Tag: Tax

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.

Continue reading “A Cautionary Tale Of Why Virtual World Income Is Very Much Taxable”

Back in March the IRS issued more guidance on virtual currencies in the guise of Notice 2014-21. The purpose of this notice is to provide some answers to frequently asked questions regarding virtual currencies. One of those questions for those of us who use virtual worlds is whether Linden Dollars are actually a virtual currency, the answer remains unclear. However over on Forbes Peter J Reilly blogged : Bitcoins Not Tax Fairy Dust – Second Life Still A Tax Haven?

Bitcoins are specifically mentioned in the IRS document, Linden Dollars are not. However it’s the scope of the IRS notice that makes some people believe that Linden Dollars do not fall within the tax bracket :

In general, the sale or exchange of convertible virtual currency, or the use of convertible virtual currency to pay for goods or services in a real-world economy transaction, has tax consequences that may result in a tax liability. This notice addresses only the U.S. federal tax consequences of transactions in, or transactions that use, convertible virtual currency, and the term “virtual currency” as used in Section 4 refers only to convertible virtual currency. No inference should be drawn with respect to virtual currencies not described in this notice. 

The Treasury Department and the IRS recognize that there may be other questions regarding the tax consequences of virtual currency not addressed in this notice that warrant consideration. Therefore, the Treasury Department and the IRS request comments from the public regarding other types or aspects of virtual currency transactions that should be addressed in future guidance.

The part of the scope that Peter J Reilly feels leaves the Linden economy unmolested is with respect to payment of goods or services in a real-world economy transaction. This is not unusual, when I raised the issue of VAT within Second Life with the UK tax officials at HMRC I was informed that transactions that take place entirely within a virtual world are outside the scope of VAT, in other words, VAT did not apply to inworld transactions with Linden Dollars when I queried HMRC, which is just as well as Linden Dollar transactions would cause a mighty headache for Second Life merchants if they were within the scope of VAT.

However grey areas do remain and one can’t help but feel that things will change in the future.

Continue reading “Virtual World Currencies Continue To Pose Tax Headaches”

I’ve previously blogged about the confusion regarding Linden Lab’s requests to users regarding tax and account information. A big part of the confusion came from people being sent requests for information that they had never been previously asked for by Linden Lab and wondering what it was all about and what exactly they needed to do.

Yesterday Linden Lab posted an updated blog post about the issues, but more importantly that blog post includes links to two very useful FAQ’s:

Linden Lab Official:Required Tax Documentation FAQ

Linden Lab Official:Required Account Documentation FAQ

As you can see there are two links, this is because people can be asked for additional information for different reasons. The tax documentation is a requirement via the IRS and as explained in Linden Lab’s original blog post, will be sent when people reach certain transaction thresholds via processing credit and sales on the LindeX. Linden Lab are required to file a 1099K for US residents who make more than 200 transactions and those transactions in total are above USD$20,000.

If you’re not a US resident then LL are not required to file a 1099K on your behalf, but if you’re getting the tax documentation request it probably means you’ve crossed the US resident threshold and they require the documentation to explain why they didn’t file a 1099K on your behalf. They need to know you’re not a US resident.

One important point to note is that if you have several Second Life accounts, their combined activities are counted. There are more important points to note, merchants should familiarise themselves with these requirements as one day, you may need to provided information to Linden Lab.

Another important point to note is that the 1099K Linden Lab file is not the same one Paypal will file. There is going to be some double reporting, I’m not at all sure what people will have to do in these circumstances but I’m sure the IRS will be able to help.

Whilst looking into this issue I discovered this was a standard threshold on services such as Paypal and Steam too, so this is something that has been on the cards. The difference was that Paypal and Steam provided a lot more information on this matter, so it’s good to see Linden Lab providing a lot more information now.

Continue reading “Linden Lab Provide Tax & Account Documentation FAQ’s”

I’ve mentioned Inara Holmes before and today I receive news, via telegram of course, that she has helped to solve the mystery of the Second Life tax and account information forms. Inara was able to solve the mystery of whether people needed to put an Individual Tax Identification Number (ITIN) or an Employer Identification Number (EIN) on the forms sent by Linden Lab. The reason people were pondering this was because other companies require this information or those companies may withhold some income.

Inara, and her old buddy, Gray Of The Lab from San Francisco, have managed to clear matters up. Peter Gray responded to Inara’s query, again by telegram and Inara shared that information:

The users whom we have asked to submit the W8-BEN need only complete the fields in Part I, #1-5 (which does not require an EIN nor an ITIN).

We regret the confusion this form has recently caused for some users. To help avoid this confusion moving forward, we’ve uploaded a new version of the form that allows users to complete only the necessary fields and will update the messages sent to users when this information is requested.

So here’s the bottom line, as it currently stands, people do not need to worry about providing an EIN or ITIN for Second Life purposes. Whereas some people may frown about this and wonder why, the simple fact is that they are not currently required which makes filling out the form much easier for everyone.

Continue reading “Inara Holmes And Gray Of The Lab Solve The Tax And Account Form Mystery”