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Virtual Economies, Real Bureaucracy

Scientific American weighs in with this month’s “OMG THE IRS WILL FIND OUT ABOUT MY EPICS” story, this as much other mainstream media interest apparently driven by Second Life’s relentless publicity machine. (The story refers to Second Life and World of Warcraft consistently in that order, for example.) This one is different in that instead of just dipping into the Terra Nova rolodex, the reporter interviewed Sam Lewis, an MMO designer who used to be an actual economist.

The rapid emergence of virtual economies has outstripped current tax law in many areas, but there are some clear-cut guidelines that already apply. For example, people who cash out of virtual economies by converting their assets into real-world currencies are required to report their incomes to the U.S. Internal Revenue Service or the tax authority where they live in the real world.

It is less clear how to deal with income and capital gains that never leave the virtual economy, income and capital gains that in the real world would be subject to taxes.

“Let’s say the IRS decides they want a valuation of your assets. We don’t have a stock market where we can as of the 31st of December, these assets went up, these went down,” Lewis said.

Later in the story, the real horror:

“I found that talking about this issue with some of the other economists on the committee, they are not really familiar with what a virtual economy is. The idea of Second Life or World of Warcraft or some of these other synthetic universes, they have trouble wrapping their head around it,” [Dan Miller, senior economist for the Joint Economic Committee of the U.S. Congress] said.

However, there are probably some on Capitol Hill who won’t require much explanation. “I can almost guarantee that there are some members of Congress spending time in Second Life or World of Warcraft,” he said.

Well, where ELSE are they going to keep track of their pages?