Charles Rettig fears taxpayers are using non-fungible tokens (NFTs) for tax evasion and called NFTs “invisible to the IRS.”
During a speech to the US Senate Finance Committee, IRS Commissioner Charles Rettig raised the issue of the NFT’s role in tax evasion. Asked if the improved reporting requirements for cryptocurrencies would help close the $ 1 trillion tax gap, Rettig noted that the world of cryptocurrencies is “constantly changing.” According to him, non-fungible tokens “are essentially collectibles in the cryptocurrency world. These elements are not visible [IRS] because of their design. ”
Rettig told the Finance Committee that the US is losing about $ 1 trillion in tax payments annually, in part due to the surge in cryptocurrencies, which the agency is difficult to track and tax. Under current law, the IRS taxes cryptocurrencies as capital. This means that cryptocurrency holders are required to pay capital gains tax if they sell their cryptocurrency for a profit or use it to make a purchase.
An NFT is a tokenized version of a digital or real asset that exists in one instance. The popularity of NFT has skyrocketed in recent months, with brands and celebrities releasing their own digital collectibles in the form of NFTs. The IRS will be more interested in the amount of money flowing into the NFT industry, as individual tokens are selling for millions of dollars.
Rettig also noted that “reporting on cryptocurrencies will be essential.” Recently, a blockchain expert from the World Economic Forum (WEF) said that financial sector regulators are ready to significantly step up in the regulation of the cryptocurrency industry. As the cryptocurrency market grows, regulators are receiving more and more signals to get involved in the sector.
And judging by the recent activities of the regulators, her fears are well founded. Last year, the US IRS added a cryptocurrency clause to the bulk of its tax reporting form, and late last year, the US Financial Crimes Enforcement Network (FinCEN) proposed requiring banks and financial institutions to report transactions from any cryptocurrency wallet. In March, Hester Peirce, Commissioner of the US Securities and Exchange Commission (SEC), warned that NFTs could in some cases be considered securities.