Content area
Abstract
On March 21,2023, the Internal Revenue Service (the "IRS") issued Notice 2023-27 to announce that the Department of Treasury (the "Treasury Department") and the IRS intend to issue guidance related to the treatment of certain nonfungible tokens (NFTs) as collectibles for certain tax purposes. [...]that guidance is issued, the notice describes how the IRS intends to determine whether an NFT constitutes a collectible under Section 408(m) of the Internal Revenue Code of 1986, as amended (the "Code"). In addition to the Section 408(m) deemed distribution treatment, if an NFT constitutes a collectible, other issues may arise from the acquisition of the NFT by an IRA resulting in adverse tax consequences for the IRA owner (for example, it would be a prohibited transaction if an IRA owner who is a disqualified person under Section 4975(e)(2) deals with the NFT's associated right or asset in the owner's own interest.) Section 408((m)(2) provides that, "[f]or purposes of this subsection, the term 'collectible' means - (A) any work of art, (B) any rug or antique, (C) any metal or gem, (D) any stamp or coin, (E) any alcoholic beverage, or (F) any other tangible personal property specified by the Secretary for purposes of this subsection." The IRS said that the Treasury Department and the IRS are considering the extent to which a digital file may constitute a "work of art" under Section 408(m)(2)(A); currently, however, the Treasury Department and the IRS believe that digital files are not included under any of the categories of collectibles listed in Section 408(m)(2)(B)-(E) (any rug, antique, metal, gem, stamp, coin, or alcoholic beverage).