By one estimate, about $1 billion in real dollars changed hands in computer-based environments called ‘virtual worlds’ in 2005. … IRS employees have been unable 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. To improve voluntary tax compliance, the National Taxpayer Advocate recommends that the IRS issue guidance addressing how taxpayers should report economic activities in virtual worlds.
— from the report summary (PDF) of this year’s recommendations from the national taxpayer advocate.
Via Kotaku, Slashdot, WaPo…
The whole thing is large, if you want to read about everything else beyond virtual worlds.