If you're a World of Warcraft or Diablo 3 player, the federal government would like to have a word with you. Congress's U.S. Government Accountability Office (GAO), at the request of Senators Max Baucus (D-MT) and Orrin Hatch (R-UT), just wrote and filed a 23-page report on the tax implications of earning gold in MMORPGs. Seriously.
The report, titled "Virtual Economies and Currencies," focuses on buying, using, and selling virtual currencies like WoW gold. The key takeaway for World of Warcraft players is that the in-game economy is a "closed-flow system" -- because you can't exchange your gold for U.S. dollars, you don't need to worry about claiming those 26 gold pieces from completing a quest on your 2013 income taxes. If, however, you decide to sell your accumulated WoW items through a third-party exchange (Don't do it! It's against the Terms of Service and could get you hacked!), then you "may have earned taxable income from the sale of these virtual goods."
Things get a bit more complex with a game like Diablo 3. That game is considered to have an "open-flow system" because you can easily exchange in-game currency for real-world money. And indeed, if you're cashing out of Diablo 3, the GAO would like you to know that you "may have earned taxable income" from that as well.
If the use of the weasel word "may" seems frustratingly non-definitive, it's because the IRS has never really addressed the issue of virtual currencies directly. The report admits that actually calculating the amount of profit you get from playing, especially when there's a monthly subscription fee in the mix, would be "difficult for the unsophisticated taxpayer."
If you'd like to read the full report, it's currently available on the GAO website (PDF). But the TL;DR of it all is that congress would like you Diablo 3 players to know that you probably owe a chunk of taxes that you'll be unable to calculate on your own. Thanks, Washington. Keep up the good work.
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