Beyond the confines of physical space and time exists a digital landscape known as virtual worlds. Also called synthetic worlds, Massively Multiplayer Online systems (MMOs) or persistent worlds, these platforms provide users with opportunities for interpersonal communication, commercial activity, educational possibilities and arts and entertainment. Digital currencies in open-flow virtual worlds like Second Life and standalone currencies such as Bitcoin mirror their financial counterparts in the real world economy, so much so that scandals involving questionable Bitcoin transactions have caught the attention of policy makers, bringing virtual economies under increasing scrutiny. Despite the negative publicity concerning virtual currency, the nonprofit sector is busy working for the good in virtual worlds. The study considers that not only do virtual worlds offer new venues for fundraising activities by the nonprofit sector, but the economies of these synthetic environments also present obstacles for tax policy. By examining the case of the American Cancer Society’s virtual Relay For Life of Second Life, this dissertation addresses three research questions: 1. From the lens of the Diffusion of Innovations theory (Rogers 2003), will the American Cancer Society’s fundraising success increase as the virtual Relay For Life (vRFL) is expanded within the virtual world of Second Life? 2. What are the implications of virtual currency for tax policy in the nonprofit sector? 3. How will current virtual tax policy proposals affect virtual fundraising for nonprofit organizations operating in synthetic worlds? Descriptive statistical data have been collected from organizational annual reports and tax returns, as well as qualitative interviews with participants of the virtual relay. The interview questions are grounded in Rogers’ (2003) diffusion model. The study looks at the policy making process from a punctuated equilibrium perspective and considers four options for categorizing virtual income: capital gains, ordinary income, foreign income and bartering. The performance of the virtual Relay For Life since its inception in 2005 indicates that the event is exiting the second phase of Rogers’ (2003) five stages of diffusion – Early Adopters – and entering the Early Majority stage. The researcher suggests, in conclusion, that earnings from open-flow virtual worlds be treated as foreign income for tax purposes and recommends that subsequent discussions regarding the future of virtual currencies include deliberate consideration of the nonprofit sector.