Ignorance no excuse: IRS to hunt NFT tax cheats for billions of dollars

The IRS is gearing up for a wave of NFT-related tax evasion cases, with many collectors still not sure how to declare crypto assets.

US tax officials say they’re gearing up for a tidal wave of NFT-related tax evasion cases this year, with many collectors still unsure of how to declare their crypto income.

As reported by Bloomberg, tax experts in the US suggest profits from sales on platforms like OpenSea or Rarible are taxed as ordinary income (up to 37%).

They also generally agree that US residents buying NFTs with crypto owe capital-gains taxes on both the purchase and future re-sales.

But direct government guidance around the $44-billion NFT industry has been thin on the ground.

Many NFT buyers are likely unaware they need to pay taxes at all. Others may not know they’re required to pay taxes quarterly if they owe more than $1,000.

And while nobody knows exactly how much tax is owed, industry insiders reckon NFT investors could owe billions of dollars this year.

NFT tax guidance missing but IRS doesn’t care

It could be that the US government deems NFTs “collectibles,” which reportedly carries a max capital-gains rate of 28% (compared to 20% for stocks and most cryptocurrencies).

But there’s no formal guidance specifically for NFTs, and the US Internal Revenue Service (IRS) doesn’t accept ignorance as an excuse.

In fact, some reportedly reckon the IRS could start auditing before clarifying rules around NFT trading and investment.

“You don’t get to not report gains or losses because the IRS has failed to provide guidance that meets your expectations,” tax attorney James Creech told Bloomberg.

CNBC also relayed the potential for “NFT tax shock” later this year.

“The harder it is for people to get to a reasonable (or ideally) a right conclusion, the easier it is to ignore it,” warned Creech.

For more information about how the US taxes crypto, check out the IRS’ FAQ here.

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