IRS backtracks on whether video game currencies are taxable

On Wednesday, the Internal Revenue Service quietly altered an arrangement on its website that stated transactions of virtual currency like Fortnite’s V-bucks were taxable and might need to be reported on income tax return, as reported by CNN

The IRS specifies a convertible virtual currency as one that has an equivalent value to or acts as a substitute for genuine currency. The Internal Revenue Service’ site now just lists Bitcoin as an example of a convertible virtual currency.

However, the IRS’ inclusion of computer game currencies was apparently an error. IRS chief counsel Michael Desmond told press reporters today that the concern 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 check out into the circumstance, according to the author of Bloomberg Tax’s story, Ally Versprille, who questioned Desmond today:

Desmond said he wishes to leave it at that. He stated people should not find out more into the video 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

However in spite of Desmond’s remarks and regardless of points out of video game currencies being eliminated from the Internal Revenue Service’ sites, the IRS hasn’t clearly exempted them from needing to be reported. That could mean you’ll still need to report them, according to tax experts who talked to Brian Fung, the author of the CNN article on the circumstance:

I still have not gotten a favorable response from the Internal Revenue Service on the status of video game currencies. So tax professionals are telling me that until they’re clearly exempted, you must probably behave as if the Internal Revenue Service never erased the langauge.

That is, you need to deal with 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 existing policies yesterday in a Twitter thread:

As I noted before, question 1 on the 2019 1040 type reads: “At any time during 2019, did you get, sell, send out, exchange or otherwise acquire any financial interest in any virtual currency?” Notice it does not say convertible virtual currency, just virtual currency.

— Jerry Brito (@jerrybrito) February 13, 2020

So until the Internal Revenue Service even more clarifies its policies, precisely how you must treat computer game currencies on your taxes remains unclear.

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