FinCEN: No FBAR Reporting for Virtual Currency in an Offshore Account

The Internal Revenue Service (IRS) and the Financial Crimes Enforcement Network (FinCEN) will jointly examine application  of foreign account reporting requirements to virtual currency held in an offshore account under the Bank Secrecy Act (the notorious FBAR, Form 114).  Two important points about FBAR duties for foreign accounts holding virtual currency  were made in a letter dated January 22 2020, from the Director of FinCEN to the Director of Tax Issues of the Government Accountability Office (GAO).

First, FinCEN agreed with the recent GAO suggestion that FinCEN and the Internal Revenue Service should work together and provide a statement to the public about FBAR reporting duties for virtual currency held in an offshore account. Thus, we can expect some action on this point in the not too distant future.

Second, and of great importance for the FBAR filing required this year, FinCEN also stated: “Currently the FBAR regulations do not define virtual currency held in an offshore account as a type of reportable account. For this reason, at this time, virtual currency held in an offshore account is not reportable on the FBAR.”

Good to know!  But keep this on your radar as one never knows if and when the FBAR regulations will be changed to mandate FBAR reporting for such accounts.

You can find FinCEN’s letter of January 22, 2020 in Appendix III of the Government Accountability Office report Virtual Currencies: Additional Information Reporting and Clarified Guidance Could Improve Tax Compliance issued on February 12, 2020.

Posted: February 16, 2020

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3 thoughts on “FinCEN: No FBAR Reporting for Virtual Currency in an Offshore Account

  1. Virginia:

    This makes no sense to me. If the point of the FBAR is to monitor money laundering and illegal activity, wouldn’t law enforcement want people to be required to declare their crypto? This basically tells criminals to do all their transactions in crypto. On the other hand, IRS keeps warning people that crypto transactions are taxable. So 2 pieces of Treasury coming out with opposite messages. We truly live in interesting times.

    Richard LeVine

    Sent from my iPhone

    Like

    1. Hi Richard – thank you for your comments, both of which I appreciate. I certainly understand what you are saying with regard to the stance taken at the moment by FinCEN. My guess is that together FinCEN and IRS are evaluating crypto held in offshore accounts to determine the joint position to be taken. I think it is only a matter of time before it is announced that such accounts must be put on the FBAR…..I think the entire area of crypto is so new that the agencies are bound to falter here and there as they make their way through the thicket. I just hope they will be as understanding when taxpayers make “mistakes”!! We recently saw such a blunder when IRS had put on its website that use of in-game currencies could give rise to taxable events (e.g., Roblox and V-bucks). These types of currencies are non-convertible game currencies. This means the currency has no equivalent value in real currency and does not act as a substitute for real money. Practitioners voiced that the IRS view was not correct. Just last week the IRS edited out the references to Roblox and V-bucks and on Feb 14 stated:

      “The IRS recognizes that the language on our page potentially caused concern for some taxpayers. We have changed the language in order to lessen any confusion. Transacting in virtual currencies as part of a game that do not leave the game environment (virtual currencies that are not convertible) would not require a taxpayer to indicate this on their tax return.”

      Again – let’s hope IRS will be reasonable when taxpayers have erred with crypto.

      Like

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