In regard to the virginity-for-sale story recounted below by Paul: this is really nothing but the application of modern technology to a time-honored process that has been part of human culture and anthropology since our ancestors lived in trees. It’s a dowry.

Now, it’s important to understand the extent to which modern society has devalued women. Throughout history, the provision of virginity was accompanied by an immediate earnest-payment, together with a commitment to support the young woman in question for the rest of her life.

But this transaction, if the news reports are to be believed, has so far inspired a high bid of only about $3.7 million. That’s a fraction of the amount needed to support your average young female through a lifelong obsession with clothing, shoes, large houses, personal trainers and expensive travel.

But put aside that the transaction is being performed at an undervaluation. There’s a much more difficult and important question:

Should the monetary value recovered in the transaction be taxed as ordinary income, or as a capital gain?

We may be reasonably assured that the value being provided by the young woman is not contained in her labor. After all, she purports (and doubtless will be contractually obligated to medically establish) that she is in fact a virgin. Definitionally therefore, she’s inexperienced in the sexual arts, and her sexual labor must thus be accorded a minimal value.

On the other hand, the attractiveness of her virginity to the prospective buyer, arises principally from the fact that she has preserved it intact for some period of time, certainly an undertaking of no small difficulty in today’s typical university milieu.

It may thus be effectively be modeled as a long-dated zero-coupon security, callable by the issuer. Such securities increase rapidly in value as the maturity date approaches, and the spread to the relevant risk-free rate decreases. (They “ride down” the yield curve.)

As always, there is a standard amount of credit risk (she may default at the last minute) and market risk (she may not be very good). These risks can probably be hedged with a credit-default swap of an appropriate maturity date, although it would need to be carefully stipulated exactly what is to be delivered by the third-party swap issuer, in the event of a default.

Now we’re ready to approach the critical tax question. Even though the local jurisdiction may try to apply a sales or use tax, the fact remains that the act of surrendering virginity represents the liquidation [sic] of a long-term asset. In economic terms, it’s the realization of the latent value of the virginity, rather than a work performed for hire.

Therefore, it’s a capital gain and should be taxed accordingly. QED.