Why the IRS Has Not Taxed Income from Virtual World Transactions . . . Yet

​Virtual world transactions (VWT) involve the sale or exchange of goods and services that are used exclusively within a virtual world. As participation in virtual worlds increases, both in volume and in character, the boundary between VWT and real world transactions becomes unclear. Real world transactions may be defined as anything involving the transfer of real goods or services. Consequently, many wonder whether the Internal Revenue Service (IRS) will tax participants in virtual worlds, even before they have converted their virtual items into real goods or services. Although IRS agents are not counting virtual earnings quite yet, they may begin to take notice of VWT on a broader scale if and when one of three events occur: (1) courts grant property rights to virtual world participants in the virtual items they amass; (2) vendors begin accepting virtual items (such as virtual currency) on a regular basis in exchange for real goods and services; or (3) Congress adopts legislation requiring owners of virtual worlds to report certain transactions to the IRS.