IRS Quietly Erases Guidelines on Virtual Currency Tax Reporting

For several months from 2019, IRS advised the possibility of subjecting in-game virtual currency to federal taxes, such as for popular games like Fortnite. The IRS had been hinting at taxing in-game money, which would have equally applied to bitcoin, ether, and other cryptocurrencies. On Wednesday, February 12, 2020, the IRS erased all traces in regards to taxing in-game currency. It is unclear as to how the IRS plans to deal with video game currencies.

The IRS considers virtual currency as property for tax purposes. This means that those purchasing or selling bitcoin, using bitcoin to purchase items including such commodity as coffee, would count as a sale, which could be taxable. This was set as a guideline in 2014 with an update in 2019. It seemed that the IRS meant to include in-game currencies in that same manner.

As game companies continue to include in-game currency mechanics to create an economic system (such as fortnite’s v-bucks raising $1.8 billion in revenue just last year), the IRS seems to be aware of the need to tax this system. Most experts outside of IRS believe that the IRS’ decision to remove all in-game currency guidelines from the website had more to do with an error than getting rid of the policy to tax, as this removal occurred when the Government Accountability Office called on the IRS to provide clarified guidance on virtual currencies on its report.

Many believe the IRS is simply struggling to adjust in a world where the economic system continues to develop in faster pace.

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