The Crypto Craze is Still Here? IRS to look at NFTs
On Monday, March 20th the IRS released a notice stating that it plans to tax non-fungible tokens (NFTs) as collectibles. According to Merriam-Webster, an NFT is “a unique digital identifier that cannot be copied, substituted, or subdivided, that is recorded in a blockchain, and that is used to certify authenticity and ownership.” In Notice 2023-27, which can be found Here, the IRS is requesting comments if an NFT constitutes a collectible under section 408(m), and whether the IRS notice provides an accurate description of an NFT, among other things.
From the notice “Section 408(m)(2) provides that, “[f]or purposes of this subsection, the term ‘collectible’ means- (A) any work of art, (B) any rug or antique, (C) any metal or gem, (D) any stamp or coin, (E) any alcoholic beverage, or (F) any other tangible personal property specified by the Secretary for purposes of this subsection.”
In its analysis, the IRS is specifically looking to see if an NFT is considered a “work of art” under Section 408(m)(2)(A). If an NFT is classified as a collectible it would potentially open them up to a maximum 28% capital gains tax rate instead of the more traditional 20% capital gains rate.
It does seem as if the IRS waited too long in releasing this notice as the NFT craze declined sharply in 2022.
For more information, please reach out to the Professionals at The Center for Financial, Legal, & Tax Planning Inc., at (618) 997-3436.