December 4, 2006
According to C|NET News, Congress and the Internal Revenue Service (IRS) may one day impose taxes on online gaming assets. That is to say, if you're a U.S. citizen, the zeny, gold, or rare items you accrue in game may eventually have to be declared on IRS Form 1099.
An underground economy
While such a measure may seem extreme, even far-fetched or ludicrous, a thriving underground economy - with real world money - has evolved around online games such as World of Warcraft (WoW), Everquest, and Ragnarok Online. Players with more cash than drive are willing to buy their way to the top of the game, often bidding on items sold via eBay or other online auction sites.
The willingness to pay hard cash for virtual assets has even led to game sweatshops, in which laborers level characters for profit or farm items to sell to others.
MMORPG trojans
These massive multi-player online role playing games (MMORPGs) have also led to a bevy of game trojans designed to steal CD keys or login credentials associated with popular online games. The stolen accounts are then harvested of their virtual money, equipment, and rare items and the virtual assets sold for real world dollars.
In the C|Net article, Dan Miller - a senior economist with the U.S. Congress Joint Economic Committee - hints that cybercrime might be part of the agenda. Given the difficulties of successfully prosecuting cybercrime, perhaps the intent is not dissimilar to the tax evasion charges that eventually brought down the legendary Al Capone, were part of the successful prosecution of John Gotti, and were leveraged (albeit unsuccessfully) against the Gambino family.
Far-fetched or short-sighted?
When viewed from this perspective, Miller's assertions may appear to have some merit. After all, if the trojan writer or bot herder can't be brought to justice for distributing malware, tax evasion might be the next best thing. On the other hand, when one considers who is doing the buying and who is doing the selling of these virtual in-game assets, Miller's vision may be severely short-sighted.
Game sweatshops are typically reported to be located in India, China, and Korea - thus outside of the IRS jurisdiction. The buyers, on the other hand, are presumably more likely to be U.S.-based. In order for Miller's plan to be successful for this aspect of the underground game economy, the buyer would have to be taxed for the real market value of the items. But even if this were to be the case, buying and selling of in-game items is considered a violation of most games terms of service, thus neither the buyer nor the seller is likely to offer up details - unless, of course, the seller is actually involved in a sting operation. In which case, caveat emptor - buyer beware.
Of course, the IRS could also insist that the game companies themselves track and report on the virtual assets of their players. But many players pay by cash, or have their accounts paid by in-game friends, or play on free servers. Thus one is left wondering exactly how even the game developers could match the virtual assets of their clientele to their real world persona. Further, many popular online games are developed and/or hosted by companies located in countries outside of the U.S., furthering the challenge.
The most viable IRS target then becomes the malware author or distributor of trojans designed to steal in-game accounts. This begs the question: if the IRS is able to bring even one of these miscreants to justice, is the tax change worth it? Voice your opinion.
