IRS Intends to Issue Guidance on Certain NFTs as Collectibles

The IRS has issued Notice 2023-27, announcing their intent to issue guidance related to the treatment of certain nonfungible tokens (NFTs) as collectibles under Internal Revenue Code Section (IRC Sec.) 408(m). An NFT is a unique digital identifier that is recorded using distributed ledger technology and may be used to certify authenticity and ownership of an associated right or asset. Rules under IRC Sec. 408(m) restrict IRAs from holding collectibles, and the acquisition by an IRA of a collectible results in treatment as a distribution from the IRA equal to the cost to the IRA of the collectible. Pending the issuance of further guidance, the IRS intends to use “look-through analysis” to determine whether an NFT constitutes an IRC Sec. 408(m) collectible by analyzing the NFT’s associated right or asset.

The IRS requests comments on a host of questions detailed in the Notice, and comments can be submitted on or before June 19, 2023.