The scariest monster in virtual worlds is… the taxman. Aieeee!

Making tidy profits by selling the Magic Sword of Gnarklabarsh in virtual worlds? The taxman would like a word.

Users of online worlds such as Second Life and World of Warcraft transact millions of dollars worth of virtual goods and services every day, and these virtual economies are beginning to draw the attention of real-world authorities…
The rapid emergence of virtual economies has outstripped current tax law in many areas, but there are some clear-cut guidelines that already apply. For example, people who cash out of virtual economies by converting their assets into real-world currencies are required to report their incomes to the U.S. IRS or the tax authority where they live in the real world.

It is less clear how to deal with income and capital gains that never leave the virtual economy, income and capital gains that in the real world would be subject to taxes.

Not to mention the proposed (and officially denied) “BlackBerry tax” here in the UK…