Operation Hidden Treasure–NFTs and Taxes

Operation Hidden Treasure is a joint effort by the IRS civil and criminal divisions to capture taxes owed resulting from cryptocurrency.

Operation Hidden Treasure is a joint effort by the IRS civil and criminal divisions to capture taxes owed resulting from cryptocurrency and NFT-related income. One of the major issues facing NFT owners is an elemental one: what tax rate applies to my gains?  Thus far, the IRS has not provided meaningful guidance for the taxation of NFTs.  To boil down the issue further, the IRS has not determined whether NFTs are collectibles, which would result in a higher capital gains tax rate.

Section 1(h)(4) of the Internal Revenue Code of 1986, as amended, states gains from the sale or exchange of collectibles are taxed at a rate of 28% rather than the usual maximum rate of 20%. Furthermore, collectibles are defined under Section 408(m)(2) as follows: (A) Any work of art, (B) Any rug or antique, (C) Any metal or gem, (D) Any stamp or coin, (D) Any alcoholic beverage, or (F) Any other tangible personal property specified as a collectible by the IRS.

Seidman Law Group predicts the IRS will choose the lower and generally applicable maximum possible tax rate (20%) versus the higher tax rate for “collectibles” (28%).  The reason for this is quite simple: the tax code requires collectibles to be tangible.  NFTs are undoubtedly intangible.  Tax rates are not the only legal or tax concern.  For example, investing in NFTs within an individual retirement accounts (IRAs) or qualified retirement plans may not be permitted and, therefore, result in penalties.

Unfortunately, the IRS started Operation Hidden Treasure because too many taxpayers have chosen to not pay any taxes on their NFT-trading or other income.  Do not let the IRS catch you!  Seidman Law Group strongly recommends calling your accountant or other tax advisor to avoid the consequences of not pay your fair share of taxes.

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  1. Oh my goodness! Awesome article dude! Many thanks, However I am experiencing problems with your RSS. I don’t know the reason why I cannot subscribe to it. Is there anybody having identical RSS issues? Anybody who knows the answer can you kindly respond? Thanx!!

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