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IRS backtracks on whether video game currencies are taxable

The IRS has quietly changed a provision on its site that said transactions of virtual currencies such as Fortnite's V-bucks were taxable and may have to be reported on tax returns - as reported by CNN.

The provision had been on the IRS's website since October. On the archived version of the site, you can see Bitcoin, Ether and V-bucks are listed as specific examples of a 'convertible virtual currency'. The IRS defines this as one that has an equivalent value to or acts as a substitute for real currency. The IRS's website now only lists Bitcoin as an example of a convertible virtual currency.

However, the inclusion of video game currencies was, apparently, a mistake. IRS chief counsel Michael Dedmond told reporters that the issue was "corrected and that was done as soon as it was brought to our attention", according to Bloomberg Tax.

But the IRS finally made it clear on Friday that you don’t have report video game currencies that don’t leave the game (or become “convertible”). Here’s the IRS’s full statement, shared by Fung on Twitter:

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.
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