• IRS Taxes Sale Of 'Pokémon GO' Accounts

    By Robert Wood

    05-08-2016

    As Pokémon GO fever continues, some players appear to be frustrated and impatient. It is the nature of games, even without server problems. Besides, some people have more money than time. So, why not lay out some cash to leapfrog success, especially when some players are selling their Pokémon GO accounts? If money changes hands, you can assume Pokémon GO taxes are coming.

    Whether for sale on eBay or elsewhere, prices to elevate your status vary. You might pay $100 or several times that, and some may even list for $1,000. As the Wall Street Journal noted, it isn't only Pokémon Go players who are cashing in. Consider the Oregon man who makes a $65,000 profit annually buying and reselling World of Warcraft accounts. But with any such purchases, be careful. First, every deal you see advertised may not be legit, so beware. Besides, the game companies may not allow it, so you may end up a double loser.

    So pay attention to the terms of service and rules from the game companies. But no matter what, do you know who will recognize your transaction, as a kind of universal truth? The IRS, that's who. The tax code says just about everything counts. In fact, unless there is a specific exception, the tax code says that everything is taxable income. The IRS says that under penalties of perjury, you have to report "all income from whatever source derived."

    And it doesn't matter whether you get it by cash or check, wire, PayPal, or in any other way. Whether you get a Form 1099 or not, you have to report it. In fact, the IRS even reminds taxpayers that two-way trades are taxable. That means even trading one account for another is taxable. Swapping books or clothing? Taxable. Any time you barter, the IRS wants its cut.

    The IRS says income is income, whether you get it in cash or in kind. One-on-one or with multiple parties, the IRS says trading one product or service for another is taxable bartering, and the IRS taxes it. You name the swap, it is income to both sides just like cash. Both are supposed to report the fair market value of goods or services on their tax returns.

    It isn't clear how much bartering goes on or is reported, but that could change with the IRS's Bartering Tax Center. How will the IRS know about trades or how much cash changes hands? They probably won't unless you receive a Form 1099. According to this IRS tax tip, you should ask the other party for one. (Yes, it is worth asking how many people do this.)

    Again, the IRS says you must report any income on your tax return regardless of whether you receive a Form 1099. If the barter exchange occurs in employment, there's employment tax on top of income tax. If you're the employer, that can mean a penalty for failure to withhold. What's more, failing to pay employment taxes means personal liability.

    It isn't clear how much bartering goes on or is reported, but that could change with the IRS's Bartering Tax Center. How will the IRS know about trades or how much cash changes hands? They probably won't unless you receive a Form 1099. According to this IRS tax tip, you should ask the other party for one. (Yes, it is worth asking how many people do this.)

    As for Pokémon GO, new resources are springing up all the time. It is worth checking out ten things I wish I knew when I started Pokémon GO. You may also want to check out this Vox Explainers installment. A week on, it had already been downloaded 15 million times in the U.S. Now, if the IRS could only get a piece of that!

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  • The information provided in this article is for general information purposes only. The information is not intended to be comprehensive or to include advice on which you may rely. You should always consult a suitably qualified professional on any specific matter.

Robert Wood

I’m a tax lawyer based in San Francisco (www.WoodLLP.com), but I handle tax matters everywhere. I enjoy untangling a tax mess from the past, disputing taxes with the government or planning taxes for the future. One of my specialties is advising about lawsuit payments. Whether you’re receiving or paying a legal settlement, you can probably improve your tax position. I write frequently about taxes, from expatriation to sales tax, from selling your company to restitution. I’ve written over 30 tax books, but my best seller is still Taxation of Damage Awards and Settlement Payments. Contact me at wood@WoodLLP.com.

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