Linden Lab’s Tax and Account requirements have been baffling Second Life content creators and business owners for a while now. Initially Linden Lab were a bit slow with information regarding why they were sending people notifications that they had to file information. However Linden Lab got their house in order and provided a lot more information and these days they have some good resources.
Linden Lab are bound by US law to gather the required information. There’s a further issue for Second Life residents based in the USA :
Additionally, for U.S. residents with 200 or more transactions with a total amount in excess of $20,000 in a calendar year, we are required to file a Form 1099-K with the IRS reporting those transactions for that year.
Paypal are another payment processor, Paypal are also bound by the same US laws to gather information, as they explain here and this is where some people felt things may go a bit awry :
Under the legislation, we’ll report to the IRS the total payment volume received by US account holders whose payments exceed both of these levels in a calendar year:
- US$20,000 in gross payment volume from sales of goods or services in a single year
- 200 separate payments for goods or services in the same year
IRC Section 6050W applies to all payment processors, including PayPal. Our goal is to help PayPal sellers understand and comply with the new requirements.
This raised concerns on various Second Life related forums that there may be a possibility that an error could be made here, if a Second Life content creator who cashes out to Paypal filed a form for Linden Lab and Paypal, would the IRS miss the fact that it’s the same money. Surely that couldn’t happen? According to Hamlet Au over at New World Notes, it has indeed happened; Second Life Content Creator Couple Double-Taxed $66K by the IRS – Here’s How to Avoid That Fate.