IRS wants to know your income in virtual currencies

[Charlotte Bartlett]

What they "mean" versus what "law states" versus "tax code interpretation" versus what defines a currency all plays into this as I mentioned above.

I don't believe it's an open question (my CPA, my own background) is comfortable that the answer remains to that question "No" when answered solely in relation to Linden Dollars activity only.   And it remains that the gross USD activity that  remains reported as regular USD Income for tax purposes in the US and fees charged by Tilia and Linden Lab plus USD Sim fees as relevant remain as deductibles.  

FinCEN in 2019 did actually pull together some guidance that pulled in the Bank Secrecy Act and Anti-Money-Laundering regulations, but did not update it's core guidance (which was not particularly helpful) around virtual currencies.  So as it stands convertible virtual currencies definitions still do not fully align with Linden Dollars.  The categories around open-exchanges / open currencies etc I am not going into again here as above already mentioned how mangled those definitions were and it's no wonder that a level of confusion remains to those who are not certified tax experts (and even to those who are).  

Even you want to get into deeper reading you can take a look at how FinCEN's guidance was derived from the U.S. Securities and Exchange Commission's framework on digital asset-related activities back in April 2019 you'll see how far off the topic of how Linden Dollars (Tokens) being defined as a convertible currency are.

 

 

[jalardonis Darkwatch]

not sure what the legality is here, but i just received an email from some company I've never heard of called docusign, claiming i owe taxes on revenue gained in Second Life, guess im going to ignore it and assume its a scam as it did not come directly from linden labs or any official government email address... actually came from a .net email address which screams fraud to me. i basically run my sim as a non-profit. most of the money i make in SL goes straight back into the ungodly amount of money LL charges for land, and sim upgrades to keep my visitors happy, if im going to start getting taxed on money that's not even going into my pocket, i think I'm done with second life and linden labs for good.

Edited October 15, 2020 by jalardonis Darkwatch

[LittleMe Jewell]

43 minutes ago, jalardonis Darkwatch said:

not sure what the legality is here, but i just received an email from some company I've never heard of called docusign, claiming i owe taxes on revenue gained in Second Life, guess im going to ignore it and assume its a scam as it did not come directly from linden labs or any official government email address... actually came from a .net email address which screams fraud to me.

Yeah, I wouldn't trust that either.  The only organization that would actually claim you "owe taxes" is the IRS and they'd never notify you that way.

[Ultima Cloud]

7 hours ago, jalardonis Darkwatch said:

not sure what the legality is here, but i just received an email from some company I've never heard of called docusign, claiming i owe taxes on revenue gained in Second Life, guess im going to ignore it and assume its a scam as it did not come directly from linden labs or any official government email address... actually came from a .net email address which screams fraud to me. i basically run my sim as a non-profit. most of the money i make in SL goes straight back into the ungodly amount of money LL charges for land, and sim upgrades to keep my visitors happy, if im going to start getting taxed on money that's not even going into my pocket, i think I'm done with second life and linden labs for good.

The only way you'd get taxed from SL is if you withdrew net LLs and converted it to USD. Lindens just sitting in your balance cannot be taxed. At most it could be considered an asset but I don't think there are any laws requiring people to claim virtual property as assets.

[jalardonis Darkwatch]

yeah, i hope you're right. in my experience if the US government is going to tax income, they're going to tax everything they can obtain records of, otherwise a lot of people could use it as a loophole for tax evasion, but i also think there is a limit of like 10K USD before you have to start reporting for taxes and i know I've never pulled nearly that much out. im no tax expert by any means, but its definitely concerning for someone in my position who's sales barely cover the rent to begin with. hopefully, as LittleMe Jewell said, the email i got was just a scam... if it wasn't, LL should seriously reconsider their system for distributing such notices.

[bigmoe Whitfield]

here we go guys

 

http://wiki.secondlife.com/wiki/Linden_Lab_Official:Required_Tax_Documentation_FAQ

[Kyrie Deka]

 

6 hours ago, bigmoe Whitfield said:

 

http://wiki.secondlife.com/wiki/Linden_Lab_Official:Required_Tax_Documentation_FAQ

Good stuff!  And if/when I felt any of that impacted me directly, I would surely want to confirm IRS and therefore LL rules have not changed since:  This page was last modified on 10 February 2014, at 15:35.

Where was I in 2014 (besides here lol)?

[Charlotte Bartlett]

On 10/16/2020 at 1:32 AM, jalardonis Darkwatch said:

yeah, i hope you're right. in my experience if the US government is going to tax income, they're going to tax everything they can obtain records of, otherwise a lot of people could use it as a loophole for tax evasion, but i also think there is a limit of like 10K USD before you have to start reporting for taxes and i know I've never pulled nearly that much out. im no tax expert by any means, but its definitely concerning for someone in my position who's sales barely cover the rent to begin with. hopefully, as LittleMe Jewell said, the email i got was just a scam... if it wasn't, LL should seriously reconsider their system for distributing such notices.

There is no limit in the US before you have to start reporting for taxes, even if your income is zero and your tax payment is zero - you still need to submit your tax return.  
10,000 USD is a misnomer and I think you are confusing allowances and/or reportable transactions.      LL also report transactions as a Money Service Business that fall within certain parameters. 

For any amount you covert into USD you report that is income.
For any land payment or LL Fees you pay in USD you can report that as a deductible.
For ease it's best to (in line with the tax reporting calendar) ensure you bring any surplus Linden Dollars to zero and into USD on the final day so you have a "clean" reporting period for income and don't accidentally fall into the whole argument over "property/assets" / "what is a virtual convertible currency".

If you are paying for your land in Linden Dollars to another resident and netting to zero in-world (i.e. total sales are equal to, or are less than, your land rental payment in Linden Dollars) - you wouldn't have any USD income to report....how you do your tax return in that scenario is up for discussion still

Edited October 18, 2020 by Charlotte Bartlett

[Prokofy Neva]

On 9/29/2020 at 1:48 PM, Charlotte Bartlett said:

The answer to this on my return this year was No.  SL Dollars are not a virtual currency.    However all USD transactions with LL and Tilia are reported including sim payments and cash outs.

Yes, that's my response. It doesn't matter that the Linden is a "limited token to purchase virtual items," i.e. something like an old Sears & Roebucks green stamp.

What matters is when you cash out those Linden dollars, and what you have left over after paying tier, and what you send to PayPal. I report that as I would any other payment made to me for translation or editing or anything like that. To be sure, LL doesn't send us 1099s unless we pull out more than $20,000 per year. But since I have other customers overseas who don't give me 1099s, and even US clients, I just list it anyway. As a self-employed person, I can take percentages off of rent, publications, equipment, travel etc. At the end of the day, my income is low. Nobody is going to get rich off Russian translation these days, although it seems as if Russia is everywhere in the news. And Mainland rentals are lucky if they break even.

There is a limit for when the employer or client has to report a 1099. I think it's $600 a month. But as I understand it, you still have to report that income even if under $600. I suppose in theory you should show your revenue and expenses, i.e. tier against income. If they equal out or put you in the hole, do you need to report it? I suppose, if there is any advantage to reporting a business loss, like an unpaid invoice, of which sadly I have a number due to COVID. I agree with Charlotte that I don't know if anyone has burrowed down into the weeds of what this means

Edited October 22, 2020 by Prokofy Neva

[jalardonis Darkwatch]

yeah... now i have whitney linden sending my business account notecards inworld threatening to shut my account down if i do not respond to emails from a company i've never heard of, little lone entered a user agreement with. LL seriously, if any of your employees are reading this and any of this is legit, you should try contacting me in the manner your website says you will... by sending me emails from LindenLab email addresses directly, not through 3rd party companies i've never heard of.

 

[Gabriele Graves]

On 10/16/2020 at 9:59 AM, jalardonis Darkwatch said:

not sure what the legality is here, but i just received an email from some company I've never heard of called docusign

Docusign is a service to allow two or more parties to securely exchange legal documents to protect them from being intercepted.
In this case those two parties are LL and you.  The email originates from Docusign and then you use their web service to access the documents but it is done at the behest of the originating party which again would be LL.

I have used this service when needing to send my passport or driver license details to another entity.  You don't want those details being scooped up by some malicious email server and start to float around the internet.
 

8 minutes ago, jalardonis Darkwatch said:

yeah... now i have whitney linden sending my business account notecards inworld threatening to shut my account down if i do not respond to emails from a company i've never heard of, little lone entered a user agreement with. LL seriously, if any of your employees are reading this and any of this is legit, you should try contacting me in the manner your website says you will... by sending me emails from LindenLab email addresses directly, not through 3rd party companies i've never heard of.

 

Email isn't secure and nobody should be exchanging legal documents that way.  LL like many companies may not have their own legally secure document hosting service and so use a third-party who specialise in this and one of those is Docusign.

 

Edited October 23, 2020 by Gabriele Graves

[LittleMe Jewell]

10 minutes ago, Gabriele Graves said:

On 10/15/2020 at 2:59 PM, jalardonis Darkwatch said:

not sure what the legality is here, but i just received an email from some company I've never heard of called docusign

Docusign is a service to allow two or more parties to securely exchange legal documents to protect them from being intercepted.
In this case those two parties are LL and you.  The email originates from Docusign and then you use their web service to access the documents but it is done at the behest of the originating party which again would be LL.

I have used this service when needing to send my passport or driver license details to another entity.  You don't want those details being scooped up by some malicious email server and start to float around the internet.

@jalardonis Darkwatch - I completely missed the Docusign name in the post.  Docusign is legit and used by many businesses to send documents electronically - because email is most definitely NOT secure.

[Charlotte Bartlett]

On 10/15/2020 at 4:59 PM, jalardonis Darkwatch said:

not sure what the legality is here, but i just received an email from some company I've never heard of called docusign, claiming i owe taxes on revenue gained in Second Life, guess im going to ignore it and assume its a scam as it did not come directly from linden labs or any official government email address... actually came from a .net email address which screams fraud to me. i basically run my sim as a non-profit. most of the money i make in SL goes straight back into the ungodly amount of money LL charges for land, and sim upgrades to keep my visitors happy, if im going to start getting taxed on money that's not even going into my pocket, i think I'm done with second life and linden labs for good.

What document did they ask you to complete, was it a W9?

If it was a valid link you only have 30 days to complete or they can/will put your account on hold.

Rather than assume it’s not valid I personally would be protecting my account and raising a support ticket asking them to validate the from email address and document being requested as valid urgently.

 

Edited October 25, 2020 by Charlotte Bartlett