IRS Asks Taxpayers to Weigh In on NFTs

The IRS has asked American taxpayers to weigh in on the tax treatment of nonfungible tokens (NFTs).

For those unfamiliar, NFTs are one-of-a-kind digital assets. They are typically digital art but can extend to Tweets and GIFs, as well. Furthermore, some NFTs include rights to physical objects and experiences like entry to a ticketed event or concert or ownership of a coveted product.

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In its official release, the tax agency shared additional details about how NFTs function, explaining that distributed ledger technology "such as blockchain technology, uses independent digital systems to record, share and synchronize transactions, the details of which are recorded simultaneously on multiple nodes in a network. A token is an entry of data encoded on a distributed ledger. A distributed ledger can be used to identify ownership of both NFTs and fungible tokens, such as cryptocurrency."

Until this week, the IRS had not officially weighed in on NFTs, which have grown rapidly in popularity over the last several years.

Last year, the IRS changed how its cryptocurrency question was worded for all taxpayers, so it is unsurprising that it is now looking to establish official rules about the treatment of nonfungible tokens.

CNBC noted that the type of taxation the IRS is considering would look at NFTs as collectibles, much like fine art.

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Currently, the federal government taxes collectibles owned for more than a year at a top rate of 28%. This means wealthy NFT owners could find themselves paying high taxes for ownership.

The IRS requested comments from the public, which can be submitted until June 19, 2023.

What do you think? Should NFTs be subject to taxation?

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