IRS And The FBI Target Popular Online Game, Second Life

In recent months, the wildly popular world in which I live, Second Life, has come under scrutiny from both the FBI and the IRS, the FBI in a futile attempt to control morality, and the IRS out of pure greed. Both will necessarily end at an impasse in which neither agency gets what they want for fear of creating a slippery slope from which they cannot recover.

In order for the FBI or the IRS to gain any foothold on the issue, the entire controversy will eventually play out in a court room, most likely before the United States Supreme Court, where the real argument to be made will be deciding the definition of currency and just for giggles, in order to keep U.S. customs and immigration in the loop the definition of work. I'm convinced that neither agency wants it to go that far.

Firstly, in order for the casinos on Second Life to be legitimately considered gambling operations, it has to be established that Linden Dollars are truly currency and not mere game credits that have value that's based on the demand for said game credits. Without determining that Lindens are currency, the FBI has no real jurisdiction over the simulated gambling that occurs on Second Life despite the residence of the servers on which said simulations are performed (The servers are located in the United States).

The same is true of the IRS. Many who have read up on the issue, mistakenly believe that the IRS is seeking compensation for money pulled from the game, not money within the game. They are mistaken. Any money that is pulled from the game as the result of selling game credits for currency through the linden exchange can and will be taxed, because the moment that game credits are sold for legitimate currency they can be considered capital gains, and are therefore taxable under whichever nation's laws govern the person selling their game credits. That is not the issue.