Jump to content

IRS wants to know your income in virtual currencies


animats
 Share

You are about to reply to a thread that has been inactive for 1251 days.

Please take a moment to consider if this thread is worth bumping.

Recommended Posts

Quote

The Internal Revenue Service plans to alter the standard 1040 form by putting this question on the front page: At any time during 2020, did you sell, receive, send, exchange or otherwise acquire any financial interest in any virtual currency? The taxpayer must check the box “Yes” or “No.”

from The IRS Sets A Trap for CryptoCurrency Tax Cheats - Wall Street Journal

Link to comment
Share on other sites

When looking for some specifics, as related to games (which is what SL technically is), I found this from a Feb article (https://preview.tinyurl.com/y2k4pyrp):

  "The Internal Revenue Service (IRS), the tax collection agency of the U.S. government, has removed ether (ETH) and two popular gaming tokens - Fortnite’s V-bucks and Roblox’s Robux - as examples of convertible virtual currencies."

I take that to mean that my L$ is not what they are talking about with their virtual currency question.

  • Like 2
Link to comment
Share on other sites

I seem to remember that The Lab referred to linden dollars  as "game tokens"?  Been awhile since I read the TOS.   

My browser found it easily with "find" LOL. I was close.

https://www.tilia-inc.com/legal/tos/#virtual-tokens

 

HOWEVER once those token get turned into USD then they are "income".   So those EARNING money in SL still  should be claiming that as income. 

 

And yes, there was a HUGE deal all over the web with the Fortnite token thing.     

 

 

Edited by Chic Aeon
oh such bad grammar OMG.
Link to comment
Share on other sites

3 minutes ago, Chic Aeon said:

I seem to remember that The Lab referred to linden dollars  as "game tokens"?

LL says that, but that's just a self-serving statement. The US IRS is more interested in how they're used.

IRS FAQ on virtual currency transactions. This is a must-read for anyone with Linden dollar revenue above the miscellaneous-income threshold.

Link to comment
Share on other sites

39 minutes ago, animats said:

LL says that, but that's just a self-serving statement. The US IRS is more interested in how they're used.

IRS FAQ on virtual currency transactions. This is a must-read for anyone with Linden dollar revenue above the miscellaneous-income threshold.

I have read that but my comment AGREED that when it became DOLLAR REVENUE it was reportable. So not arguing.  The whole (well at least part) of the Tilia thing was tracking USD.   I am still unclear about USD balanced used to pay LL debt (membership, tier etc.). "I" don't have to worry about that but others would if they wanted to be legal.  Then again LOL. 

Link to comment
Share on other sites

i think Linden would see any of this as being between the resident(s) and their respective tax authorities.  Probably Linden might have to make it possible for residents to get their entire transaction history for say the previous X years rather than just the previous month, and I think that's about it really

corporately, Linden might see this as having some chilling impact on resident activity and how they (Linden) might manage this as it applies to their own revenues. But I think that this falls into the oh! well category, as there is nothing that Linden can do about tax requirements as they apply in the various jurisdictions internationally to their customers (residents) individually

Link to comment
Share on other sites

5 hours ago, LittleMe Jewell said:

When looking for some specifics, as related to games (which is what SL technically is), I found this from a Feb article (https://preview.tinyurl.com/y2k4pyrp😞

  "The Internal Revenue Service (IRS), the tax collection agency of the U.S. government, has removed ether (ETH) and two popular gaming tokens - Fortnite’s V-bucks and Roblox’s Robux - as examples of convertible virtual currencies."

I take that to mean that my L$ is not what they are talking about with their virtual currency question.

I was going to counter with "VB and Robux cannot be traded back to real currency," but it's been a lifetime since I last looked at Roblox.

Robux seem identical to Linden Dollars. You buy them with money, spend them in-game, and can cash them out the same as L$.

So I would agree, their context of "virtual currency" does not seem to touch what we would consider virtual currency. (Not that I care, I'm not in the US.)

Edited by Wulfie Reanimator
  • Like 1
Link to comment
Share on other sites

On 9/27/2020 at 12:44 AM, Wulfie Reanimator said:

I was going to counter with "VB and Robux cannot be traded back to real currency," but it's been a lifetime since I last looked at Roblox.

Robux seem identical to Linden Dollars. You buy them with money, spend them in-game, and can cash them out the same as L$.

So I would agree, their context of "virtual currency" does not seem to touch what we would consider virtual currency. (Not that I care, I'm not in the US.)

You aren’t cashing out Linden Dollars.   It’s in the fine print.  You are obtaining a refund for unused game tokens.

Now will there be a time where that definition is challenged....? Probably.  But for now it remains defined as a token and not a virtual currency.  

  • Like 1
  • Thanks 1
Link to comment
Share on other sites

5 minutes ago, Charlotte Bartlett said:

You aren’t cashing out Linden Dollars.   It’s in the fine print.  You are obtaining a refund for unused game tokens.

Now will there be a time where that definition is challenged....? Probably.  But for now it remains defined as a token and not a virtual currency.  

The IRS seems to be taking a position that would make Linden Dollars a virtual currency. Read their FAQ. But it's considered "property", like holding a stock, and capital gain rules may apply. Also, the IRS says that if you pay someone in a virtual currency, you have to issue them a W-2 or a 1099 form if the US$600 threshold for that is reached.

US$600 is the general threshold for reporting miscellaneous income. Few people will reach that in SL. But some will, and they need to talk to their tax accountants.

All of this is because the cryptocurrency people tried to claim that cryptocurrencies were not money and not taxable. That was rejected by the IRS and the courts. So now, there's an IRS definition of a virtual currency.

IRS:  Virtual currency is a digital representation of value, other than a representation of the U.S. dollar or a foreign currency (“real currency”), that functions as a unit of account, a store of value, and a medium of exchange.  Some virtual currencies are convertible, which means that they have an equivalent value in real currency or act as a substitute for real currency.  The IRS uses the term “virtual currency” in these FAQs to describe the various types of convertible virtual currency that are used as a medium of exchange, such as digital currency and cryptocurrency.   Regardless of the label applied, if a particular asset has the characteristics of virtual currency, it will be treated as virtual currency for Federal income tax purposes. 

In other words, it doesn't matter what LL calls it.

  • Thanks 1
Link to comment
Share on other sites

39 minutes ago, animats said:

The IRS seems to be taking a position that would make Linden Dollars a virtual currency. Read their FAQ. But it's considered "property", like holding a stock, and capital gain rules may apply. Also, the IRS says that if you pay someone in a virtual currency, you have to issue them a W-2 or a 1099 form if the US$600 threshold for that is reached.

US$600 is the general threshold for reporting miscellaneous income. Few people will reach that in SL. But some will, and they need to talk to their tax accountants.

All of this is because the cryptocurrency people tried to claim that cryptocurrencies were not money and not taxable. That was rejected by the IRS and the courts. So now, there's an IRS definition of a virtual currency.

IRS:  Virtual currency is a digital representation of value, other than a representation of the U.S. dollar or a foreign currency (“real currency”), that functions as a unit of account, a store of value, and a medium of exchange.  Some virtual currencies are convertible, which means that they have an equivalent value in real currency or act as a substitute for real currency.  The IRS uses the term “virtual currency” in these FAQs to describe the various types of convertible virtual currency that are used as a medium of exchange, such as digital currency and cryptocurrency.   Regardless of the label applied, if a particular asset has the characteristics of virtual currency, it will be treated as virtual currency for Federal income tax purposes. 

In other words, it doesn't matter what LL calls it.

It really does.  The threshold for currency is not an IRS definition.  To meet the criteria of a virtual currency and the convertible test you need to be able to convert in other venues.   There is a reason LL /  Tilia closed third party exchanges....   IRS are trying to cast a net but tax law on the US is still far too behind to bring in Linden Dollars.    As I wrote above I expect that to change in the future.  

I am fully comfortable based on my RL profession answering this particular question and knowing the correct answer is No for LL Dollars.  There is also a reason why Fortnite got removed from the IRS site based on tax law.

One thing I will say is Tilia did their due. diligence and I am fully and wholly comfortable with their definition.

 

 

 

  • Like 1
Link to comment
Share on other sites

On 9/29/2020 at 2:14 PM, animats said:

The IRS seems to be taking a position that would make Linden Dollars a virtual currency. Read their FAQ. But it's considered "property", like holding a stock, and capital gain rules may apply. Also, the IRS says that if you pay someone in a virtual currency, you have to issue them a W-2 or a 1099 form if the US$600 threshold for that is reached.

US$600 is the general threshold for reporting miscellaneous income. Few people will reach that in SL. But some will, and they need to talk to their tax accountants.

All of this is because the cryptocurrency people tried to claim that cryptocurrencies were not money and not taxable. That was rejected by the IRS and the courts. So now, there's an IRS definition of a virtual currency.

IRS:  Virtual currency is a digital representation of value, other than a representation of the U.S. dollar or a foreign currency (“real currency”), that functions as a unit of account, a store of value, and a medium of exchange.  Some virtual currencies are convertible, which means that they have an equivalent value in real currency or act as a substitute for real currency.  The IRS uses the term “virtual currency” in these FAQs to describe the various types of convertible virtual currency that are used as a medium of exchange, such as digital currency and cryptocurrency.   Regardless of the label applied, if a particular asset has the characteristics of virtual currency, it will be treated as virtual currency for Federal income tax purposes. 

In other words, it doesn't matter what LL calls it.

Firstly, It matters what FinCen defines a virtual convertible currency as.  Trying to retrofit the IRS language above doesn’t work without understanding currency definitions in full.  Would be very interested to know what your CPA says assuming you pay US tax/cash out?  Mine still remains fully on the side of the fact Linden Dollars don’t meet the FinCen definition of a virtual currency at this time.  So USD payments remain reportable (for income and deductibles).

FinCen guidance changes and I do think at one point Linden Dollars (a terrible name) will get included in the future, but they are not yet.

If it helps you can read more about FinCen definitions at their site.  But it is best to leave it to the professionals when understanding the complexity of banking, regulation, currency  and tax laws as the above posts could mislead merchants to sending in incorrect tax returns (that goes for my comments too).

 

  • Like 1
Link to comment
Share on other sites

Unless something drastic occurs between now and the end of the year, I will have had more Lindens On Jan 1st 2020 than I will on Dec 31st 2020. Does this mean I can write that off as a loss on my 2020 taxes?

Link to comment
Share on other sites

21 minutes ago, Talligurl said:

Unless something drastic occurs between now and the end of the year, I will have had more Lindens On Jan 1st 2020 than I will on Dec 31st 2020. Does this mean I can write that off as a loss on my 2020 taxes?

Ha.  Well how did your number go down?  Also if we really did go down the rabbit hole of using gains / losses and  appreciation etc, the fact the Linden sell rate has moved 21 points in the seller favour will be part of the calc.

there is so much bad information out there.  Right from Investopedia through to a paper in 2013 which mangled the definitions of open flow currencies as an audit paper to the IRS.  People have then based further opinions off the flawed definitions so no wonder the regular tax paper doesn’t really know the right way to manage their tax liabilities. 

I ensure annually I hit “zero” Linden Dollars in line with tax periods so all the USD income and deductibles matches my taxable events.

Link to comment
Share on other sites

On 10/3/2020 at 1:06 PM, Talligurl said:

Unless something drastic occurs between now and the end of the year, I will have had more Lindens On Jan 1st 2020 than I will on Dec 31st 2020. Does this mean I can write that off as a loss on my 2020 taxes?

Only the linden converted into USD is taxable. Also my understanding is you can only withdraw net lindens from transactions. You cannot take out linden that you've deposited yourself. Unless something has changed. 

Link to comment
Share on other sites

1 hour ago, Ultimo Constantineau said:

 Also my understanding is you can only withdraw net lindens from transactions. You cannot take out linden that you've deposited yourself. Unless something has changed. 

This part is definitely not true.  I can buy $100 worth of Lindens, immediately sell them and send the money back to my PayPal -- though that would be incredibly stupid due to the various fees that I would pay LL.

While stupid, I COULD do it.

Link to comment
Share on other sites

No the IRS wants to know how much money you make if you are a creator. Plain and simple as that, they don't care if you upload money or sell a measly 100 Lindens to your paypapl. But if you treat your store in world like an actual business and are selling Ls on a month to month basis. They want to know, for tax purposes. Its part of US law. LL has to follow the law.

Link to comment
Share on other sites

On 9/26/2020 at 5:59 PM, animats said:

The Internal Revenue Service plans to alter the standard 1040 form by putting this question on the front page: At any time during 2020, did you sell, receive, send, exchange or otherwise acquire any financial interest in any virtual currency? The taxpayer must check the box “Yes” or “No.”

They mean Cryptocurrency, like Bitcoins and that stuff. Lindens are not considered a legal currency. As you can only use them in SL. Unlike Bitcoin, where you can use it anywhere that accepts Bitcoin.

Link to comment
Share on other sites

3 hours ago, LittleMe Jewell said:

This part is definitely not true.  I can buy $100 worth of Lindens, immediately sell them and send the money back to my PayPal -- though that would be incredibly stupid due to the various fees that I would pay LL.

While stupid, I COULD do it.

Ive only stated that because Ive been denied before with the reason being because it was lindens I had purchased. Im sure there's other policies for playing the Linden Exchange. 

There's also this statement in the process credit page on SL.

"Net proceeds from your sales of Linden Dollars remain as credit on your Second Life account, and this credit is automatically applied to your account fees as described above. If you do not wish to apply your Linden Dollar sales proceeds to your fees, you may withdraw this portion of your account credit through a real-world credit process. (See Process Credit) Note that you may only process credit due to net proceeds from sales of Linden Dollars. Purchases of account credits and credits due to gift codes or other promotional account credits are nonrefundable, and may not be processed as a payment to you."

Edited by Ultimo Constantineau
Link to comment
Share on other sites

17 minutes ago, halebore Aeon said:

They mean Cryptocurrency, like Bitcoins and that stuff. Lindens are not considered a legal currency. As you can only use them in SL. Unlike Bitcoin, where you can use it anywhere that accepts Bitcoin.

It's an open question. Compare Decentraland's MANA.

Link to comment
Share on other sites

You are about to reply to a thread that has been inactive for 1251 days.

Please take a moment to consider if this thread is worth bumping.

Please sign in to comment

You will be able to leave a comment after signing in



Sign In Now
 Share

×
×
  • Create New...