Update, November 28th: Linden Lab have clarified what they mean by “transaction”.

Some confusion occurred recently after some SL users started reporting they were receiving requests from Linden Lab for tax information, specifically to fill-out IRS form W9, Request for Taxpayer Information. The news of the e-mails sparked a discussion on the SL Universe forums, where opinions as to the cause of the e-mails was somewhat split, with some concerned as to why this should be happening and what it might mean, and others seeing it as a matter of routine.

On Tuesday 19th November, Linden Lab moved to try to clarify matters, issuing a blog post entitled Required Tax Documentation, which reads in full:

The Internal Revenue Service (IRS) requires Linden Lab to collect and retain Form W-9 (for U.S. residents) and Form W-8BEN (for non-U.S. residents) at certain transaction volumes. If you reach the transaction threshold and we do not have your completed and signed W-9 or W-8BEN on file, we are required to withhold funds from your account (at the current rate of 28% of your gross amounts received). Additionally, for U.S. residents with 200 or more transactions with a total amount in excess of $20,000 in a calendar year, we are required to file a Form 1099-K with the IRS reporting those transactions for that year.

If you are required to submit a W-9 or W-8BEN form to us, we will email you before the end of the year with instructions on how to do so. Please follow the instructions to complete and submit the required Form W-9 or W-8BEN within thirty (30) days of receipt. You will only need to complete this paperwork once unless your information changes from year-to-year. If you do not receive an email from Linden Lab, we do not need you to complete these forms.

While the blog post is welcome, some confusion and concerns remain.

One key area of confusion is exactly what constitutes a “transaction” – is it related solely to cashing-out from Second Life, or is it based on the number of user-to-user transaction through the LindeX (i.e. the number of L$ sales a person makes per amount of L$ they offer on the LindeX? Or is it somewhere in between?

A potential cause for concern is that many people cash-out via PayPal, and are also required to fill-out the requisite forms mentioned by Linden Lab, so there is an understandable level of worry as to the risk of double reporting. While this is not strictly Linden Lab’s issue, it is nevertheless a genuine cause for concern.

It has been suggested that one way to clear-up some of the confusion and concern might be for additional explanation to be given through the likes of a Knowledgebase article linked to the entry on account balances and withdrawals. Another alternative might be through an official wiki article dealing with tax liabilities as a whole, much as there are similar entries dealing with matters such as European VAT.

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With thanks to Ciaran Laval and Peter Gray