An official of the U.S. Internal Revenue Service (IRS), Charles Paul Rettig expressed his concerns about NFTs describing them as "not visible items by design". While speaking at the Senate Finance Committee hearing, Rettig said non-fungible tokens may be used for tax evasion.
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When asked if an improved reporting system for cryptocurrencies would help to manage tax payments, Retting said that the crypto industry is replicating itself constantly.” He added that the crypto world isn't visible.
According to the officer, the US fails to collect as much as $1 trillion in taxes owed every year. This is the result of the cryptocurrency surge that is difficult for the agency to trace and tax.
Currently, the IRS taxes cryptocurrencies as capital assets rather than currencies, meaning that the holders must pay capital gains tax if they trade their crypto. As the popularity of the NFT market is growing, IRS is becoming more interested in the volume of generated money.