IRS clarifies position on in-game digital currencies like Fortnite V-bucks

American tax authorities caused a stir on Wednesday when the IRS removed a guideline from its website which stipulated that taxpayers must report their ownership of in-game digital currencies, such as Fortnite V-bucks. 

The IRS has since backtracked and attempted to clarify the stipulation.

The guideline, which appeared on the Internal Revenue Service’s (IRS) website last year, advised Fortnite players, a popular online video game, that they could be subject to federal taxes for their in-game currency. "Bitcoin, Ether, Roblox, and V-bucks are a few examples of a convertible virtual currency," the IRS’s website said before the scrubbing, according to a report from CNN.

The IRS later indicated that the inclusion of video game virtual currencies in its guidance was a mistake. “It was corrected and that was done quickly—as soon as it was brought to our attention,” IRS Chief Counsel Michael Desmond told reporters on Thursday, as reported by Bloomberg.

The IRS today tried to clarify the confusion. “Transacting in virtual currencies as part of a game that do not leave the game environment (virtual currencies that are not convertible) would not require a taxpayer to indicate this on their tax return," the agency said in formal statement.

Nonetheless, in-game virtual currencies like Fortnite’s V-buck can be bought and sold on “player-to-player” exchanges like Player Up. This could mean that as long as players don’t convert their in-game currency into dollars or other assets, they will not be subject to taxes.

Cryptocurrencies such Bitcoin and Ethereum have been treated like property in regards to taxes since 2014. The IRS 1040 form, a tax sheet where taxpayers are asked to report additional income and adjustments, specifically asks tax filers: “At any time during 2019, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?”

The agency’s latest attempt at clarifying its stance on digital currencies may not be enough to silence critics within the cryptocurrency industry—and it wouldn’t be the first time.

Last fall, the IRS released long-teased guidance regarding the treatment of hard forks and other crypto assets. That guidance, however, only further complicated the matter for taxpayers, according to several legal experts. And earlier this year, another IRS “clarification” may have effectively put an end to cryptocurrency being used for charitable donations, spurring outrage from within the crypto charity sector.

Games like Fortnite are massive money makers for their developers and allow players to buy in-game assets such as characters and costumes. In the last two years, Fortnite has earned a staggering $4.2 billion in revenue. 

Despite the latest clarification, it will still be up to taxpayers to figure out how to accurately report their tax obligations.