Death and something, *ponders*...

[Klaus]

The problem is that the IRS did in fact get a clue. If people are generating income for themselves through selling in-game items for real-life cash, then an investment market has been created. Just as the infomercial proclaims, trading currency can make you money by playing the exchange rate (using the standard buy low in order to get more dollars for your euro, and sell high when the rate swings and you get more euros back than you started with approach). Just because your WOW gold is only important in a virtual realm, it still can be used as an investment to play the exchange rate game.

If the tax code will be enforced on income generated in a virtual realm, then it should also recognize loss from that same virtual realm. If the sale of collectables and art must be claimed in terms of capital gain income, so should the sale of virtual items for real cash. The thing to remember is that income is only taxed when it is earned, and in the case of capital accumulation, this would be at the time of sale. So it seems to me that the accumulated online wealth is not so much in jeapardy as is the trading of such wealth for real world cash.

To be honest, if the IRS wants to tax me on the money I make when I sell that Krol Blade for real world cash, I would have no problem with that. As soon as I convert in-game items to real-world money, I can see paying tax. But charging me tax on the "fair market" value of the Krol Blade when I loot it is (I think) totally stupid.