> Digital assets are any digital representations of value that are recorded on a cryptographically secured distributed ledger or any similar technology. For example, digital assets include non-fungible tokens (NFTs) and virtual currencies, such as cryptocurrencies and stablecoins.
Obviously, V-Bucks are not a "representation of value" and are not "recorded on a cryptographically secured distributed ledger or any similar technology".
> Obviously, V-Bucks are not a "representation of value" and are not "recorded on a cryptographically secured distributed ledger or any similar technology".
Neither of those things are at all obvious. They are very much a "representation of value", and for all I know Epic might record them in a cryptographically secured distributed ledger (indeed that seems like a pretty good idea for resilience).
I don't think the full text is at all unclear. It effects cryptocurrencies. Pretty simple. Loot boxes won't apply. Why? They are not based on technology derived from Bitcoin.
No one is saying that loot boxes and what-have-you aren't problematic. But it is only mildly relevant.
> Virtual currency is a digital representation of value, other than a representation of the U.S. dollar or a foreign currency (“real currency”), that functions as a unit of account, a store of value, and a medium of exchange. Some virtual currencies are convertible, which means that they have an equivalent value in real currency or act as a substitute for real currency. The IRS uses the term “virtual currency” in these FAQs to describe the various types of convertible virtual currency that are used as a medium of exchange, such as digital currency and cryptocurrency.
Video game currencies are (generally, if your game lets you convert the in-game currency to USD you might actually want to report it) NOT:
How is a gift card that lets me buy virtual costumes not a "a store of value and a medium of exchange?" It's literally a medium that is accepted as payment for clothing, dance moves, music etc in the store. Kids are doing chores in exchange for vbucks. They can take that gift card and sell it to a friend for USD.
On that note, where does it say it needs to be convertible back into USD? It's only "unconvertable" once its redeemed.
Plus, you can always sell your account, despite it being against TOS.
Obviously the IRS doesnt care one way or another if the value of the vbucks is pegged or inflates, as there would be no capital gains.
> Virtual currency is a digital representation of value, other than a representation of the U.S. dollar or a foreign currency (“real currency”), that functions as a unit of account, a store of value, and a medium of exchange.
This implies that things that aren't virtual currencies can still be a "representation of value".
> Video game currencies are (generally, if your game lets you convert the in-game currency to USD you might actually want to report it) NOT:
> 1. A store/representation of value
How are they not? Certainly under the plain face meanings of those words they are. There's a reason we call them "currencies".
Interestingly enough, V-Bucks were _specifically_ included in the original wording you quoted [1]. The IRS said it was in error, but a spokesman was fairly evasive [2]:
> Desmond demurred when asked to confirm that gamers wouldn’t need to mark
> ‘yes’ to the new 1040 question, but said addressing gaming currencies in
> the virtual currency context isn’t a major focus for the agency right now.
>
> “I am not even looking into that. So I’m not saying one way or another.
> I think I’d be getting ahead of myself if I said anything,” Desmond said.
> “Read the website. We posted a correction yesterday and I kind of leave it
> at that.”
The likely reason that they don't care is that these are mostly a scam that consumers aren't making money off of, but capital gains on property are taxable no matter the underlying asset, so if game currencies became a major source of tax evasion it wouldn't take long for the IRS to pay attention.
See my other comment here [1]. The IRS removed that part to avoid freaking people out and because they don't actually care about the trivial amount of money being made on game currencies, not because it was an incorrect interpretation of the law. If you make $100K arbitraging V-Bucks you have always needed to pay tax on that, same as any other capital gain.
This has nothing to do with whether or not you pay tax. You pay tax on income even if it is not related to digital currencies.
If you somehow made $100k off V-Bucks then you need to report that income, but you should say "No" to the question about digital currencies.
(Disclaimer: I can't believe I have to say this, but if you are making significant money off of video game currencies you should talk to a professional rather than listening to an anonymous HN poster as your sole tax advice)
That question in form isn't about currencies, word used is "asset". People here are understanding that fundamentally they need pay taxes from any income, but that "Digital Assets" question seems overly broad and seems cover even non-income situations ("gift or otherwise dispose" for example).
Additionally, I think that your definition of "digital currencies" is little bit strict. IRS isn't going to look definitions, that exclude taxable income.
User semiquaver already posted snippet from "Bloomberg Tax", showing potential interest for gaming currencies.
Sure… I read that. The instructions do a great job of explaining a few cases of what is definitely a digital asset, and they explain what you and I both know are obviously included.
The instructions “include” a few obvious things. They don’t “exclude” anything like V-bucks.
So what constitutes a “representation of value”?
I can buy and sell V-Bucks cards, can I not?
It may sound like I’m being a bit obtuse, but there is nothing here that tells me whether my ultra rare skin that I received that I could sell my account for $100 on eBay applies or not.
Many things are obviously a digital asset, but determining what isn’t is far trickier, especially once you move away from perhaps the easiest example of digital currency in Fortnite.
Saying “obviously they’re targeting Bitcoin and the Charlie Bit My Finger NFT” tells me what I already know I should declare. Nothing tells me what I shouldn’t… almost like they can decide that whenever they want during an audit.
I guess most reasonable answer is that you should include anything that would transfer a significant amount of money to the IRS. Starbucks points and FFXIV gold may be theoretically included, but the liquidity for those is so small that the IRS just doesn't care and would never enforce it. They don't want that $100. What they're trying to do here is get a cut of the billions of dollars that come from crypto.
I know that's probably obvious to you, but I don't think there's much more to it. It's just another way to make money.
> there is nothing here that tells me whether my ultra rare skin that I received
> that I could sell my account for $100 on eBay applies or not.
You're looking at this entirely the wrong way. There's no new law here: the reason you don't see the guidance you are looking for is that from a tax perspective there is not any difference between bitcoin and a rare game skin. They are both personal property and if a US citizen sells them at a gain they are liable for capital gains tax. [1]
> Almost everything you own and use for personal or investment purposes is a
> capital asset. Examples include a home, personal-use items like household
> furnishings, and stocks or bonds held as investments. When you sell a capital
> asset, the difference between the adjusted basis in the asset and the amount
> you realized from the sale is a capital gain or a capital loss.
The question is on form 1040 for two reasons:
1) As a heads up to people that may not have realized that crypto gains are taxable.
2) To force you to lie if you want to conceal gains, so you can't claim ignorance later.
A $100 gain on a skin that you sell on ebay (less your cost basis, however that might be computed) has _always_ been a taxable event and the failure to declare it is minor tax evasion of the type that literally everyone is guilty of. But the IRS doesn't particularly care about small beer like that. The crypto question is there because for some people there's serious money involved.
(IANAL, but if you have any question at all about this a CPA or tax attorney is well worth the cost)
I think the more subtle question is about assets you got via a prize. For example if you win a real-world lottery, you have to pay taxes on the winnings. If you win a crypto lottery, you have to pay taxes on the winnings (at the time of winning, not at the time of cash out!). If you "win" a loot-crate lottery, do you have to pay taxes on your winnings? And afact the answer is no, because the loot crate thing isn't an asset, it's treated more like a consumable good. On the other hand, I can see the argument that in fact it's an illiquid asset (like pre-IPO stock) and so you need to pay taxes on the income immediately.
On the off chance you later sell your account, you should pay taxes on that income and it mostly comes out in a wash, unless the value of the lootbox item has changed significantly (because no one plays fortnite anymore)
The IRS guidelines specifically exclude assets you purchased.
And more generally the guidelines the require you to provide the capital gains or loses, I don't think there's a secondary market for such in game items to be redeemed for dollars or equivalents.
(Now there is something funny here about MTGO and the set redemption mechanic, so you could argue that MTGO cards are digital assets, but MTGA cards aren't).
> Any game that allows trading has a potential to create a secondary market.
Even games without trading (or the ability to do lootboxes with real money) have the potential to create a secondary market, since you can always sell accounts. My OSRS party hat has some real world market value. I don't need to count it as income on my taxes.
I sold some collectibles on Steam to a guy for euros, pretty sure that the only reason it wasn't a taxable was because it was a one-off and under the reporting minimum.
I would figure that the conversion to cash would be the taxable event. After all their value is largely indeterminate (and at that point 0) while the collectible is being given out.
IIRC this created problems for Blizzard when they did the real money auction house on Diablo III, and was part of why that was ended.
I agree for assets like those, the point is that for many other assets (art, Bitcoin, cash, stock), receipt of the asset for less than market value is also taxable.
But those usually have more developed secondary markets where prices can be widely known (and also nontrivial value). I can at least see the argument.
> Obviously, V-Bucks are not a "representation of value"
Second point, sure, but this one? I would disagree vehemently that its obvious.
I've always thoughts "points" from credit cards, gift cards in shops, or virtual currencies in a game world that you can exchange directly for fiat/crypto, represent value. Its just that value is now no longer liquid and locked into some services ecosystem to make it psychologically easier for people to spend money.
In my mind, (normative statement incoming) V-bucks and similar digital practices should not be legal. They should be required to have a tradable interface, and it should be possible to put them on a marketplace.
> I've always thoughts "points" from credit cards, gift cards in shops, or virtual currencies in a game world that you can exchange directly for fiat/crypto, represent value. It's just that value is now no longer liquid and locked into some services ecosystem to make it psychologically easier for people to spend money.
AFAIK redeemed V-Bucks cannot be transferred, and thus cannot be exchanged for real money.
A V-Bucks gift card has financial value, and (if the account is allowed to be transferred) you could say the account then has financial value. IANAA, but I would expect gains from sale of either to be taxable.
I don't think a casual gamer would know if that is or isn't the case. I guess the same could be said about casual Robinhood users though; the onus is on the person to know what they're getting into.
I think the op may be asking the more general question of why it is defined like this. What makes a "digital representations of value that are recorded on a cryptographically secured distributed ledger" so fundamentally different from an MMO currency that it becomes taxable? The fact that it's distributed? Why should that matter? What even is the definition of distributed? And isn't an encrypted database cryptographically secured?
These are important questions that I think aren't super well defined currently. Cryptocurrencies are changing so fast that it's hard for the law to keep up. It will eventually.
Seems like a great field of legal scholarship right now!
If you ask a congress critter, I'm sure they'd love to be able to tax v-bucks too if they were to be told of them. It at least has the ability to become things of lore like requiring a stamp-like fee for emails
MMOs have to go to extensive lengths to prevent and punish trading in game currency in the real world because it would burden them with a long list of regulations. Your WoW gold or whatever it is is not money because it only works in game and despite black markets for it, it is not allowed to be used in free exchange with other currencies.
Honestly everybody actually knows the difference, if you don’t hire a lawyer and go to court and add to caselaw to be sure.
Why not? A database is similar technology. The similarity is a matter of degree.
I would say that dollars recorded electronically are also a digital asset. The vast majority of the population should answer YES rather than risking perjury.
I wouldn’t worry too much about it. Just assume all your transactions are taxable, as usual. Unless there is an exemption.
What I am worried about is that the government can take a two-step approach to ban ANY inconvenient mechanism from being used by the public:
1) Force the developers to declare their mechanism as an X (money transmitter, or exchange, or communication platform)
2) Then regulate X by forcing all developers of X to require their users to provide Y.
So this way they can for example ban encryption. In Monaco and Dubai, it is technically illegal to use end to end encrypted messengers except the ones with backdoors (eg BOTIM).
If you think you can stay in some offshore jurisdiction, just remember that FATCA is global and pressures all countries to comply eventually.
The only reason the public has any freedoms at all is because the makers of browsers and operating systems have not been pressured yet into banning every website that doesn’t register with the government. However, with HTTP3 we are going to see that, encryption certificates will be treated just as “official BIOS bootloaders” of OSes 10 years ago. See “the war on general purpose computing” by Cory Doctorow. It’s coming.
Because they first have to form a whitelist (licensing scheme) before they can put pressure. If no drone manufacturers need to register, for instance, then they can produce drones that can fly anywhere. But once they get all of them to register, then whatever unregistered drone manufacturers still make drones can be excluded from the wider ecosystem.
Thus, for example, they can't just tell browser makers to "ban websites we don't like". But if they make everyone register an https certificate, and every browser maker to register their browser, and every operating system maker to register their operating system, and every computer manufacturer to register their computer, then they can make it hard for a computer manufacturer to obtain parts for their computer, or a license to install the operating system, or vice versa, by leaning on the other registered entities.
My last two comments are a statement of black letter income tax law quoting its source in the U.S.C. (not giving them advice about anything really) and some 4th amendment snark followed by advice to someone to talk to a lawyer about their interpretation of constitutional law.
Do you not see how that is different from telling someone without qualification that something is legal/illegal?
I disagree, citing obvious sources for information should be a reminder that you can often actually find whatever information you’re looking for if you just to search for it.
That may be so but the degree of authority is inappropriate, as is the assumption that OP had not read that document, which leaves a lot of ambiguity.
The problem with tax rules is that they are open to interpretation and if the taxman interprets them differently then you have a real problem. The better answer would have been to ask a tax lawyer if the op is genuinely concerned about this (which they may well be, for instance because they have a substantial amount of value stored that way).
> Digital assets are any digital representations of value that are recorded on a cryptographically secured distributed ledger or any similar technology. For example, digital assets include non-fungible tokens (NFTs) and virtual currencies, such as cryptocurrencies and stablecoins.
Obviously, V-Bucks are not a "representation of value" and are not "recorded on a cryptographically secured distributed ledger or any similar technology".