Blizzard Entertainment, the game company behind hits like Starcraft and World of Warcraft, just announced the details of its (relatively) soon-to-be released game, Diablo III. The original Diablo and Diablo II were big hits, and although D2 came out in the late 1990s, it still sells in numbers high enough to make annual top ten sales lists in 2010. Millions of people still play Diablo II on the "Battle.net" multiplayer servers, and millions more likely still play in solo mode. It's likely that D3 will be the biggest hit of whatever year it ends up coming out in, simply out of pent-up anticipation. It's no exaggeration to say that tens millions of people will likely play Diablo III on a regular basis.

But the news about the game that has really captured people's attention -- and even New York Times headlines -- is Blizzard's introduction of an in-game player-to-player market for items discovered in the game. Unlike the auction houses and trading systems that have been found in games for years, this one will allow players to buy and sell for real money, not simply imaginary gold pieces or space credits or whatnot. Any player can participate in the auction house, and any player may run across a valuable item in the game (as they are randomly generated).

Problem.

When you win a prize in a game that has cash value, that prize is taxable at the fair market value, even if you do not sell it. This is true in the United States, and (from my cursory Googling) appears to be true in the UK and India (and likely many other locations). So when you stumble across that Massive Staff of Infection or Red-White-Blue Shield of Copyright Infringement, items that could be sold in the Diablo III Market for $20, $50, or even $100, you're legally supposed to declare those winnings on your taxes. While that might seem like common sense if you sell them and end up with a few hundred dollars in your PayPal account every year, it will likely come as a surprise if you're just playing and avoiding the auction house entirely.

D3 isn't the first game to implement a real-world-sales feature (Project Entropia made noise a few years ago trying to do something similar), but it will be the first one with sales likely amounting to tens or hundreds of millions of dollars. The Internal Revenue Service and Other Appropriate Tax Ministries pay attention to numbers like that.

In everything I've read about D3, I haven't seen any reference to Blizzard even being aware of this problem. And in an era where governments are scrambling to find any income they can, I really doubt that the IRS will ignore this pot of not-so-virtual gold.