Virtual Tax Dollars

This is post is partly light-hearted, but also notes an area in need of guidance. I saw a Bloomberg News item in the Mercury News today (2/15/11, pg D3) on game-maker Zynga. It notes that people can play their Facebook games for free but the company makes money from people buying "virtual goods." That means people are spending real money buying pretend goods, supporting a viable company.

I think governments have missed opportunities here. Why don't they create web games where people can buy virtual items - a tax return showing you are a multi-millionaire? A private island? Pay your virtual accountant to prepare your return? Pay someone to set you up in a tax shelter? Perhaps the government could lower the deficit this way.

Well, it also reminds me that in 2006, the Joint Economic Committee issued a press release (10/17/06) saying that they were studying tax issues of virtual money and would issue a study. But it was never issued.

In 2008, the National Taxpayer Advocate's annual report to Congress included a section on the need for the IRS to issue guidance on virtual worlds. The report noted a "“serious problem” and that “the IRS should proactively address emerging issues such as those arising from “virtual worlds.”” (2008 Report, page 213-226) No guidance has been issued.

There are not only perhaps some money-making opportunities for the government with virtual items, but the need to update the tax law guidance to be sure people know possible tax consequences of playing virtual games, having virtual money, and more.