You discover Linden Lab's Second Life virtual world web site, create your avatar, give him a full head of hair, and pump up his physique. You wander around Second Life for a while and then open up a virtual shop, selling creative and entertaining gizmos. Other avatars pay you in Linden Dollars (L$s), and you begin to turn those L$s into US dollars through a PayPal account. Business is great, and the Linden Dollars are rolling in. Good times.
Second Life's virtual transactions average between $1.2 million and $2 million per day. Approximately 70,000 people access the site daily. Some folks, through their avatars, have made enough money through their Second Life occupations to quit their real jobs and work all day online.
Congress and the IRS have noticed. They're trying to figure out what's going on and whether or not there's enough money involved to be concerned about possible tax fraud. Given Second Life's steady growth rate and its increasing virtual economy, Second Life and other virtual worlds will probably become the subject of new tax rules in the near future.
The current rule of thumb is that L$ income becomes taxable income when it turns into liquid US$. In other words, if you sell five hundred gizmos for L$25,600, you can turn the L$ into US$100. When that $100 hits your PayPal account, it is taxable income.
The IRS wants its share. Prudent real life beneficiaries of these enterprising avatars will make sure the income is reported to the Service.
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1 comment:
What kind of taxable income would it be, though? I mean, is it considered prize money, tips, or what kind of taxable category?
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