Up until Wednesday, anybody reading the IRS’s guidance on virtual currencies was led to believe they’d have to declare Fornite V-bucks and Roblox Robux on their tax form, which asks people to declare virtual currencies they’ve used in the past year.
“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,” the IRS’ guidance for taxpayers stated. “Bitcoin, Ether, Roblox, and V-bucks are a few examples of a convertible virtual currency.”
After a tweet from Jerry Brito, director of cryptocurrency policy think tank Coin Center, pointing this out went viral and Bloomberg contacted the IRS for comment, the agency quietly changed language on its official website to remove language related to V-Bucks and Robux.
“A Google search tells me Fortnite has about 250 million users,” Brito said on Twitter before the language change. “Not all are American taxpayers, of course, but it gives one a sense of the numbers. Millions of parents that bought V-bucks will have to answer ‘yes.’”
The IRS is trying to wrangle virtual currency like Bitcoin—which can be bought and sold for a profit in USD— and turn it into taxable income. Last year, the IRS started asking people about their virtual currency. It’s the first question on the new 1040: “At any time during 2019, did you receive, sell, send, exchange or otherwise acquire any financial interest in any virtual currency?" And, until yesterday, it seemed to consider video game currencies taxable income as well.
The IRS removing references to V-Bucks and Robux in its guidance for taxpayers makes the whole situation even more confusing because the IRS’s definition of a convertible virtual currency remains the same. “They just removed the game currencies as examples, but they have not changed their definition of 'convertible virtual currencies' so if in-game currencies fall under their definition, nothing has really changed,” Brito told VICE in an email.
V-bucks aren’t convertible, which makes their inclusion in the original wording rather baffling. In a statement, Fortnite maker Epic Games said that the IRS' description of V-Bucks was inaccurate.
"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,’” the statement said.
Robux are convertible, however. Robux are the virtual currency that fuels Roblox, a game where players build worlds, tools, and even their own games. It’s like Second Life meets Minecraft. Creators can sell stuff in Roblox for Robux, then cash out their Robux when they want to.
Those Robux are taxable and the Roblox Corporation told Vice it’s reporting the income players make from Roblox to the IRS. “Robux can only be earned and exchanged by developers for real currency through our Developer Exchange (DevEx) program,” a Roblox spokesperson told Vice in an email. “Prior to any payments being made to developers, we require them to have an IRS form on file with Roblox, and we report all DevEx payments to the IRS using form 1099.”
A new report from the Government Accountability Office published on Wednesday pointed out that the IRS is losing billions in revenue every year from unreported virtual currency. That same report also noted that the IRS isn’t clear on how it wants to treat virtual currency, which is part of its problem.
“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,” the GAO said. “Taking steps to increase reporting could help IRS provide taxpayers useful information for completing tax returns and give IRS an additional tool to address noncompliance.”
The IRS is still working out how to deal with virtual currency. The GAO report and the website changes make it clear that the phenomenon is so new that government tax collectors aren’t sure how to collect. The only thing it knows for certain is that it wants a cut of the virtual currency market.
The IRS did not immediately respond to request for comment.