NFT Investors Draw IRS Attention

A market for NFT valued at about $44 billion by Chainalysis has attracted the attention of the U.S. Internal Revenue Service (IRS). Officials aim to identify among those tied to these assets anyone evading obligations, Bloomberg reports.

The agency, citing experts, noted uncertainty about the tax rate on profits from NFT transactions. Investors may also be unaware of the need to inform the IRS — including that it may be required more than once a year. As a result, they could face penalties.

Most advisers concur that proceeds received by NFT creators from selling tokens should be treated as ordinary income and taxed at 37%.

NFT investors should pay capital gains tax when they sell them, or at the time of purchase if another cryptocurrency was used for the transaction.

Some argue that NFTs should be treated as ‘collectibles’ with a 28% long-term capital gains rate, versus 20% for stocks and cryptocurrencies.

Experts stressed that there is still no clarity regarding NFTs in the requirements infrastructure plan for digital assets.

According to Artur Teller, COO of TokenTax, the IRS could collect ‘billions of dollars’ in total.

Gibson, Dunn & Crutcher partner Michael Desmond did not rule out that before clear NFT tax rules emerge, the agency will study crypto-investor activity. Bloomberg reports that the IRS is gearing up for a higher caseload in 2022.

NFT enthusiasts should expect a wave of paperwork. Adam Hollander, creator of the NFT collection “Hungry Wolves,” spent 50 hours poring over months of transactions.

“This is a nightmare. Not everyone will want to do what I do,” he said.

Earlier in the United Kingdom, money-laundering risks through money-laundering risks NFTs were noted.

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