IRS backtracks on whether video game currencies are taxable

Technology

On Wednesday, the IRS quietly changed a provision on its website that said transactions of virtual currency like Fortnite’s V-bucks were taxable and may have to be reported on tax returns, as reported.

The provision had been on the IRS’s website since at least October, and you can see it right here, thanks to the Wayback Machine. On the archived version of the site, bitcoin, Ether, Roblox (likely referring to Robux from the game Roblox), and V-bucks are listed as specific examples of a “convertible virtual currency.” The IRS defines a convertible virtual currency as one that has an equivalent value to or acts as a substitute for real currency. The IRS’s website now only lists bitcoin as an example of a convertible virtual currency.

However, the IRS’s inclusion of video game currencies was apparently a mistake. IRS chief counsel Michael Desmond told reporters today that the issue was “corrected and that was done quickly—as soon as it was brought to our attention,” according to Bloomberg Tax. Desmond was apparently emphatic that there isn’t anything else to read into the situation, according to the author of Bloomberg Tax’s story, Ally Versprille, who questioned Desmond on Thursday:

Despite Desmond’s comments and mentions of video game currencies being removed from the IRS’s websites, there was some confusion about whether they needed to be reported because the IRS hadn’t explicitly exempted them, according to tax experts who spoke to Brian Fung, the author of the CNN article. Jerry Brito, executive director of the nonprofit cryptocurrency research firm Coin Center, said on Wednesday that the IRS’s policies still didn’t entirely rule out that people might need to report video game currencies.

But the IRS finally made it clear on Friday that you don’t have report video game currencies that don’t leave the game (or become “convertible”). Here’s the IRS’s full statement, shared by Fung on Twitter:

The IRS recognizes that the language on our page potentially caused concern for some taxpayers. We have changed the language in order to lessen any confusion. Transacting in virtual currencies as part of a game that do not leave the game environment (virtual currencies that are not convertible) would not require a taxpayer to indicate this on their tax return.