August 27th, 2007 by Benjamin Duranske
3pointD.com reports that MindArk’s Chief Information Officer, Marco Behrmann, met with members of the U.S. Congress Joint Economic Committee and the U.S. Internal Revenue Service earlier this month to discuss the taxing of income generated in virtual worlds and MMO games. Mindark is the company behind Entropia Universe, a virtual world / multiplayer game with currency pegged to the U.S. dollar. 3pointD observes, “Congress has been looking at issues of taxation related to virtual worlds since at least last October, and the Joint Economic Committee is long overdue with a promised report.”
It is interesting that it was Mindark’s Chief Information Officer who met with government representatives, because it implies they wanted to talk about the mechanical nuts and bolts of money transfer and extraction rather than ask general questions about finances. To me, that’s a hint that the government may be further along with an enforcement plan than I suspected.
I’m not a tax lawyer, but everything I have read on this leaves me completely convinced of two things: 1) you own tax on profits you make running businesses in virtual worlds, at least at the point when you extract money from the world, and 2) the IRS is going to start enforcing this, maybe by requiring virtual world and game providers to issue 1099 MISC forms on withdrawal of profits above a certain threshold, relatively soon. Anybody out there with a tax background want to weigh in?
My advice: if you are making money in virtual worlds — and particularly if you are making significant money — you should already be keeping records and paying taxes on the profits just like you would for any other business. If you aren’t, now is an excellent time to start.
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