Jonathan Mann, known for his “Song A Day” project which ran for a long time, made waves in 2022. He put over 3,700 of his songs up for sale as NFTs on the Ethereum platform. This brought him about $3 million in under an hour. But the good news didn’t last. When the market took a turn against him a few months later, Mann was left to deal with a crypto tax issue. Jonathan Mann’s crypto tax situation meant he owed over $1.1 million to the IRS. This was a large sum despite the fact that the crypto’s value had dropped. The debt was based on the book value, not market performance.
Jonathan Mann’s Crypto Tax Issue Brings To Light Gaps In IRS Policy
In an attempt to pay his tax bill, Mann put forth a risk by putting up 518 ETH on the Aave platform as collateral. Unfortunately, when the crypto markets tanked, 300 ETH were liquidated. The financial downturn forced Mann to sell a rare Autoglyph NFT for $1.1 million. This amount went directly to the IRS.
This issue, which is Jonathan Mann’s high profile crypto tax case, brings to the fore a number of issues with the present U.S. tax structures. It is noted that at times NFT creators are taxed at a rate of up to 37%. This rate falls within the ordinary income brackets. Meanwhile, long-term capital gains are taxed at 20%. Since treatment of NFTs is not uniform, and some do and some do not qualify as collectibles, creators are in a gray area. This adds to the confusion.
Mann’s NFTs were of the functional music variety which put him in the top tax bracket. Interestingly his tokens have been classified as digital art which they are not, his tax liability may have dropped.
Creators Warned: Sell Your ETH, Avoid IRS Shock
In its wake, Mann reported that creators should turn crypto income into fiat as soon as possible. This is to avoid a repeat of the same issues. His new motto is “SELL. ETH. NOW.,” he said. Crypto’s fluctuating value, in addition to the IRS’s “constructive receipt” rule, taxes the income as soon as it is received. This is before the creator has a chance to enjoy the money in actual terms. In the NFT space, profits are in the form of digital assets, but the IRS is very much present.
