Can the IRS tax Warcraft transactions?

[EvilAndrew]

I heard this on NPR.  It is not as far-fetched as you might think.  The IRS requires people to pay taxes on traded goods as well as sold ones.  This keeps businesses from avoiding tax liability by trading things that are a good as money (such as stock or usage credits) for real property.

So in the story’s hypothetical, if an artist trades some artwork to a plumber for repair service then both parties should pay taxes on the transaction.  

In the World of Warcraft (WoW), trades happen all the time.  People trade weapons and WoW Gold, and even services (â€Ã...“help me beat this dragon and I’ll give you some gold.â€Ã,).  No one would care because it is just a game, except that people have figured out how to make â€Ã...“realâ€Ã, money from WoW Gold on e-bay and other services.  When this sort of transaction happens taxes must be paid, but it also introduces a new twist.  If WoW Gold has an equivalent US Dollar amount then all items in WoW suddenly gain a real-world value.  

Julian Dibbell (from the NPR news bit) actually called the IRS to see what their ruling was.  The last person he talked to said that she could not provide a definitive answer, but that the consensus of her co-corkers seemed to be that WoW trades are taxable and that â€Ã...“awardsâ€Ã, earned by completing quests are also taxable.  At this point Julian Dibbell stopped pursuing the matter for fear of the outcome.

Digg link (it will make the front page soon, I bet). - I could be wrong.
NPR Story

[Shaun Martin]

I read an article about the economy of online games.  There was a stat in there stating that EQ had a higher GNP than Russia.

[Bryan]

But if game items and trades have a real world value and can be traded, would older board games such as Monopoly also apply?  I can remember many a time when I traded BoardWalk with 2 Hotels for 1/2 the board...

[EvilAndrew]

For logistical reasons I suspect that the "real" value of the transaction must exceed a minimum.  For example, (I don’t play WoW so forgive my inaccuracy) if 10,000gold is worth about 1$ and the IRS sets the min transaction value at $200 (also a number made up on the spot) then only a trades of 2Million gold or higher would be taxable.  Since you can buy the whole game of monopoly for $20 it is unlikely that you could manage to make a $200 Monopoly trade in the game.

The other problem with the Monopoly example is that the owner of the board game keeps the money at the end so no actual trade happened.  On the other hand, if you play (Monopoly or any other game) for real money and you win then you need to report that on your taxes.

[raptor]

Man,

When it comes to the IRS, if they don't ask,,, I don't tell !

Scott

[David Falbe]

The terms of service for World of Warcraft as it stands now prohibits selling any of the in virtual goods and services for real cash. Most worth while items in World of Warcraft or other MMOs are usually bound to the player that found it so cant be traded. However that doesnt stop people from selling gold or various other crafted items for real money. I know accounts in WOW have been shutdown for selling and buying ingame currency with real money. Games like Everquest and Everquest 2 on the other hand promote the transactions.

I think if this ever became an issue, it will probably be on a game by game basis and whether the game itself promotes or prohibits out of game transactions.

[D-Mill]

Maybe we should ask the developers what they think about it. As we all know, Blizzard and other game developers are TOTALLY against real-money trading (RMT) and should the IRS start taxing wow gold trade with real-money then that would mean that THE government recognizes and acknowledges the whole RMT activity. This would mean that RMT isn't illegal and that there is nothing wrong with it - something that I'm sure most devs wouldn't agree to.

Whatever happens, this would surely make for an interesting decision. 

vs 

[Mark Sands]

this is a 3 year old thread.. let's try and avoid old threads :\

[Bryan]

I saw this thread and thought "man, I seem to remember a thread just like this."  Then I noticed that I'd already replied to this threat.  Blast from the past strikes again.