More on Tax

For the thrilling conclusion to this tale, and the solution to all the problems, see this post. Listen to that post and not to all the mistakes I made before it! ]

In my last post I mentioned how new rules for tax reporting in the US have prevented me from withdrawing money from Second Life. This post is a quick update on how things are going (or aren’t going, as the case may be).

So far I’ve had no reply from Linden Lab to any of my queries, so that’s all up in the air, but I’ve been doing my own research into the process and I’ll be documenting the steps I’m taking in the hope it will make things easier for anyone else who has to follow in my footsteps to keep making a crust in SL.

Linden Lab is requesting that all non-US nationals complete IRS form W8-BEN in order to withdraw money. This form, by itself, isn’t a big problem to fill out but the devil is in the details. The form seems to require something called an ITIN (Individual Taxpayer Identification Number). This is something you have to apply to the IRS for using form W-7.

So far, so bad – I can’t even properly complete the form LL wants before going through a whole other process with the IRS. If you Google around a bit for people who are trying to obtain an ITIN you’ll find a lot (a lot) of misery and despair as people try to comply with the IRS’s extremely strict regulations for accepting identity documents.

Your options for satisfying the IRS as to your identity are as follows:

  1. Attend a US tax office in person and have certified copies made – not easy if you don’t live in the US
  2. Post all your original documents to Austin in Texas and pray that they won’t get lost on the way there or the way back
  3. Attend the US Embassy in your own country and have certified copies made by the IRS representatives there

I’m not mad keen on the idea of packaging up all my identity documentation and posting it across the Atlantic, not to see them for weeks or months. I do occasionally need them to identify myself in this country too!

Option 3 might also seem like a possibility, but then you run into the IRS’s customer service issues. I rang the US Embassy in London – despite my call being within their quoted hours the recorded message informed me that the office was shut. I gathered from the website and the recorded information on their phone system that what I would have to do is turn up at the embassy on either a Tuesday or Thursday morning, join a queue and hope that they had time to get around to me. If not I’d have to try again another day. Also I couldn’t bring any electronic devices with me (including a mobile phone) or the friendly Marines on the door would shoot me and then bill my family for the ammunition (which they’d also have to pay tax on because they don’t have ITINs either).

I may have made the shooting bit up, but it seems in keeping with the general level of helpfulness.

As it turns out making repeated day trips to London and back while leaving my phone behind isn’t an option at the moment – I’m looking after ill family members these days and, while making the trip once or even twice might be possible, I cannot be without my phone as well as away from the house.

I thought that things were pretty much over at this point until I happened on a page on the IRS website for their Acceptance Agent Program. Acceptance Agents are local firms who have been certified by the IRS to make certified copies of identity documents. They generally also offer assistance in obtaining an ITIN. I’m currently talking with one of the UK Acceptance Agents about applying for an ITIN and it seems likely that I will pursue this route to obtaining one. If you decide to follow in my footsteps then be aware that hiring the services of one of these firms will set you back several hundred pounds (or equivalent in your local currency). For me, it’s worth it, due to the amount of money outstanding on my account, but it may not be so for others.

So, to run down what I’ve learned so far:

  • If you are a non-US citizen and want to withdraw money from Second Life then Linden Lab will (likely) require you to file a W8-BEN form with them.
  • In order to fill out a W8-BEN you will need to acquire an ITIN from the IRS
  • ITINs are obtained by filling out form W-7 and submitting identity documentation to the IRS
  • The IRS is extremely picky about accepting identity documentation, so you will have to jump through some pretty narrow hoops to satisfy them. It will involve risking your valuable original documents to the international postal system or travelling to an embassy to queue hopefully for hours without even Angry Birds or a Kindle to pass the time.
  • Many countries have local Acceptance Agents who may be able to help you with advice or your application for a fee. Look up your local ones here on the IRS website.

It’s pretty clear that sorting this out is going to be an uphill battle. I have some advantages, though. I make enough money from SL that hiring professional help is an option for me – I’m not happy about it, but I’ll still come out ahead after paying their fees and I should only have to do it once to obtain my ITIN. I’ve also been used to wrangling with HM Revenue and Customs, having worked as a consultant and founded my own business in the past, so I’m no stranger to facing down tax men with a steely glare 😉

I’m afraid that these changes are going to make Second Life a difficult business platform for anyone outside the USA. What effect this will have on SL remains to be seen, but I wouldn’t be surprised if it clears out a lot of the smaller non-US based vendors, and probably a few of the larger ones too.

Just on another note, my previous post about this problem seemed to indicate that I would give up making things for SL entirely if I couldn’t get this sorted out. This isn’t the case. I would likely reduce the amount of stuff I make – I would find it difficult to justify the current amount of time I spend making things if it wasn’t a paying gig – but Kcreations would go on in some form. My current thinking is that I would redirect the profits from the business to charities that collect in SL – I could make L$ transfers in-world without worrying about IRS rules. I do already give to charities like Relay for Life in SL, but in this case I’d channel all the Kcreations money into it, or other worthy causes on the grid.

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