IRS on the Lookout for NFT Tax Evasion


While NFTs are virtual, the money behind them is very real.

The Internal Revenue Service (IRS) is thus on the lookout for beneficiaries of NFT sales, who may be tempted not to pay what they owe the government.

The NFT industry has grown to about $44 billion in size, and as the US tax filling season approaches, that is too big a number to ignore.

NFTs have seen increasing interest from famous people like Melania Trump, Justin Bieber, Eminem etc. with some sales going for millions of dollars.

Some NFT beneficiaries could be liable for a 34% tax bill on the profits of their digital art, although taxation rules are not very clear at the moment.

Big transactions will particularly be scrutinized, as the IRS starts paying special interest and devoting more resources to the NFT industry.

“We subsequently will probably see an influx of potential NFT type tax evasion, or other crypto-asset tax evasion cases coming through.

Jarod Koopman, acting executive director of cyber and forensic services at the IRS

According to tax attorneys, all gains or losses must be reported irrespective of whether the IRS has issued proper guidance on a matter.

“You don’t get to not report gains or losses because the IRS has failed to provide guidance that meets your expectations. The harder it is for people to get to a reasonable — or ideally, a right — conclusion, the easier it is to ignore it,” James Creech, a San Francisco based tax attorney said.

Most attorneys however think that NFTs should be treated like capital assets, e.g. stocks, and should either be taxed as short-term capital gains when held for less than a year, or long-term capital gains if held for more than a year.

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