FBAR Virtual Currency – FinCEN Rules | IRS FBAR Virtual Currency
Digital Currency FBAR/Virtual Current FBAR. From the outside looking in, it would appear that the IRS and FinCEN have done everything in their power to absolutely confuse the issues regarding reporting of foreign crypto currency on the annual FBAR.
Common questions about cryptocurrency FBAR disclosure:
- Is overseas cryptocurrency FBAR Reportable?
- How do I report overseas cryptocurrency
- What if my crypto account is anonymous?
- What if I do not report my crypto account?
- Can I go to jail?
FBAR Virtual Currency
On the one hand, the Internal Revenue Service says cryptocurrency such as Bitcoin is not currency, but is actual property.
On the other hand, FinCEN refuses to confirm the cryptocurrency does not have to be reported on the FBAR (noting that the IRS enforces FinCEN 114 “FBAR Reporting.”
FinCEN teases us with “hints” that at the “current-time” cryptocurrency does not need to be reported but they do not provide any blanket protection regarding cryptocurrency as not being reportable.
And, they are clear to steer away from making any statement that you will not be implicated for FBAR violations in the future, if you do not current report cryptocurrency on your FBAR.
In other words, they reserve the right to look back and penalize you at a future time and date.
FBAR & Cryptocurrency
Whether or not you are going to report your cryptocurrency on the annual FBAR or not is an individual decision that each person who finds himself in this situation will have to make. With that said, we think there are some general guidelines that you can follow in order to determine whether your particular cryptocurrency is reportable.
Foreign Cryptocurrency “Bank” Account
If you have your money in something that resembles a foreign bank account, investment account or other type of account that holds cryptocurrency you will be in a tough position to argue the account/currency is not reportable. Here’s why:
- It has an account number
- It provides a daily/weekly/yearly balance
- You can access it when you want
This is identical to a bank account or other investment account. In other words, your position to the IRS would have to be that even though it is a foreign account with all the identifying information that makes it easily reportable on an FBAR, that the sole reason you don’t have to report it is because it is cryptocurrency.
As if for some reason, you can exclude foreign accounts that would otherwise have to be reported, simply because you deposited cryptocurrency into the account.
That defeats the purpose of the reporting. Moreover, with the IRS joining in on the international cryptocurrency enforcement team known as J5, you are going to be hard pressed to show that cryptocurrency held in foreign account is not reportable.
Foreign Cryptocurrency Investment Account
Cryptocurrency has matured since its original days as the currency of choice for Silk Road. As cryptocurrency becomes more regulated and more accepted worldwide, various institutions are creating investment accounts similar to Mutual Fund or ETF in order for you to trade your cryptocurrency.
As with bank accounts, investment accounts typically have an account number, available balances, and access to the funds.
Therefore, presumably you will have to report the investment account as well on the FBAR, or present a similar argument as the one in the preceding section.
**There is an additional problem when you have an investment bitcoin account being that if the investment is generating income such as interest, dividends, or capital gain then you have to report the income, and pay tax on it even if the income is earned abroad, and even if the income is generated, but not distributed (grows/accrues within the fund).
Foreign Individual/Personal Wallets
If you store your cryptocurrency on your own computer, it would presumably not be reported on the FBAR. Why? Because the idea behind the FBAR is foreign account reporting. In other words, the IRS wants to know which institutions house your money, so that in case there’s any issue with estate tax, tax fraud, tax evasion or other activities that may result in a tax liability due – the IRS wants to knows how to find your money.
With that said, the IRS cannot just come into your home, lift your mattress, and count the money you have been saving since the days of your first paper route. That same concept, would seemingly to extend to the fact that you would not have to report cryptocurrency on an FBAR — since there is no institution or account to report.
FATCA Form 8938 Reporting
With that said, you may have a form 8938 requirement. It is our position that since the iris identifies crypto currencies property, and property is of type of asset (such as a individual owned certificate of stock) that crypto currency may have to be reported on form 8938.
What if You Have Not Reported Cryptocurrency on an FBAR?
At the current time, the IRS has not issued regulations requiring the reporting of cryptocurrency on the FBAR. With that said, there is also no exception that says cryptocurrency held in an account is exempt from reporting either.
Therefore, our professional opinion (and that is all it is) is that if cryptocurrency is held in an account, it will probably have to be reported.
Out of IRS Foreign Asset or Account Compliance?
If you are out of IRS Offshore Compliance, you have options.
Golding & Golding, A PLC
We have successfully represented clients in more than 1,000 streamlined and voluntary disclosure submissions nationwide and in over 70-different countries.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe.
- Learn more about the Board Certified Tax Law Specialist credential
- Learn more about Golding & Golding’s Case Accomplishments
- Learn more about Golding & Golding Testimonials from prior clients
Sean holds a Master's in Tax Law from one of the top Tax LL.M. programs in the country at the University of Denver. He has also earned the prestigious IRS Enrolled Agent credential. Mr. Golding's articles have been referenced in such publications as the Washington Post, Forbes, Nolo, and various Law Journals nationwide.
Latest posts by International Tax Lawyers - Golding & Golding, A PLC (see all)
- Case Study Example of Offshore Accounts Filing & Reporting - October 15, 2019
- Tax Attorney Credentials & Experience in Offshore Disclosure - October 13, 2019
- Just Learned About FBAR & Missed Prior Filings, Now What? - October 8, 2019