- 1 Who Files FBAR for Virtual Currency Offshore Ownership
- 2 Do You Need to File FBAR for Virtual Currency Offshore?
- 3 Technically, the FBAR May Not be Required Yet
- 4 Proposed Regulations for Cryptocurrency
- 5 FinCEN Notice 2020-2
- 6 Jon Doe Summons
- 7 Should You Report Overseas Virtual Currency?
- 8 International Tax Lawyer Specialist Team: Golding & Golding
Who Files FBAR for Virtual Currency Offshore Ownership
Who Needs to File FBAR for Virtual Currency Offshore Ownership? One of the most complicated types of foreign assets to report to the IRS and FinCEN is virtual currency such as cryptocurrency (Bitcoin, Litecoin, etc.). What makes the reporting of Virtual Currency so difficult is that even though virtual currency has the name “currency” in it — it is not actually treated as currency per se by the US Government. Crypto is not backed by the US government, and therefore it is treated as an asset. (Check out our article on almost everything you need to know about cryptocurrency tax and reporting). But sidestepping the tax implications of exchanging assets for a moment (even if it’s being used as currency), there is the inherent problem of reporting overseas virtual currency on the FBAR.
Do you need to file an FBAR in order to report virtual currency offshore?
Do You Need to File FBAR for Virtual Currency Offshore?
When all the dust settles, chances are you will have to report your virtual currency that is being held offshore — especially if it is being held on an exchange or in an account. Virtual currency that is held in a personal wallet may not be reportable for this simple fact that your personal wallet is not a foreign financial institution.
Technically, the FBAR May Not be Required Yet
From a mere technical standpoint, there is no current rule in place that says US persons with virtual currency offshore are required to report this virtual currency on the FBAR — BUT, this was the result of guidance that was issued before the current proposed regulations and Notice 2020-2, and so it may no longer be viable.
Proposed Regulations for Cryptocurrency
About six months ago, the US government proposed virtual currency regulations which would require financial institutions to report CTR/SAR type of reporting for cryptocurrency the same way it is required to report it for monetary transactions. In other words, even though the US Government does not treat virtual currency as currency — they will going to require financial institutions to report transactions that meet certain thresholds, similar to what is required for currency.
FinCEN Notice 2020-2
A few months back, FinCEN issued Notice 2020-2 involving cryptocurrency reporting. Essentially, FinCEN took the position that their intent is to require US persons to include the value of their overseas cryptocurrency on the FBAR. This has several implications, including the fact that many people purchase cryptocurrency because it is anonymous — and by having to file the FBAR, that anonymity will be exposed.
Jon Doe Summons
In 2021, a District Court in Massachusetts authorized the IRS to issue with John Doe Summons against a cryptocurrency company in order to uncover if there any transactions by US account holders. This is to ensure that the IRS can tell who had virtual currency transactions — and more importantly to the IRS — who properly and disclosed the transactions on their tax returns. It is clear the IRS seeks absolute transparency for virtual currency transactions — and the courts are will grant the IRS the authority to issue John Doe Summons.
Should You Report Overseas Virtual Currency?
In conclusion, if you are a US person and you have ownership of overseas cryptocurrency, you should consider reporting the cryptocurrency. Depending on how long you have had the cryptocurrency for, the type of accounts — and your overall risk tolerance level will help determine whether you should consider one of the amnesty programs in order to get into “possible” compliance for prior years.
International Tax Lawyer Specialist Team: Golding & Golding
Contact our firm for assistance.