Will Coinbase’s Legal Win Raise Crypto Tax Rates?

If you follow crypto taxation, you’ve probably seen the headline: “Coinbase compares crypto to Beanie Babies.”

Funny on the surface, yes - but that casual metaphor has triggered one of the most important tax debates the industry has ever faced.

In early 2024, during Coinbase’s defense against the SEC, attorney William Savitt argued that crypto tokens are more like collectibles than securities. The line - “It’s the difference between buying Beanie Babies Inc. and buying Beanie Babies” - went viral for its simplicity.

But beneath the drama sits a very real question:

If courts accept this view, could the IRS reclassify crypto as a collectible - and tax it at the higher 28% long-term capital gains rate?

Right now, most crypto is taxed as property, with long-term capital gains taxed at 0–20%. But collectibles (like art or rare coins) are taxed at up to 28%, and the IRS already signaled interest in this issue in Notice 2023-27.

For companies issuing tokens, employees receiving token compensation, and investors holding assets long-term, the stakes could not be higher.

Toku works directly in this space - helping companies remain compliant across payroll, token grants, and global tax frameworks - so we follow these developments closely. Below is a comprehensive, human-readable breakdown of what’s happening and why it matters.

Why the Collectibles Debate Even Matters

To understand the risk, you need to understand how the U.S. tax code works today.

Under current IRS guidance, crypto is treated as property - the same category as stocks or real estate. This comes with tax advantages:

• Long-term capital gains: 0–20%
  
• Favorable holding-period rule
  
• Ability to offset losses or harvest gains
  
• Flexible tax planning strategies
  

Collectibles, however, fall under IRC Section 408(m), which imposes a flat 28% tax rate on long-term gains. Why? Because collectibles are seen as speculative assets that don’t contribute to productive investment.

The trouble: NFTs sometimes resemble art, and fungible tokens are intangible assets that sit outside traditional classifications. The IRS already opened the door by asking whether NFTs should be taxed as collectibles in its 2023 notice.

If Coinbase wins its case with the SEC, the IRS might feel emboldened to re-evaluate crypto taxation as a whole.

What Would Actually Change If Crypto Became a “Collectible”?

Let’s break this down in real-world terms.

1. Higher Tax Rates for Long-Term Holders

The maximum federal capital gains rate would increase from 20% to 28%.

This is a big deal for investors realizing large gains.

2. Possible Retroactive Exposure

If the IRS claimed this change “clarified” existing law, not updated it, they could argue prior tax filings underpaid. That means:

• Amended returns
  
• Penalties
  
• Interest
  
• IRS audits
  

The IRS has already begun tightening reporting with the new Form 1099-DA.

3. Token Compensation Gets More Complicated

Workers receiving tokens are taxed twice:

1. As income at vesting
   
2. As capital gains upon sale

A higher collectibles rate affects the second category.

4. NFTs May Be Hit First

NFTs already resemble art and memorabilia, making them natural candidates for the collectibles rate under Notice 2023-27.

5. Token Grant and Payroll Compliance Becomes Messier

Employers may need to rethink:

• FMV calculations
  
• Withholding approaches
  
• Token grant structures
  
• 83(b) elections
  
• Section 409A considerations
  
• Reporting mismatches across countries

This is why companies using token compensation lean on partners like Toku - to stay compliant even as the rules shift.

Why Reclassifying Crypto as a Collectible Is Harder Than It Sounds

Before anyone panics, let’s be clear: this outcome is possible, but not likely in the near term.

Here’s why.

1. The Tax Code Requires Tangibility

Section 408(m) currently applies only to tangible property - physical items.

Crypto is intangible.

So are NFTs.

So are most digital assets.

Congress would need to amend the law - a long, complex process.

2. Congress Has Shown Little Appetite for Crypto Tax Reform

Lawmakers still can’t agree on basic definitions. Adding “intangible collectibles” would only create more confusion.

3. Enforcement Would Be Difficult

Crypto moves fast:

• Prices are volatile
  
• Markets operate 24/7
  
• Appraisals for collectibles don’t translate to crypto
  
• Liquidity is far greater than traditional collectibles

4. The IRS Is Focusing Narrowly on NFTs First

Notice 2023-27 explicitly focuses on NFTs - not fungible tokens like BTC or ETH.

5. Courts May Reject the Argument Entirely

Even if the SEC loses jurisdiction, that doesn’t automatically give the IRS new authority.

Bottom line:

A full collectibles reclassification remains unlikely without congressional action. But narrower, incremental changes (e.g., certain NFTs) are entirely possible - and this case could accelerate that path.

How Coinbase’s Strategy Could Shift Crypto Regulation

This entire issue started because Coinbase is trying to prove that crypto tokens are not securities. If courts agree, the SEC loses power - and another agency must fill the regulatory gap. That’s likely the IRS.

Congress doesn’t like losing revenue. If a court ruling weakens one agency’s authority, another often steps in. Historically, tax policy is where Congress and federal agencies regain control.

Some possible IRS responses:

1. Update or “Clarify” 2014 Guidance

This is the fastest path and could happen without Congress.

2. Treat Certain Categories of Tokens Differently

NFTs or tokens with “collectible-like characteristics” could get pulled in first.

3. Introduce Appraisal-Based Valuation Rules for NFTs

This is already used for art.

4. Expand Enforcement Rather Than Reclassify Assets

The IRS is already expanding crypto enforcement under the Infrastructure Act and new broker reporting rules.

Implications for Crypto Investors

1. Long-term gain strategies may change

The risk of higher tax rates may push more investors toward shorter-term strategies or stablecoins.

2. Tax-loss harvesting becomes more valuable

Crystalizing losses could offset future 28% rates.

3. New reporting requirements are almost guaranteed

Whether collectibles or not, IRS scrutiny is increasing.

4. New forms and disclosures will likely emerge

Especially around NFTs and DeFi.

Implications for Employers Paying in Tokens

This is where Toku’s work becomes critical.

Token compensation isn't just a perk - it’s taxable income that must be:

• Valued accurately
  
• Reported correctly
  
• Withheld properly
  
• Filed with the right jurisdiction

A change in classification could impact:

• Token FMV calculations
  
• Vesting schedules
  
• 83(b) elections
  
• 409A compliance
  
• Cross-border payroll
  
• Stablecoin compensation

The companies that win in this environment are the ones investing early in scalable, defensible compliance.

Legal Hurdles the IRS Must Overcome

Let’s summarize the biggest challenges:

1. Tangibility

Crypto isn’t physical. Congress would need to expand definitions.

2. Consistency across regulators

Right now:

• SEC → Some tokens = securities
  
• CFTC → BTC/ETH = commodities
  
• IRS → Crypto = property
  
• FinCEN → Crypto = money equivalent

Layering “collectible” on top of this would create chaos unless done carefully.

3. Enforcement

A collectibles regime has:

• Appraisals
  
• Physical provenance
  
• Unique identification

Crypto fundamentally doesn’t work like that.

4. NFTs as a likely first step

This is where the IRS already has a legal foothold via Notice 2023-27.

The Future of Crypto Taxation: What Comes Next

Regardless of how the Coinbase case ends, the trend is clear:

Regulators are tightening their grip - especially on taxation.

Expect to see:

• More reporting requirements
  
• Stricter documentation rules
  
• Increased scrutiny of token compensation
  
• Further guidance on NFTs
  
• New cross-border tax enforcement tools
  
• Better-defined categories for yield-bearing assets and staking

Toku helps companies stay ahead of these shifts by managing token compensation, global payroll, and compliance in one system. For an industry with rapidly evolving rules, that’s becoming essential infrastructure.

The Coinbase Case May Change the Rules - But Compliance Wins Either Way

Whether the SEC wins or loses, the IRS is already positioning itself to take a larger role in crypto oversight. That means:

• More rules
  
• More reporting
  
• More enforcement
  
• More pressure on employers to get token compensation right

If the IRS ever chooses to treat certain crypto assets as collectibles, the consequences would be significant, especially for long-term investors and companies paying contributors in tokens.

That makes robust, proactive compliance absolutely critical.

Toku works with leading Web3 organizations worldwide to make token compensation and crypto payroll simple, secure, and compliant - no matter how the legal landscape evolves.

Talk to Toku today to make sure your compensation structure is ready for whatever comes next.