L$ Tilia purchases charged as PayPal Cash Advance

[Della Starlight]

12 hours ago, Charlotte Bartlett said:

Not sure how that would help at all....somebody somewhere in that supply chain is classifying transactions from Tilia - > PayPal - > Credit Card as a Cash Advance.  Resetting PayPal does nothing at all.   I suspect it's PayPal based on the information Tilia is providing and perhaps how PayPal is classifying Tilia as a MSB (like those Venmo examples in the New York Time's piece).

According to my credit card bank, they are really just taking advantage of something done between Second Life and Paypal..."upon review of your account, we can confirm that the Paypal Second Life transaction made on July 15, 2020 was considered to be a cash transaction and you were charged a cash advance fee as a result of that transaction."

I agree with you...I think Paypal is classifying Tilia as a MSB -- which it is.

[Anna Salyx]

Since 2013, the U.S. Financial Crimes Enforcement Network, recognized Linden Money as a convertible centralized virtual currency for purposes of tracking for money laundering and other things (if I'm reading things correctly in a quick search).  But it probably wasn't until Tilia came along as a registered money transfer service (subset of MSB, again if I'm reading it right), that this became something that is drawing the attention of banks and other institutions. 

It might be related, also, to the fact that starting with the taxes I filed this year was the question about if I held any virtual currencies.  The wording of the IRS description originally included pretty much all virtual currency tokens, but they clarified it to read: "We have changed the language in order to lessen any confusion. Transacting in virtual currencies as part of a game that do not leave the game environment (virtual currencies that are not convertible) would not require a taxpayer to indicate this on their tax return."  While this is directly aimed at bitcon I'm sure but it does leave Linden Dollars still in that category of being required to be listed on the IRS tax forms since it is a convertible virtual currency.   It might be this that is helping to drive the practice of considering L$ purchases as a cash advance.

Another would be that, while it would at a loss, I could buy 20 USD worth of Linden Dollars against my CC, turn around and immediately sell them back getting a USD balance that I then transfer to my bank account.  Yes, I don't get the whole 20 back after fees and such, but it's functionally a cash advance that would bypass the cash advance flag on the credit card. 

So, IMO I think there are a lot of little things going into the reasons why PayPal and some credit cards are changing how they classify the purchases of virtual convertible currencies.  again, IMO I think it's mainly due to recent IRS changes.   There is a very good article on the subject of virtual convertible currencies on Investopedia from March of 2018 that might be good reading for those interested.

Anyways, that's my quick take to add to the mix of conversation.

 

[Lindal Kidd]

Good analysis, @Anna Salyx.  I think that LL will find this is a potentially serious Unintended Consequence of the whole Tilia idea.

[Della Starlight]

9 hours ago, Anna Salyx said:

While this is directly aimed at bitcon I'm sure but it does leave Linden Dollars still in that category of being required to be listed on the IRS tax forms since it is a convertible virtual currency. 

Just wanting to mention, to clarify.  Virtual currencies are treated like any other asset on the personal tax return...no need to list when acquired; only If you incur a profit or a loss when you sell them.

[LittleMe Jewell]

This comment in another thread might be of interest to this thread:

Quote

After numerous emails to LL, PayPal and my bank, the issue appears to be that LL have changed their transaction codes from "video games" to 'cash" and this stopped small payments being made.

 

 

That sounds like this PayPal CC Cash Advance thing might only apply to L$ buys and would not be an issue for Premium fee and tier charges.  At least we have an answer now that LL definitely changed the way they are doing things.

A good question to LL would be "Why the heck did they make that change?" 

[Chic Aeon]

4 hours ago, LittleMe Jewell said:

This comment in another thread might be of interest to this thread:

 

 

That sounds like this PayPal CC Cash Advance thing might only apply to L$ buys and would not be an issue for Premium fee and tier charges.  At least we have an answer now that LL definitely changed the way they are doing things.

A good question to LL would be "Why the heck did they make that change?" 

Maybe I didn't mention it earlier in this thread but when I went to test a dialog box came up with two choices one being money being used for purchases and another for paying premium or other payments.  I can't remember NOW (or find) where I saw that though.  So that was a hint that there was a difference. 

 

However ---  comments here suggest that ALL "reoccurring payments" (not just SL) COULD be subject to extra fees at the discretion of the bank holding the card.  This had me worried since I pay a lot of bills automatically.  So far I haven't seen that happening on my credit card.  

[Lillith Hapmouche]

2 hours ago, Chic Aeon said:

I can't remember NOW (or find) where I saw that though.

It should pop up when you add a new payment method.

Also, it'll show when you go to https://accounts.secondlife.com/billing_information and edit the currently registered methods and their uses.

[Solar Legion]

@Chic Aeon: To add to Lilith above, that box has been there for years now. Its only function is to determine which payment method is to be used for recurring payments and which is to be used for the in viewer Instant Buy/Market Buy (the web page version lets you choose at checkout).

[LittleMe Jewell]

On 7/17/2020 at 12:49 PM, DellaLaBella said:

Just had this issue today...it began with a Linden Research charge on July 15. Prior to that, the Linden Research charges were listed in my Paypal as entertainment. Beginning on July 15, they started listing them as money transfers, and my credit card bank charged me a $10 cash advance fee for each transaction. Second Life customer service referred me to my bank, who referred me to Paypal.  Apparently no one can get this changed, so the work around is to have Paypal use my bank account for the Linden Research transactions. And no one will refund me the cash advance fees I was charged. (I'm from the US if that makes a difference)

The other work-around would be to use my credit card directly on the SL website.

This is really not fair!

Were any of those charges that incurred the cash advance fee for Premium membership or Tier charges, or were they all for L$ purchases?

[Charlotte Bartlett]

On 7/21/2020 at 10:09 AM, Anna Salyx said:

Since 2013, the U.S. Financial Crimes Enforcement Network, recognized Linden Money as a convertible centralized virtual currency for purposes of tracking for money laundering and other things (if I'm reading things correctly in a quick search).  But it probably wasn't until Tilia came along as a registered money transfer service (subset of MSB, again if I'm reading it right), that this became something that is drawing the attention of banks and other institutions. 

It might be related, also, to the fact that starting with the taxes I filed this year was the question about if I held any virtual currencies.  The wording of the IRS description originally included pretty much all virtual currency tokens, but they clarified it to read: "We have changed the language in order to lessen any confusion. Transacting in virtual currencies as part of a game that do not leave the game environment (virtual currencies that are not convertible) would not require a taxpayer to indicate this on their tax return."  While this is directly aimed at bitcon I'm sure but it does leave Linden Dollars still in that category of being required to be listed on the IRS tax forms since it is a convertible virtual currency.   It might be this that is helping to drive the practice of considering L$ purchases as a cash advance.

Another would be that, while it would at a loss, I could buy 20 USD worth of Linden Dollars against my CC, turn around and immediately sell them back getting a USD balance that I then transfer to my bank account.  Yes, I don't get the whole 20 back after fees and such, but it's functionally a cash advance that would bypass the cash advance flag on the credit card. 

So, IMO I think there are a lot of little things going into the reasons why PayPal and some credit cards are changing how they classify the purchases of virtual convertible currencies.  again, IMO I think it's mainly due to recent IRS changes.   There is a very good article on the subject of virtual convertible currencies on Investopedia from March of 2018 that might be good reading for those interested.

Anyways, that's my quick take to add to the mix of conversation.

 

I think you may be confusing apple and oranges.

The FIN-2013-G001 (if that is what you are referring to) rule has nothing to do with the fact banks have changed how they view MSB transactions and who forced MSBs to recode certain types of transactions to allow them to ID them as cash advances to they could charge more interest and fees.      This is all about credit cards/bank fighting back against MSB Apps people are using to move money to take their slice of the pie.  Same with the IRS aspects that doesn't impact this particular problem.

As a side note FinCEN has not recognized Linden Dollars (a game token)  as a convertible centralized virtual currency (at this point in time).   There was a poorly written "opinion" blog piece in 2013, that was then repeated (ouch) in Investopedia by James Chen who copy and pasted parts of a blog post from 2013 without doing [any] research in 2018 - lazy stuff that he should have long since corrected but hasn't.   I posted about that piece previously and the issues with it.

The OP issue is nothing to do with the FinCEN, IRS etc, albeit those are all interesting subjects and are kind of connected when you think Tilia now acts as a MSB to ensure they meet US regulatory requirements.  (as a piece of history LL was the registered MSB before they split out Tilia - so the classification hasn't changed just the company name/structure).  

The issue remains here that Tilia (MSB)  - > PayPal (MSB) is now classified as a transfer (or peer to peer payment) in some of the examples above due to market changes I have mentioned above.  So once it reaches - > Credit Card company they apply the new methodology to maximize their fees and charges accordingly as a cash advance.  It's not going to change and will only expand further, so the workaround is hopefully for users to go Tilia - > Credit Card company to cut out the MSB -> MSB part and remain classified as a purchase versus transfer (hopefully albeit I suspect that's on the radar too for the future if banks have their way).

Edited July 22, 2020 by Charlotte Bartlett
typo

[Charlotte Bartlett]

4 minutes ago, LittleMe Jewell said:

Were any of those charges that incurred the cash advance fee for Premium membership or Tier charges, or were they all for L$ purchases?

This is a really good point - I hope more people post once they check charges to narrow it.  As if both are "powered" by Tilia and treated different it tells us Tilia is coding them that way (which they aren't being transparent on, nor is it included in their TOS how they treat each transaction - a compliance gap they need to close)....

[LittleMe Jewell]

14 minutes ago, Charlotte Bartlett said:

This is a really good point - I hope more people post once they check charges to narrow it.  As if both are "powered" by Tilia and treated different it tells us Tilia is coding them that way (which they aren't being transparent on, nor is it included in their TOS how they treat each transaction - a compliance gap they need to close)....

Per this below linked comment, it appears that LL did specifically change the coding from "video games" to "cash" -- the comment at least mentions specific codes.  I can sort of see them doing that for L$ buys - though I don't think that they are legally required to - but I can't see them calling Premium fees or tier fees "cash".  I am definitely interested in knowing for sure though.

 

 

[Charlotte Bartlett]

13 minutes ago, LittleMe Jewell said:

Per this below linked comment, it appears that LL did specifically change the coding from "video games" to "cash" -- the comment at least mentions specific codes.  I can sort of see them doing that for L$ buys - though I don't think that they are legally required to - but I can't see them calling Premium fees or tier fees "cash".  I am definitely interested in knowing for sure though.

 

 

Would make sense. as all MSBs had to make the changes across the industry, Venmo, Tilia, PayPal, Skrill etc etc all had to comply.  I did a small test today I did a small transaction on Venmo and funded with a UK credit card to a US person.  The UK Credit Card is pending and I spoke to the bank - sure enough... peer to peer. "cash advance".  So this is going global. I really want to know too I hope it's just the Lindex part (that makes sense and seems to comply with the recoding requirement).   Just interesting though as if defined as a "peer" transfer why just Lindex - and the whole definition of cash (and back to that FinCEN aspect rears it head).    I find this very interesting and the complexity is going to just keep growing.

It's like peeling an onion though to nail down workarounds for this - basically don't fund with a credit card on a MSB if you can avoid it is the best advice right now.

We just need Tilia to now allow the purchase of Linden Dollar Tokens with BitCoin, that I purchased via a contracts for differences over the counter option, funded by my UK Venmo account which debited my US PayPal who used my French credit card to really make this fun 😅.  I can't wait for this to happen (I am only half joking)...

Edited July 22, 2020 by Charlotte Bartlett

[RebeccaCourt]

Hi all, 

I did some testing last night and this is what I discovered and please note this is simply to buy lindens.

(1) I still cannot buy anything less than an amount of AUD20 (circa USD14) but refer point (5)

(2) I prefer to use PayPal as I believe it supplies me with another level of security (fingers crossed)

(3) I used my credit card via PP and this was charged with a "cash advance fee" (AUD20 min)

(4) I then used my debit card again via PP and so far, no fees have been added (I will let you know if they are, at a later date) but still with a AUD20 min)

(5) I then changed my LL account to using a debit card directly (not via PP) and this allowed me to buy in smaller amounts but with a transfer/transaction fee of about AUD$2.50

So, not sure if any of this helps but fingers crossed there is a legitimate workaround for this costly change deep in the bowels of WorldFinanceLand!

[Charlotte Bartlett]

38 minutes ago, RebeccaCourt said:

Hi all, 

I did some testing last night and this is what I discovered and please note this is simply to buy lindens.

(1) I still cannot buy anything less than an amount of AUD20 (circa USD14) but refer point (5)

(2) I prefer to use PayPal as I believe it supplies me with another level of security (fingers crossed)

(3) I used my credit card via PP and this was charged with a "cash advance fee" (AUD20 min)

(4) I then used my debit card again via PP and so far, no fees have been added (I will let you know if they are, at a later date) but still with a AUD20 min)

(5) I then changed my LL account to using a debit card directly (not via PP) and this allowed me to buy in smaller amounts but with a transfer/transaction fee of about AUD$2.50

So, not sure if any of this helps but fingers crossed there is a legitimate workaround for this costly change deep in the bowels of WorldFinanceLand!

That's so helpful thanks Rebecca!

I also like using Paypal for that same reason.   I also am leery of using a debit card directly with LL until they have two factor authentication in place.  Due to potential of accounts being hacked and then large sums charged that don't have credit card protection.

It sounds like we have managed to properly define it so far.  Now let's hope somebody can test when their premium payment or sim tier payment goes out to see what occurs.

[Anna Salyx]

21 hours ago, DellaLaBella said:

Just wanting to mention, to clarify.  Virtual currencies are treated like any other asset on the personal tax return...no need to list when acquired; only If you incur a profit or a loss when you sell them.

I get what you are saying, however on form 1040 (which I file) (Schedule 1) for 2019 there was this:

"At any time during 2019, did you receive, sell, send, exchange or otherwise acquire any financial interest in any virtual currency?"

It threw me for a loop to be sure because it was a brand new thing that directly tied back to my activity in SL.  Yes, I understand that by the IRS's only publications they are listed as property for calculations related to capital gains, but still, it is now at this time being required to at least report yes/no if you ever got any during the tax year, with the clarification that only those virtual currencies that can convert back out to real world currency need be included in the declaration.   But the inclusion and wording of that declaration line leads me to believe that it's not going to be long before more detailed reporting may be on the horizon.  again,  must my take.  

My receiving Linden Dollars and the subsequent spending of those same Linden Dollars for goods and services even if I never cash out can be a form of ... imputed income is the phrase that comes to mind, but I"m not sure if it's wholly accurate.  But the crux is I'm getting goods (even if but virtual) that I would normally have paid real world dollars for.  Since I have a regular Second Life income I never have to convert "real world" money into the system, but sans such income I'd (arguably) be spending that same equal real world cash value and so it can be construed that I have received that real world value of goods and that the virtual income is form of actual income that can be directly calculated.     I'm not an expert by any means.  this is just the understanding I have from casual reading and talking with people who *are* better educated on the subject.  so it might my worry has less basis, but I'd rather try to get an understanding now rather than having a sudden unexpected kick later. 

ps: ( and yes, I know my thresholds are waaaaaay below what would be a notice, but even so, if I have to start accounting for the virtual currency is going to be a pain.  With luck it'll just remain a declaration and if my transactions through Tilia/Second Life never exceed the threshold that forces Linden Lab/Tilia to require a W-9 from me, it'll be just that, a check box I have to remember to tick every year. ) 

 

[Charlotte Bartlett]

27 minutes ago, Anna Salyx said:

I get what you are saying, however on form 1040 (which I file) (Schedule 1) for 2019 there was this:

"At any time during 2019, did you receive, sell, send, exchange or otherwise acquire any financial interest in any virtual currency?"

It threw me for a loop to be sure because it was a brand new thing that directly tied back to my activity in SL.  Yes, I understand that by the IRS's only publications they are listed as property for calculations related to capital gains, but still, it is now at this time being required to at least report yes/no if you ever got any during the tax year, with the clarification that only those virtual currencies that can convert back out to real world currency need be included in the declaration.   But the inclusion and wording of that declaration line leads me to believe that it's not going to be long before more detailed reporting may be on the horizon.  again,  must my take.  

My receiving Linden Dollars and the subsequent spending of those same Linden Dollars for goods and services even if I never cash out can be a form of ... imputed income is the phrase that comes to mind, but I"m not sure if it's wholly accurate.  But the crux is I'm getting goods (even if but virtual) that I would normally have paid real world dollars for.  Since I have a regular Second Life income I never have to convert "real world" money into the system, but sans such income I'd (arguably) be spending that same equal real world cash value and so it can be construed that I have received that real world value of goods and that the virtual income is form of actual income that can be directly calculated.     I'm not an expert by any means.  this is just the understanding I have from casual reading and talking with people who *are* better educated on the subject.  so it might my worry has less basis, but I'd rather try to get an understanding now rather than having a sudden unexpected kick later. 

ps: ( and yes, I know my thresholds are waaaaaay below what would be a notice, but even so, if I have to start accounting for the virtual currency is going to be a pain.  With luck it'll just remain a declaration and if my transactions through Tilia/Second Life never exceed the threshold that forces Linden Lab/Tilia to require a W-9 from me, it'll be just that, a check box I have to remember to tick every year. ) 

 

My CPA would have answered no to that.  Simply put Linden Dollar Tokens are not a virtual currency using the specific definitions under FinCEN and IRS (remember how IRS then went all crazy over Fortnite then deleted it from their page in a fit of oh wait a sec).     (I trade other currencies, so actually I answered yes to that question, but not related to SL).

I wish they didn't call them Linden Dollars - dollars scream currency so I can see why people confuse them.

Your CPA should refer to 3.1.1. Acquiring Virtual Tokens under the Tilia TOS etc but mainly how they word how you cash out in USD (it's a refund for your unused tokens regardless of whether you brought those said tokens from another player via the LINDEX).  

That being said as posted in other long tax worthy threads on here with creators, CPAs from different creators treat things in different ways.    Do I think the TOS of Tilia is tested to IRS and other regulatory levels (no but the tax laws in the US are not yet caught up with virtual "things").    And as we all know if the IRS can get their hands on more revenue by saying game tokens are now a form of currency it may happen in our future.

Most creators that I know with their CPA have their tax computed on the USD amounts transacted from the LINDEX (never the token side of things so gross amounts match the 1099 form as relevant.    

One day we will get a definite statement on this - perhaps for our taxes next season!

Edited July 22, 2020 by Charlotte Bartlett
typo

[Della Starlight]

@LittleMe Jewell It has happened twice so far...one charge was for tier and one for a monthly premium membership fee

[Charlotte Bartlett]

21 minutes ago, DellaLaBella said:

@LittleMe Jewell It has happened twice so far...one charge was for tier and one for a monthly premium membership fee

Did both attract the cash advance treatment/fees?  - I feel like we are on team Sherlock Payment Team here....

[Anna Salyx]

54 minutes ago, Charlotte Bartlett said:

My CPA would have answered no to that.  Simply put Linden Dollar Tokens are not a virtual currency using the specific definitions under FinCEN and IRS (remember how IRS then went all crazy over Fortnite then deleted it from their page in a fit of oh wait a sec).     (I trade other currencies, so actually I answered yes to that question, but not related to SL).

I wish they didn't call them Linden Dollars - dollars scream currency so I can see why people confuse them.

That they did, which is why the IRS clarified.  Fortnight and similar are real money in, no real money out, as opposed Linden dollars being real money in, yes real money out.  It is a convertible virtual currency under that specific definition: ie: convertible back to some real world currency a defined but variable exchange rate.  And that is the specific clarification that the IRS made in their publication.  I think that maybe the fact that is has a variable exchange rate in and out depending on  "market" conditions just enhances that idea.  But I do agree that calling the in world tokens 'dollars' while accurate does add confusion to the mix.  there needs be more clarification in the tax code and publications.   I don't have a CPA.  I only file the 1040 long because I'm forced to by circumstance (head of household with dependent), otherwise I'd be filing 1040EZ and not worrying about any of this

[Della Starlight]

3 hours ago, LittleMe Jewell said:

Per this below linked comment, it appears that LL did specifically change the coding from "video games" to "cash" -- the comment at least mentions specific codes.  I can sort of see them doing that for L$ buys - though I don't think that they are legally required to - but I can't see them calling Premium fees or tier fees "cash".  I am definitely interested in knowing for sure though.

It appears someone was lied to...I was specifically told by LL, both in a phone conversation and in answer to a support ticket I submitted that they have made no changes to their Paypal "integration". I have been charged cash advance fees by my credit card company through Paypal for both tier and premium dues payments.

[RebeccaCourt]

So to clarify and maybe summarise all of this (not holding out much hope for success though!):

 

(1) There has been a change made by LL either driven by some International ruling (I say this because I am impacted here in Australia also) or by LL themselves for whatever reason(s)

(2) Credit cards either directly accessed by LL ( set up in our accounts) or via PayPal are now attracting a variety of fees. In my case, GST (a sales tax), LL imposed transaction fee and a cash charge from our bank(s)

(3) Debit cards at this stage do not seem to attract a charge (time will tell).....

(4) In my case, I can now only transact without fee, using a debit card AND a minimum cost of AUD20, for purchase of Lindens

(5) To note: after numerous discussions with LL and PP, none of them admitted to any changes,  only it was "my bank's issue/change"

Hope this helps and of course this is from an Aussie perspective only....

[RebeccaCourt]

I add to this, the change, specifically has been from a coding of "video games" to "cash" This clarity was supplied to me by my bank

[Charlotte Bartlett]

20 minutes ago, Anna Salyx said:

That they did, which is why the IRS clarified.  Fortnight and similar are real money in, no real money out, as opposed Linden dollars being real money in, yes real money out.  It is a convertible virtual currency under that specific definition: ie: convertible back to some real world currency a defined but variable exchange rate.  And that is the specific clarification that the IRS made in their publication.  I think that maybe the fact that is has a variable exchange rate in and out depending on  "market" conditions just enhances that idea.  But I do agree that calling the in world tokens 'dollars' while accurate does add confusion to the mix.  there needs be more clarification in the tax code and publications.   I don't have a CPA.  I only file the 1040 long because I'm forced to by circumstance (head of household with dependent), otherwise I'd be filing 1040EZ and not worrying about any of this

I promise you it's not a convertible currency if you mean Linden Dollars under that definition because you are not converting ANY currency at any point in the transaction.  (I know that sounds like an oxymoron, but it's based on the whole element of token definition).  As I have said previously on these forums, does that definition stand up - right now it does based on FinCEN publications, will it stand up in the future.... I suspect not.

I'll bet you at least 50 Linden (wait what, now that is gambling so very much joking) but in all seriousness, Linden Dollars is not a virtual currency and you can read (if you really want your eyeballs to hurt) the significant and lengthy legal opinions on specific criteria.  From opinions covering 31 CFR § 1010.100(m) and looking at from 2013 onwards when FinCEN first released detailed interpretative guidance on their definitions.  

If you carrying a USD profit balance due to SL activity that warrants tax being paid, a CPA is something that is well worth the investment  as things like the interpretations of the hugely complex regulatory market in the US are becoming incredibly difficult and that extra layer will give you some confidence you have filed correctly.   

Now my own eyeballs hurts hah!

 

[RebeccaCourt]

3 minutes ago, Charlotte Bartlett said:

I promise you it's not a convertible currency if you mean Linden Dollars under that definition because you are not converting ANY currency at any point in the transaction.  (I know that sounds like an oxymoron, but it's based on the whole element of token definition).  As I have said previously on these forums, does that definition stand up - right now it does based on FinCEN publications, will it stand up in the future.... I suspect not.

I'll bet you at least 50 Linden (wait what, now that is gambling so very much joking) but in all seriousness, Linden Dollars is not a virtual currency and you can read (if you really want your eyeballs to hurt) the significant and lengthy legal opinions on specific criteria.  From opinions covering 31 CFR § 1010.100(m) and looking at from 2013 onwards when FinCEN first released detailed interpretative guidance on their definitions.  

If you carrying a USD profit balance due to SL activity that warrants tax being paid, a CPA is something that is well worth the investment  as things like the interpretations of the hugely complex regulatory market in the US are becoming incredibly difficult and that extra layer will give you some confidence you have filed correctly.   

Now my own eyeballs hurts hah!

 

Oh dear, now my brain hurts also!

Can't I just buy a cute pair of heels from my favourite SL store without having an accounting degree and lugging around the International Tax Code volume 1 - oh, infinity...?!:)