Linden Lab have been asking certain residents to supply tax and account information for over a year now. These requests have caused confusion and annoyance for Second Life residents who were not familiar with such requirements.
I should point out here that there are different triggers for tax and account information requests, whereas there does appear to be a lot of overlap, they are not both solely for tax reasons. The blog post I’ve linked to above and the links there provide extra information and it’s information that Second Life and virtual world business owners beyond Second Life should pay attention to.
Another issue with Second Life, virtual worlds and many online money earning opportunities is that people at times seem to think their income is outside of taxation, it’s not. Although obviously your local laws will take precedence, taxation is an area you should pay attention to.
As an example I’m going to highlight a case, albeit at the extreme end of the spectrum. The Wall Street Journal reports : How Cheating on Your Taxes Can Lead to Prison. This is a tale of woe that involves a US citizen opening a Swiss bank account and not declaring he had over $10,000 in said bank account, which is apparently a legal requirement in the USA.
However later on he was advised by a lawyer to declare his past income, in what the linked article describes as “Quiet disclosure“. However he failed to declare his income from Second Life, which between 2007 and 2013 was estimated at over $140,000. This has proven to be a very costly mistake, in more ways than one.
The man concerned was earlier this month sentenced to four months in prison, to be followed by two years of supervision and 200 hours of community service. The article suggests that not declaring his Second Life income would have annoyed the authorities. That’s because he had been advised to declare his past arrangements and had the chance to come clean, by not doing so, he appears to have put himself in a worse position than he may have been in.
However, why did he not declare his Second Life income? The linked article quotes him as saying that at the time there was some confusion as to whether income from Second Life was taxable. I’ve seen this argument played out on many forums and blog post, but this case suggests very clearly that this sort of income is taxable.
I don’t know all the ins and outs of this case but such a large sum of money should surely have rang some alarm bells that tax would be due. There may be mitigating circumstances here, as I said I don’t know all the ins and outs.
However the moral of this story is a clear one, if you’re making money from Second Life or other virtual worlds, ensure that your tax affairs are in order. The future of virtual worlds are likely to include virtual commerce, more regulations are likely to arrive, make sure you’re aware of them because ignorance won’t be a good defence.
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