What are the FBAR and FATCA Filing Requirements for Offshore Cryptocurrency?

Cryptocurrency investors must report all taxable income from mining, sales, and other transactions on their annual tax returns, and they must pay all income taxes that are due. However, these are not the only requirements that exist at the federal level. As New Jersey tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group, explains, for cryptocurrency held in offshore accounts, reporting obligations under the Bank Secrecy Act and the Foreign Account Tax Compliance Act (FATCA) may apply as well.

Understanding the FBAR Filing Requirements for Offshore Virtual Currency

Under the Bank Secrecy Act, U.S. taxpayers must disclose foreign financial accounts exceeding $10,000 in aggregate value 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).

With respect to cryptocurrency, the FBAR filing requirement only applies when cryptocurrency is held in an account that is otherwise reportable under the Bank Secrecy Act. In other words, accounts that solely hold cryptocurrency do not need to be disclosed with an FBAR. However, this may soon change, as recently signaled in FinCEN Notice 2020-2:

“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. . . . However, FinCEN intends to propose to amend the . . . Bank Secrecy Act (BSA) [regulations] regarding reports of foreign financial accounts (FBAR) to include virtual currency as a type of reportable account . . . .”

If this proposed amendment comes to fruition, then all cryptocurrency investors who hold digital currency with an aggregate value of $10,000 or more overseas will be required to file an FBAR on an annual basis. We will be monitoring for updates and will report on any changes that are made.

Understanding the FATCA Filing Requirements for Offshore Virtual Currency

Even if a cryptocurrency investor is not required to file an FBAR under the current Bank Secrecy Act regulations, that investor may still have an obligation to disclose his or her offshore holdings under FATCA. This law applies to offshore assets (not just offshore accounts) with a total value of over $75,000 at any time or $50,000 at the end of the tax year. For many U.S. taxpayers, this will include their virtual currency holdings.

To comply with FATCA, U.S. taxpayers must report their offshore cryptocurrency holdings using IRS Form 8938. If the FBAR filing requirement applies as well, then both forms must be filed. Noncompliance with the FATCA and/or the Bank Secrecy Act can lead to steep penalties, and it may trigger an IRS tax audit as well.

Request an Appointment with New Jersey Tax Attorney Kevin E. Thorn, Managing Partner of Thorn Law Group

For more information about the federal reporting requirements that apply to offshore cryptocurrency holdings, schedule a confidential consultation with New Jersey tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group. To request an appointment at your convenience, please call 201-355-8202, email ket@thornlawgroup.com or inquire online today.