NFTs are popular all over the world but current data shows that they are particularly popular in the United States. A recent Seton Hall University study, for example, estimated that as much as 25% of US households have some form of NFT holdings. Naturally, some of these households will have some government officials in them. After all, while public opinion on NFTs varies, they are a worthwhile investment for many.
Now, a new advisory from the United States Office of Government Ethics is trying to outline the situations in which these officials should be required to disclose their NFT holdings.
Because digital assets like NFTs are so new, the rules on when they should be disclosed are often a bit murky. But this new advisory, put forward by director Emory Rounds III, is trying to create some symmetry. According to the advisory, all NFT assets held by government officials that are worth at least $1,000 should be reported.
This includes both fractional NFTs and collectables. The advisory has put forward a list of 7 questions which will help determine whether or not an NFT needs to be reported. All these questions revolve around whether or not the NFT is being held as an investment or for the production of income.
Among the questions is whether or not the NFT was bought for aesthetic reasons, whether it is deemed a rare or expensive NFT, if the filer is in the habit of collecting NFTs, and so on. For all of the questions, an affirmative answer could indicate that the NFT is an asset and thus, should be declared.
Public officials have been directed to fill out OGE Form 278e as part of reporting activities and this will require them to state the value and income amount of all the NFTs that are eligible. Interestingly, this advisory targets NFTs that might represent things like real estate but excludes those that might represent personal items like family memorabilia.
This shows that the Office of Government Ethics is making the distinction between NFTs that could be investments and those which exist for sentimental value. This makes sense as even within the NFT space, the difference is being made clear.
Many more NFT projects are hitting the market and there is a clear difference between, for example, a Bored Ape NFT and a freely-given one to commemorate a historical event.
As the history of cryptocurrency will show us, creating laws, especially reporting and tax laws, to govern the use of digital assets is a tricky affair. For years, paying taxes on blockchain-based assets was simply not done. It took a while for a proper reporting code to be established and this was not without its ups and downs.
Now, NFTs are going through the same process. It is, however, a necessary process, not only to ensure compliance which helps the industry stay on the right side of the law but also to make sure that further adoption can be achieved.