The Lawbringer: Mailbag 7.0
by Mathew McCurley 
Oct 24th 2011 at 5:00PM
Wow! Did you see all those cool announcements and awesome World of Warcraft news items that we are currently reporting on? Me too. I'm writing this article much earlier than BlizzCon, so you'll have to excuse my lack of foresight. How about we mailbag us some Lawbringer questions?
Albert wants to know what's up with gold sellers stealing gold and why Blizzard can't just track it and remove it. Seems simple, right?
Hello, love your column. I was wondering if you can explain something. When these gold sellers hack someone's account and move their gold, can't blizzard track where the gold is going and just claim it? I mean i assume they have the tools to do anything in game, they are god. Seems simple enough to do, i got hacked, see where gold went, take it back. do it for a few months and done. am i missing something?Thank you for the email, Albert. It probably is not that tough to track currency moves and associated transactions, but it's really about the volume of text and transactions that go on at any given time. It must be hell to search through all the records to find this stuff, even if you know the name and server that people are on.
Thanks in advance,
Albert
The real issue, however, is who really should be punished for the gold selling industry. Do we punish the players for buying gold and take away any ill-gotten currency? Do we punish the gold sellers themselves and ban their accounts when they are proven to be slinging fraudulent gold? Blizzard has chosen to go both routes on occasion, citing player bans for the disruption of the economy and mass banning gold sellers and hackers.
So, really, it's not so much that Blizzard wouldn't want to take away ill-gotten gold and punish the people profiting off of gray-market gold sales but that it is a logistical nightmare. The CS team already works hard to handle the volume of calls and complaints that come in because of gold hacking. Blizzard would have to hire a whole team of dispute resolvers to deal with tracking down, reading logs, and taking action. Expanding the CS team isn't a great idea for a game like WoW because, once the problem becomes under control in some other way, you have to then downsize the departments you already grew, and that kind of sucks.
Buying something that's not for sale
Here is a cautionary tale from reader Jon that lets you know that it is not OK to purchase Blizzard Pet Store pets with in-game gold (except the new, as-of-yet unreleased Guardian Cub).
Dear Mat,I'm sorry to hear about your situation, Jon. Buying anything in trade chat for gold that isn't something you can immediately trade to someone is against the Terms of Service and should not be done. Remember kids, just because something is for sale doesn't mean you should buy it. What's interesting is the odd message the new companion pet, the Guardian Cub, sends to players who are already purchasing these pet store mounts and companions for gold in game.
I wanted to share an experience that I just had, and hopefully you can share it with the other readers so that they don't become the victim of a scam like I did:
I have seen in the past someone in trade chat offering to sell the Blizzard pet store pets for gold, and I had bought a pet before in that method. It worked out and I still have that pet on my account to this day, so when I saw the opportunity to buy another pet in the same manner I took advantage of the offer and bought a second pet. It worked just as before and I had that pet on my account for almost 8 hours. As you can guess I logged out, and when I came back later, it was gone. I immediately opened a ticket with a gm and received a form letter that basically said that I would not be receiving my gold back (4k) as it was a non-supported transaction. In reality I knew that it was a gold seller who I was dealing with, however I honestly thought it was a blizzard sanctioned action as I was buying a virtual item (pet) for a virtual item (gold). The form letter I got back cleared up my misconception that it has to be a BOE virtual item like a TCG code for gold in order to be a sanctioned maneuver.
So long story short, it's not worth it to deal with a gold seller. You may get lucky and not get ripped off like I did the first time, but it will most likely bite you in the behind if you keep at it long enough. Anyway I hope you can share this in your next Lawbringer column as a cautionary tale for the rest of the readers.
Jon
After the Guardian Cub hits the store, people will have the innate, new perception that pets from the store are available for gold. It seems odd that we would have to delineate, especially since trade chat will still be full of credit card thieves selling mounts and pets that are not sanctioned to be sold for gold in game. "No, you can sell this but not this" is a hurdle for many casual players and a bit of a leap in logic that not everyone could be clued in on.
In light of the new pet, I hope that Blizzard puts out some sort of public service announcement about buying mounts and companion pets in trade chat and warns people of the credit card fraud that goes along with these purchases. More needs to be said about this particular aspect of the gold selling industry.
Adam Holisky, one of your stalwart editors here at WoW Insider, wanted to know about declaring income for the Diablo 3 auction house.
@adamholisky Am I going to need to declare the income (for tax purposes) off the D3 RMT AH if I make more than $650?You will certainly need to report income that you make from the Diablo 3 auction house along standard auction site protocol. The most amazing (and probably pragmatic) secret about the Diablo 3 auction house is that it will most likely follow standard auction protocol via the eBay way. I documented this whole phenomenon in my Lawbringer article about the relationship between Blizzard and PayPal, which you should take another look at.
What fascinates me is how this all just works from a conceptual standpoint. It's so simple. Since Blizzard is only acting as the auction facilitator, its reporting responsibilities are much lower than if it were handling the money aspects. Things get a bit dicier when you start talking about realized income.
The very basic definition of realized income is income that you have earned and have available that has manifested benefit to you. When you put money that you have made from Diablo 3 into your "Battle.net Wallet" (or whatever Blizzard ends up calling it), you can then spend that money for real digital products. Is that money realized income even if you didn't get it in cash form?
I went to do some quick research on a potentially similar topic -- gift cards. Are gift cards realized, taxable income? It looks like gift cards are taxable between an employer and employee, when an employer gives an employee a gift card as a gift, as opposed to a gift from one person to another, which isn't taxable because it's a gift. That's all way too simple for the actual answer, so I'll do a whole Lawbringer on it at some point. Until then, yes, there are issues, but I'm pretty sure Blizzard has a way to deal with it, just like it has PayPal taking care a lot of the issues we once thought were going to be hot problems.
Take care all, and I hope you are all enjoying BlizzCon coverage.
This column is for entertainment only; if you need legal advice, contact a lawyer. For comments or general questions about law or for The Lawbringer, contact Mat at mat@wowinsider.com.
Filed under: Analysis / Opinion, The Lawbringer
Reader Comments (Page 1 of 3)
DrHogie Oct 24th 2011 5:08PM
I'll throw this out there:
I haven't read anything in detail on the whole "Battle.Net Wallet" deal -- but I'd guess the wallet is an escrow account. That is: Blizzard is holding the money for you, but until the money hits a bank account of your own, it's not reported income. If you receive, say, $2,000 on the AH and spend it all back in, you earned nothing. If you receive $2,000 on the AH and withdraw it, that is realized income and you'd have to 1099 it I'd imagine.
I'm no CPA, but that makes sense to me.
chrisdick Oct 24th 2011 5:28PM
Just like Ebay, whether you actually had physical money or not does not matter - what matters is what you have sold, and therefore 'earned', that becomes taxable.
You could sell $10,000 worth of Diablo items, and buy $11,000 worth of items - but guess what - you are still owing the IRS taxes on $10,000 of 'earned income'. It matters not what you buy.
If you are buying/selling items Fulltime, and can prove that is a business venture, you can claim certain tax deductions, but only a percentage of deductions.
The BIG question as I see it - is what sort of position is Blizzard going to be in? Are they going to be requiring you to submit your social security (or SIN in Canada) as part of a future change to the "Terms of Service" - thereby refusing you access to your Diablo game until you do submit your #? Is your Social Security # really something that Blizzard should be requesting from you, or demanding from you - AFTER you have already paid for the product?
There are a number of legal issues that are going to arise from this version of an AH, and to me, it sounds dangerous, scary, and information that is none of a game company business is going to be forced down the players throats, whether they like it or not.
The Dewd Oct 24th 2011 5:32PM
Well, the other question is - what happens when you have $180 in your battle.net wallet and you use that to pay for a year's worth of WoW. Unless they've changed their tune, that is one option for you to use with your D3 AH proceeds.
Technically, you haven't actually gotten any actual money out of the deal - and the virtual money in your wallet might not be worth anything until used - but you have now used that virtual currency to buy a subscription that does actually cost money when purchased from the "outside". Unless Blizz pulls a fast one and can prove that your subscription has no real world value, I would assume that you, technically, could be taxed on it - once you spend that money on your subscription. It seems pretty complicated, especially if they make the case that paying $15/month of battle.net wallet currency is really only buying you $5/month of subscription due to the lack of processing involved with billing your credit card.
(I, also, am neither a lawyer nor a CPA.)
chrisdick Oct 24th 2011 5:46PM
Dewd,
Sorry - but on the issue as you stated it - that is a tax implication of Blizzards - they have earned the money - whether real or not - it is considered Earned.
As a player, it still does not matter what you are buying - what matters to the IRS is what you have EARNED. You have to keep this distinction separate. Whether you choose to spend your EARNED money/funds/currency or not, is a choice. The fact that you EARNED it, automatically makes it a tax issue for the IRS. Same as a real job. You got paid $2000, but whether you banked it, spent it, or stuck it in the mattress, it is the earning of this that matters. Same with the real life AH - the earnings are what matters, not how you spend it (or do not spend it).
kevin.luang Oct 24th 2011 9:16PM
So, do you get taxed in America after you've earned $650 on a particular endeavor? Or do you pay taxes over all of your income after $650?
Apple Oct 25th 2011 12:55PM
Keep in mind when sussing this out: players cannot freely pull money out of their Battle.net "wallet". The only options on the RMT auction house are to cash out the transaction immediately (which is a fair bit cleaner, legally speaking) or put it in the wallet, where it can only be spent.
This system rather neatly avoids the circumstance where Blizzard becomes some kind of international Nerd Bank of deposits and withdrawals.
JMoyers Oct 24th 2011 5:24PM
@DrHogie - hey, I happen to be a tax attorney, and I know the IRS determines income by the concept of "constructive receipt." That is, when you have the right to receive funds, you have constructively received them, whether or not you actually withdraw them. That is why a paycheck directly deposited to a checking account on December 31 is income in that year, even though the recipient did not withdraw it from the account until the next year. It is still his right to withdraw it on Dec. 31, and therefore income in that year. I must believe that any real world right to withdraw cash from this battle.net wallet would also have to be treated the same way. Frankly, I am not inclined to play Diablo 3 because of the potential income ramifications. Unfortunately, tax law generally lags 20-30 years behind the current state of technology and the economy, and I don't know when, or whether, congress and the IRS will address the issue of when virtual money becomes real taxable money, or how the exchange rate between virtual money and real money will be determined
Just my (virtual) 2 cents.
synthparadox Oct 24th 2011 5:29PM
I heard somewhere that at time of sale you have to decide whether or not its going into real money or back into Blizzard. This would alleviate the issue since withdrawn cash is not held in a virtual wallet and money in the virtual wallet would not be able to withdrawn.
Suzaku Oct 25th 2011 5:54AM
"Frankly, I am not inclined to play Diablo 3 because of the potential income ramifications."
Just to be clear, you actually do not have to use the RMT auction house at all. They will have Diablo III servers where all RMT functions are disabled.
Los Oct 24th 2011 5:26PM
What blizzard should do is to capture all of the money that gold farmers have been hoarding and then cut a check (in game of course) to all the payed subscribers. :)
Aftermathmatical Oct 24th 2011 5:28PM
With Jon's story. How did he get the pet and it dissappear? Was that a hack? Was it a dupe (like from diablo in the old days) I haven't heard of that. Or did I read that wrong..
Crispn Oct 24th 2011 5:31PM
Blizzard took it
The Dewd Oct 24th 2011 5:32PM
The standard theory is that the goldfarmer/hacker has a stolen credit card number and sold a pet code that was processed on the battle.net store using that card. At some point the card is either denied or the charge is challenged and as the dominoes fall backwards, Blizzard removed the pet from the account because it wasn't ever actually paid for.
The pet that he got to keep probably was either a "semi-legit" transaction (i.e. not a stolen card) or the charge never got challenged by the cardholder.
mem0ryburn Oct 24th 2011 6:15PM
In that second story he admits to knowing he was dealing with a gold seller.
Also if he was up to date enough to know blizzard is doing the sellable guardian pet then he has no excuse not to know that other blizzstore pet sales are not sanctioned.
Can't even believe that letter was printed unless it was just to let him feel like an idiot.
Joseph Smith Oct 24th 2011 10:10PM
More likely Mat printed the letter as a warning to others, so that those who don't know that it's not a valid transaction, or those that do but think they can still get away with it will learn that it isn't, and what the consequences may be.
Susinko Oct 25th 2011 11:08AM
Reading about not buying pets in trade chat stunned me. I always figured it was from players with real life money, but little time to play and make gold to buy cool things, like craftable weapons and the flask that turns you into a dragon. In that way, I have no problem with buying a Pet Store pet because the opposite is true for me. But now I know, and knowing is half the battle!
Mir Oct 24th 2011 5:36PM
Virtually no one will need to report income for Diablo 3. It's not as simple as saying "I sold $1000 worth of gold on the AH, so I need to report $1000 income." That's the revenue side of the equation. What about expenses? If you are supposed to treat this as a home business, portions of your internet connection, housing expenses (heat/hydro/rent or mortgage etc), computer hardware and software costs and about a dozen other things could be written off. If the IRS/CRA came back at you one day and demanded you include that as income, they are likely actually doing you a favour. Unless you are making upwards of 20K/year off Diablo gold (very very very unlikely given the number of people and companies eyeing this market...will be a total glut of supply and not enough demand) you would end up having a tax writeoff instead of income.
dmoyers11 Oct 24th 2011 5:52PM
Not to split hairs about this too much, but from a legal standpoint, the practicalities of reporting are not at issue. You are correct about the home business write offs to a certain extent, but the law (IRC Sec. 61, or 26 USC 61) basically defines income as anything of value you receive from any source (heavily paraphrasing). There are certain exceptions, such as gifts or inheritances (that is why you don't have to declare Christmas or birthday gifts as income). But unless there are such statutory exemptions, virtual income that you have the right to exchange for real world money is reportable income, whether or not you actually receive it or turn around and spend it on other virtual items. It would be up to the recipient to claim those home business deductions and face the possibility of IRS audit to prove them.
Frankly, I don't think it is worth the potential hassle just for a game, which is why I plan to give Diablo 3 a miss until these issues are worked out, or until it is sold for extremely cheap on http://www.gog.com :)
Sally Bowls Oct 24th 2011 8:59PM
I think you and others are confusing income reporting and income tax liability. If you make $11,000 and had $11,000 in expenses, then there will (probably) be zero tax liability. But you still have to report the income. Just because you know there is an 11k deduction to offset the income does not give you the right to not enter the 11k income.
*re probably: If you win a million dollars on Monday and lose a million dollars on Tuesday, then you need to show both on your taxes and they net out. But your tax bill probably increases since you may lose some deductions since you now have over a million dollars in income.
Amaxe Oct 25th 2011 12:15AM
I'm thinking Blizz will have to at least fill out paperwork for who earned how much (like the W-2 form).
If I'm wrong and they don't have to, I guess I don't understand how the IRS can track the income.