Fun with IRS

Every now and then you see some sort of policy decision that is so inane that you wonder if you've somehow wandered into the world of the Simpsons or Family Guy.

I don't mean the usual lies, blatant stupidity and outright thievery that can happen in any political environment-- such as the latest Bush Veto-to-protect-Health-Insurance-Companies. (Question: who does "socialized medicine" hurt the most? This is a timed question. Ready. Set. Go.) No, I saying those strange machinations that make you feel you've been dropped by a tornado someplace that is definitely not in Kansas anymore.

The last time (for me, anyway) was the 2005 Kelo v. City of New London decision by the US Supreme Court where it was decided that eminent domain could be used to transfer property from one private owner to another private owner. When is property theft not property theft? When it is sanction by SCOTUS. One of those few times that Scalia and I were on the same side. Only time, actually. Clearly a sign of the End Times.

One interesting wrinkle that fell out of that decision was the proposed construction of the Lost Liberty Hotel to be sited on property owned by Justice Souter. Unfortunately, it failed a ballot initiative.

Well, the government has officially recognized virtual property as, well, property. Turns out one "content creator" for Second Life was stealing products created by other "content creators". The creators sued the thief and a judgement handed down recognized virtual property as property.

What's interesting here is the nature of the decision as I understand it. There is such a thing as intellectual property a recognized by the law. I engage in creating some of it in the form of stories and novels-- for which I have been paid real dollars. The content I provide for a given publisher (a manuscript) bears little resemblence save for the actual words to what is finally published. For an example you can check on the online fiction portion of my website. There is an entry there for a story I wrote called "Winters Are Hard" and two links. One link is to the original location on scifi.com and the other for a pdf of the same story. In that case the words are identical but the formatting, pictures and other bling are very different. The point is that there is a mechanism (copyright) for handling these sorts of conflicts. Given that Second Life exists as miles of computer code, for which copyright has long been recognized, it seems to me that this is the venue to settle these sorts of things.

But the products here are referred to as "merchandise", not works of fiction or computer code but real live things. They have been defined as real property.

There is absolutely no reason not to tax the sales of such things. When you sell something that has no intrinsic value for real dollars the IRS is right there to help. But the IRS is much, much more insidious than that as I found out a few years ago.

Now that it is viewed as real property it can be taxed.

Say you have this pretty little condo you built in Second Life. You own it. Can your town put an excise tax on it? Can it be an asset against which you can make a loan? Can it be collateral for a mortgage? If buy it at one value and sell it at another, is it taxed as income or as capitol gains?

Oh, this is fun!

Can there be virtual inflation? Can you claim a loss if the virtual space station you bought and intended to make into a night club (Not making this up. Check here.) goes bankrupt? For that matter, can virtual property be claimed in a bankruptcy proceeding? If you go bankrupt in Second Life (does SL have bankruptcy?) does it affect your credit rating in your real life? Can you have virtual stock on the NYSE? I wonder if you could have the voting shares in a virtual stock market and the non-voting shares in a real stock market.

We can go further.

Children are not really property in the classic sense of the word. But you can have custody of them and such custody can be determined in a court of law. On the internet no one knows you're a dog. And in Second Life, no one knows the dog is a child. So, if Real Child A is the child of Real Parents A & B but is also Virtual Child X, child of Virtual Parents Y & Z. VP Y and VP Z get divorced and fight bitterly over VC X. Maybe RP A and RP B aren't so happy about that. Does Real Child A (also VC X) go through the same trauma of a regular divorce? That means RP A and RP B have to deal with that. Can they sue VP Y & Z for pain and suffering?

Oh, I can't wait.