IRS taxation of online game virtual assets inevitable

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More problematic, LaPiana said, would be laws that require estate administrators to take on responsibility for the proper transfer of assets to beneficiaries. Because most virtual assets are locked behind password-protected accounts, it would be incumbent on the administrator to try to figure out how to get access to those accounts.

"Whoever is going to run your estate...has an absolute obligation to collect all your property and make sure that it goes to the (proper) people," LaPiana said. "How do I make sure my trustee has access to this stuff after I die? These are all problems we're going to have to face."

Next up, Texas Tech University School of Law tax professor Bryan Camp addressed Dibbel's question with a warning.

"Be careful what you ask for," Camp said, "because tax is always behind the corner. Tax is the shadow life" to many issues.

Camp said that that section 61 of the U.S. tax code, a 1913 provision, stated clearly that all income, "from whatever source derived," is taxable.

Thus, the question of whether the transfer of virtual assets is taxable boils down to determining if there is a profit afterward.

As an example, he explained that if two people were to exchange copies of books, one of which is worth $30 and the other worth $24, the person ending up with the more expensive volume would have acquired $6 of taxable income.

Another example, he said, was Kyle MacDonald's much-publicized quest to trade up from a red paper clip to a house, which was ultimately successful.

"He has massive tax issues," said Camp of MacDonald. "He started with (the value of) a paper clip and ended up with (the value of) a house."

MacDonald is Canadian, though, which puts him under Canadian tax law, which Camp did not address.

His point is well taken, though: in determining tax liability--regardless of whether the IRS would likely try to collect--it is necessary to figure out how much profit has derived from a transaction.

However, Camp also said he is working on a legal journal article in which he will argue that at least some profits from transfers of virtual goods are not taxable.

For his part, Miller--who spoke last on the panel--said the Joint Economic Committee is expected to produce a report early next year that will address three goals.

First, he said, the report will address the areas, such as tax, cybercrime and education, where virtual worlds connect with public policy and will therefore educate the committee's staff members about such issues.

Next, the report will seek to identify future uses of virtual worlds, including those by commercial, nonprofit and governmental bodies.

And lastly, the report will specifically investigate the tax issues raised by virtual worlds.

"We will look at factual technical questions," Miller said, "like what is a taxable event in a virtual world."

And that's where the answer to Dibbel's question is likely to come into clear focus, he suggested.

"The key takeaway for the people" at State of Play, Miller said, "is that congressional and IRS interest in this issue is simply a matter of time."

[swethago]

It is kind of weird on the US government part to feel that people tend to become rich and earn money from these games. I spent so much money so that my nephew can play online and now tax would seem to be tough.
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[Trident420]

Ooooh. can I list all my toons as dependents?

Brilliant. It'll be better than a housing credit.