Taxpayer Advocate Advocates Taxes

Katherine Mangu-Ward | January 12, 2009

Meet Nina Olson, official IRS Taxpayer Advocate. Hi Nina!

Her job is to recommend to the IRS "how to improve the average consumer's tax-paying process."

So what is she doing to improve the tax-paying process? Why, she want to start extracting tax on the money people are earning selling avatar halter tops and hairdos in the online worlds like Second Life.

In her annual report she noted:

more than $1 billion changed hands in RMT [real money transactions in online worlds] during 2005, and that more than 16 million participate in virtual worlds "many of which have their own virtual economies and currencies."

Actually, this is probably a good thing. People who make part of their living in online worlds are currently operating in an uncertain legal environment in a variety of ways, and this will (legally, if not socially) make entrepreneurial avatars more legitimate.

For more on life Second Life, go here.

Comments

LurkerBold|1.12.09 @ 4:43PM|#

This only makes sense. Taxes pay for everything: policemen, trees, sunshine, and don't forget the people who just don't feel like working, God bless 'em!

sage|1.12.09 @ 4:45PM|#

Was one of the job requirements to have a face like a frying pan?

|1.12.09 @ 4:45PM|#

As a run-of-the-mill cash-basis taxpayer, if I convert in-game money to real-world cash, that cash is income, and I'm technically obliged to report and pay taxes on it.

It wouldn't be unreasonable to argue that I could offset that income with expenses associated with earning it, such as my game subscription.

Any effort to tax in-game "profits" makes no more sense than taxing appreciations in the value of your wine cellar, baseball card collection, or beanie babies. I suppose we'll soon see those initiatives too.

|1.12.09 @ 4:55PM|#

The instant virtual currency gets converted into cash, its income, so I'm not sure what she wants.

It it is to collect a tax on fake money, good luck with that bit of stupidity. I'm sure the IRS really want's to have to deal with a the supplementary schedule detailing some EVE corporations spending on asteroid mining equipment, or amortizing the cost of that epic flying mount.

|1.12.09 @ 4:59PM|#

it's not the irs who would have to deal with it it's the taxpayer

the irs isnt the one who goes to jail

|1.12.09 @ 5:01PM|#

Actually, this is probably a good thing.

You're kidding, I hope. It's not for the IRS to sniff out new ways to rob us. That's the congress's job.

-jcr

|1.12.09 @ 5:02PM|#

if I convert in-game money to real-world cash, that cash is income, and I'm technically obliged to report and pay taxes on it.

What about the money you spend on the computer, the network service, the subscription to the game, etc? Do you deduct all of that?

-jcr

|1.12.09 @ 5:04PM|#

Yea, that doesn't make alot of sense.

If they are taxing virtual money, does that mean they won't count it as income when it gets converted into conventional money? Or will they engage in double-taxation?

The Angry Optimist|1.12.09 @ 5:13PM|#

Um, folks? She isn't saying anything about taxing virtual money. She isn't even advocating adding one page to the tax code:

She's suggesting that the IRS issue guidance addressing how taxpayers should report these kinds of economic activities…it [ed: the suggestion] regards how sellers report it as income, so it doesn't need a new chapter of the tax code per se.

So, yeah, guidance on how to report RMTs on your form. So when KMW writes this:

she want to start extracting tax on the money people are earning selling avatar halter tops and hairdos in the online worlds like Second Life.

What she really means is "Olson wants to issue guidance to people who earn income online on how to report that income on their taxes...because it's friggin' income."

|1.12.09 @ 5:18PM|#

Will Second Life send you a virtual 1099?



*On a more sober note, I am currently trying to get the IRS to rectify their compounded errors on a return from several years ago. A representative of the Taxpayer Advocate's office has recently entered the picture. I hope the "taxpayer advocate" doesn't operate under the same rules of engagement as the Ministry of Love.

|1.12.09 @ 5:23PM|#

This is going to make for some pretty crappy IRS property seizure auctions.

|1.12.09 @ 5:24PM|#

>What about the money you spend on the computer, the network service, the subscription to the game, etc? Do you deduct all of that?

It would be logical to deduct the subscription, and maybe things like eBay fees for auctioning off your booty, the same way you factor brokerage fees into your capital gain. Deducting hardware and other expenses less specifically devoted to the game would probably come under existing "in-home office" regulations.

If Olson is really just thinking of clarifying these existing issues, then I guess it's not unreasonable (or no less reasonable than the tax code generally). My suspicion, though, is that they want to get at "in-game wealth" generally, which is absurd.

|1.12.09 @ 6:39PM|#

Fallen Sword Points (FSP) are sold for real money in the on-line game Fallen Sword.
FallenSword RPG - Play online now free!

A player can also buy FSP's with gold earned by playing the game. Since the FSP do have monetary value I wouldn't be surprised if the IRS tried to tax a person for FSP's bought with gaming gold.

Hugh Akston|1.12.09 @ 6:53PM|#

This is one more reason to switch to a flat tax or national sales tax scheme.

Angie|1.12.09 @ 10:09PM|#

I wish the terroists on 9/11 would have flown the planes into the IRS building.

WoWGold|1.13.09 @ 12:03PM|#

I wonder how are they going to do it? Taxes being paid in WoW gold or ffxi gil, perhaps? :P

Let's wait and see...

|1.13.09 @ 2:28PM|#

I wish the terroists on 9/11 would have flown the planes into the IRS building.

I'll give you the benefit of the doubt and assume that this is either a joke or a lesser-of-2-evils type statement.

|1.13.09 @ 3:29PM|#

The instant virtual currency gets converted into cash, its income, so I'm not sure what she wants.

She wants more of your fucking money, and she wants it now. This isn't rocket surgery, folks.

|1.13.09 @ 7:21PM|#

This isn't rocket surgery, folks.

Indeed, it's not rocket surgery.

For that matter, it doesn't require an understanding of the physics of brain propulsion either.