The IRS’ Fortnite Currency Tax Mishap Is a ‘Black Mirror’ Moment for Gaming

  • The IRS mistakenly classified in-game currencies as taxable for months.
  • It removed this classification almost immediately after reports went live.
  • This mistake hints at a dystopian future for in-game currencies.

Imagine a world where not only your real-life purchases were taxed but also your in-game ones, like Fortnite’s V-bucks. We caught a little glimpse of that era today via a CNN report on an IRS document regarding the subject.

Put in place back in October, the posting considers in-game currencies such as V-bucks as a “convertible virtual currency” like bitcoin. That means you’d have to pay taxes on them. For real.

However, according to a Bloomberg report, this inclusion was allegedly an accident, meaning the IRS doesn’t view video game currencies as taxable property. At least for now.

Fortnite V-Bucks Aren’t Taxable For Now

Were this a normal hiccup, there would be nothing to worry about. But Bloomberg reporter Allyson Versprille followed up with IRS Chief Counsel Micheal Desmond, who gave a worrying non-answer on the matter.

The IRS chief counsel’s non-answer is more than a bit terrifying. | Source: Twitter

The scariest line is this:

I think I’d be getting ahead of myself if I said anything.

Does this mean there’s still some regulation to come? How did that line get thrown in there in the first place? This seems like more than some mistake.

The comparison to bitcoin is especially odd, considering that once a player buys Fortnite V-bucks, they can’t convert them back to cash. It isn’t an investment that can move up and down, per se, so there’s no capital gains tax like a cryptocurrency (even if Fortnite’s currency is used for money laundering). Fortunately, an official statement from today addresses this:

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.

Gamers in Roblox, however, can cash out their in-game currency, or Robux. Developer Roblox Corp. reports those transactions to the IRS, too. So how are those taxed? It’s unclear.

Gamers can earn ‘Robux’ for their creations, which they can then convert into real cash. | Source: Microsoft

But considering that with Fortnite gaming has grown from an enthusiast hobby into a viable career path, it’s any wonder what will happen with other in-game currencies down the line. Chances are there will be some form of regulation. However, it needs to be a custom rule-set rather than slapping on the lackluster and somewhat confusing regulation for cryptocurrencies.

In-Game Currencies and Regulatory Ignorance

What’s especially terrifying is that the misclassification of in-game currencies is probably the result of ignorance. How different will  future regulation be from traditional cryptocurrency rules?

It’s a well-known fact by those in the cryptocurrency scene that the IRS has struggled with regulating the space. Who’s to say regulating video game currencies will be any easier? Loot boxes are already an issue, and they seem relatively simple in comparison.

Then there’s the possibility of a blockchain-based future – a time in which games built on the emerging technology would actually pay out an asset with real-world value. The idea is appealing enough to attract gamers – until you think of the potential tax nightmare.

Streaming online games could eventually become a tax nightmare. | Credit: rustam_shaimov/Shutterstock.com

Imagine a full-time streamer who plays online games for eight or so hours a day. During that time, they’re gathering in-game currencies, which could very well be seen as “convertible virtual currency.”

If the taxes on that in-game currency are anything like bitcoin’s, they’ll have to pay a capital gains tax on every single asset earned. This may sound ridiculous, but CNN spoke to a tax expert, Mark Steber, who hints at a similar outcome:

More guidance, more rules, more requirements, more oversight and monitoring by the IRS. It’s no longer something that’s going to live in the background shadows. There’s too much money there.

Of course, who’s to say that blockchain will have anything to do with convertible in-game assets? Some alternatives could come along and offer the same. What’s scary here isn’t so much the technology but the fact that in-game assets are more than likely going to have real-world value in the future.

We can only hope that regulations catch up in time.

The opinions expressed in this article do not necessarily reflect the views of CCN.com.

This article was edited by Gerelyn Terzo.

Last modified: February 15, 2020 1:27 AM UTC