U.S. taxpayers have been freed from tax obligations on gaming transactions carried out with virtual cash, according to recent language modifications to the Internal Revenue Service (IRS) webpage. However, confusion still remains in the IRS tax regulations for real cryptocurrencies.
The website change removed Robux and V-bucks—gaming currencies for Fortnite and Roblox—from the list of taxable currencies which also includes bitcoin (BTC) and ethereum (ETH).
By removing these in-game currencies, the IRS has effectively freed gaming currencies from tax liabilities—a happy outcome for parents of Fortnite junkies. However, the ramifications might be widespread, given that a large number of gaming platforms have internal virtual cash earning systems.
The newest change only highlights the near-constant confusion on cryptocurrency taxation from the IRS. Rules have mutated rapidly, with taxpayers trying to keep up with the complexity.
Based on a report by the Government Accountability Office (GAO), U.S. taxpayers are still in a haze as to how to approach cryptocurrency holdings and transactions. In particular, the report made clear that 2019 instructions and FAQs have left taxpayers without clear direction going forward. Per the report:
“Although IRS’s 2019 virtual currency guidance addressed some issues left unresolved by its 2014 guidance, it did not address others, and it has also prompted new concerns among virtual currency stakeholders. Additionally, including information that the 2019 FAQs are not legally binding would enhance taxpayer understanding and could ultimately help enhance taxpayers’ confidence in IRS and the tax system.”
This confusion has left taxpayers between a veritable rock and hard place, according to the report. Without clear guidance, taxpayers will be forced to make educated guesses on how to pay tax. Should they overpay, they will have no clear way to request a refund. Should they underpay, or pay incorrectly, they will be liable for an audit and penalties.
However, while the current guidance is not clear for bitcoin and other cryptocurrencies, the exclusion of gaming currencies may spell chaos for tax reporting. Many gaming currencies function within games, but can then be sold on exchanges for fiat currency.
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When transactions take place of this nature, they could be taxable, but the current regulatory language does not make this clear.
What’s more, losses from cryptocurrency investments are still a point of contention among tax experts. This has left cryptocurrency faithful wondering what they can and cannot consider a write-off.