Monday, February 17, 2020

IRS clarifies confusing Fortnite V-Bucks tax requirement

The IRS has offered clarification on the confusing and panic-inducing Fortnite V-Bucks tax reporting requirement that appeared on its website. At the time when it was first noticed, the IRS's website said that Fortnite players were required to report the V-Bucks they spent in the game. When the requirement went viral, however, the taxation agency quietly deleted the requirement, confusing taxpayers.

For those who are still unaware, V-Bucks is the digital currency used in the battle royale game Fortnite. These digital coins have no real-world value; Epic Games doesn't allow its players to sell them and it regularly reverses purchases that are made with V-Bucks acquired using unofficial means.

This virtual currency can only be purchased within the game using real-world money; the company also gives some of these coins away to Battle Pass holders for free as rewards. V-Bucks can only be redeemed in the game for things like cosmetics, weapon wraps, and for the seasonal Battle Pass feature.

This makes the game currency distinctly different from cryptocurrencies like Bitcoin, which are subjected to taxation. However, some taxpayers recently noticed that the IRS's website listed V-Bucks and Roblox alongside Bitcoin as examples of virtual currencies that are 'taxable by law.' This raised some pretty big questions and concerns, particularly among parents who weren't quite sure what their child's game habits may mean for their tax return.

In response to questions, the IRS quietly updated its website to scrub the references to V-Bucks and Roblox, instead leaving only Bitcoin as an example of a taxable virtual currency. That change only raised more questions, prompting the agency to issue a proper statement on the matter.

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.

Sunday, February 16, 2020

The IRS won't ask you to report 'Fortnite' V-Bucks on tax returns

Don't worry, you won't have to factor in-game currency into your taxes... at least, not yet. The IRS has removed a guideline (cached here) from October that treated Fortnite's V-Bucks, Roblox's Robux and other in-game currencies with real monetary value as "convertible" currency that could be subject to federal taxes. In a follow-up, IRS Chief Counsel Michael Desmond confirmed to CNN Business that including in-game money was an error. The updated section now focuses on cryptocurrencies like Bitcoin and Ethereum, so you can likely rest easy if you received a V-Bucks gift card last year.

The tax forms won't clarify matters, though. Schedule 1 in Form 1040 asks taxpayers if they have "any financial interest in any virtual currency" without a definition or an indication of what to do next. While many will check with the IRS for a clarification or simply assume the tax bureau is referring to crypto, this could lead to confusion for gamers who aren't sure if their in-game cash needs to be declared.

The ambiguity has prompted calls for the IRS to explicitly outline its approach to in-game currency, and it might need to take action relatively soon given the sheer volume of transactions in games. Fortnite alone racked up an estimated $1.8 billion in worldwide revenue in 2019 from people buying season passes and cosmetic gear. While only a fraction of in-game currency use is likely to be of any concern to the US government, the numbers might grow too large for officials to ignore.

In this article: currency, fortnite, games, gaming, in-app purchases, in-game currency, internet, irs, money, politics, tax, taxes, thebuyersguide, v-bucks, video games

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Declaring Fortnite, Roblox Virtual Currency For Tax Just Got Complicated

With the April 15 tax deadline approaching for Americans, some might be wondering about what they do and do not need to disclose on their Form 1040 as it relates to gaming. The situation just got a little more complicated due to a change by the IRS.

The IRS recently removed wording from its website that said Americans needed to disclose whether or not they received, sold, exchanged, or acquired a financial interest in Fortnite or Roblox virtual currency during the 2019 tax year. Millions of Fortnite and Roblox players would presumably be impacted, as they would need to disclose this as taxable income.

The wording was discovered by Coin Center director Jerry Brito. The IRS removed the language after Bloomberg Tax followed up with the government group, though it has yet to comment officially on the matter.

A spokesperson for Epic Games told Bloomberg Tax that Fortnite's virtual currency, V-Bucks, should not be included as a taxable interest because they cannot be exchanged for money. Roblox, however, allows players to cash out their virtual currency--Robux-- for real money. A spokesperson for developer Roblox Corp. clarified that Roblox users who want to cash out must have IRS forms on file with the developer. The company also reports all payouts to the IRS.

It's a complicated situation. While the IRS has removed Fortnite and Roblox from its wording for virtual currency taxable income, taxpayers might still be scratching their heads because the definition of "convertible virtual currencies" is still the same.

The Entertainment Software Association chimed in with its own statement that in-game currency that cannot be cashed out, as is the case in many games, and should not be treated thee same as Bitcoin and other virtual currencies that hold more real-world cash value.

"Game economies are typically closed economies where currencies cannot be cashed out or traded," the ESA said. "Financial regulators who have considered the status of game currencies in detail have treated them distinctly different from Bitcoin and similar virtual currencies precisely because they cannot be cashed out. We think that is the appropriate approach and are hopeful that on closer consideration the IRS will correct its guidance."

If you're wondering what you should disclose on your taxes, you should talk to a tax professional.

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Saturday, February 15, 2020

Fortnite gamers don’t need to worry about reporting their V-Bucks to the IRS

The IRS said it was trying to clear up confusion around virtual currency used to enhance the gaming experience.

Tax season just became a lot less stressful for a lot of gamers.

In-game currencies that can’t be turned into real-world money do not count as reportable virtual currency for tax purposes, the Internal Revenue Service clarified this week.

That means currencies used in video games, like Fortnite’s V-Bucks and Roblox’s Robux, are safe from the tax man.

In most situations, virtual currency transactions are taxable, the IRS says. That’s because the currency â€" like BTCUSD, -0.60%  Bitcoin for example â€" can be ultimately be traded or exchanged for U.S. dollars, Euros and other forms of “real currency.”

Currencies like V-Bucks and Robux are in-game currencies that gamers can only use to upgrade their gaming experience. For example, Fortnite players spend V-Bucks to buy new outfits for their avatar, “wraps” to change the look of weapons or to purchase new dances in the game. A $25 dollar V-Bucks gift card on Amazon AMZN, -0.70%  is worth 2,800 V-Bucks while a gift card for the same amount is worth 2,000 Robux.

Until earlier this week, an explanation of the virtual currency tax rules on the IRS website included V-Bucks and Robux as examples of reportable currency. The agency deleted those examples from its website this week, and a spokesman confirmed to MarketWatch that the IRS had indeed officially changed its rules.

“The IRS recognizes that the language on our page potentially caused concern for some taxpayers,” a spokesman said. “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.”

The IRS removed the references to Fortnite’s V-Bucks and Robux after Bloomberg asked whether gamers would have to disclose the currencies on their tax returns.

The tweaks should cause for a serious sigh of relief across cyberspace. Fortnite has an estimated 250 million users worldwide, while Roblox said it had 100 million monthly active users as of last summer.

A spokesman for Epic Games, Fortnite’s creator, said “The introduction of the IRS’s informal guidance with respect to convertible virtual currencies inaccurately describes V-Bucks. V-Bucks cannot ‘be digitally traded between users,’ nor can they be ‘exchanged into, U.S. dollars, Euros, and other real or virtual currencies.’”

Roblox did not reply to a request for comment.

But the IRS can still take a cut from gamers

Of course, there are all sorts of other ways the IRS can take its cut from gamers â€" especially if players make their living via their video gaming skills, said Galen Herbst de Cortina, a financial planner who advises professional video game players.

For example, players streaming themselves playing a game on Twitch or Facebook FB, +0.49%   might mention a “creator code,” which viewers can include when they buy V-bucks. The player with the creator code receives a portion of the transaction, and that money is taxable, said Herbst de Cortina, founder of Buff Your Finances. Income from sponsors and tournament prize winnings are also taxable, he said.

That can be real money. Last summer, a 16-year-old boy won $3 million playing Fortnite.

Professional gaming has some tax breaks too, Herbst de Cortina noted. A professional gamer buying V-bucks could count the expense as a deductible business expense. A newly-purchased video game could be a write-off too because it could count as “market research,” he said.

“It’s just like anything else. If you’re earning income from it, you need be aware it’s theoretically taxable. It’s still a business you’re running,” according to Herbst de Cortina.

Virtual currency is a focus for the IRS

The IRS clarification on V-Bucks and Robux comes as the agency is increasing its focus on virtual currency.

For the first time, tax forms this year include a question asking all taxpayers if “at any time during 2019, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?”

Last year, the IRS sent “educational letters” to more than 10,000 people who might have incorrectly reported virtual currency transactions. “Virtual currency, also called crypto currency, will remain an important focal point for the IRS in 2020,” the agency said in a January report.

Beyond questions about in-game currencies, there are still plenty of open tax questions about virtual currency, said Ryan Losi, executive vice president of Piascik, a Richmond, Va.-based tax firm.

The IRS issued its first guidance on virtual currencies in 2014 and only followed up with a second last year. The IRS regards virtual currency as “property,” even though it can act like a stock that goes up and down. That can open up all sorts of questions about calculating gains and loses, said Losi.

By comparison, the issues with in-game currencies are more clear-cut. “You could be a millionaire in a game, but when you leave the game, in reality, you’re not a millionaire. ...If your net worth doesn’t increase,” there’s no tax, Losi said.

Friday, February 14, 2020

IRS removes guidance on Fortnite game currency: report

The IRS has removed guidance from its website that said in-game virtual currency in video games such as Fortnite could be subject to a new reporting requirement on federal tax returns.

IRS Chief Counsel Michael Desmond said the video game currencies should not have been included in the guidance alongside bitcoin, according to a report by Bloomberg Tax. 

He described their inclusion as a mistake, but provided little clarity on how the error occurred.

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"It was corrected and that was done quickly — as soon as it was brought to our attention," the counsel told reporters Thursday at a Tax Council Policy Institute conference in Washington, according to Bloomberg Tax.

The language had identified V-bucks, the currency used in Fortnite, as an example of a convertible virtual currency. Bloomberg Tax had asked the IRS if gamers who purchased the currencies would have to disclose the information on their tax forms, and the language was removed from the IRS's website shortly after Bloomberg Tax inquired to the agency.

The IRS has become interested in cryptocurrencies and for the first time is asking taxpayers to report if they had traded or sold them on the tax returns they file this year. 

Fortnite is a massive online game published by Epic Games, amassing $1.8 billion in revenue last year, according to industry estimates from The Verge. Last March, Epic Games said the game is nearing 250 million registered players around the globe.

IRS’ guide on virtual currencies V-Bucks and Robux leave many puzzled

Taxing virtual currencies is becoming a virtual nightmare.

The Internal Revenue Services' section on taxing certain cryptocurrencies is vague and confusing to those who have just over 60 days to file their returns.

"Virtual currency that has an equivalent value in real currency, or that acts as a substitute for real currency, is referred to as 'convertible' virtual currency,' reads the IRS' guide for taxpayers. "Bitcoin, Ether, Roblox and V-Bucks are a few examples of convertible virtual currency.'"

But language regarding Robux — used in the gaming world of Roblox — and V-Bucks from Fortnite has been changed, reported Vice on Thursday.

Nearly 250 million people worldwide exchange V-bucks, according to cryptocurrency policy think tank Coin Center director Jerry Brito.

In 2019, the IRS started asking people about their virtual currency reserves, according to Vice.

Robux fuel Roblox, a game where players build tools, worlds, and even their own games. Creators then sell products in Roblox for Robux.

A new report form the Government Accountability Office noted that the IRS is missing out on billions of dollars each year due to unreported virtual currency.

"Many virtual currency transactions likely go unreported to IRS on information returns, due in part to unclear requirements and reporting thresholds that limit the number of virtual currency users subject to third-party reporting," explained the GAO. "Taking steps to increase reporting could help (the) IRS provide taxpayers useful information for completing tax returns and give (the) IRS an additional tool to address noncompliance."

Thursday, February 13, 2020

IRS quietly deletes guideline that Fortnite virtual currency must be reported on tax returns

The little-noticed provision, which dated back at least to October according to the cached version of an IRS webpage on Archive.org, appeared to mark the first time the agency has ruled on video game currencies, including Fortnite's V-bucks, purchased with real dollars. By applying the same policy to in-game money that it enforces on bitcoin, ether and other cryptocurrencies, the IRS guide seemed poised to affect millions of gamers — or their parents.But on Wednesday, the IRS scrubbed all mentions of the in-game currency from the webpage after questions from CNN and other outlets about the policy. Despite the sudden deletion, experts believe that transactions involving video game currencies will still need to be reported under a new question the IRS is including this year on tax forms. Just because the IRS deleted the language, they said, does not resolve questions about how the IRS plans to treat video game currencies.

The day after the agency deleted the guideline, IRS Chief Co unsel Michael Desmond told reporters at a Washington conference that including the video game currencies had been a mistake, the agency confirmed to CNN on Thursday. Desmond's remarks were first reported by Bloomberg.

"It was corrected and that was done quickly — as soon as it was brought to our attention," Desmond said, according to Bloomberg's report. However, the IRS did not respond when CNN asked for a statement clarifying the tax treatment of video game currencies. The IRS's changes only add to confusion about how it is handling tax filings for virtual currencies -- and which digital products are lumped into the category. "[The] definition of virtual currency in IRS guidance would still encompass these," Jerry Brito, executive director at the Coin Center, a virtual currency think tank, wrote on Twitter after the changes on Wednesday. "I don't think they realized the consequences of their 1040 question." The agency has long reminded Americans that virtual currency is treated like property for tax purposes. When Americans buy bitcoin, for example, they need to keep track of how much they paid for it. When they sell, they need to report any appreciation in value and pay taxes on those capital gains (and can claim a loss if there were realized losses). Using bitcoin to buy goods and services, even a coffee, is still considered a sale of property and potentially a taxable event. The IRS published a landmark policy guidance in 2014 laying out the details, and another update last year.

Last fall, the IRS appeared to clarify that the same tax policy also applies to video game currencies.

"Bitcoin, Ether, Roblox, and V-bucks are a few examples of a convertible virtual currency," the IRS said on the webpage, prior to removing the language on Wednesday. The IRS did not appear to limit the types of video game currencies that may be covered under the policy.

Modern video games have increasingly turned to sales of virtual currency — which can then be used to purchase in-game costumes, weapon skins and randomized loot boxes — as a form of revenue.

Popular online games such as Apex Legends, PlayerUnknown's Battlegrounds and League of Legends all use in-game currencies and are likely subject to the rule, said Neeraj Agrawal, a spokesman for the Coin Center.

"Every major online game has some kind of in-game economy at this point," he said. "It's a very popular mechanic."

Fortnite in particular has become an internet sensation, amassing $1.8 billion in revenue last year, according to industry estimates. Last March, Fortnite's publisher, Epic Games, announced the title had nearly 250 million registered players around the globe.

Following the IRS's surgical edits this week, bitcoin is the only remaining example of a virtual currency offered on the agency webpage. But just because V-bucks have been removed does not mean the IRS regards all transactions in the currency as tax-exempt.

"They probably removed it because it's not particularly accurate, or had some error," said Mark Steber, chief tax officer at the tax prep company Jackson Hewitt. "In the law, if it's not specifically exempted, then it's taxable. Nothing is exempt from taxation which is not excluded from the law."

Taxpayers who had virtual currency transactions in 2019 will need to fill out Schedule 1 with their Form 1040, according to the IRS's 1040 instructions. The first question on Schedule 1: "At any time during 2019, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?" According to the instructions for Schedule 1, taxpayers will need to answer yes if they have engaged in a transaction involving virtual currency; if they have received any amount of virtual currency for free; have exchanged virtual currency for goods or services; have sold virtual currency; or have exchanged virtual currency for other property, including other virtual currency. The reversal came the same day that the Government Accountability Office published a report calling on the IRS to provide "clarified guidance" on virtual currencies.

Some tax experts said the agency is simply struggling to apply time-honored tax principles to novel technologies.

"The IRS is trying to communicate that an accretion of value ... will trigger a taxable event, whether you are using the currency to buy a tangible item or to acquire a virtual item," said Mary Baker, who leads the tax policy practice at the law firm K&L Gates in Washington. "How to keep track of these transactions and their taxable effect is an issue that Congress and the Treasury Department both are grappling with."

Just because you may need to answer "yes" to the question on Schedule 1 does not necessarily mean you need to fill out anything else, Steber said. It depends on your personal situation. But some may need to report capital gains stemming from their virtual currency transactions on other forms.

"This question is an indicator that more is likely coming — more guidance, more rules, more requirements, more oversight and monitoring by the IRS," he said. "It's no longer something that's going to live in the background shadows. There's too much money there."

Although there's much that's still unsettled about how to track virtual currency transactions — and who should be responsible for it — Baker said the onus is still on taxpayers to figure out whether they owe the IRS and to fill out an accurate tax return, at least for now.

IRS clarifies confusing Fortnite V-Bucks tax requirement

The IRS has offered clarification on the confusing and panic-inducing Fortnite V-Bucks tax reporting requirement that appeared on its webs...