On Wednesday, the IRS quietly changed a provision on its website that said virtual currency transactions such as Fortnite’s V-dollar was taxable and may need to be stated on tax returns, as reported by CNN.
The provision has been on the IRS website since October and you can see it here, thanks to the Wayback machine. On the archived version of the site, Bitcoin, Ether, Roblox (probably referring to Robux of the game roblox) and V-dollar are mentioned as specific examples of a ‘convertible virtual currency’. The IRS defines a convertible virtual currency as a currency that has an equivalent value to or acts as a substitute for real currency. The website of the IRS now only lists Bitcoin as an example of a convertible virtual currency.
However, the recording of video game currencies by the IRS was apparently a mistake. IRS Chief counsel Michael Desmond told reporters today that the problem was “resolved and that was done quickly – once it was brought to our attention,” according to Bloomberg Tax. And Desmond was apparently emphatic that there was nothing else to read in it, according to the author of Bloomberg Taxes story, Ally Versprille, who questioned Desmond today:
Desmond said he wanted to leave it at that. He said that people should read no more in the gaming currency issue than what is now. “It was a website. It was a correction on the website. That is where it is. “
– Ally Versprille (@allyversprille) February 13, 2020
But despite Desmond’s comments and despite the fact that video game currencies have been removed from the websites of the IRS, the IRS has not explicitly has exempted them from reporting. That could mean that you still have to report them, according to tax experts spoke to Brian Fung, the author of the CNN article about the situation:
I still haven’t received a positive response from the IRS about the status of game currencies. So tax experts tell me that, until they are explicitly exempt, you should probably act as if the IRS never removed the language.
That means that you have to treat V-dollar as bitcoin.
– Brian Fung (@b_fung) February 13, 2020
Jerry Brito, executive director of the non-profit cryptocurrency research firm Coincenter, shared one interpretation of current policy yesterday in a Twitter thread:
As I noted earlier, question 1 on the 2019 1040 form reads: “Did you receive, sell, ship, trade or otherwise acquire financial interests in a virtual currency at any time in 2019?” Note that there is no * convertible * virtual currency, only virtual currency.
– Jerry Brito (@jerrybrito) February 13, 2020
So until the IRS further clarifies its policy, it remains unclear how you should treat video game currencies on your taxes.