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RE: 1040 Tax Form Crypto Questions

in #irs • 6 years ago

The taxable event occurs at the time it is earned, in your example when the MMOG is sold. It doesnt matter when the currency is swapped for dollars. At the time of sale, the currency value needs to be converted into USD for tax purposes (although still could be held in the game's currency).

This is presuming the kid did not set up a business which the MMOG was under. If that was the case, a completely different part of the tax code would apply.

6 years ago in #irs by
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     6 years ago (edited)

    It may not be that simple.

    The Tax Resolution Institute had this to write about income earned on MMOG's (Massive Multiplayer Online Games) on June 30 2013:

    At the request of Senators Max Baucus (D-MT) and Orrin Hatch (R-UT), Congress’s U.S. Government Accountability Office (GAO) just wrote and filed a 23-page report on the tax implications of earning gold in MMORPGs. Titled “Virtual Economies and Currencies,” the report focuses on buying, using, and selling virtual currencies like WoW gold. The key point in the taxing World of Warcraft plan for WoW players is that the in-game economy is a “closed-flow system” where a player can’t exchange gold for U.S. dollars. As a result, most players will never need to worry about claiming those 177 gold pieces and diamond rings earned from completing a quest on a 2013 income tax return.

    If, however, a player chooses to sell accumulated WoW items through a third-party exchange, then that player “may have earned taxable income from the sale of these virtual goods.” Selling such assets and currency is against the game rules, but such rules are seldom enforced by Blizzard Entertainment. Players do it all the time, and it has become a big business. Several players reportedly earn a large percentage of their outside income through such sales. The Internal Revenue Service is going after this tax free income.

    With Diablo 3, it is even more complicated because such exchanges are allowed. With an “open-flow system” at the heart of the game, a player can easily exchange in-game currency for real-world money. A player cashing out of Diablo 3 “may have earned taxable income” that should be reported to the IRS. As a result, the U.S. Government Accountability Office (GAO) has instructed the IRS to go after such forms of income tax evasion. If you think you could be in trouble, please take action before it is too late. Contact the Tax Resolution Institute for a free consultation by calling 818-704-1443.

    https://www.taxresolutioninstitute.com/taxing-world-of-warcraft-income-taxes-online-gaming-diablo-irs/

    The tax authorities of some other countries have clear rules in place for taxing MMOG income. For example, in Finland, income earned by selling assets in an MMOG is only considered taxable when it is swapped for fiat, goods or services, or virtual currencies external to the platform in question:

    Section 2.7 in the following guidance settles the matter:

    https://www.vero.fi/en/detailed-guidance/guidance/48411/taxation-of-virtual-currencies/

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