Singer-songwriter Jonathan Mann recently shared the story of how earning millions in Ethereum (ETH) during a one-hour sale of his NFTs eventually became a “tax nightmare.”
Mann has published one song a day over the past 17 years and released his 6,000th song on June 5, which was about the purported nightmare resulting from the sale.
In 2022, he sold 4,000 songs worth 13 years of work within 60 minutes for a total of roughly $3 million in Ethereum. He retained the earnings in Ethereum instead of converting to dollars.
However, a week later, market price slipped below $3,000, shrinking the sale’s dollar value.
Tax nightmare
The US Internal Revenue Service (IRS) treats revenue earned directly in crypto as ordinary income at the moment of receipt, he owed a massive tax obligation even though his assets were no longer worth the same dollar amount.
The tax man calculated Mann’s tax obligations based on the $3 million initial valuation rather than on subsequent lower prices.
Mann had already accumulated $1 million in 2021 obligations linked to earlier NFT mints and airdrops, including Ethereum Name Service (ENS) and ConstitutionDAO tokens.
To cover part of that balance, he borrowed $400,000 against 518 ETH through the Aave lending platform. However, little did he know that his collateral was about to evaporate.
The LUNA collapse
However, the May 2022 collapse of the Terra ecosystem cut the collateral’s value from $1.5 million to about $200,000, forcing a last-minute repayment that left Mann with 163 ETH and a net capital loss of roughly $1.3 million.
IRS notices during 2023 and 2024 cited unpaid income tax of nearly $1.1 million and threatened asset seizure. Mann recounted that at the time he was “dreading” the only option he had left to solve his dilemma – selling his “autoglyph.”
He wrote:
“My Autoglyph.
Minted April 8th, 2019.
(Day before my birthday)
It cost $36.
And this wasn’t just an NFT.
Matt Hall and John Watkinson (of Cryptopunks fame) had made something special. The day after the mint, I turned mine into music. John built a custom “glyph to midi” tool because of it.
It was a piece of my soul from when 50 people knew what NFTs were.
By 2024, it was worth over $1 million.”
The sale offset the losses from his borrowing and helped him clear his tax obligations. As a conclusion to his story, Mann urged creators to convert crypto from NFT sales to dollars.
He wrote:
“The moral for every NFT creator: SELL. THE. ETH. IMMEDIATELY.”
This will match revenue with prospective tax liabilities. He cited using the protocol 0xSplits to automatically convert half of NFT proceeds into USDC to reduce exposure to price swings.