On March 21, 2023, the Treasury Department and the IRS issued Notice 2023-27 which announces that they are soliciting feedback for upcoming guidance regarding the tax treatment of a nonfungible token (NFT) as a collectible under the tax law.

The Notice states that the IRS intends to issue guidance that treats certain NFTs as collectibles for purposes of IRC Section 408(m). It outlines the approach the IRS is considering and asks for comments by June 19, 2023.

For retirement account investors, the determination of whether an NFT is crucial as to whether the asset can be purchased by a retirement account.

On this episode of Adam Live, IRA Financial founder, Adam Bergman, Esq. will discuss the new Notice, explain what NFTs are, and walk you through the new “look-through analysis” that may help determine whether an NFT is a collectible, and thus, a prohibited investment with your retirement account.

Join us LIVE on Monday, March 27th at 12:45PM EDT!
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Read more about the Notice:
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About IRA Financial:

IRA Financial Group was founded by Adam Bergman, a former tax and ERISA attorney who worked at some of the largest law firms. During his years of practice, he noticed that many of his clients were not even aware that they can use an IRA or 401(k) plan to make alternative asset investments, such as real estate. He created IRA Financial to help educate retirement account holders about the benefits of self-directed retirement plan solutions.

IRA Financial is a retirement account facilitator, document filing, and do-it yourself document service, not a law firm. IRA Financial Group does not provide legal services. No attorney-client relationship exists between Client and IRA Financial Group, its management, salespersons or IRA Financial’s in-house legal counsel. IRA Financial Group provides IRA retirement facilitation service and CANNOT provide Client with legal, investment, or financial advice. Prior to making any investment decisions, please consult with the appropriate legal, tax, and investment professionals for advice.

IRA Financial is not engaged in rendering legal, accounting or other professional services. If legal advice or other professional assistance is required, the services of a competent professional person should be sought. (From a Declaration of Principles jointly adopted by a Committee of the American Bar Association & a Committee of Publishers and Associations.). The scope of Professional Services does not include the costs of any custodian related services.

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Breaking: The IRS, NFTs & Your IRA

In recent years, Non-Fungible Tokens (NFTs) have seen a meteoric rise in popularity, revolutionizing the art and collectibles industry. As the buzz around NFTs grows louder, it’s essential to understand their implications in various aspects of our lives, including personal finance. Notably, many cryptocurrency enthusiasts have begun exploring the connection between NFTs and their individual retirement accounts (IRAs). However, as with any innovative financial concept, regulations and tax implications must be adequately addressed. So, what does the IRS say about NFTs and IRAs?

Before diving into the IRS’s stance on NFTs, let’s briefly understand what NFTs are. NFTs are unique digital assets that represent ownership or proof of authenticity of a digital item, such as artwork, music, videos, or even virtual real estate. Unlike cryptocurrencies like Bitcoin or Ethereum, which are fungible and interchangeable, NFTs are distinct and cannot be replicated, making them highly sought after in the world of digital ownership.

Now, let’s discuss whether an investor can hold NFTs in their IRA and what tax implications might be involved. Traditional IRAs, regulated by the Internal Revenue Service (IRS), allow individuals to save for retirement with tax advantages. However, the IRS prohibits certain investments in IRAs, such as collectibles, including artwork, stamps, coins, and precious metals. Therefore, since NFTs fall under the broader category of collectibles, the IRS disallows holding them directly in an IRA.

While NFTs are a no-go directly in your IRA, there is a potential workaround. Some cryptocurrency IRA providers have started offering self-directed IRA options that allow investors to indirectly invest in NFTs. Here, investors can utilize their IRA funds to purchase cryptocurrencies, such as Bitcoin or Ethereum, and then use those funds to buy NFTs through compatible platforms. This method creates a degree of separation between the NFTs and the IRA, complying with IRS regulations.

However, it is vital to consult a tax professional or financial advisor who specializes in self-directed IRAs and digital assets before venturing into this territory. They can guide you through the specific rules and regulations and ensure you stay on the right side of the IRS. In recent years, the IRS has increased efforts to crack down on potential tax evasions related to cryptocurrency investments. Overlooking or misunderstanding the tax implications of holding NFTs in an IRA could lead to significant penalties or other legal consequences.

Another aspect to consider is the valuation of NFTs. Determining the fair market value of NFTs can be challenging due to their unique nature and the often volatile marketplace surrounding them. This uncertainty adds another layer of complexity when it comes to calculating taxes and required minimum distributions (RMDs) from your IRA. Properly accounting for the value of NFTs held indirectly in an IRA is crucial to ensure accurate reporting and compliance with IRS regulations.

In summary, while NFTs cannot be held directly in an IRA due to IRS regulations prohibiting collectibles, it is possible to indirectly invest in them through self-directed IRA options. However, it is important to consult with professionals well-versed in this area to navigate the tax implications properly. Staying informed and following the IRS guidelines ensures that your NFT investments can potentially grow within the bounds of the law, safeguarding your retirement savings.