FBAR Cryptocurrency Reporting
FBAR Cryptocurrency Reporting
Cryptocurrency FBAR: When it comes to rules involving IRS reporting of offshore accounts, the reporting a virtual currency such as cryptocurrency, is complicated. That is because the U.S. government has not provided a bright-line test to determine what is considered a foreign account for FBAR Reporting.
While the U.S. Government has provided some insight as to what is reportable, they have not provided a concrete definition that taxpayers can rely upon.
Due to increased compliance enforcement — and the sheer magnitude of offshore penalties — the general recommendation recommend is to report foreign accounts that may be considered “reportable.”
That is because by doing so, you are avoiding a much bigger — and potentially devastating — financial hit if the IRS comes out against you. And, FinCEN’s prior advice was not incomplete and not specific enough to take the firm position that cryptocurrency is not reportable.
Since cryptocurrency and bitcoin are oftentimes used interchangeably, we may refer to both within the article, but we are not referring to bitcoin specifically, but rather cryptocurrency generally.
Here is an introductory summary on reporting crypto currency on the FBAR.
Reporting Cryptocurrency on the FBAR
Generally, foreign and offshore accounts are reportable. This includes a Bank account, savings account, investment account, pension, and life insurance.
As to cryptocurrency, even though it is deemed property (not currency) by the IRS, it may still be reportable depending on how the property is being held.
For example, is it in an account or is it being held on a person wallet?
Foreign Account or Foreign Exchange
If a U.S. person has overseas cryptocurrency on an exchange, then there is a good chance it may be reportable. This is especially true if the cryptocurrency is in a bank account or investment account.
That is because a foreign account is reportable, and just because the property within the account is cryptocurrency would not per se exempt it from reporting.
There are some cryptocurrency accounts that allow the Account Holder to maintain both the Fiat and virtual currency in the same account. Therefore, when a person has cryptocurrency in the equivalent of a Foreign account, the account holder may want to consider reporting it.
If a person maintains cryptocurrency in personal wallet, even if that wallet it is located outside United States, chances are it is not reportable.
Because if the cryptocurrency is not being maintained at a Foreign Financial Institution (FFI), then what are you actual reporting?
In other words, if the cryptocurrency is in your own personal wallet, and presumably you are not a foreign financial institution, then it is most likely not reportable, because how would you even report it?
IRS is Serious about Cryptocurrency
In recent years, there has been increased enforcement of Cryptocurrency.
Some of the recent catalysts for the increased enforcement a Crypto currency compliance, include:
J5 is used to enforce cryptocurrency compliance for U.S person.
As provided by the IRS:
What does J5 Do?
In 2018, the IRS issued a Summons to Coinbase in order to get details about certain customers.
As provided by Coinbase:
6173 & 6174 Letters
The 6173 and 6174 letters involve IRS enforcement of Cryptocurrency Compliance. As provided by the IRS:
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