Linden Lab Issuing W9 Tax Information Requests To Some Customers

A thread over at SLUniverse brings to light the issue that Linden Lab have apparently started to issue W9 Tax Information requests to certain customers. The information is patchy but evidence of the form is posted there.

The purpose of this request does not seem to be visible anywhere on the Second Life website, but information regarding the law can be found on the Paypal Website :

“Internal Revenue Code (IRC) Section 6050W states that all US payment processors, including PayPal, are required by the Internal Revenue Service (IRS) to provide information to the IRS about certain customers who receive payments for the sale of goods or services through PayPal. PayPal is required to report gross payments received for sellers who receive over $20,000 in gross payment volume AND over 200 separate payments in a calendar year.”

Linden Lab must therefore fall into the category of being a payment processor for the purposes of this law and it seems they are now requesting the required information, but there’s confusion as to when a customer crosses the threshold to fall into this category for Linden Lab to issue the request. Some people are reporting that the threshold is much lower than the requirements stipulated by the IRS.

If this is true, Linden Lab would not be the first company to do this, back in 2011 ecommercebytes reported that payment providers were lowballing IRS thresholds for 1099-K Reporting. In response to a seller’s question asking why Amazon had thresholds as low as 50 transactions instead or the required 200 Amazon said:

“The IRS requires that Amazon aggregates sales of sellers with multiple accounts, each of which alone may not meet the reporting threshold. Under IRS rules, the only way to definitively know whether accounts are owned by the same seller is to ask for tax identity information. Thus, we are doing everything we can to meet IRS requirements while still asking the fewest sellers necessary for their tax identity. We have crafted our policy with the help of our tax advisors and the IRS.”

So it may well be that as in Second Life you can have multiple accounts, Linden Lab are setting a lower threshold so as they can cross check the information too. Whereas these requests from Linden Lab may come as a surprise to merchants and business entities, the bigger surprise is that it hasn’t happened sooner. Steam have information regarding transactions for sales on their community market and as far as I can tell, you can’t withdraw money from your Steam Wallet:

Will you be providing 1099’s based on my transactions in the Community Market?

“The United States Internal Revenue Service requires us to report gross sales for, and provide IRS Form 1099’s to, only those subscribers who are U.S. citizens or residents and who exceed 200 sales transactions in a calendar year and also exceed $20,000 in gross sales proceeds from those sales transactions in that same calendar year, from all of that subscriber’s accounts. If you are a U.S. citizen or resident and exceed both of these thresholds, we will report the amount of gross sales to the IRS and provide you with Form 1099.”

However we’re back to the old communication issue with Linden Lab, people don’t understand why the Lab are asking for this information, there’s no blog post, there seems to be no information in the knowledgebase or wiki whereas sites like Amazon, Paypal and Steam do have information regarding this. Therefore people are suspicious or wonder whether it’s a phishing attempt.

The good news is that this just shows Linden Lab are as a company following their obligations and goes a long way to explaining why cashing out from Second Life isn’t a problem, LL have the resources to check everything correctly whereas smaller ventures find this additional work too large a burden and therefore won’t allow cashing out.

However, Linden Lab really should be communicating this all a lot better. They are doing the right thing here, just not in the ideal manner.

Tweet