"Second Life" and the Virtual Buck

Second Life, the popular on-line virtual world, has come to be such a phenomenon that it now offers its own legal problems - many of them stemming around one avatar called Anshe Chung.

Anshe Chung is the first millionaire of the virtual world. This means that all the linden dollars she earned through various trades and deals within Second Life can be transferred into real money outside of Second Life to a net worth of well over $1,000,000. This, in itself, has people asking questions about taxation of this virtual money.

For years people have used PayPal, which trades in real money like a virtual bank, and other on-line banking methods, these are still recorded in US dollar amounts. In Second Life you buy Linden Dollars. These virtual bucks can buy anything from a new shirt for your avatar, to wings, or a vacation house on your own private island. Or you can use Linden Dollars to start buying and trading virtual stocks, develop land and sell it, and in so doing earn yourself a tidy sum, just like Anshe Chung.

Second Life continually shifts the exchange rate for Linden Dollars to real dollars according to various criteria, trying to in effect create a virtual currency. While other systems like IMVU and There.com have offered this service, none have done it to such degree as Second Life.

By carefully balancing new sources of linden dollars with linden dollar sinks they try and uphold a steady currency of about L$250 to L$350 to $1.

Now, with Anshe Chung and others making big virtual bucks law makers, and especially IRS, have taken an interest in their doings.

They already tax income from linden dollars that have been cashed out. Now they are considering taxing assets built up within the world of Second Life, and perhaps WOW and other virtual worlds with monetary systems.

How would such a system work? Would you have to file a virtual tax report? What of those from other countries who also live within Second Life?