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Second Life players spied on by government

Tax man creates online hit list

Watch out online communities and all you avatars out there, the taxman is after you.

Rumours persist that the taxman has created several characters in Second Life who are spying on possible tax evaders – those people who don't declare the money they make within the online 3D world.

This follows earlier news that online gamers and community dwellers are on the taxman's hit list. And it's not just real-money profits being spied on. The Revenue said it will target even virtual profits: “Even if there is no cash transaction you could still be taxed on the profit or gain. The virtual aspect is a red herring. If someone is running a business, then they are required to register with us and pay tax on that business.”

Tax inspectors are using Xenon, a new high-tech snooper computer system, to scan the site, which has 35,000 regular users in the UK. Xenon is also being used to identify people making money from eBay and other auction sites.

According to The Sunday Times, more than 13,000 people now make some sort of a living from Second Life. In July, 145 players earned more than $5,000 (£2,480) a month on the site, up from 116 in February. A further 5,384 earned $100 or more.

Accountants believe that people start making dough on Second Life as a bit of fun, so are unaware that tax is due.

The Revenue told the newspaper: “Our primary target lies with traders who are running a business on Second Life. The same tax rules apply to Internet trading as to any other form of trading and our compliance approach remains the same.”

Players have to use “Linden dollars” to buy and sell within the game. These can be converted to real cash using a special exchange, enabling individuals to make an actual profit.

Last year, reports the Sunday Times, Ailin Graef created the virtual property magnate Anshe Chung, who became the first person to have made more than $1m through the game.

Users of other online games, such as Entropia Universe, are also in the Revenue’s sights. Entropia is about to launch a cash card enabling users to convert virtual dollars into real ones at high-street cash machines or anywhere that takes Mastercard.

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