The furnace_smelt item modifier only works on blocks, not on entities. I used the following item modifier:
{
"function": "furnace_smelt"
}
to modify a clay ball on both a chest and the player. In both cases the command says that the slot was replaced with a brick, but only on the chest was this actually the case. I also tested it on armour stands and chest minecarts, both of which give successful command feedback but do not actually modify the item.
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This is probably due to the same reason why you can’t modify player data with the /data command