With it being tax season, the discussion of whether or not the IRS will tax virtual game items and gold is heating up. Unfortunately for gamers, it appears the IRS is indeed planning on taxing in game items and gold in 2008. That means that everything earned in an online game next year will subject to federal taxes.

So far the IRS plans on taxing “anything that can be bought or sold outside the virtual world.” This includes items, gold, and even characters. Apparently the IRS has even started posting job listings for “virtual currency regulators” (click thumbnail for larger view) whose responsibilities will mostly be to “determine the currency exchange rates between the virtual and the actual along with monitoring any inconsistencies with returns by performing the necessary audits.”

The Internal Revenue Service is focusing on the virtual market as “gold mining” in MMOs has become a lucrative business model for some companies. Though most gold mining companies reside in foreign countries, many buyers of the gold, items, and characters are U.S. citizens. The IRS believes that virtual earnings have become so commonplace that they should be regulated in the same manor as more traditional earnings.

“It’s no different to spend hours a day earning gold in a game to sell it on eBay as it is to go to work and earn a wage,” an IRS spokesman said last week. “Just because the currency starts off as ones and zeros doesn’t mean somebody can eventually exchange it for real cash later. We are just trying to balance the taxation process as to not put the entire burden on those earning money in traditional ways.”

The IRS has yet to release any official documentation on exactly how the virtual assets will be taxed, but they say a system will be in place for 2008.

Tags: IRS, internal revenue service, MMO, World of Warcraft