According to a recent source, the US IRS is planning a crackdown on tax evading NFT investors. Many NFT stakeholders, on the other hand, claim that there are no clear tax regulations around NFT.
Clampdown on NFT Investors
According to recent rumors, the IRS intends to crack down on NFT investors for tax evasion. The IRS, or Internal Revenue Service, is a federal agency responsible for enforcing tax laws and collecting revenues in the United States. The watchdog announced that it would begin investigating NFT investors who failed to file tax returns or pay taxes.
For the past two years, the NFT industry has undoubtedly been the fastest expanding area within the blockchain industry. According to a Chainalysis research, the NFT market will reach $44 billion in 2021. NFT sales have been on the rise in recent years, with some pieces fetching millions of dollars each. According to reports, the NFT business may be billions of dollars in debt.
According to certain accounts, an individual’s profit from an NFT transaction should be subject to a 37 percent tax reduction. The investor should be taxed on the cryptos they spent to buy the NFT as well as the cryptos they got when they sold it.
The lack of suitable tax legislation or standards is one of the most serious issues confronting the blockchain industry. There are no defined regulations governing the NFT space, for example. This makes it difficult for NFT holders to figure out how much money they owe. NFT investors find it nearly impossible to calculate and report their NFT tax status.
Furthermore, NFT investors may easily misunderstand the rules accessible. Most investors, for example, may be unaware that they must file quarterly tax returns. Others are unaware that they are required to submit reports.
Because of these difficulties, the IRS expects NFT traders to engage in even more tax evasion beginning in 2022. Jarod Koopman, the IRS’s director of cyber and forensic services. He already stated that they will likely see an influx of possible NFT tax avoidance in the future. There could be more incidents of crypto-asset tax avoidance in the future.
James Creech is a tax lawyer in San Francisco. They don’t get to not disclose gains or losses because the IRS hasn’t provided guidance that satisfies their expectations, he added. He implied that NFT investors have no excuse for not filing tax returns.
Some cryptocurrency stakeholders have reacted to the reports, claiming that the IRS move will be a nightmare for NFT investors. There could be billions on the line as the IRS prepares to crack down on the NFT industry. If the IRS is to succeed in their crackdown, it will be compelled to establish clearer regulations on how to approach NFTs.
Biden’s Administration Fights Crypto
President Joe Biden’s administration has been working hard to regulate and control cryptocurrency for the past few months. A portion of the $1.2 trillion infrastructure bill discussed taxing cryptocurrency to help pay the project. However, it remained unclear whether NFTs were included.
For a long time, regulators such as the SEC and Treasury have been hard on cryptocurrency.