegal to perform credit card transactions for online gambling companies (which Second Life is not, by the way) trying to do business in parts of the country where it's already illegal to gamble online anway.

Yeah, well, if it is true, I'm going to buy a ton more land and start claiming tier and premium as deductions..

Yup, and it will surely devolve and go off topic, but not before being filled with "armchair lawyer" opinions that - no matter how well reasoned - are completely irrelevant.

And, of course, there's already the obligatory "but I'm not American" post above Sys, you shouldn't have anything to worry about then , right?

They are? I don't recall ever having been taxed when cashing out... I agree that that is the most efficient and logical place to enforce such a tax, I just don't think it's already in place. Unless you are referring to something more abstract and I'm just not getting it?

No, they claim withdrawls from SL as "income" on their tax forms.

Voluntary compliance

Depends on how you've been cashing out. If you cashed out with Paypal, you WILL get a form at the end of the year for your taxes. I got one last year for some textbooks I sold on ebay and got paid through Paypal. I don't know about checks, but you are legally required to report that money on your taxes. I don't know if LL will send you a record for your taxes. They might.

This is why over 90% of my earnings has been converted to high value SL land holdings. I own 81% of a Purple sim, one of the old, +40/-40 sims, and a private island, Everett County. All of which was earned with in world real estate trading. Now I'm getting into stocks on the WSE, and building in world businesses. linden based and not subject to taxes and other legal requirements. Linden dollars cover cover a multitude of sins.

Second Life, the new tax haven.

That is all fine and dandy, but then how can you use the money? Keeping in world may prevent the taxman from getting a hold of it, but last time I checked, L$ won't buy you food or clothes in RL.

If you recieve an income from anywhere, over a certain dollar amount, it is a taxable event. If your making income in SL, you should be claiming said income on your tax return. They shouldnt have to hunt you down and force you to pay, you should be submitting the information voluntarily since it is your civic duty to do so. MUAHAHAHAHAHA! Of course, losses can be written off, and business expenses such as the new version of photoshop ect. This may be a little diversion from reality for some, but its lucrative business for others. Betcha a nickel Anshe pays her taxes.

False. Barter rules. You know this, so please stop trolling.

And before anybody decides to switch the thread over to gambling:

Again, I say false.

I have asked around a little bit, while the people that I have talked to, who have the legal expertise that I trust, have told me that the L$ is only taxable once it is converted from L$ to another currency. They did admit that there is a somewhat gray area when it comes to this, but at this time they felt that the L$ has no value. Now, mind you, this is just what I was told, and everyone needs to consult their own lawyers and tax people, but to assume that they are just trolling is a little extreme.

It all really comes down to where or not the L$ has any real value. That, I am afraid, can really only be answered by the courts. Until that happens, just go with what your local lawyer tells you.

I was not aware that PayPal did that. Actually, I think that's pretty cool, and since I plan to report my 2007 earnings anyways that might be quite handy.

We don't have enough sales for that yet, but you can *BET* I'm gonna do that as soon as it becomes feasable

Like most companies, Linden Labs will simply relocate to India or China if any laws a passed that reduce their profit margin. It's inevitable.

It's not taxes on LL silly. It's taxes on us, at least those of us who are US citizens.

Hmmm...does just transferring money over to PayPal trigger the taxable event, or does that only happen when you transfer the money out of PayPal into your bank account?



If the income reporting is only triggered if you draw the money out of PayPal - buy your clothing on eBay and pay from your PayPal account?

IRS to search PayPal records for tax evaders.

According to the order, the IRS can review the bank and credit card accounts of PayPal members, providing they meet three stipulations.

One is that a "reasonable basis" exists for believing a person may have failed to comply with IRS laws. A second requirement is the investigation relates to a particular person. Furthermore, the information being sought must not be easily obtained through other sources.

PayPal, which received the summons roughly two weeks ago, is reviewing whether to provide the information, appeal the court order, or take some other action, Pires said.

She noted the online payment service has had a long working relationship with regulators and that its privacy policy states it may release members' information if required by law.



So I guess if the IRS wants to audit you, your paypal records will be included.

You'd only pay on earned interest, like any other bank. Not money that passes thru the account. That is separate and something you'd have to figure out on your own... since paypal just handles the money, not actually makes you any money.

I suspect the answer you get depends heavily on how the question is asked.

"Do I need to pay taxes on currency I accumulate in a game" will likely elicit a very different response than, "I'm part of a barter community. I exchange services with other members via a system of credits that can be traded for others' services, or for cash. Are the credits I accumulate classifiable as taxable income?"