Science & Technology at Scientific American.com: Virtual economies attract real-world tax attention: "The increasing size and public profile of virtual economies, the largest of which have millions of users and gross domestic products that rival those of small countries, have made them increasingly difficult for lawmakers and regulators to ignore.

Second Life, for example, was specifically designed by San Francisco-based Linden Lab to have a free-flowing market economy. Its internal currency, the Linden dollar, can be converted into U.S. dollars through an open currency exchange, making it effectively 'real' money.

Inside Second Life, users can buy and sell virtual objects from T-shirts to helicopters, develop virtual real estate, or hire out services ranging from architecture to exotic dancing. Up to $500,000 in user-to-user transactions take place every day, and the Second Life economy is growing by 10 to 15 percent a month.

'Ownership, property rights, all that stuff needs to be decided. There's just too much money floating around,' said game designer Sam Lewis, who trained as an economist and has worked on games such as Star Wars Galaxies. He is currently lead designer for an upcoming game from Cartoon Network.

'The tax laws don't know how to behave because these are virtual items: ones and zeros on a database we're allowing you to play in,' he said."