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IRS Quietly Removes Fortnite Warning

Taxing virtual currencies has the potential to affect millions of taxpayers—of all ages.

Video games are serious business, and the taxman is taking notice in a predictably awkward fashion.

Since October, the IRS website has included a warning directed toward Fortnite players that their accumulation and spending of in-game "V-bucks" could be federally taxable and may have to be reported. The warning caused a bit of hubbub, as by applying the same policy to in-game money that it enforces on bitcoin, ether and other cryptocurrencies, the IRS guide seemed poised to affect millions of gamers.

This guideline was removed without official comment on Wednesday; bitcoin is now the only virtual currency mentioned on the agency webpage.

It's unclear if this stealthy removal is an indication by the IRS that they're not quite ready to drop the hammer on virtual currencies—an upselling technique used by video games that usually takes the form of in-game microtransactions—or that the service simply wants to revise exactly what was written and hoped nobody would notice if the initial version was taken down.

What we do know is that the appearance and subsequent removal of this advisory has sewn confusion among millions of potentially affected taxpayers. There are tens of millions of video game players in the U.S.—last March, Fortnite's publisher, Epic Games, announced that the title alone had nearly 250 million registered players around the globe. Fortnite amassed an estimated $1.8 billion in revenue last year.

Since the IRS hasn't explicitly retracted its advisory, taxpayers who had virtual currency transactions in 2019 will likely still need to fill out Schedule 1 with their Form 1040, in accordance with the IRS's 1040 instructions.

The first question on Schedule 1 reads: "At any time during 2019, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?"

If in-game currencies are to be included in the definition of "virtual currencies," how many of you will have to answer "yes" to the above question? Perhaps more interestingly, how many of your kids will have to do the same?

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