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’). 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 currency.
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.
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 currency, but is actual property. On the other hand, FinCEN refuses to confirm that Bitcoin does not have to be reported on the FBAR (noting that it is the IRS that enforces FinCEN 114 “FBAR Reporting”)
In fact, FinCEN steers clear from making any definitive statement that you will not be implicated for FBAR violations in the future, if you do not current report Bitcoin on your FBAR today.
In other words, FinCEN reserve the right to look back and penalize you at a future time and date, and your non-reporting has now become part of your “permanent record.”
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 other type of account that holds Bitcoin you will be in a tough position to argue the account/currency is not reportable.
- 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 Bitcoin.
As if for some reason, you can exclude foreign accounts that would otherwise have to be reported, simply because you deposited Bitcoin into the account.
That defeats the purpose of the reporting. Moreover, with the IRS joining in on the international Bitcoin enforcement team known as J5, you are going to be hard pressed to show that Bitcoin held in foreign account is not reportable.
Bitcoin and Foreign Investment Account
Bitcoin has matured since its original days as the currency of choice for Silk Road.
As 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, 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 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 a individual owned certificate of stock) that crypto currency may have to be reported on form 8938.
Unreported Bitcoin on an FBAR?
At the current time, the IRS has not issued regulations requiring the reporting of Bitcoin on the FBAR.
With that said, there is also no exception that says Bitcoin held in an account is exempt from reporting either.
Therefore, our professional opinion (and that is all it is) is that if Bitcoin is held in an account, it will probably have to be reported.
Golding & Golding: About Our International Tax Law Firm
Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.
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