<figure>
 <img src="https://media.eaglewebservices.com/public/2020/9/1599869632873.png" alt="" />
 <figcaption></figcaption>
 </figure>IRSWASHINGTON — The Treasury Department and the Internal Revenue Service
 today announced that they are soliciting feedback for upcoming guidance
 regarding the tax treatment of a nonfungible token (NFT) as a 
collectible under the tax law. Today's guidance also requests comments 
on the treatment of NFTs as collectibles and describes how the IRS 
intends to determine whether an NFT is a collectible until the further 
guidance is issued.A nonfungible token (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 <a href="https://www.irs.gov/irb/2019-44_IRB#REV-RUL-2019-24">Rev. Rul. 2019-24</a>.Section 408(m)(2) of the tax code 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.In <a href="https://www.irs.gov/pub/irs-drop/n-23-27.pdf">Notice 2023-27</a>PDF,
 the Treasury Department and the IRS are requesting 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.Cover image courtesy Pixabay

IRS issues guidance on crypto, nonfungible tokens