...IRS advisers specializing in the arcane field of barter income recently offered the opinion that any trade of one virtual item for another--gold pieces for thick leather, uber drops for plat--could very well constitute a taxable, income-generating exchange according to the IRS's rules on barter.
This is insane. Just because some people sell these things on eBay doesn't mean that I should have to pay tax on a virtual item, given to me for free by a virtual character and sold (at below market value) to a virtual, non-playable character. I don't buy or sell MMO items, why should I be taxed on them? And how exactly am I bartering with a virtual NPC? The NPC is not open to bartering; it's programmed to give me the equivalent amount of coin for the item that the same code gave me for free. Isn't that a gift?
But, government being how it is, it will take years and millions of tax dollars (in the form of salaries, trips, and meals for IRS staff) to find out that, in fact, it is not feasible to do this. Either that, or the questions in TaxCut are going to be hilariously sad. "Has your MMO character increased in experience level more than 10 levels? If so, please refer to page MMO-34 for a table that calculates the relative worth of the increase in level."
Terra Nova: The Taxman Cometh?