Tax Season - SL Linden exchange to USD?

On the contrary - it is not my opinion. It is the opinion of nearly everyone on SL, except perhaps you, and Nigel. Further, no one has produced any evidence to support the idea that a Linden is an actual physical item with intrinsic value - all your "proofs" simply build assumption upon unproven assumption. You engage in the fantastical speculation that because something seems similar to currency, it must be real currency.

Birds fly into sliding glass doors, because the reflection on the glass appears to be open sky.

Mathematics have no opinion, Ricky. They are simply facts. You are, of course, free to pretend otherwise if you wish, and if your other posts are any indication, you will continue to do so.

AWM;
You are right about all the Taxation systems Not being considered. There is Canada's Goods and Services Tax (GST) It Has been described as a VAT Tax, though our Government Vehemently repudiates any use of that description because a VAT tax would be against Canadian Tax Laws, But then, that is the Nature of Government where they can Call a Cow a Chicken, and Make it Stick legally. It is a Tax on any object, or service rendered for a Financial consideration, and is applicable on All levels of a Products Manufacture. Every time a commodity changes hands, 6% of it's sale price must be paid to the government. Think for a Moment about How many times the GST would be applied between the time a Farmer Begins breeding Beef Cattle, to the time it reaches the store shelves as Packaged Hot Dogs. That's a LOT of Tax. IF they got it Into thier heads to go after Linden Transactions, you would probably see Less Canadians in SL.

Karen;
Great Information, But what areas does she declare as Income? At what point does her accountant treat her Linden Profits as(If any) Real taxable Money?
As for the deductions,, Under What Heading does she deduct them?
"General", "Business", "Entertainment" or "Other"?

Angel.

Actually, the Lindens hold the key to this debate.
Are they taxed on land sales and tier if the revenuses are left in game?
Are they taxed on USD revenues for L$'s that are paid for by account holders?
Are they taxed on transactions made in game by residents which increase Linden Labs market worth?
Do they pay taxes to all the governments of the World based on each individuals origin, or where there account is registered for the transactions made?

For my money, they are taxed corporately on the revenues generated that relate to the L$'s to UDS's exchange.. Profit.

I think Ricky knows tax law a lot better than you, judging by your way of arguement.
I also know some of it. Ricky is definitely right, and as soon as the tax authorities wake up, you will find out about that.
In some remote communities they also started using specific other forms of currency (their own coin for example). When the IRS found out, these "parallel currencies" were also taxed by their value.

Luckily I am in the Netherlands and it will be decades before the "belastingdienst" wakes up here

think of the Lindex/SLexchange like ebay.

you sold license tokens(?) to other interested parties (collectors).

I would ask your accountant if you should declare the full amount USD earned, AND the full amount USD invested, or do that subtraction first. You might be able to call the investment "Entertainment"

So essentially you're saying that Ricky's right, and the tax authorities and I are both blind to the truth?

That doesn't even pass a giggle test.

Ricky's statements are unproven assumptions, built one upon another. It is impossible to build a reasonable argument on that basis, let alone to prove the validity of the final conclusion.

So essentially you're saying that Ricky's right, and the tax authorities and I are both blind to the truth?

That doesn't even pass a giggle test.

The fact remains that virtual economic simulations use game points, which can be created, valued, devalued or destroyed at the whim of the game company. You might just as well say that the government is going to tax you because you have been making marks on a piece of paper you've been using to keep track of how many games of tic-tac-toe you have won today, because if you have more marks than your opponent, he owes you an ice cream - so that each mark is therefore worth some fraction of an ice cream.

But it is the ice cream that has the value, you see, the marks are just a way of keeping score. If you're going to be taxed, you're going to be taxed on the ice cream you received, not the marks on your paper.

Ricky holds that the marks themselves have value and are taxable - he holds that game points within Second Life are going to be counted by the tax man, point by point, and somehow we will all be responsible for paying taxes on game points, despite the fact that these game points can be created or erased at whim.

So if you're keeping track of your naughts and crosses games, and you see the tax man coming, quick - erase your pencil marks!!

At least for the next five years, this in-world transactions are barred from taxes. Congress has supported a "impractical" and "unjust" bias towards the effectiveness of taxes of such transactions.

The laws today simple protect the exchanges like of lindens to no monetary value. That doesn't mean they can't be used for monetary value.

It's like trading cards, do we tax kids every time they trade a pokemon, yu-gi-oh, or magic card? Pfsh.. seriously...

Can you sell those cards on e-bay and get money? Yes.

I believe the simplest way to value the appropriate taxes is the net return on your income from LL. If put in 500 and cashed out only 200... (200-500= -300) pfsh.. no taxes to claim because they were already figured on your gross household income... hence you're just playing.

However, if you put in 500 and cashed out 2000... I'm sure there is a spot for "extra income" on your taxes if it is over a certain amount... here 2000-500=1500 net income.

If you never cash out back into US dollar... there are no taxes to claim. Back to the trading cards idea... if you only buy cards... you paid the taxes already and the cards aren't taxable themselves.

Yes. That's because you are seeing it how you want to and have failed to quote any "authorities". The only authority is the IRS and getting a determination out of them is difficult and time consuming. Your accountant isn't authoritative, because no one yet knows.

You, however, may act in accordance with the way you think things ought to be. You'll probably not get caught.

I would challenge you, then, to find any IRS rule, definition or specification produced by the Internal Revenue Service which states that Lindens (and other systems for keeping track of game points) are currency. I cite no specific sources or specific statements to that effect simply because they are none to cite.

You appear to be claiming that this and such a thing is true, simply because you can find no authoritative statement to the contrary.

The fallacy in your argument is that you ask me to disprove a negative, which as anyone knows is impossible.

Of course I won't get "caught" - and no one else will either. There is simply nothing to be "caught" at.

Unless, of course, you get cash payments from Linden Labs and fail to declare that as income. You may get caught doing that.

I would challenge you, then, to find any IRS rule, definition or specification produced by the Internal Revenue Service which states that Lindens (and other systems for keeping track of game points) are currency. I cite no specific sources or specific statements to that effect simply because they are none to cite. The IRS itself has never even considered the question - all the news reports to date center around the activities of a small group of congressmen trying to make headlines to keep their names in front of the media.

You appear to be claiming that this and such a thing is true, simply because you can find no authoritative statement to the contrary. I might just as well claim you will be able shoot fireballs from your fingertips at some point in your life, because I cannot find anyone who can state authoritatively that you will never acquire this ability. How foolish this sounds!

The fallacy in your argument is that you ask me to disprove a negative, which as anyone knows is impossible. My arguments, on the other hand, are based solidly on researchable, identifiable fact, without having to fudge the facts regarding virtual currency systems to support my thesis - unlike those who have set forth the unsupportable notion that simulation of objects and currencies are indistinguishable from real ones, and so therefore, virtual money functions identically to real money.

Therein may lie the problem - these people may actually be incapable of distinguishing between their fantasy lives and the waking world, and so present arguments that assume them to be one and the same.

Of course I won't get "caught" - and no one else will either. There is simply nothing to be "caught" at.

Unless, of course, you get cash payments from Linden Labs and fail to declare that as income. You may get caught doing that.

They aren't currency, they are income but I expect that's too subltle a distinction for pinheads to understand.

I really had to work like 0.5 minutes to bring you 26 U.S.C § 83. Can you make your next challenge slightly more challenging?
Looks like a definition to me.

This definition hinges on "fair market value" and "property" as having been established as valid concepts within a simulation of reality - these concepts have already been soundly disproven in this same thread.

This quotation does nothing to refute my earlier statements that virtual currency and property do not have legal standing as real currency and property, and until you find something that does, you're not going to make much headway.

Oh, and thank you for resorting to low insults as part of your argument - these are usually the last resort of a participant in a debate who is completely out of ammunition, and now everyone can see that clearly for themselves.

Point well taken. Thanks.

As secondlife becomes more mainstream, L$ will be considered taxable before it's cashed out.

It's the only reasonable conclusion, otherwise we could setup this whole economy in SL that's completely invisible the government.

Imagine - I pay you for hosting, graphic designs, accounting, law, etc - all with L$. I run an entire business and at the end of the day, the only thing the government sees is the net result on my tax form as income.

You'll get audited more often than not if you're making any serious coin.

The government is going to want to know why you're not spending any money on marketing, employee wages, hosting and all the other myriad business expenses that your paying for with L$.

As it is now, I get a bit nervous doing my taxes and filling in those numbers with big fat 0s. It's getting to the point that I'm trying to figure out how to pay with $ rather than L$ so my numbers don't look weird.

I still don't see how the laws of any country can *automatically* apply beyond the physical area of the that country's boundary when those boundaries a specify a real physical property line.

You may see on your end the final appearance of the computerized reality on your screen that exists in some country's boundaries, but that does not automatically mean that what you see also is fully under the laws of that country. It's like taking a photograph of the moon and bringing it to the US and declaring everything on the moon as under the US law because you can see it in the picture in the US.

The problem is not just the linden asset but the fact that there is no physical property in these transactions.

However, there is real community.

*sigh*

Is it that you're incapable of understanding the arguments put forth against your position, or simply unwilling to admit you're wrong?

At this point, it really feels like you're just being deliberately contrarian.

So far, nobody has submitted any compelling arguments that show that virtual currency or virtual objects have any value whatever. I'm perfectly willing to listen to reasonable demonstrations of logic showing that virtual objects have equal standing with real ones under the law, but so far, no one has demonstrated anything remotely approaching such a proof, nor has anyone presented anything more than the uninformed speculation of public servants and the media - both of whom have an interest in sensationalizing the issue to suit their own ends. Note carefully the word "speculation" - there have been no unimpeachable sources of information supporting your claims. Not a single one.

We have seen a great deal of misdirection on this issue, based mostly on wishful thinking, flawed logic, or both. But so far, no demonstration of fact.

I understand why you might think game points are money. The illusion created by the simulation can be very compelling, and people who are deceived by this can hardly be held accountable. Do not pretend, however, to present simulation as fact. Discussion of the real world and one's real world responsibilities under the law demand more than such diversions from the truth.

To present such unsupportable ideas as fact only victimizes people by making them afraid of some vaguely defined boogey-man, and does nothing to advance the virtual society - the people in that society, after all, being the only real component in any of this.

I've presented several example demonstrating why virtual currency plainly has value. You just seem to conveniently forget that.

The standard argument:

o The right to use my IP has value.
o The right to use your IP has value.
o By existing taxation rules, if I trade the right to use my IP in exchange for the right to use your IP that is a taxable event, since each end of the transaction has a fair market value.
o Therefore, if I trade the right to use my IP for tokens, which I then trade to you for the right to use your IP, that transaction must also be taxable.
o How much tax do I have to pay? Fair market value on the chits received. That can be determined using the average Lindex exchange rate for the day the transaction took place.

If L$ were not taxable, it would mean that simply by using an intermediary scorekeeping method ("L$", a taxable event is magically transformed into a non-taxable event. That is simply not the way things work.

I'm under the presumption that you have believe there is an automatic tie of IP and virtual land to any particular law. However, Most lawmakers have defined law *around* IP and other concepts of the mind. The laws are unable to actually define IP and other concepts of the mind. Therefore, I believe your arguement about saying "incapable of understanding" is quite ideologically narrow towards the ambiguity of *any* concept of the mind and *any* IP. This should be self-evident by now.

And, a general rule is not a law but it is how one may apply law.

Until there is more specific laws to handle such transactions, I suggest to follow the laws of foreign exchange on currency. I don't think you can go wrong there.

For the sake of argument, we'll assume this much is true for this message.



By whose taxation rules?

What is to say that the IP actually exists in the (lets-say) US where the taxable event would occur by the US?

What is to stop LL from colocation servers to other countries where the trade actually happens outside of the US? Why would it be a taxable event inside the US when the trade actually happens outside of the US?

There was too much assumption to your "standard argument" that the trade *only* happens in one jurisdiction and in no other.

That should be self-evident by now.

We've covered this point exhaustively, Ricky - if you trade your IP for Lindens, and then do nothing with the Lindens, no transaction has taken place. It is only when you convert the Lindens to dollars that the value of your IP is established. Until then, you have simply given your IP away for something inherently worthless, that a careless database operator could simply delete. Once your game points are converted into dollars, then your transaction is complete - you have traded something of value for something of value (in this case, play value within the Second Life online service - the buyer does not get to keep your IP, and is using a representation of your IP, not the IP itself).

Trading game points for dollars with other players does not make the game points money, nor do the game points have any intrinsic value. The critical participant is Linden Labs, from whom the service is being bought, and from whom you actually receive your value. No other entity can give you the value that the Lindens represent except Linden Labs, and that only in the form of a service which you are purchasing. The "transaction" is reduced to the simple one of you paying dollars for play value, or converting unused play value back into dollars.

You assert that two people exchanging intellectual property of a determined value is a taxable event. I do not dispute this. However, such an exchange is impossible in Second Life if the value is estimated purely in terms of game points.

Intellectual property only has real, calculable value when it is realized, i.e., when you can create an individual, unique object with it, as we have already established. Unless and until it has been realized, digital copies can be made ad infinitum - what is the value of an object wherein an infinite number of copies can be freely made? Obviously, no value whatever. What then is your intellectual property worth if its value is calculated entirely in terms of virtual objects? Just as obviously, the answer is "nothing".

It is only when the game points have been converted into real world dollars that the question of value can even be discussed. Your example of exchanging goods or services in SL for dollars simply proves that dollars can be used to purchase play value in SL, not that the game points have value in and of themselves.

Your last statement is a nice try, but you ignore the basic truth of the value of a Linden - that it is a measure of game play, not a currency. The taxable event in that case is on the side of Linden Labs, because they have received your money in exchange for a service they provide. If you cash in your game points and receive cash in exchange for unused services, that is your taxable event. The fact that you can buy and sell play value from and to a game company does not magically give that play value the property of being currency. One might just as well claim that laundry tokens are currency, legal tender for all debts public and private.

In point of fact, the only taxable event that can occur is between the users of Second Life and Linden Labs itself. Transactions involving real world currency but negotiated in Second Life are, in actuality, real world transactions and have nothing to do with game points.

The IP that exists in SL and other metaverses really do take space. Their state is saved, even if temporarily or transitional, in a physical location. Yes, that physical location can be wiped clean even if by accident.

However, the real IP is of the mind. You can still recreate the object. You can also probably trace it down to its origins and claim ownership for a DMCA case if you wanted to even if it doesn't exist anymore in SL or in any metaverse.

In that sense, even those may seem like "virtual objects," "virtual land," and "virtual currency," but they still carry *real community*. At that point, its not really virtual anymore. That is what I believe confuses most people about these transactions.

Your point is well taken, and I agree.

The virtual nature of Second Life does reduce the idea of commerce to one of the exchange of concepts, not actual goods - the currency, of course, is also merely a conceptualization of currency, following suit. Intellectual property does carry real community, as you say - though now that all the other arguments have been stripped away, it is clear that IP is the only thing that is real in the entire conceptual system.

The value of virtual objects has been a repeated subject of debate in the United States judicial system, and it always boils down to not being able to clearly identify where a virtual object exists. Is it the information on the disk? No, that is just magnetic patterns which may be deleted, overwritten or copied without limit. Is it the picture on the screen? No, that is not the object, it is just the picture of the object. Paraphrasing Ayn Rand, there is no "there" there. This basic truth has been the guiding rule defining value of virtual objects. Only the intellectual property, which can be expressed as something other than a magnetic representation, can be made tangible and has value. The rest is fiction.

Yep, that's why all the RIAA cases are being summarily tossed out of court, it's only bits, on teh internetz!Well, the quote is actually Gertrude Stein, but that you've got Ayn on your mind is quite the telling Freudian slip.