IRS adds NFTs to its reporting requirements for digital assets
(Kitco News) - The U.S. Internal Revenue Service (IRS) has released a draft bill that looks to add a well-defined Digital Assets section to the 2022 IRS tax forms that will include detailed guidance on how to report on cryptocurrencies and nonfungible tokens (NFT).
According to the text of the draft bill, “Digital assets are any digital representations of value that are recorded on a cryptographically secured distributed ledger or any similar technology.” It goes on to highlight NFTs, cryptos and stablecoins as clear examples of digital assets.
“If a particular asset has the characteristics of a digital asset, it will be treated as a digital asset for federal income tax purposes,” the IRS said.
Tax filers will be required to report on any digital assets received “as a reward, award, or payment for property or services,” as well as any that are “sold, exchanged, gifted, or otherwise disposed of.”
Previously, there was a lot of confusion around reporting on things like airdrops, hard forks, mining and staking proceeds. A read through the new reporting requirements shows that the IRS is looking to clear up this confusion by basically making all digital asset transactions reportable.
According to the bill, “You have a financial interest in a digital asset if you are the owner of record of a digital asset, or have an ownership stake in an account that holds one or more digital assets, including the rights and obligations to acquire a financial interest, or you own a wallet that holds digital assets.”
Taxpayers are required to answer the Digital Assets section of their income tax return whether or not they have engaged in digital asset transactions during the tax year.
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Actions and transactions that do not need to be reported include “Holding a digital asset in a wallet or account; Transferring a digital asset from one wallet or account you own or control to another wallet or account that you own or control; or Purchasing digital assets using U.S. or other real currency, including through the use of electronic platforms such as PayPal and Venmo.”
Filers will be required to pay capital gains on the proceeds from the sale, exchange, gift, or transfer of any digital asset that was held as a capital asset. They will also be required to pay income tax on any digital asset received as compensation for services or that was sold to customers in a trade or business.
One of the most notable changes to the 2022 tax reporting is the focus on NFTs, which saw a breakout in popularity in 2021. The new rules require NFT investors to report all taxable NFT income, an area that has been rife with accusations of fraud and money laundering. With this development, the U.S. has joined a list of countries looking to crack down on NFT trading and taxation, including Singapore, Israel, and India.