Israel's Tax Authority Probes NFT Creators Over Alleged Tax Evasion
Israel's Tax Authority has arrested two NFT creators for charges of tax evasion and money laundering after allegedly failing to report $2.2 million in sales throughout 2021.
According to a recent report by Israeli news outlet Ynetnews, Avraham Cohen and Anthony Pollack, the owners and operators of NFT project holyrocknft.com, have been arrested for not reporting millions of U.S. dollars in revenue received from the sale of their digital works.
The investigation claims that the suspects have sold 1,700 NFTs since 2021 in exchange for 620 ETH, worth around $2.2 million, which has gone unreported. Tax officials view these revenues as business earnings, but the pair did not report them as such.
Notably, the funds were transferred between multiple digital wallets, a move amounting to money laundering. The Jerusalem Magistrate's Court released the two on probation and ordered them to hand over the ETH tokens and keys to associated wallets.
Launched in 2021, Holy Rocks NFT is a non-fungible token project that offers three-dimensional scanned imaging of the holy site’s stones. Reportedly, the project's founders appeared before the court last year in a bid to defend certain misunderstandings, including the fact that they did not scan images of the holy site’s stones.
Nevertheless, the project has agreed to stop selling the Holy Rocks NFTs until the end of legal proceedings, according to its website. “However, we will make it clear that all other activities planned for the community will take place as scheduled,” the team behind the organization stated.
The move comes after Ben Benhorin, a prominent designer based in Tel Aviv, was arrested last week by Israeli authorities for allegedly failing to disclose cryptocurrency earnings in tax reports. Data by OpenSea shows that Benhorin has minted numerous NFTs on the platform over the past few years.
NFT Hype Cools Down Amid Crypto Market Crash
It is worth noting that the hype over NFTs and metaverse assets has cooled down dramatically over the past year amid the broader market downturn that has seen major cryptocurrencies like Bitcoin and Ethereum lose around 70% of their value compared to all-time highs.
According to NFT experts at Casinos En Ligne, sales of non-fungible tokens saw a downfall of 83 percent year-over-year in 2022. Moreover, across all the markets, including art, gaming, and collectibles, NFT transaction volume plunged by at least 83 percent.
The NFT space surged to an all-time high in January 2022, with monthly sales reaching $2.8 billion. However, that number saw a steep drop by earlier this year following a string of bankruptcies and implosions that saw around $2 trillion wiped out of the crypto market.
In early February, The Defiance Digital Revolution ETF, the first-ever ETF focused on NFTs and metaverse assets, announced that it will close by the end of February.
Shares in the fund are down by more than 72% since its debut.