What is the FBAR Filing Requirement for Virtual Currency?

Posted in Offshore Account Update on January 15, 2021 | Share

As our Washington D.C. tax defense attorneys recently discussed, if you own offshore bank accounts that are worth more than $10,000 at any point during the tax year, you are required to disclose these accounts to the federal government. In order to do so, you must file FinCEN Form 114, Report Foreign Bank and Financial Accounts (FBAR), with the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN).

Similar to many of the tax-related issues involving virtual currency, the federal government has not provided clear guidance as to whether offshore virtual currency accounts are subject to the FBAR filing requirement—until now. With FinCEN Notice 2020-2, the Financial Crimes Enforcement Network made clear that while offshore virtual currency holdings do not currently trigger the FBAR filing requirement, it intends to change this in the future:

“Currently, the Report of Foreign Bank and Financial Accounts (FBAR) regulations do not define a foreign account holding virtual currency as a type of reportable account. . . . For that reason, at this time, a foreign account holding virtual currency is not reportable on the FBAR (unless it is a reportable account under 31 C.F.R. 1010.350 because it holds reportable assets besides virtual currency). However, FinCEN intends to propose to amend the regulations implementing the Bank Secrecy Act (BSA) regarding reports of foreign financial accounts (FBAR) to include virtual currency as a type of reportable account under 31 CFR 1010.350.”

Offshore Accounts That Hold Virtual Currency and Other Assets are Subject to the FBAR Filing Requirement

Importantly, while the FBAR filing requirement does not apply to offshore financial accounts that solely hold virtual currency, cryptocurrency investors are required to disclose accounts that hold both virtual currency and other “reportable assets.” In other words, placing virtual currency into an offshore account does not alleviate the obligation to report the account to FinCEN. If this were the case, U.S. taxpayers with offshore accounts could simply deposit virtual currency into their accounts and avoid the Bank Secrecy Act’s disclosure requirements.

Can U.S. taxpayers purchase virtual currency with assets from offshore accounts in order to avoid the FBAR filing requirement? Presumably yes (provided that the otherwise-reportable account has less than $10,000 in assets for the entire tax year); however, this would not alleviate the tax burden attendant to cryptocurrency investments. You may still be required to report your cryptocurrency holdings under the Foreign Account Tax Compliance Act (FATCA) using IRS Form 8938; and, regardless of the applicability of any foreign asset reporting requirements, you must still report all taxable income and pay all taxes owed.

When will FinCEN amend the Bank Secrecy Act to require FBAR disclosures to include offshore cryptocurrency accounts? FinCEN has not yet indicated a timeline, but our Washington D.C. tax defense attorneys will be monitoring for any proposed updates to the Bank Secrecy Act’s regulations, and we will report on any changes when they are adopted.

Speak With a Washington D.C. Tax Defense Attorney in Confidence

Do you have questions about federal income tax compliance with regard to virtual currency? If so, we encourage you to get in touch. To schedule a confidential consultation with Washington D.C. tax defense attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, please call 202-349-4033, email or contact us online today.

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