If You've Gotten Involved in NFT's, The IRS Has Put Out Some Guidance As We Inch Closer to Tax Day

The notice states that the IRS will look to see what the NFT actually represents (i.e., its rights and benefits), to determine its characterization – a result that most tax practitioners practicing in the digital asset space had been pushing for, according to Tony Tuths, Digital Asset Practice Leader and principal in Alternative Investments, Tax – KPMG LLP. "If an asset, including an NFT, constitutes a collectible for tax (e.g., work of art, metal, gem, stamp, "or other tangible personal property" specified by the IRS), then (i) the long-term capital gains rate for that asset rises from 20% to 28%; and (ii) the asset is not suitable to be held in an IRA or other qualified retirement account, among other tax effects," he said. "It remains an open question whether a piece of digital art can constitute a "work of art" or whether it needs to be tangible. Either way, the notice is very welcome and takes a logical approach to the taxation of NFTs, without rushing to judgement on open issues, but rather, seeking public comment."