I wrote previously aboutto clarify the tax rules for virtual goods and money. It didn't take too long for the U.S. government to start getting interested the issue.
The big challenge? Figuring out what can/should be taxed and what rules generally apply. The National Taxpayer Advocate suggested this week that the "IRS issue guidance addressing how taxpayers should report economic activities in virtual worlds."
"Economic activities in virtual worlds may present an emerging area of tax noncompliance, in part because the IRS has not provided guidance about whether and how taxpayers should report such activities," states the report's Executive Summary.
A big part of the fun of reading government reports are the gems of wisdom that is cranked out, including The Most Serious Problems Encountered by Taxpayers which gives top billing to "The Complexity of the Tax Code."
IRS data show that taxpayers and businesses spend 7.6 billion hours a year complying with tax-filing requirements. To place this in context, it would require 3.8 million full-time employees to work 7.6 billion hours. In dollar terms, we estimate that taxpayers spend $193 billion a year complying with income tax requirements, which amounts to 14 percent of aggregate income tax receipts.
So, the report simultaneously suggests guidance for new taxation while stating that tax codes are too complex. I just love irony.