NYSBA Tax Section Recommends Guidance On NFTs

On June 18, 2023, the New York State Bar Association Tax Section submitted a report (the "Report") in response to the IRS's request for comments in Notice 2023-27. As previously discussed here, Notice 2023-27 (the "Notice") announces the government's intention to treat certain non-fungible tokens ("NFTs") as "collectibles" under Section 408(m) of the Internal Revenue Code and potentially subject certain sales or exchanges of NFTs to increased long-term capital gains rates of 28% as well as restrict acquisitions of collectibles by individual retirement accounts. The Notice states that ownership of an NFT "may provide the holder a right with respect to a digital file" as well as certify ownership in physical items and proposes a "look-through rule" examining whether an NFT's associated rights in underlying property may be characterized as collectibles on a look-through basis.