IRS backtracks on whether video game currencies are taxable

On Wednesday, the IRS quietly changed a provision on its website that said transactions of virtual currency like Fortnite’s V-bucks were taxable and may have to be reported on tax returns, as reported by CNN.

The provision had been on the IRS’ website since at least October, and you can see it right here, thanks to the Wayback Machine. On the archived version of the site, Bitcoin, Ether, Roblox (likely referring to Robux from the game Roblox), and V-bucks are listed as specific examples of a “convertible virtual currency.” The IRS defines a convertible virtual currency as one that has an equivalent value to or acts as a substitute for real currency. The IRS’ website now only lists Bitcoin as an example of a convertible virtual currency.

However, the IRS’ inclusion of video game currencies was apparently a mistake. IRS chief counsel Michael Desmond told reporters today that the issue was “corrected and that was done quickly—as soon as it was brought to our attention,” according to Bloomberg Tax. And Desmond was apparently emphatic that there isn’t anything else to read into the situation, according to the author of Bloomberg Tax’s story, Ally Versprille, who questioned Desmond today:

Desmond said he wants to leave it at that. He said people shouldn’t read more into the gaming currency issue than what is now out there. “It was a website. It was a correction to the website. That’s where it is.”

— Ally Versprille (@allyversprille) February 13, 2020

But despite Desmond’s comments and despite mentions of video game currencies being removed from the IRS’ websites, the IRS hasn’t explicitly exempted them from needing to be reported. That could mean you’ll still need to report them, according to tax experts who spoke to Brian Fung, the author of the CNN article on the situation:

I still haven’t gotten a positive answer from the IRS on the status of game currencies. So tax experts are telling me that until they’re explicitly exempted, you should probably behave as if the IRS never deleted the langauge.

That is, you should treat V-bucks like bitcoin.

— Brian Fung (@b_fung) February 13, 2020

Jerry Brito, executive director of the non-profit cryptocurrency research firm Coincenter, shared one interpretation of the current policies yesterday in a Twitter thread:

As I noted before, question 1 on the 2019 1040 form reads: “At any time during 2019, did you receive, sell, send, exchange or otherwise acquire any financial interest in any virtual currency?” Notice it doesn’t say *convertible* virtual currency, just virtual currency.

— Jerry Brito (@jerrybrito) February 13, 2020

So until the IRS further clarifies its policies, exactly how you should treat video game currencies on your taxes remains unclear.

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