Israeli duo found guilty of major NFT tax evasion scheme worth $2.2 million

The Israel Tax Authority in Jerusalem is investigating two NFT creators for possible tax evasion.

The suspects, Avraham Cohen of Jerusalem and Antony Polak of Har Adar, allegedly failed to report income of approximately 8 million Israeli New Shekel (NIS) from the sale of an NFT based on a 3D scan of the Western Wall, per Jerusalem Post.

The suspects sold their NFTs through their website, holyrocknft.com. According to the investigation, the suspects sold 1,700 works since 2021 and received 620 Ethereum in payment, which was equivalent to approximately NIS 8 million at the time of the transactions. However, the suspects did not report this income as business income.

The suspects were released under restrictive conditions, including handing over their digital wallets where Ethereum is stored. The investigation is ongoing, and the suspects await further court proceedings, Jerusalem Post reported.

NFTs, crypto and taxes in Israel

• Capital gains in Israel are taxed at 25%.
• However, if it is considered a business expense, the tax rate can be up to 53%.
• When cryptocurrencies are converted to traditional currency, the difference in the amounts (paid and purchased) is used for tax purposes.

This is not the first case of NFT creators being investigated for tax evasion in Israel. Ben Benhorin, a graphic designer from Tel Aviv who creates and sells NFT art on the Opensea International platform under the brand name WUWA, was recently arrested for not reporting his earnings totaling approximately NIS 3 million from his sales. The suspect also did not report the conversion of 30 Ethereum-type digital currencies that he received as payments.

During the investigation, it was found that the suspect did not report income from sales on the platform in his annual report to the tax authorities in 2021. The suspect allegedly converted some of the cryptocurrency he received for selling NFTs into other currencies using the Uniswap platform, which he did not report to the tax authority. Such actions are considered taxable sales.