Ah, Capturing the IRS Pokémon. So, even though I haven’t joined the little packs of people wandering together in the streets, parks, and buildings while looking at their phones, the Pokémon Go craze fascinates me. It’s strange and wonderful how something like this can come out of nowhere and become such a thing. Hmm…..
Of course, the IRS will want to spoil the fun. As I understand it, you collect “experience points” as you follow your phone from Poke-stop to Poke-stop. As explained in a Wikipedia entry:
Players earn experience points for a number of in-game actions. As the player earns experience points, they will rise in level. At level five, the player is able to battle at a Pokémon gym and join one of three teams (red, blue or yellow) which act as larger factions within the Pokémon Go world. If a player enters a Pokémon gym that is controlled by a player that is not part of their team, they can challenge the leader to lower the gym’s “prestige”. Once the prestige of a gym is lowered to zero then the player will take control of the gym and is able to deposit one Pokémon to defend it. Similarly, a team can upgrade the prestige of a gym under their control by battling the gym leader.
Inevitably someone will want to monetize their “experience points”. A market will form, that is if it hasn’t already. Enter the IRS. This is what the IRS has to say about “Tax Consequences of Virtual World Transactions“:
In general, you can receive income in the form of money, property, or services. If you receive more income from the virtual world than you spend, you may be required to report the gain as taxable income. IRS guidance also applies when you spend more in a virtual world than you receive, you generally cannot claim a loss on an income tax return.
“Money, property, or services”. If you can convert “experience points” to cash, you likely have an “accession to wealth” as you earn them. Now I’m not going to tell you to report your experience points on your 1040. That’s between you and your virtual conscience, and I expect your conscience to not to fight very hard.
There is, though, a broader point worth making: you don’t have to convert something to cash to be taxable on it. Barter deals, swaps of goods for services, and so on are taxable unless they fit one of the narrow carve outs, like the ones for “like-kind exchanges” and for corporate and partnership formations. A non-cash deal might be harder for the IRS to find, but it’s still taxable.
Oh well, I think I will just stick with chess.
Bruce – Your Host at The Tax Nook
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