According to Bloomberg, the Internal Revenue Service (IRS) believes that NFT investors are evading billions of dollars in taxes.
The NFT industry continues to grow with $41.3 billion in trading volume in collectible tokens between July and December 2021. The industry is attracting celebrities such as Justin Bieber and Melania Trump, so it’s no surprise that the IRS wants to get a cut of the money circulating in the industry. Moreover, tax rates can reach 37%.
As Bloomberg notes, the IRS has not provided clear rules for taxing collectible tokens. However, this does not exempt investors and NFT creators from paying taxes, and the IRS may well investigate their activities and impose fines. San Francisco tax lawyer James Creech noted:
“You must report profit and loss even if the IRS has not been able to provide recommendations that meet your expectations. The harder it is for people to understand the rules and come to the right conclusion, the easier it is for them to ignore it.”
There is really no clarity in the calculation of taxes. Thus, tax experts agree that when issuing and initially selling a token, the owner must file a declaration of a single income and pay a tax of 37%. Investors in tokens must pay income tax.
But here disagreements arise – whether it is worth characterizing NFTs as collectible art objects, since the tax on long-term profits from such objects is 28%. But when investing in cryptocurrencies and stocks, the tax is 20%. The IRS is preparing for a significant rise in NFT tax cases.
“We are likely to see an increase in NFT tax evasion cases, as well as crypto asset tax evasion cases,” said Jarod Koopman, Acting Director of Cybersecurity and Forensics at Criminal Investigation Division of the IRS.
The fact that NFTs can be used to evade taxes, IRS Commissioner Charles Rettig (Charles Rettig) spoke in April last year.
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