Can the IRS Tax Virtual Profits in On-Line Gaming?

Interesting article in this month's Legal Affairs, Dragon Slayers or Tax Evaders? Buying and Selling Imaginary Goods in Computer-Game Worlds Is Big Business. Now Let's Figure Out Whether Gamers Should Pay Real-World Taxes on Virtual Treasures, by Julian Dibbell.  Here is the opening:

If you haven't misspent hours battling an Arctic Ogre Lord near an Ice Dungeon or been equally profligate spending time reading the published works of the Internal Revenue Service, you probably haven't wondered whether the United States government will someday tax your virtual winnings from games played over the Internet.

We previously blogged the issue in:

• Virtual Taxes: The Next Frontier in Virtual Property Rights in On-Line Gaming?
• Virtual Games, Real Taxes

CNET has an interesting post on the subject, The Tax Man Cometh, Online:

You know all that gold you stored up playing virtual world games online? Someday soon, you may have to hand a chunk over to the IRS. An article in Legal Affairs considers the concept of whether virtual goods won in massively multiplayer online games are taxable.

There are already established economies for buying and selling goods won online for real dollars. So it's not that hard to put actual values on goods won through the games. Legal Affairs writer Julian Dibbell decided to test the tax question by reporting income he made from selling virtual goods on eBay. Then he began querying the IRS on the value of the goods he hadn't sold for hard cash: If he bartered another player for a Golden Runic Hammer, for instance, would he have to pay taxes on the value of the hammer? The IRS didn't come up with a final answer ("That's so weird," one official said.) But given that the agency already taxes things like the value of stolen goods, can a virtual tax man be that off?

See also:

• Tax Policy Blog, Taxing the Video Game Economy
• Ars Technica, Are MMORPG Goods Theoretically Taxable?
• Sond & Fury, Signifying Nothing, Virtual Taxation
• Kotaku, The IRS May Be Coming for Your Virtual Wares