Link to The Proposed Guidance and Implications The Proposed Guidance and Implications
The IRS and Treasury Department announced on March 21, 2023, that they intend to issue guidance providing that certain NFTs qualify as collectibles under Section 408(m) of the Code. The Notice is the first guidance issued by the IRS addressing the U.S. federal income tax treatment of NFTs. The IRS originally issued Notice 2014-21 in 2014 addressing virtual currencies and how they should be treated as property for federal income tax purposes. In 2019, the IRS issued Rev. Rul. 2019-24 relating to whether the receipt of cryptocurrencies via a hard fork or airdrop resulted in taxable income to the recipient. The IRS has also released Chief Counsel Advice Memoranda addressing how specific federal income tax principles (e.g., the like-kind exchange rules or when an asset is worthless) apply to cryptocurrencies. None of this prior guidance, however, addressed NFTs. Taxpayers and their advisors have accordingly tried to analogize NFTs to other types of property to draw on how the federal income tax laws treat analogous property.
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