Some 'Lucky' NFT Enthusiast Spent 0.1 ETH on a Bored Ape

Just now, Bored Ape #5429 was acquired by an NFT whale going by the alias 99 Vault for a pitiful 0.1 ether. The NFT had been in the seller's untraceable wallet C3FC3F for all of a little over an hour.

Before diving into this piece, you may want to catch up on some relevant stories, like how Sam Bankman-Fried has become Washington's go-to crypto guy or how Alameda Research utilized insider knowledge to acquire tokens on FTX.

Anonymity Seller purchased the BAYC NFT from Hip Hop VAULT (@HipHop VAULT) for 95.00 ETH. Hip Hop VAULT owned the token for almost a year and sold it for around 19.00 ETH.

On Twitter, NFT trader 0xSMV expressed his suspicions that the seller was attempting to take advantage of a tax loophole by making the deal. When asked whether they paid taxes, CryptoSteven88, another Twitter user, said, “No… tax evasion. Selling to a burner for your own low bid is a felony if done purely to avoid taxes, not to fund a private wallet.”

As we near the close of the 2022 tax year, people are looking at every possible option to reduce their tax liability. Among all potential revenue streams, crypto has caught the attention of tax authorities. This might explain why some NFT traders assume tax implications from the deal.

The United States Internal Revenue Service (IRS) revised its draft instructions for the 2022 tax year last month to include a new section on NFT in the same category as digital assets.

This shift means that NFTs will be viewed similarly to other forms of capital. What this implies is that any gain made from the sale of an NFT would be taxable. The Internal Revenue Service said in the proposed paper that if a given item meets the characteristics of a digital asset, it would be considered a digital asset for federal income tax purposes.

However, 99 Vault's seeming bargain might have other causes than taxation.

NFT traders often give NFTs as presents to their loved ones. Grizzle, another NFT trader, has come to that conclusion. "Selling to a buddy is alright however," he replied in reply to CryptoSteven88.

To which CryptoSteven88 responded, "Individuals have gone to jail for "selling" paintings at huge (99%) discounts to people," showing that he was unconvinced. Proving such a purpose is quite challenging. One of the more blatant examples of tax avoidance I've seen in a while.

Lack of clear regulation has been a major roadblock in the adoption of crypto and NFTs by the general public, which is why the Internal Revenue Service (IRS), the government of Singapore, Israel, and India have all passed laws to tax NFTs.

On the other hand, wouldn't the tax burden be reduced if NFTs were deducted for losses on sales since capital assets are taxed differently than ordinary ones?

If that's the case, the anonymous wallet holder who sold Bored Ape #5429 for 0.1 ETH will be eligible to deduct about $115,000 in expenses related to that one NFT.

Do you want to be updated on the most recent NFT and crypto market news, as well as other web3-related developments? Follow us on Twitter.