Currently, holding cryptocurrency does not require you file an FBAR filing on a FinCEN 114. Similarly, it also does not require a Form 8938.
But like most things crypto, this is likely to change. For both forms, the IRS has signaled that they are going to propose that the rules be amended to include cryptocurrencies.
What Are FBAR and Form 8938 Used For?
First, let’s rewind a little bit to first understand these forms. Understanding the purpose of these forms and what they have traditionally been used for will help us to better understand how they could be applied to cryptocurrencies.
FBAR is short for “Report of Foreign Bank and Financial Accounts”. It was first enacted in 1970 as a part of the BSA (Bank Secrecy Act). It requires taxpayers report foreign financial accounts that exceed $10,000 at any time during the calendar year.
Similarly, the Form 8938 is used as a “Statement of Specified Foreign Financial Assets”. It has been required since 2011 for taxpayers with substantial overseas investments, although the exact threshold varies based on your marital status and country of residence.
In both cases, the intent is to combat against tax evasion and money laundering. By increasing the reporting requirements for individuals and also putting in significant monetary penalties for failure to comply, the IRS and US government hope to dissuade tax evasion – both people doing it willfully and those doing it out of ignorance.
But how does crypto fall into this? Is a wallet really a “bank” account under FBAR rules? And if it is, is it really “foreign”?
Currently, the answer is no. Taxpayers are not required to report cryptocurrency on either filing.
FBAR Filing Could Be Required in the Future
But again, this will change. The government has made its intent quite clear.
In 2020, FinCEN released FinCEN Notice 2020-2. This notice is extraordinarily short, but very straightforward. It reads, in its entirety:
“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. (See 31 CFR 1010.350(c)). For that reason, at this time, a foreign account holding virtual currency is not reportable on the FBAR (unless it is a reportable account under 31 C.F.R. 1010.350 because it holds reportable assets besides virtual currency). 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.”
Similarly, in an interview with Tax Notes in 2019, an IRS official noted that – while they could not provide a clear answer as to whether or not cryptocurrency holdings were required under Form 8938 – taxpayers may still wish to report them to avoid potential penalties.
Given how closely these two filings relate to each other, it is likely that if one gets amended the other will as well.
In a future article, we’ll go over the different challenges amending these rules could pose to the IRS. It’s a pretty interesting discussion and how they define things could have far reaching ramifications for how blockchain projects choose to structure themselves in the future.
But – for now at least – neither filing is required for crypto assets.
Any accounting, business, or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties.
