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Tuesday, June 18, 2013

GAO Report on Virtual Economies and Currencies - GAO conference call on June 19

This week, the GAO released a report on a lurking e-commerce taxation topic - Virtual Economies and Currencies - Additional IRS Guidance could Reduce Tax Compliance Risks, GAO-13-516 (May 2013).  

The topic might seem odd at first because "virtual" means the opposite of "real." Is there tax on unreal things? Yes, there can be, and there might be other tax issues as well. Here are a few that I've been noting in presentations for the past few years: 
  • How and when do events and transactions in virtual worlds generate tax obligations? 
  • Is any of the bartering for virtual items taxable? 
  • Are virtual game players “in business”? 
  • Are “virtual” items “property”?  If yes, how valued?
  • Reporting obligations.  For example, PLR200532025 addresses 1099 filing for an operator of online game-playing tournaments 
  • Location of transactions 
  • Any foreign currency issues?
The report refers to "closed-flow" and "open-flow" arrangements. Closed-flow is like playing the game of Life (the Milton Bradley board game).  You may become a millionaire, but as long as it is all play money and you are not paid or able to exchange anything for real money, there are no tax consequences. In an open-flow arrangement, real money, goods or services enter the picture, as do tax consequences.

I'll have more on the report and topic later, but want to note that there is a conference call scheduled by GAO for June 19.  Per an email message I received from GAO: 

"On June 19, 2013, GAO Director Jim White will respond to questions about our report on bitcoin and taxes. There is no need to respond in advance and participation is open to all.

When:  Wednesday June 19, 2013, at 2:00pm ET 
How to Submit Questions: Users may submit questions in advance by emailing them to AskGAOLive@gao.govDuring the chat, users may submit questions in three ways:
·         Email:

·         Twitter: use the hashtag #AskGAOLive, or
·         Ustream: use the chat box next to the video.
    Also, please note that Internet Explorer v.7 and earlier cannot view the chat, so it’s best to use IE v.8 or 9 or another browser such as Firefox, Chrome, or Safari to participate."

So, check out the report and June 19 call and come back here and post your comments.  Thanks.

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