Well, I found the answer to my issue anyway. As far as i can tell, gross proceeds includes every linden transaction in second life, if someone is giving you lindens for your sim and you process that to USD that counts as profit on your taxes.This changes things quite a bit.
I was also sent this:
Please be advised that the IRS reporting requirements for Second Life are based on Lindex sells to your USD balance.
To receive one:
* You must have had at least 200 transactions in the previous year, whose total value is equal to or greater than $20,000
* Your gross proceeds from those transactions exceed the state's threshold (see below for variations by state)
State thresholds:
Arkansas (AR) - $2,500
District of Columbia (DC) - $600
Massachusetts (MA) - $600
Mississippi (MS) - $600
Missouri (MO) - $1,200
New Jersey (NJ) - $1,000
Vermont (VT) - $600
All other states - $20k