Notice 2023-27: Guidance and request for comments on treatment of certain NFTs as section 408(m) collectibles
Treasury and IRS intend to issue guidance treating certain nonfungible tokens (NFTs) as section 408(m) collectibles
Treasury and IRS intend to issue guidance treating certain nonfungible tokens (NFTs) as se
The IRS today released an advance version of Notice 2023-27 [PDF 119 KB] announcing that the Treasury Department and IRS intend to issue guidance treating certain nonfungible tokens (NFTs) as section 408(m) collectibles and requesting comments on such treatment.
According to a related IRS release—IR-2023-50 (March 21, 2023)—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. Distributed ledger technology, such as blockchain technology, uses independent digital systems to record, share and synchronize transactions, the details of which are recorded simultaneously on multiple nodes in a network. A token is an entry of data encoded on a distributed ledger. A distributed ledger can be used to identify ownership of both NFTs and fungible tokens, such as cryptocurrency, as described in Rev. Rul. 2019-24.
Section 408(m)(2) provides for a specific list of items that constitute collectibles for certain purposes. Acquisition of a collectible by an individual retirement account (IRA) or individually-directed account of a qualified plan is treated as a distribution from the account equal to the cost to the account of the collectible. Generally, collectibles also do not have as advantageous capital-gains tax treatment as other capital assets.
Until additional guidance is issued, the IRS intends to determine when an NFT is treated as a collectible by using a “look-through analysis.” Under the look-through analysis, an NFT is treated as a collectible if the NFT’s associated right or asset falls under the definition of collectible in the tax code. For example, a gem is a collectible under section 408(m); therefore, an NFT that certifies ownership of a gem is a collectible.
The IRS requests comments on any aspect of NFTs that might affect the treatment of an NFT as a collectible as well as certain comments specifically set out in the notice.
The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 3712, 1801 K Street NW, Washington, DC 20006.