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Does Cryptocurrency Count as Foreign Assets for FBAR and FATCA Reporting Purposes?

March 21, 2024 Uncategorized

Does Cryptocurrency Count as Foreign Assets for FBAR and FATCA Reporting Purposes?

Cryptocurrency is still a relatively new asset class, and the rules around reporting cryptocurrency holdings for tax purposes are still evolving. Two key reporting requirements that US citizens and residents need to be aware of are the Report of Foreign Bank and Financial Accounts (FBAR) and the Foreign Account Tax Compliance Act (FATCA). But there’s still a lot of confusion around whether cryptocurrencies count as “foreign assets” that need to be reported under these rules. Let’s break it down!

What is FBAR Reporting?

The FBAR is a reporting form filed separately from your tax return to the Financial Crimes Enforcement Network (FinCEN), which operates under the Department of Treasury. You must file an FBAR if you had authority over at least one financial account located outside the US and the aggregate value of all your foreign accounts exceeded $10,000 at any point during the year [1].

FBAR reports are due by April 15 each year. But there’s an automatic extension to October 15 if you miss the April deadline[1]. I always recommend filing on time though, just to be safe!

The penalties for not filing an FBAR can be severe – up to $10,000 for non-willful violations. And up to the greater of $100,000 or 50% of the account balance for willful violations[1]. Yikes!

What is FATCA Reporting?

FATCA stands for the Foreign Account Tax Compliance Act. It requires US citizens and residents to report their worldwide income, including income related to any foreign accounts or assets, on their US tax return. You must file Form 8938 with your tax return if you meet the reporting threshold[2].

For individuals living in the US, you must file Form 8938 if:

  • Unmarried taxpayers: Total value of specified foreign assets was more than $50,000 on the last day of the tax year or more than $75,000 any time during the year
  • Married filing jointly: Total value of specified foreign assets was more than $100,000 on the last day of the tax year or more than $150,000 any time during the year
  • Married filing separately: Total value of specified foreign assets was more than $50,000 on the last day of the tax year or more than $75,000 any time during the year

The thresholds are higher if you live outside the US. I won’t list all of them here, but you can find them on IRS Form 8938 instructions[2].

If you’re required to file Form 8938 but don’t, you may face a penalty of $10,000 or more [2]. Yikes again!

How Cryptocurrency Fits In

Now that we’ve covered the basics of FBAR and FATCA reporting, where does cryptocurrency come in? Let’s break this down:

FBAR Reporting

In the past, cryptocurrency was excluded from FBAR reporting requirements. But under proposed regulations in December 2020, FinCEN said it intends to include foreign cryptocurrency accounts within the scope of FBAR reporting[1].

This means if you held over $10,000 in total value across foreign cryptocurrency exchanges or wallets at any point during the year, you may need to file an FBAR report[1].

Examples of reportable crypto holdings could include[1]:

  • Bitcoin stored on a hardware wallet in Switzerland
  • Ethereum held on an exchange in Singapore
  • Ripple stored on a mobile wallet in the UK

These proposed regulations haven’t been finalized yet. But it’s best to be aware in case the rules do change to require FBAR reporting for foreign cryptocurrency holdings.

FATCA Reporting

For FATCA purposes, cryptocurrency is generally considered a specified foreign financial asset. This means it may be reportable on Form 8938 if you meet the reporting thresholds[3].

The IRS has not provided 100% definitive guidance here yet. But based on Notice 2014-21, cryptocurrency is treated as property or an investment asset[4]. So it would likely fall under the FATCA foreign asset reporting requirements.

Examples of potentially reportable crypto holdings include[4]:

  • Owning Bitcoin on a Swiss exchange
  • Holding Ripple in a digital wallet in Singapore
  • Trading various altcoins on an exchange in Hong Kong

The value to report would be the fair market value in US dollars on the last day of the tax year, or any day during the year when the total value of foreign assets exceeded the reporting thresholds[4].

Tips for Reporting Cryptocurrency

If you do need to report cryptocurrency holdings on an FBAR or Form 8938, here are some tips:

  • Document the value in USD on the dates that matter for reporting thresholds
  • Record wallet addresses, exchange accounts, and other details in case the IRS inquires
  • Consider using crypto tax software to help track holdings across multiple wallets/exchanges
  • Work with an accountant knowledgeable in crypto to ensure accurate reporting

And if you’re confused about how to report overall crypto gains/losses on your tax return, check out IRS FAQs on virtual currency. Cryptocurrency is treated as property for US tax purposes, with potentially complex cost basis calculations.

The Takeaway

While the IRS has not provided 100% clear guidance yet, most experts agree that cryptocurrency probably should be reported as a foreign asset for FBAR and FATCA purposes if you meet the reporting thresholds. It’s better to be safe than sorry when it comes to avoiding penalties!

The rules here are still evolving quickly, so stay up-to-date on the latest IRS notices and regulations around crypto reporting. I know taxes aren’t the most exciting topic, but taking the time to report cryptocurrency properly can save you big-time headaches down the road.

Let me know if you have any other questions! I’m always happy to chat more about cryptocurrency tax reporting.

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