FinCEN Seeks to Mandate FBAR Filings for Offshore Virtual Currency Accounts

Under the federal Bank Secrecy Act, U.S. taxpayers who own offshore financial accounts worth $10,000 or more must disclose these accounts to the Financial Crimes Enforcement Network (FinCEN) using FinCEN Form 114, Report Foreign Bank and Financial Accounts (FBAR). At present, this requirement does not apply to offshore virtual currency accounts. However, as US International Tax Advisors explains below, this may soon change.

FinCEN Notice 2020-2 Proposes New FBAR Filing Requirement for Cryptocurrency

In its recently-released FinCEN Notice 2020-2, the Financial Crimes Enforcement Network makes clear that it intends to update the Bank Secrecy Act regulations to require FBAR filing for offshore cryptocurrency accounts. In pertinent part, FinCEN Notice 2020-2 states:

“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 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, all cryptocurrency investors whose virtual coins are held overseas will be subject to the FBAR filing requirement. This means that if the aggregate value of their offshore cryptocurrency accounts exceeds $10,000 at any point during the tax year, they must disclose all of their offshore accounts to FinCEN using the FBAR.

Some Cryptocurrency Investors May Currently Need to Report Their Offshore Holdings

While FinCEN is proposing to establish a reporting requirement for accounts that exclusively hold cryptocurrency, investors who own cryptocurrency in multiple-asset accounts may already have an obligation to disclose their cryptocurrency holdings to FinCEN. If the aggregate value of these accounts exceeds the $10,000 reporting threshold under the Bank Secrecy Act, then they must be disclosed even though the aggregate value is comprised, in part, of virtual currency.

Offshore Cryptocurrency Holdings are Subject to Other Federal Disclosure Requirements

In addition to the Bank Secrecy Act, other federal statutes establish reporting requirements for cryptocurrency investors as well. The Foreign Account Tax Compliance Act (FATCA) requires disclosure of foreign financial assets (as opposed to the more-limited subset of foreign financial accounts), and U.S. taxpayers must generally report all taxable income under the Internal Revenue Code.

Failure to meet any reporting requirement with respect to offshore cryptocurrency holdings can lead to steep penalties, and the IRS has recently signaled its intent to crack down on cryptocurrency-related tax evasion. As a result, all cryptocurrency investors would be well-served to reassess their tax compliance efforts and to seek help from an experienced tax professional if necessary.

Contact US International Tax Advisors

If you need more information about the federal reporting requirements for offshore cryptocurrency holdings, we encourage you to schedule a confidential initial consultation. To request an appointment with US International Tax Advisors, please call 844-796-8565 or get in touch with us online today.