http://voices.washingtonpost.com/…

The IRS soon may keep a closer watch on the thousands, if not millions, of small firms and the self-employed that have sprouted up in virtual worlds.

The nation’s taxpayer advocate, who recommends to the IRS how to improve the average consumer’s tax-paying process, released her annual report Wednesday describing some of the most serious problems encountered by taxpayers as well as some issues that the IRS should proactively address.

Taxpayer advocate Nina Olson listed the usual perennial suspects — telling the IRS it should simplify the tax code and improve its working with taxpayers experiencing financial difficulties, among many other things.

But she also told the agency that it should “proactively address emerging issues such as those arising from virtual worlds.” Her report said that about $1 billion in real dollars changed hands in computer-based environments during 2005. Additionally, more than 16 million people are said to have active subscriptions in these worlds, “many of which have their own virtual economies and currencies.”

But Olson said the IRS hasn’t effectively been able to respond to taxpayer inquiries about how to report transactions associated with them. “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,” said Olson’s report. She suggests that to improve voluntary tax compliance, the IRS issue guidance addressing how taxpayers should report economic activities in virtual worlds.

I’m not surprised they want to tax something… I’m sort of surprised that the IRS has a so called taxpayer advocate. Is that like the mob? Like when they have a few guys walk into a store and ask the owner where the protection money is and one of the guys is dressed slightly better then the 2 or 3 beefier guys behind him. Speaks with a kindler voice. You know the one. The guy who begs the owner to not have to let the other guys mess up the joint. He’s the shop owners advocate you see.

Raw Meat Cowboy over at GoNintendo.com said this:

This isn’t a call for me to make, obviously. While no one likes being taxed more and more, I can’t say that I think taxing on virtual goods is wrong. I don’t think it’s right either, but there’s definitely an important conversation to have in order to figure this all out.

I can say that I think taxing virtual goods is wrong. Taxation is theft and theft is a socially illegitimate and destructive action.