IRS to Tax Your Second Life?

How real is the virtual world? Real enough that the IRS may want a piece of the digital action. Congressional economists are beginning to weigh the question of how to tax digital assets amassed in multiplayer online games such as World of Warcraft and Second Life, Reuters reports.

The timing couldn't be better for the Feds. Second Life, for example, has already grown its virtual economy to the equivalent of a $150 million gross domestic product. Its 800,000 or so "residents" exchange as much as $500,000 in real money daily.

With such a high volume of transactions taking place, efficient markets can't be far behind inside the world of Second Life. And World of Warcraft probably isn't far behind, if it is at all. (Warcraft distributor The9.com (Nasdaq: NCTY  ) has seen blowout earnings in recent quarters.)

What's more, the bandwagon appears to be growing. BusinessWeek reports that companies and institutions such as CNET (Nasdaq: CNET  ) , Major League Baseball, Harvard University, and American Apparel are now doing business inside Second Life's virtual world.

And with $15 million in monthly transactions at stake in an economy that's growing 10% to 15% a month, hundreds if not thousands of businesses could join the fray soon. Perhaps that's why Reuters decided it was time to open its own digital bureau inside Second Life. Writer Adam Pasick -- code-named Adam Reuters in Second Life -- is the virtual bureau chief.

Seeing such well-known organizations commit real-world resources to the game might tempt the entrepreneur in you to try and become the Second Life equivalent of Donald Trump (without the bad hair, of course). But that won't be easy; BusinessWeek reports that Second Life "resident" and digital entrepreneur Anshe Chung already has amassed a portfolio of virtual real estate holdings worth at least $250,000. And many other early adopters have already jumped headfirst into the fray. Are you sure you want to join that arms race?

Frankly, you may do better researching how the march toward all things virtual could benefit your portfolio in the here and now. That shouldn't be too hard. After all, the more popular these games become, the more network capacity they need. And that simply screams for the goods we once called the "dot in dot-com": servers from Sun Microsystems (Nasdaq: SUNW  ) , databases from Oracle (Nasdaq: ORCL  ) , bandwidth from Akamai (Nasdaq: AKAM  ) , software from Microsoft (Nasdaq: MSFT  ) , and so on. That's the stuff that will make virtual worlds real, and hopefully fatten your portfolio in the process.

Find related Foolishness for the rebel in you:

Get more insight on Second Life in Tim'sJanuary interviewwith long-range forecaster Paul Saffo of the Institute for the Future.All that's required is a 30-day tryout of theMotley Fool Rule Breakersservice, which has unearthed four multibagger stocks in two years on the way to market-beating performance. Sound interesting? Justclick here now.

CNET and Akamai areRule Breakerspicks, while Microsoft is anInside Valueselection.

Fool contributor Tim Beyers only breaks the rules in his portfolio. Wimp. Tim owns shares of Oracle and Akamai. Get the skinny on everything Tim is invested in by checking his Fool profile. The Motley Fool's disclosure policy is a rebel with a cause.


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