IRS Commissioner Concerned NFTs May Be Used for Tax Evasion

Speaking at the Senate Finance Committee on Tuesday, IRS Commissioner Charles Rettig raised concerns about the role of non-fungible tokens (NFTs) in tax evasion.

Asked whether improved reporting requirements for cryptocurrencies would help to close a tax gap estimated at $1 trillion, Rettig noted that the crypto world is “replicating itself constantly.” Non-fungible tokens, he said, “are essentially collectibles in the crypto world. These are not visible items by design. The crypto world is not visible.”

Rettig told the Senate Finance Committee that the US fails to collect as much as $1 trillion in taxes owed each year, partly due to the explosion in cryptocurrencies, which the agency finds difficult to trace and tax.

Per existing legislation, the IRS taxes cryptocurrencies as capital assets, rather than currencies. This means that holders of cryptocurrency are required to pay capital gains tax if they sell their crypto for a profit, or if they use it to make a purchase.

Ethereum NFT Market Primed for Explosive Growth in 2021

A new report on the exploding market for non-fungible tokens (NFTs) reveals that transactions tripled in 2020, reaching more than $250 million in total. Known as NFTs, these unique digital assets, which exist on the Ethereum blockchain, can be anything from BBC-branded Dr Who trading cards and Ubisoft Raving Rabbids tokens to luxury art pieces. The biggest sale to date is a set of plots of virtual land, which went for $1.5 million on blockchain game Axie Infinity last week. The market saw astoni...

Non-fungible tokens, or NFTs, are cryptographically-unique tokens that can be used to add scarcity to digital content such as images and video. In recent months they’ve exploded in popularity, with brands and celebrities launching their own digital collectibles using NFTs. The IRS, for its part, will be more interested in the volume of money flowing into the NFT space, as individual NFTs trade hands for millions of dollars. Sales of NFTs grew by 2,800% in 2020—and traders should be aware that they could be in line for a hefty tax bill.

The tip of the iceberg

Rettig also noted—in response to Republican Senator Rob Portman of Ohio, who is working on a bill to mandate more reporting requirements in crypto—that “reporting with respect to cryptocurrencies would be important.” 

Talk of greater reporting requirements for crypto users is only part of a greater push for regulatory clarity in the industry. 

According to Sheila Warren, head of data, blockchain and digital assets at the World Economic Forum, “We’re going to see another round of pretty dramatic attempts at regulating this space.” 

Warren made that comment in a Bloomberg seminar today, adding that there is “more and more activity” in crypto, and thus “more and more demand signal for regulators to get engaged and involved.” 

How To File Your Crypto Taxes In The U.S.

It’s that time of year again. Some of you might have already done the deed, but if not, the individual income tax filing date for the United States is coming up quickly on April 15. That gives you only a matter of weeks to rifle through receipts, statements, and accounts to get your financial reporting in order. If you made any crypto transactions in 2019, then you need to include that information in your return—and you can’t risk being lackadaisical about it this time around. While the US Inter...

And based on regulators’ recent activity, Warren is right. Last year, the IRS added a question about cryptocurrency to the front page of the 2020 individual tax return. President Biden recently proposed a 50% budget increase for the Financial Crimes Enforcement Network (FinCEN). And FinCEN has pushed for a rule that would require crypto exchanges to collect KYC on customers' private wallets, a move that has provoked a backlash from privacy advocates and the crypto industry alike.

“Some are seeing this as the peak, I think that is absolutely wrong,” Warren added.