[MUD-Dev] Are gold pieces taxable?

[Thomas Leavitt]

From: "Koster, Raph" <rkoster at soe.sony.com>

> From Julian Dibbell's blog:

>   http://www.juliandibbell.com/playmoney/index.html

> start quote--->

> OK, so I realize I'm getting ahead of myself here, but what exactly
> do I tell the IRS next April?

This poses interesting questions...

Should eBay income from the sale of items in a game be taxed as
ordinary income, or capital gains (and how would the base value be
calculated)? If Joanne's husband Bob has been playing his game since
1995, and acquired some piece of property in 1996 that she inherits
and sells on eBay for $10,000, does she pay ordinary income tax, or
list this as a capital gain (and can she then deduct all game fees
from the gain)? What if his character has a virtual business, and
the value lies in that? If her assets exceed the estate tax limit,
does she have to pay taxes on it's fair market value?

If I spent eight hours a day on-line, and earn some amount from my
gaming activities, can I take a home office deduction on my taxes?
Can I write off the cost of my computer against my earned income?
Monthly game fees?

Extend this... I trade Bob a web site design (fair market value,
$1200) in return for various favors and services he performs for me
in the game... is that a taxable transaction? Seems likely... so:
what is the difference if we do so within the game itself? Or, if I
pay Bob $G24,000 for his services (where the fair market value of
$G1 is $0.10US on eBay)... is that a taxable transaction?

Logically enough then, if the company records $G20 billion in
exchanges during a particular year and $G2 billion is in circulation
within the game, does that obligate it to record a $200 million USD
asset on its balance sheet for currency value (and potentially
several billion in other non-"cash" "capital" assets?), and issue
also $2 billion worth of 1099-Bs?

How about locality? Where did these transactions take place? Who
gets to tax them? If the server is co-located in NYC, does that
obligate me to pay NYC income taxes? How are transnational
transactions accounted for? Could a game company get a tax bill from
20 different countries?

Can a virtual nation declare itself independent... ? :)

Regards,
Thomas Leavitt
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