Saturday, January 21, 2006

WHEN WORLDS COLLIDE: Tax implications of real world income from sale of virtual goods

Sale of virtual goods could have real-world consequencesLast year I reported on how conflicts arising from interactions in virtual worlds have become the subject of study by scholars in the fields of online dispute resolution and law. It is not only conflict, however, that virtual activities can give rise to.

Clive Thompson at Collision Detection recently posted on the efforts of Julian Dibbell, journalist and observer of digital culture, to learn what tax implications, if any, could arise from the $11,000 he earned selling on eBay the virtual items he won playing an Internet-based, multi-player game, Ultima Online.

In entertaining detail, Dibbell describes here on Legal Affairs his quest to get answers from the Internal Revenue Service. As it turns out, we’ll have to wait a little longer for the answer: not only was Dibbell thwarted by the $650 fee necessary to obtain a letter ruling from the IRS, but he was not exactly eager to be the one to break new tax ground. Who, after all, would want to be remembered as the guy who opened the gates of the virtual kingdom to federal tax officials?