A 45-year-old Pennsylvania man is facing up to six years in prison after failing to disclose the sale of millions of dollars worth of non-fungible tokens (NFTs) on his tax returns.
Waylon Wilcox pleaded guilty on Friday to two counts of filing false individual income tax returns in 2022 and 2023, according to the U.S. Department of Justice (DOJ).
Wilcox allegedly sold 97 NFTs from the CryptoPunks collection between 2021 and 2022 for a total of over $13 million, according to the statement. However, the DOJ said Wilcox omitted these sales in his tax filings, reducing his taxes due for those years by a total of $3.2 million.
“When a taxpayer sells an NFT, including a Punk, then the taxpayer must report sales proceeds and any gains or losses from the sale of the NFT on their tax return,” the statement says.
Lawyers listed in court filings as representing Wilcox did not immediately respond to a request for comment from Fortune.
NFTs are a type of digital asset that represent ownership of a unique item, like an artwork or a digital collectible. Demand for NFTs exploded in 2021 with everyone from Madonna to Tom Brady buying one as they were seen by some as the future of the art industry. Singular NFTs sold, at times, for tens of millions of dollars and iconic collections like the Bored Ape Yacht Club and Pudgy Penguins became wildly popular.
CryptoPunks is a collection of 10,000 algorithmically generated NFTs designed to resemble pixelated humans. No two Punks are the same, and they are all recorded on the Ethereum blockchain. Created in 2017, the collection is one of the oldest and most valuable brands in the NFT space. At its peak, a single Punk sold for $23.7 million, according to the collection’s website.
During the NFT frenzy, the DOJ statement says Wilcox sold 62 Punks for over $7.4 million in 2021 and another 35 Punks for nearly $5 million in 2022.
It’s unclear how the DOJ discovered the undeclared sales.
CryptoPunks have significantly declined in value since 2022 but are still worth thousands of dollars each. The cheapest Punk is currently on sale for 42.42 Ethereum or $70,000, according to the website. Earlier this month, an anonymous holder sold a Punk for $6 million, $10 million less than they bought it for last year.