Tuesday, November 07, 2006

The IRS wants to tax your Mobuls (or Lindens, or whatever):

The IRS is making noises about taxing the money people make playing online games like Second Life and World of Warcraft. Unlike fungible property in the real world, game-worthy items and currency have no true value until they are actually cashed out. (Okay, in the real world, real estate is like that too.) I expect any attempt to tax game profits will produce wildly unintended results, and little revenue. But the IRS employees who are detailed to enforcing such collections (instead of wasting their time uncovering scams by rich people, say) will have a good time online.

The problem, as I see it, is that income tax collection in the real world is made possible by extensive laws, customs and tracking mechanisms that just barely work. In made-up online worlds, where normal law hardly applies, it will be much easier to set up tax dodges, gray markets, money-laundering operations, and other mechanisms to make the value of money hard to track or count. And I'm sure the people who program these games will help the players to hide wealth, perhaps even to the extent that these games become a way to hide real world wealth from taxes.

I look forward to a tax evasion case in which the IRS insists that to some extent, the online game is governed by real world laws and therefore taxes are due on wealth; but in certain other respects, the game is fantastical and the defendant is not entitled to a depreciation credit for his middle-earth mithril/silver mine, or his support of, oh, say, an asylum for homeless orphan dwarves. Stay tuned for the ridiculous...
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