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Anshe Chung Becomes First Second Life Millionaire?

Business Week and others are reporting that Anshe Chung, a Second Life character created by Ailin Graef (a teacher born and raised in China – now residing in Germany) has grown an initial $9.95 “investment” into virtual property worth and estimated $1M U.S. based on Linden’s most recent Economic Statistics.

She did this by buying large parcels of Second Life virtual real estate, subdividing, developing it (using Photoshop and other tools to add rivers, forests, mountains etc.) and selling off smaller plots to other Second Life residents.

Second Life’s in-game currency, Linden Dollars, can be converted into U.S. dollars.

Sources: Business Week | ValleyWag.com | Gamasutra | Sydney Morning Herald | GigaOM | TheStreet.com | Red Herring | CNet Blogs | GameSpot | *CNN Money |Ailin Graef Press Release

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Australian Tax Office Will Tax Income from Virtual Transactions

A spokesperson for he Australian Tax Office, in what is probably a world first, has said that if a virtual transaction has real world implications – if it can be attributed a monetary value – it attracts the attention of the Tax Office. In her words:

“The real world value of a transaction may form part of your taxable income, even if it is in Linden dollars,”

Australia seems to be heading in a different direction on this issue as the U.S. is based on Representative Jim Saxton has recently said.

Dale’s Comment: Frankly this makes complete sense to me. I see no reason to make a distinction between real-world revenue generated from virtual activities and any other income.

Sources: TheAge.com | Kotaku | nzherald.co.nz | TaxNews.com

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Representative Jim Saxton Believes Taxing Virtual Economies Would be a Mistake

JEC Press Release The Chairman of the U.S. Congressional Joint Economic Committee (JEC), Jim Saxton, believes taxing virtual economies would be a mistake. The goal of a forthcoming JEC study is to head off any premature attempt to impose tax on virtual economies.

[November 9, 2006 Update: Despite heavy Republican House losses in the November 7 midterm elections, Rep. Jim Saxton held his seat and won for a 12th term.]

Sources: GamePolitics.com | Reuters | nzherald.co.nz | TaxNews.com

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Is an Eve Online Ponzi Scam an Actionable Fraud or Taxable by IRS?

Gamer’s with Jobs has a very interesting article about a recent Eve Online virtual ponzi scheme where ‘Dentara Rast’, the gaming name of an Eve Online player, scammed 700 billion ISK (the in-game currency) from other players. Given that ISK is convertible into real-world currency, making his ‘winnings/earnings’ from the scam roughly equal to $81,667 USD, would the other players have an actionable real-world fraud claim against the player? Are his ‘winnings’ taxable by the IRS? If Dentara Rast does not convert his winnings into cash, are his winnings taxable on the same theory as unrealized capital gains from exercised stock option purchases? Does Eve-Online’s EULA, claiming ownership rights to all in-game property, affect the result given that ISK is bought and sold on e-Bay in contravention to the EULA? Or, does the voluntary participation of other gamers in the free-wheeling, unregulated, world of Eve Online, comprise implicit consent (as with a poker-player’s implicit consent to being lied to by another player that bluffs) to in-game fraud and other shenanigans that would be illegal in the real world? All interesting questions explored in this article.

Sources: Gamers with Jobs | Joystiq | CNet | Gaming Insider | Gamasutra | Game Politics | Google Cache | Dentara Rasts Downloadable Confession