Do You Need to File an FBAR if You Own Virtual Currency Offshore?

Under the federal Bank Secrecy Act, U.S. taxpayers who own offshore accounts with an aggregate value of $10,000 or more in any tax year are required to disclose their offshore accounts using FinCEN Form 114, Report Foreign Bank and Financial Accounts (FBAR). Taxpayers must file FBARs annually with the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN), and failing to do so can lead to steep penalties.

But, does the FBAR filing requirement apply to virtual currency held offshore? As Boston tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group explains, the answer is currently, “Maybe,” but this is likely soon going to change.

The FBAR Filing Requirement Currently Only Applies to Virtual Currency in Limited Circumstances

With respect to offshore accounts that only hold virtual currency, the FBAR filing requirement does not apply. The Financial Crimes Enforcement Network recently made this clear with FinCEN Notice 2020-2, which states in pertinent part:

“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 . . . .”

However, this does not mean that U.S. taxpayers never have an obligation to report offshore accounts that contain virtual currency. FinCEN Notice 2020-2 also clarifies that an offshore account holding virtual currency does not need to be reported: “unless it is a reportable account under 31 C.F.R. 1010.350 because it holds reportable assets besides virtual currency.”

FinCEN Intends to Update the FBAR Regulations to Require Disclosure of Offshore Cryptocurrency-Only Accounts

While the current rule is that offshore virtual currency holdings only need to be reported on a U.S. taxpayer’s FBAR if they are held in an otherwise-reportable account. This may soon change. FinCEN Notice 2020-2 continues:

“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.”

If this change is made as proposed, any offshore cryptocurrency account worth more than $10,000 will be subject to reporting under the Bank Secrecy Act’s FBAR regulations.

Even Though the FBAR Filing Requirement Doesn’t Currently Apply, the FATCA Filing Requirement Might

The FBAR filing requirement is specific to foreign financial accounts. However, there is another offshore reporting requirement that applies to a much broader set of foreign financial assets. This is the reporting requirement under the Foreign Account Tax Compliance Act (FATCA), which is the source of authority for IRS Form 8938. Some offshore cryptocurrency holdings must be disclosed under FATCA, and, regardless of whether the FBAR and FATCA disclosure requirements apply, U.S. taxpayers must still report and pay all tax owed on their virtual currency investments.

Contact Boston Tax Attorney Kevin E. Thorn, Managing Partner of Thorn Law Group

Do you have questions about cryptocurrency reporting or tax law compliance? If so, we encourage you to get in touch. To schedule a confidential consultation with Boston tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, please call 617-692-2989, email ket@thornlawgroup.com or request an appointment online today.