Is an Eve Online Ponzi Scam an Actionable Fraud or Taxable by IRS?

September 1, 2006 at 4:38 pm - by Dale Dietrich

Categories: Virtual Crime Cases • Virtual Property Cases • Virtual Property Taxation

Gamer’s with Jobs has a very interesting article about a recent Eve Online virtual ponzi scheme where ‘Dentara Rast’, the gaming name of an Eve Online player, scammed 700 billion ISK (the in-game currency) from other players. Given that ISK is convertible into real-world currency, making his ‘winnings/earnings’ from the scam roughly equal to $81,667 USD, would the other players have an actionable real-world fraud claim against the player? Are his ‘winnings’ taxable by the IRS? If Dentara Rast does not convert his winnings into cash, are his winnings taxable on the same theory as unrealized capital gains from exercised stock option purchases? Does Eve-Online’s EULA, claiming ownership rights to all in-game property, affect the result given that ISK is bought and sold on e-Bay in contravention to the EULA? Or, does the voluntary participation of other gamers in the free-wheeling, unregulated, world of Eve Online, comprise implicit consent (as with a poker-player’s implicit consent to being lied to by another player that bluffs) to in-game fraud and other shenanigans that would be illegal in the real world? All interesting questions explored in this article.