World of Warcraft at Ten Ton Hammer

The 2008 Tax Report to Congress states a few things that might make players of World of Warcraft or many other online games cringe. The report talks about taxes and the virtual worlds. For the most part, one would assume this would be limited to RMT trades, but this report would indicate this may not be the case. This could make the possibility that congress may one day tax our virtual items as wealth a real possibility. This has been discussed a lot in the past, but the idea seems to be gaining momentum.

Why might a taxpayer be confused about whether transactions involving virtual property should be reported as taxable income.

Income, broadly defined, is subject to tax.
Although the IRS has not issued any guidance directly addressing these difficult questions, a person is generally taxed immediately upon “all income from whatever source derived.”32 Income is defined broadly as any “undeniable accessions to wealth, clearly realized, and over which the taxpayers have complete dominion.”33 Moreover, a person is generally subject to tax upon finding or earning money or treasure, winning a lottery, prize or award, stealing property, or trading one piece of property for another, potentially leading some to

While some of us may find the thought of having our equipment taxed laughable, the sad truth is it could really happen. Congress is always looking ways to bring in more revenue and our little virtual worlds might be next. Could being uber put you in a higher tax bracket? There have been some questions brought up about this sort of thing that may work for the regular player or against them. I mean, if Congress had to choose whether to tax something or not, they might side with regular gamers not making any money off the stuff. Right? Ok that was a stupid question.

What are some of the tax issues that virtual worlds raise?
Virtual world transactions raise a number of tax questions. For example, is a person subject to tax each time he or she acquires virtual property? How about when the person exchanges one virtual property for another, or for virtual currency? How about when the user sells the virtual property or his or her account (and avatar) for real money? What, if any, information reporting, withholding, backup withholding, and recordkeeping requirements apply to these transactions? Similarly, difficult questions may arise in connection with the tax obligations of virtual world operators.

You have my thoughts. Read the full report and tell us what you think on our forums.