As Manager of the Digital Asset and Cryptocurrency team at Saffery Champness Guernsey, supporting our clients with tax planning for their digital wealth and assets is a fundamental part of my role. As such, the recent news of the US Internal Revenue Service (IRS) calling for public feedback on nonfungible tokens (NFTs) caught my eye. 

The centre of the public consultation process is in trying to establish whether the digital assets should be classified as collectables for tax purposes. If deemed to be collectables, owners who are required to pay US federal taxes, could be facing capital gains tax bills of up to 31%. Which could impact "collectors" whose assets are not held in appropriate wealth structures.  

Much like my views on whether cryptocurrency should be classed as a security - which came into question following the collapse of FTX - whether an NFT could, or should, be viewed as a collectable varies on a case-by-case basis. 

The definition of a collectable is extremely broad. Should an individual who has amassed a collection of Pokémon cards because they love the characters and actively play the card game be categorised as a "collectables owner" in the same way as an adult who meticulously scans the "Pokéllector" index to find the most valuable cards with the highest potential for financial return on their investment? 

Some of our clients purchase digital art because they truly adore a piece and want to showcase it in their home. Others purchase on the basis of market trends with the intention of holding NFTs which are likely to appreciate in value. Most of our clients have a toe in each pond and their reasons for purchase are often a combination of their personal interests and a potential return on investment.

A purchaser's intention needs to be, in my view, a key consideration as to whether NFTs are classified as collectables. I think asking NFT owners for their input in the decision was a necessary first step by the IRS and it will be interesting to see the outcome.