Maybe a dumb question, but how does or doesn’t this apply if you have played virtually any modern multiplayer video game in which you receive digital assets from loot boxes, or from buying cosmetics?
“Digital asset” seems like a VERY broad term just looking for perjury.
Not that the entire concept of how one files taxes in the US isn’t one big perjury trap already, it just seems less and less subtle about it with each iteration.
> Digital assets are any digital representations of value that are recorded on a cryptographically secured distributed ledger or any similar technology. For example, digital assets include non-fungible tokens (NFTs) and virtual currencies, such as cryptocurrencies and stablecoins.
Obviously, V-Bucks are not a "representation of value" and are not "recorded on a cryptographically secured distributed ledger or any similar technology".
> Obviously, V-Bucks are not a "representation of value" and are not "recorded on a cryptographically secured distributed ledger or any similar technology".
Neither of those things are at all obvious. They are very much a "representation of value", and for all I know Epic might record them in a cryptographically secured distributed ledger (indeed that seems like a pretty good idea for resilience).
Interestingly enough, V-Bucks were _specifically_ included in the original wording you quoted [1]. The IRS said it was in error, but a spokesman was fairly evasive [2]:
> Desmond demurred when asked to confirm that gamers wouldn’t need to mark
> ‘yes’ to the new 1040 question, but said addressing gaming currencies in
> the virtual currency context isn’t a major focus for the agency right now.
>
> “I am not even looking into that. So I’m not saying one way or another.
> I think I’d be getting ahead of myself if I said anything,” Desmond said.
> “Read the website. We posted a correction yesterday and I kind of leave it
> at that.”
The likely reason that they don't care is that these are mostly a scam that consumers aren't making money off of, but capital gains on property are taxable no matter the underlying asset, so if game currencies became a major source of tax evasion it wouldn't take long for the IRS to pay attention.
Sure… I read that. The instructions do a great job of explaining a few cases of what is definitely a digital asset, and they explain what you and I both know are obviously included.
The instructions “include” a few obvious things. They don’t “exclude” anything like V-bucks.
So what constitutes a “representation of value”?
I can buy and sell V-Bucks cards, can I not?
It may sound like I’m being a bit obtuse, but there is nothing here that tells me whether my ultra rare skin that I received that I could sell my account for $100 on eBay applies or not.
Many things are obviously a digital asset, but determining what isn’t is far trickier, especially once you move away from perhaps the easiest example of digital currency in Fortnite.
Saying “obviously they’re targeting Bitcoin and the Charlie Bit My Finger NFT” tells me what I already know I should declare. Nothing tells me what I shouldn’t… almost like they can decide that whenever they want during an audit.
> Obviously, V-Bucks are not a "representation of value"
Second point, sure, but this one? I would disagree vehemently that its obvious.
I've always thoughts "points" from credit cards, gift cards in shops, or virtual currencies in a game world that you can exchange directly for fiat/crypto, represent value. Its just that value is now no longer liquid and locked into some services ecosystem to make it psychologically easier for people to spend money.
In my mind, (normative statement incoming) V-bucks and similar digital practices should not be legal. They should be required to have a tradable interface, and it should be possible to put them on a marketplace.
I don't think a casual gamer would know if that is or isn't the case. I guess the same could be said about casual Robinhood users though; the onus is on the person to know what they're getting into.
I think the op may be asking the more general question of why it is defined like this. What makes a "digital representations of value that are recorded on a cryptographically secured distributed ledger" so fundamentally different from an MMO currency that it becomes taxable? The fact that it's distributed? Why should that matter? What even is the definition of distributed? And isn't an encrypted database cryptographically secured?
Why not? A database is similar technology. The similarity is a matter of degree.
I would say that dollars recorded electronically are also a digital asset. The vast majority of the population should answer YES rather than risking perjury.
Digital assets purchased in video games typically have a value of $0 as nearly all major video games implement a one-way “currency to item” pipeline and strictly prohibit “item to currency” in return (specifically, for example: Hearthstone, Diablo, Eve Online, FarmVille, and so on).
One could argue that exchanging in-game currency for game time is a taxable benefit of, say, $15/mo to the player; which then falls below the US 1099 reporting threshold of $600/year due to its irrelevance for taxation purposes.
If you can construct a case that an item purchased in a game can then be sold for value, and that you can then receive benefits of $600 USD or more within a single calendar year in return for your purchased item, then you have identified a possible taxation loophole that should be corrected; please do share!
They appear to specifically have guidance indicating that this refers to cryptocurrency and NFTs. However, I would also point out, stuff you buy in a video game is never actually an asset: It's just an entry in that company's database that your account has an item. You never really control it in the way you theoretically control a crypto asset.
That argument doesn't make much sense. You don't control your bank balance, which are just IOUs, either. It's just an entry in some centralized company's database.
I don't know why people think the IRS is looking to establish perjury cases against taxpayers. That's really not what they're doing (or how perjury is qualified statutorily for the tax code[1]): they'd much rather get your back taxes from you than actually go through a trial process.
In other words: the standard for perjury on your tax forms is very high, much higher than the unintentional mistakes that the IRS is aware millions of people make each year.
Looks like this isn't a new requirement, just a UX change given the increasing popularity of Crypto -- using Form 8949 for Crypto transactions has been the guidance since 2014 ( Notice 2014-21, 2014-16 I.R.B. 938 ).
Sure, why not, e.g. buy ISK in EVE for price 1X, then sell them same year for price 1.1X. Declare profits and pay taxes. It's just that the scope of token insanity is so much larger than any MMO can imagine, and price swings are so much bigger. MMO currencies and trades going on there are not even a rounding error, they probably won't even fit in the float variable precision when calculating money in the digital assets in the world.
Seems like plain language unless you count the terms the crypto world uses. And I think it would be far more confusing if the IRS decided to use different terms from everyone else.
For those who don't see the cryptocurrency question, it's section "Digital Assets": "At any time during 2022, did you: (a) receive (as a reward, award, or payment for property or services); or (b) sell, exchange, gift, or otherwise dispose of a digital asset (or a financial interest in a digital asset)? (See instructions.)"
In previous years, the question was worded "virtual currency". This year, it is worded as "digital asset". Looks like the question was broadened to include non-coin assets like NFTs.
"Digital assets are broadly defined as any digital representation of value which is recorded on a cryptographically secured distributed ledger or any similar technology as specified by the Secretary.
"Digital assets include (but are not limited to):
- Convertible virtual currency and cryptocurrency
- Stablecoins
- Non-fungible tokens (NFTs)"
I would have thought that "digital assets" existed before there was any "cryptographically secured distributed ledger or any similar technology."
For example, a record label might own the original recordings of a 1995 song as a set of files. Legally, they own the copyright in the recording, but the copyright alone isn't enough because the copyright loses its market value if the associated files get destroyed. In other words, the files are 1) digital and 2) assets, because if someone bought the recording, they would reasonably expect to get both the copyright and the files.
They're clearly using it as a term of art. All parties involved more than capable of understanding that "Digital assets" as defined (explicitly!) by the IRS do not necessarily encompass everything that might be plausibly described by the noun-adjective pair "digital asset."
If you purchased crypto via Robinhood but not used a self-custody wallet, it is questionable as to whether you own a digital asset. You actually own some sort of financial instrument issued by Robinhood and no control over any underlying asset.
You pay taxes for your interest payments from the bank on your bank account.
In this case it looks like crypto is being taxed as a security, which makes sense. Just because it's ON THE INTERNET doesn't mean the government doesn't get its cut.
Readit News
https://www.irs.gov/pub/irs-prior/f1040--2020.pdfhttps://www.irs.gov/pub/irs-prior/f1040--2021.pdf
“Digital asset” seems like a VERY broad term just looking for perjury.
Not that the entire concept of how one files taxes in the US isn’t one big perjury trap already, it just seems less and less subtle about it with each iteration.
> Digital assets are any digital representations of value that are recorded on a cryptographically secured distributed ledger or any similar technology. For example, digital assets include non-fungible tokens (NFTs) and virtual currencies, such as cryptocurrencies and stablecoins.
Obviously, V-Bucks are not a "representation of value" and are not "recorded on a cryptographically secured distributed ledger or any similar technology".
Neither of those things are at all obvious. They are very much a "representation of value", and for all I know Epic might record them in a cryptographically secured distributed ledger (indeed that seems like a pretty good idea for resilience).
[1] https://news.bloombergtax.com/daily-tax-report/irs-pulls-wor...
[2] https://news.bloombergtax.com/daily-tax-report/calling-fortn...
The instructions “include” a few obvious things. They don’t “exclude” anything like V-bucks.
So what constitutes a “representation of value”?
I can buy and sell V-Bucks cards, can I not?
It may sound like I’m being a bit obtuse, but there is nothing here that tells me whether my ultra rare skin that I received that I could sell my account for $100 on eBay applies or not.
Many things are obviously a digital asset, but determining what isn’t is far trickier, especially once you move away from perhaps the easiest example of digital currency in Fortnite.
Saying “obviously they’re targeting Bitcoin and the Charlie Bit My Finger NFT” tells me what I already know I should declare. Nothing tells me what I shouldn’t… almost like they can decide that whenever they want during an audit.
Second point, sure, but this one? I would disagree vehemently that its obvious.
I've always thoughts "points" from credit cards, gift cards in shops, or virtual currencies in a game world that you can exchange directly for fiat/crypto, represent value. Its just that value is now no longer liquid and locked into some services ecosystem to make it psychologically easier for people to spend money.
In my mind, (normative statement incoming) V-bucks and similar digital practices should not be legal. They should be required to have a tradable interface, and it should be possible to put them on a marketplace.
I would say that dollars recorded electronically are also a digital asset. The vast majority of the population should answer YES rather than risking perjury.
https://www.irs.gov/businesses/small-businesses-self-employe...
A bank account representing dollars in the account is by definition storing your digital assets. Did you receive dollars in an electronic account?
One could argue that exchanging in-game currency for game time is a taxable benefit of, say, $15/mo to the player; which then falls below the US 1099 reporting threshold of $600/year due to its irrelevance for taxation purposes.
If you can construct a case that an item purchased in a game can then be sold for value, and that you can then receive benefits of $600 USD or more within a single calendar year in return for your purchased item, then you have identified a possible taxation loophole that should be corrected; please do share!
(I am not your lawyer, this is not legal advice.)
In other words: the standard for perjury on your tax forms is very high, much higher than the unintentional mistakes that the IRS is aware millions of people make each year.
[1]: https://www.law.cornell.edu/uscode/text/26/7206
https://www.irs.gov/individuals/international-taxpayers/freq...
Coinbase directs its US users to CoinTracker, which you can then import into (say) TurboTax.
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So Starbucks stars, United miles, etc don't count.
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https://www.irs.gov/instructions/i1040gi#en_US_2022_publink1...
> For example, check “Yes” if at any time during 2022 you:
* Received digital assets as payment for property or services provided;
* Received digital assets as a result of a reward or award;
* Received new digital assets as a result of mining, staking, and similar activities;
* Received digital assets as a result of a hard fork;
* Disposed of digital assets in exchange for property or services;
* Disposed of a digital asset in exchange or trade for another digital asset;
* Sold a digital asset;
* Transferred digital assets for free (without receiving any consideration) as a bona fide gift; or
* Otherwise disposed of any other financial interest in a digital asset.
And points you to fill out Form 8949, Sales and other Dispositions of Capital Assets.
https://www.irs.gov/forms-pubs/about-form-8949
It seems to me that the "Steam Achievement" cards that you can sell/give away that you get for playing a game follows this line of thinking.
My steam wallet now has $0.23 of value from the sale of these "digital assets".
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> Use plain language in any document that: is necessary for obtaining any federal government benefit or service or filing taxes
Oh, well.
https://oll.libertyfund.org/title/spooner-no-treason-no-vi-t...
-3
The IRS describes the term "digital assets" here: https://www.irs.gov/instructions/i1040gi#en_US_2022_publink1...
There is a service out there willing to buy NFTs for almost nothing to help folks realize losses if desired. A quick internet search should find it.
Edit: found it https://twitter.com/coinledger/status/1599787141844054016
https://www.irs.gov/businesses/small-businesses-self-employe...
"Digital assets are broadly defined as any digital representation of value which is recorded on a cryptographically secured distributed ledger or any similar technology as specified by the Secretary.
"Digital assets include (but are not limited to):
- Convertible virtual currency and cryptocurrency
- Stablecoins
- Non-fungible tokens (NFTs)"
I would have thought that "digital assets" existed before there was any "cryptographically secured distributed ledger or any similar technology."
For example, a record label might own the original recordings of a 1995 song as a set of files. Legally, they own the copyright in the recording, but the copyright alone isn't enough because the copyright loses its market value if the associated files get destroyed. In other words, the files are 1) digital and 2) assets, because if someone bought the recording, they would reasonably expect to get both the copyright and the files.
“You keep using that word. I do not think it means what you think it means.” -Inigo Montoya, The Princess Bride.
In this case it looks like crypto is being taxed as a security, which makes sense. Just because it's ON THE INTERNET doesn't mean the government doesn't get its cut.
If you received a digital asset you must check the box.
airdrops have evolved based on the tax regime, but you did claim this one so I would make that a yes
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