Bitcoin & FBAR – Is Bitcoin FBAR Reportable as a Foreign Account?

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Bitcoin & FBAR - Is Bitcoin FBAR Reportable as a Foreign Account? (Golding & Golding)

Bitcoin & FBAR – Is Bitcoin FBAR Reportable as a Foreign Account? (Golding & Golding)

Bitcoin & FBAR – Is Bitcoin FBAR Reportable as a Foreign Account?

Recently, there have been rumblings that Bitcoin is not reportable on the FBAR (we will use the tern “Bitcoin” instead of the more general term “cryptocurrency” for this article, since most questions we receive tend to use “Bitcoin.”).

Bitcoin & FBAR

The IRS has not stated per se that Bitcoin is not reportable, and FinCEN’s guidance was riddled with ambiguity.

With the FBAR deadline approaching, we wanted to provide a bit of clarification from our experience, for holders of offshore Bitcoin.

Bitcoin FBAR Lawyers -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.

What does FinCEN say about FBAR Reporting?

As provided by the AICPA in a recent article they published:

The AICPA Virtual Currency Task Force reached out to Treasury’s Financial Crimes Enforcement Network (FinCEN) to help practitioners answer this question. FinCEN responded that regulations (31 C.F.R. §1010.350(c)) do not define virtual currency held in an offshore account as a type of reportable account.

 

Therefore, virtual currency is not reportable on the FBAR, at least for now. This may change in the future, especially considering the influx of stable coins, so practitioners should stay abreast on this topic. FinCEN did tell the task force that it, “in consultation with the IRS, continue[s] to evaluate the value of incorporating virtual currency held offshore into the FBAR regulatory reporting requirements.”

 

Absent this clarity, the conservative approach would be filing the FBAR.

 

A taxpayer could have U.S. dollars on a foreign third-party exchange in addition to virtual currency, therefore the U.S. dollar amount should be considered for filing purposes.

 

Also keep in mind that Foreign Account Tax Compliance Act (FATCA) and Form 8938, Statement of Specified Foreign Financial Assets, compliance is administered by the IRS; therefore, while the reporting is similar, this article only applies to FBAR.

FinCEN Does Not Say Bitcoin is “Non-Reportable”

Until specific reporting guidelines come through from FinCEN or the IRS, mere “general” guidance from FinCEN may not be enough to avoid penalties for non-compliance, or sufficient to prevail over the IRS if the IRS was to issue penalties.

According to the article,

“FinCEN responded that regulations (31 C.F.R. §1010.350(c)) do not define virtual currency held in an offshore account as a type of reportable account.”

 

The verbiage does not say “Virtual Currency is not reportable.” It says the specific regulation does not define virtual currency held in an offshore account as a type of reportable account. And, when it comes to the IRS and FinCEN, it is oftentimes the exceptions, exclusions, and limitations to a more general statement such as this, that will cause the most headaches etiher now, or in the future.

FinCEN vs. IRS

FinCEN is the Financial Crimes Enforcement Network. The IRS is the Internal Revenue Service.

The FBAR is technically referred to as FinCEN Form 114. And, while the FBAR is a “FinCEN” form, the IRS is the agency tasked with issuing FBAR Penalties. And, to date, the IRS has not issued definitive regulations stating that the offshore accounts with FBAR escape reporting.

Here are some important tips:

Hybrid Bitcoin/Fiat Account

FinCEN does not indicate that an account that has both Bitcoin and non-Bitcoin (aka Fiat or “tradional currency”) in an account will escape reporting requirements.

Here’s why:

Otherwise, if Joe for example had $10M in a foreign account, he could escape reporting the $10M just by depositing Bitcoin into the account?

Therefore, if you have an account with both Bitcoin (or other virtual currency) and non-virtual currency (fiat), reporting is still probably required.

Exchanged Your Bitcoin into Fiat

Let’s say you have a trading account overseas that holds Bitcoin, and then you sell some of the Bitcoin, and your Bitcoin account held cash in it, even for a short-period of time.

Under FBAR reporting rules, that would mean you have an overseas account, which holds non-virtual currency in it — and therefore the account is reportable, since that is now a non-Bitcoin account.

In other words, you would presumably have to report the account, absent specific guidance from the government that you do not have to report it, once any fiat is held in, or deposited into the account

No IRS Guidance (Yet)

While FinCEN indicated that cryptocurrency may not be reportable if it is in an offshore account, it is the IRS that issues and enforces penalties for FBAR non-compliance. And, just because FinCEN (informally) stated that an item is not reportable does not mean the IRS has to follow it.

In general the IRS has been very successful in levying penalties against U.S. account holders for non-compliance with FBAR — especially as of late, with a string of victories in District Courts around the country.

Non-compliance for Prior Years – We Specialize in FBAR

If you were required to file, but have not filed in prior years, you cannot just begin filing forward. Doing so is considered a “quiet disclosure,” which is illegal and can lead to excessive fines and penalties.

You need a team that specializes exclusively in IRS Offshore Disclosure and  FBAR and FATCA Amnesty.

Golding & Golding (Board Ceritfied Specialist in Tax Law)

Golding & Golding (Board Certified Specialist in Tax Law)

Interested in Filing under IRS Tax & Amnesty Procedures?

No matter where in the world you reside, our international tax team can get you IRS offshore compliant.

Golding & Golding specializes in offshore tax and reporting amnesty. Contact our firm today for assistance with getting compliant.

Golding & Golding, A PLC

We have successfully represented clients in more than 1000 streamlined and voluntary disclosure submissions nationwide, and in over 70-different countries. We have represented thousands of individuals and businesses with international tax problems.

We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe.