FBAR cryptocurrency & Bitcoin Reporting

FBAR cryptocurrency & Bitcoin Reporting

FBAR Cryptocurrency & Overseas Bitcoin Reporting

FBAR Bitcoin: Neither the IRS nor FinCEN have provided definitive guidance on the FBAR reporting of Cryptocurrency (commonly referred to as ‘Bitcoin’) — although FinCEN Notice 2020-2 is currently pending. While Bitcoin is often treated as currency, the IRS does not deem it as currency per se.  Therefore, the tax treatment is different than other currencies. When the cryptocurrency is domestic, there is generally no FBAR (Foreign Account Reporting) or FATCA (Foreign Account Tax Compliance Act) issue to consider.  But, if it is foreign-based, there is a cause for concern as to the proper reporting of the crypto. In general, the Internal Revenue Service has increased the enforcement of reporting for foreign accounts, assets, and investments. Therefore, even if Bitcoin is not per se currency…it has qualities that resemble both property and currency.  Moreover, since the FBAR penalties for non-compliance can be enormous, a “wait and see” approach may not be the best strategy.

*We use Bitcoin & Cryptocurrency interchangeably for purposes of this article.

IRS & FinCEN FBAR Rules

The IRS and FinCEN are seemingly trying to keep the FBAR disclosure rules for Bitcoin intentionally vague.

Common questions about Bitcoin FBAR disclosure:

      • What if my cryptocurrency account is anonymous?

      • What if I do not report my cryptocurrency account?

      • Is overseas Bitcoin FBAR Reportable?

      • How do I report overseas Bitcoin?

      • Can I go to jail?

On the one hand, the Internal Revenue Service says Bitcoin is not a currency but is actual property.  On the other hand, FinCEN wants to require reporting similar to currency accounts. Complicating the matter further is that the IRS has determined that hybrid crypto-fiat accounts are reportable for FBAR.

How do I Report Bitcoin?

Whether or not you are going to report your Bitcoin on the annual FBAR or not is an individual decision that each person 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 Bitcoin is reportable.

Foreign “Bank” Account

If you have your money in something that resembles a foreign bank account, investment account, or another type of account that holds Bitcoin 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. Coupled with the fact that Notice 2020-2 seeks to require reporting for FBAR, Taxpayers have to be careful when taking a position against reporting on the FBAR.

Bitcoin and Foreign Investment Account

Bitcoin has matured since its original days as the currency of choice for Silk RoadAs Bitcoin 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 Bitcoin. 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 & Crypto Reporting

If you store your Bitcoin 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, while the IRS wants to know which institutions you bank with, 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 should (hopefully) extend to the fact that you would not have to report Bitcoin on an FBAR — since there is no institution or account to report.

FATCA Form 8938 Reporting of Cryptocurrency

You may have a form 8938 requirement.

It is our position that since the IRS identifies cryptocurrency as property, and property is of type of asset (such as an individually-owned certificate of stock) that cryptocurrency may have to be reported on Form 8938.

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure

Contact our firm today for assistance with getting compliant.