The Treasury Department and the Internal Revenue Service (IRS) have issued a new guidance requesting feedback on the tax treatment of nonfungible tokens (NFTs) as collectibles under the tax law.

"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." the guidance explained.

The IRS plans to use a "look-through analysis" to determine whether an NFT should be treated as a collectible. This analysis involves examining whether the associated right or asset of the NFT meets the definition of a collectible in the tax code. If it does, then the NFT will be treated as a collectible for tax purposes.