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Pamela Galli

New Tax policy??

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Here is the post:  http://community.secondlife.com/t5/Commerce/Required-Tax-Documentation/ba-p/2336109

 

What  I dont understand is exactlywhat they mean by "transactions" -- sales?  Sale of Lindens?  Cashing out to Paypal?  Because I always thought what the IRS cared about was how much case you pulled out of SL -- and that Paypal did the reporting to the IRS. Is this something LL dreamed up because they are confused and dont know that they are duplicating the Paypal reports, because I cant tell.

 

 

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I first ran into the in connection with Kindle Direct Publishing and Amazon. At the basic level, it's US tax law, and Linden Labs can't get out of it. It surprises me a little that they seem to have done so for so long.

For people in the USA is seems relatively simple. You fill in the form, including your SSN, send that to Linden Labs, and they deal with any tax-witholding and it gets applied to you tax liability. (OK, it isn't so simple, but it does mean the tax is paid on your behalf toi the IRS.)

For the rest of us (and this is a quick and dirty answer based on my experience as an author), not US Citizens, you need to apply for a TIN, through your local US Embassy, and if your country has a tax treaty with the USA you don't pay tax in both the USA and your country.

WARNING

The process of getting a TIN is not quick. If you wait for the notice from Linden Labs you may not be able to meet the 30-day deadline. (Amazon/KDP requires the TIN to be issued before you even start publishing an ebook.)

 

If you're a Land Baron of oriental ancestry the hassle of getting a TIN is a minor cost of doing business. If you're like me, my likely earnings, Kindle or Second Life, just aren't worth the effort. (I know authors who sell "real" books in significant numbers, and my country's tax authorities seem set on making the process harder.) I've been in real-world business, and I've handled the paperwork. It's not so much a fear of the unknown as a feeling that my sales are never going to be worth the hassle of dealing the Linden Labs, the Marketplace, and two sets of tax collectors.

 

CAUTION

I am not a lawyer or accountant, and even if I were I would have to warn you that this cannot be taken as formal advice on the law.

 

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It looks as if those U.S. citizens who submit the 1099, LL does not withhold taxes and it's up to you to legally prepare your taxes. That's not really a new concept in and of itself.

 

I would guess, and the above should be remembered about consulting a tax attorney and or CPA, what is reported are US dollar transactions only. Linden cashed out to dollars.

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As usual that blog post is as clear as mud. 

I would imagine it refers to cash out transactions, otherwise tons of people who work for tips or sell stuff but never cash out have over 200 transactions a year and would need to file a form. Apparently there was a law passed in 2011 requiring all third parties involved in fund transfers to withhold taxes and report amounts to the IRS.  Withholding rates depend on the W-9 or W-8BN on file, or lack of one on file.  Here is a link  to the information that the IRS has on their website about this 1099 reporting of transactions by electronic transfer.

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I'm curious about what the W9 limits are going to be. In order to fill out a 1099, LL states your need in excess of 200 transactions totalling $20,000 per year. (doing the math at the current exchange rate, that's $5,140,000L/year or $428,334L/month). The fly in the ointment is that they'll start looking if you do over 17 transactions per month.

I don't actually cash out my lindens...nor do I spend them for that matter...but as I said, I do wonder what the W9 requirement will be. I also wonder if LL wouldn't be better just sending the request to everyone and having it all on file just in case. It's a lot of paperwork, but it would certainly protect someone who THINKS they could go over the limit in a years time.

Just my two cents...thanks

 

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Note it is not JUST over 200 transactions as that is nothing.

 

"200 or more transactions with a total amount in excess of $20,000 in a calendar year," 

 

You have to also make over $20,000 for the 1099 to be needed.  For the other form it doesn't seem so clear.

 

There are COSTS with running a SL business (both inworld and in RL) that can be used to offset the seeming "profits".  Imagine anyone making that much money knows all about that :D.  



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I do pay taxes on what I cash out, and I have a CPA who handles that. But my income is tracked by what I cash out to Paypal, and whatever records I have are from that. My question is what I need to give the CPA other than Paypal records?  And yes, LL is a little late to the party, as the law about third parties like Paypal is a few years old.

I pay tier on 4 sims so what I cash out through LL is more than what I transfer to Paypal.

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You will need to ask your CPA or tax advisor about that.  However I would think that if your have to report the amount LL reports you can deduct all your business expenses, such as your tiers, to offset the difference between what paypal and LL reports.

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I will ask, but the CPA doesn't have any idea how SL works.  What I wonder is what amount is it that LL reports?  What I cash out to Paypal? Is this going to be yet another instance where we BEG for some crumb of vital information that they take smug satisfaction in withholding, simply because they can?

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It appears that the responsibility for obtaining these forms falls on LL.  It is information that THEY are required to have / supply. 

If something you are doing triggers this then they said they would contact you.

The only people who would have a worry would be people who hadn't been declaring their SL income on their own taxes.

LL might offer further clarification but really their response to anything we'd ask would probably be "consult a lawyer or accountant."  They can not offer us legal advise.

As usual I think they could have phrased the Blog post better, using the phrase "NEW Regulations."

My take on it is that the reporting refers to cash outs.  As an example:

"only if the payee has received payment from that TPSO in more than 200 transactions within a calendar year." 

http://www.irs.gov/instructions/i1099k/ar01.html

 

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Pamela Galli wrote:

That makes sense, except that it is the same information that Paypal is already providing.

I'll agree 100% that Paypal makes it easier for us to find the info, but you still need to go looking for it.

I just googled 1099K to find the info. 

Read a few pages out of curiosity and posted what I found. 

I don't do cash outs so it does not affect me directly.

Any who I just operate on the assumption that I have no secrets from the Gov.

Doesn't mean I like it.

 

 

 

 

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I'm confused too because Paypal reports to the irs so.... i just don't understand at all.... H&R Block can deal with this mess for me come january I guess -.-

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Arabella, on the TIN question I am seeing conflicting evidence as to whether it's needed to fill out the form. Apparently, you might not be required to fill out these forms every year, so long as your circomstances don't change, and getting a TIN gives the form a longer duration. The form can be downloaded.

Don't rely on what Amazon are doing as an example. They're running the whole thing to minimise their tax liability.

Folks generally: typical bloody Linden Labs communication quality...

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For people in the USA is seems relatively simple. You fill in the form, including your SSN, send that to Linden Labs, and
they deal with any tax-witholding
and it gets applied to you tax liability. (OK, it isn't so simple, but it does mean the tax is paid on your behalf toi the IRS.)

UH ... NO.  If your withdrawals are over a certain figure, they just report you and your SSN or EIN to the IRS.  It's up to you to keep track of the income and if necessary, pay any witholding tax on schedule.

 

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Nefertiti Nefarious wrote:

For people in the USA is seems relatively simple. You fill in the form, including your SSN, send that to Linden Labs, and
they deal with any tax-witholding
and it gets applied to you tax liability. (OK, it isn't so simple, but it does mean the tax is paid on your behalf toi the IRS.)

UH ... NO.  If your withdrawals are over a certain figure, they just report you and your SSN or EIN to the IRS.  It's up to you to keep track of the income and if necessary, pay any witholding tax on schedule.

 


If I read correctly what happens if you don't supply that form then LL or any other cash service like Paypal or Amazon are required to "withhold" 28%. 

It's a bit of blackmail going on:  The IRS is forcing you to fill out that form or you can't touch that money. 

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Official... LINDENS CAN NOT USE BRAIN

SEE BELOW:

 

Nov. 19, 2013, 2:56 p.m.
Tommy Linden 

Dear Legend Hye,

Due to the volume of transactions you have completed on the LindeX this year, Linden Lab is now required to collect certain tax-related documentation from you:

If you are a U.S. citizen or U.S. person (as defined by the IRS), please complete a W-9 form here: https://secure.echosign.com/public/hostedForm?formid=7X8TPB4E4U4I5C
If you are a U.S. business or other non-individual U.S. taxpayer, please complete a W-9 form here: https://secure.echosign.com/public/hostedForm?formid=7XBB3B5R4Y3L4H
If you are not a U.S. citizen or U.S. business, please complete a W-8BEN form here: https://secure.echosign.com/public/hostedForm?formid=7XBB3LN2WIXD4M

Please complete only ONE of the above forms.

Your paperwork must be submitted within 30 days, and any pending process credit requests will be held until receipt of your form.

We apologize for any inconvenience and appreciate your cooperation. You will only need to do this a single time; once we have a W-9 on file for you, it will carry over from year-to-year. However, if your information changes, you will need to notify us and submit a new version.

Thank you,
Linden Lab

 

Nov. 21, 2013, 10:29 a.m.
Me

I think you have sent me this in ERROR, as you state that a requirement would be 200 transactions (which I assume is L$ to USD transactions) and value of 20,000 USD. I can prove from my Process Credit History that this year there have been 24 transactions processed to date, and value in USD much less than 20,000 USD. Which I already pay TAX on in the UK, as being Self Employed. 
If you do not believe what I say here feel free to look at my details.

I look forward to hearing from you,
Legend Hye - SL avatar

 

Nov. 21, 2013, 10:42 a.m.
Tommy Linden

 

Greetings,

Unfortunately all I am allowed to reiterate is the following:

The Internal Revenue Service (IRS) requires Linden Lab to collect and retain Form W-9 (for U.S. residents) and Form W-8BEN (for non-U.S. residents) at certain transaction volumes. If you reach the transaction threshold and we do not have your completed and signed W-9 or W-8BEN on file, we are required to withhold funds from your account (at the current rate of 28% of your gross amounts received). Additionally, for U.S. residents with 200 or more transactions with a total amount in excess of $20,000 in a calendar year, we are required to file a Form 1099-K with the IRS reporting those transactions for that year.

If you are required to submit a W-9 or W-8BEN form to us, we will email you before the end of the year with instructions on how to do so. Please follow the instructions to complete and submit the required Form W-9 or W-8BEN within thirty (30) days of receipt. You will only need to complete this paperwork once unless your information changes from year-to-year. If you do not receive an email from Linden Lab, we do not need you to complete these forms.

Regards,
Linden Lab

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The Internal Revenue Service (IRS) requires Linden Lab to collect and retain Form W-9 (for U.S. residents) and Form W-8BEN (for non-U.S. residents) at certain transaction volumes. If you reach the transaction threshold and we do not have your completed and signed W-9 or W-8BEN on file, we are required to withhold funds from your account (at the current rate of 28% of your gross amounts received). Additionally, for U.S. residents with 200 or more transactions with a total amount in excess of $20,000 in a calendar year, we are required to file a Form 1099-K with the IRS reporting those transactions for that year.

If you are required to submit a W-9 or W-8BEN form to us, we will email you before the end of the year with instructions on how to do so. Please follow the instructions to complete and submit the required Form W-9 or W-8BEN within thirty (30) days of receipt. You will only need to complete this paperwork once unless your information changes from year-to-year. If you do not receive an email from Linden Lab, we do not need you to complete these forms.

 

THE ABOVE IS A TOTAL LIE, I HAVE JUST 24 TRANSACTIONS AND WAYYYYY LESS THAN 20,000 USD. 

 

I TELL THEM AND WHAT DO I GET?

 
 
Tommy Linden - Unfortunately all I am allowed to reiterate is the following

You know the rest.

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Legend Hye wrote:

 

The Internal Revenue Service (IRS) requires Linden Lab to collect and retain Form W-9 (for U.S. residents) and Form W-8BEN (for non-U.S. residents) at certain transaction volumes. If you reach the transaction threshold and we do not have your completed and signed W-9 or W-8BEN on file, we are required to withhold funds from your account (at the current rate of 28% of your gross amounts received). Additionally, for U.S. residents with 200 or more transactions with a total amount in excess of $20,000 in a calendar year, we are required to file a Form 1099-K with the IRS reporting those transactions for that year.

If you are required to submit a W-9 or W-8BEN form to us, we will email you before the end of the year with instructions on how to do so. 
Please follow the instructions to complete and submit the required Form W-9 or W-8BEN within thirty (30) days of receipt. You will only need to complete this paperwork once unless your information changes from year-to-year. If you do not receive an email from Linden Lab, we do not need you to complete these forms.

 

THE ABOVE IS A TOTAL LIE, I HAVE JUST 24 TRANSACTIONS AND WAYYYYY LESS THAN 20,000 USD. 

 

I TELL THEM AND WHAT DO I GET?
 
 
Tommy Linden - 
Unfortunately all I am allowed to reiterate is the following

You know the rest.

First off he can only do what he is told, reiterate that their system has identified you as needing to file the form.

If there is a problem with the API they are using to identify who needs to file the Form we can only hope he is reporting it to his superiors.

Have you in past years met the Threshold?  That could possibly be triggering it.  That's just a guess on my part.

LL is going to err on the side of caution....it does not hurt them to have the form on file.  PayPal (or maybe it is Amazon) does this, requiring the info from accounts well below the thresholds.

LL is also going to be dealing with people who do need to supply the info trying to get out of it.

And to be clear, I hate taxes as much as the next person.  But I see the gov't stuff LL is having to deal with.

 

 

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I had just the one transaction in 2012, for the massive sum of 30 USD

The critiera for sending out the Tax form is 200 transaction or more and or 20,000 USD, that is what LL say. This is not the case, as I have been sent one. Thus the Linden Lab statement is not correct, untrue, a lie. Thus, they should either remove it or stick with it and look at complaints. That seems fair to me.

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Legend Hye wrote:

I had just the one transaction in 2012, for the massive sum of 30 USD

The critiera for sending out the Tax form is 200 transaction or more and or 20,000 USD, that is what LL say. This is not the case, as I have been sent one. Thus the Linden Lab statement is not correct, untrue, a lie. Thus, they should either remove it or stick with it and look at complaints. That seems fair to me.

As a British resident you'd need to file the W8-BEN. The figures of 200 transactions or $20,000 are specifically stated as being for US residents and involve the form 1099-K, a completely separate situation.

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The item you are quoting is giving you two different scenarios.

*  First scenario:  

The Internal Revenue Service (IRS) requires Linden Lab to collect and retain Form W-9 (for U.S. residents) and Form W-8BEN (for non-U.S. residents) at certain transaction volumes. If you reach the transaction threshold and we do not have your completed and signed W-9 or W-8BEN on file, we are required to withhold funds from your account (at the current rate of 28% of your gross amounts received).


Linden Lab is not specifying what number of transaction volumes is required before you must submit the W-9 or W-8BEN.  They are saying that they will send you the form when you've met whatever their threshhold is.

*  Second scenario, for US residents only:

Additionally, for U.S. residents with 200 or more transactions with a total amount in excess of $20,000 in a calendar year, we are required to file a Form 1099-K with the IRS reporting those transactions for that year.

They are saying that when you have the 200 transactions totalling $20,000 or more, then they have to report that amount to the IRS if you are a US resident.

(Sorry, I see someone had already answered while I was very slowly making the post.  :matte-motes-bashful-cute-2: )

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If you don't think that you're over, especially not near, the transaction limit call them on it. It is unethical, and quite possibly legally suspect, for them to ask you for your Social Security number unless they have a legal need for it. They can threaten to ban you but until they clarify how they are going to enforce this policy anyone who gets asked to provide paperwork should force LL to back up their policy and their right to collect personal data, especially a piece of personal data that identity thieves would kill for.

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