The Financial Crimes Enforcement Network (“FinCEN”) department of the Treasury has announced recently that it will begin requiring taxpayers to report virtual currency on FinCEN Form 114, Report of Foreign Bank and Financial Accounts (known as the “F.B.A.R.”). Currently, FinCEN does not include accounts holding only virtual currency in the list of “reportable accounts” under the purview of F.B.A.R., but Treasury wants to change that.

BACKGROUND

FinCEN currently requires U.S. persons with any foreign financial accounts -- including bank, securities, or other types of financial accounts (“reportable accounts'') in a foreign country -- to file an F.B.A.R., if the aggregate value of all foreign accounts exceeds $10,000 at any time during the calendar year. While digital currencies are currently not subject to F.B.A.R. filing, such holdings may have to be included on Form 8938, Statement of Specified Foreign Financial Assets. The I.R.S. has not issued clear guidance on whether reporting is required but as the form applies to financial assets, the conservative approach is to simply file if the thresholds are met.

QUESTIONS & ANSWERS

1. What is virtual currency?

Virtual currency is a digital representation of value. It can sometimes operate like “real” currency, as a medium of exchange, however, virtual currency doesn’t have legal tender status in any jurisdiction.

2. Who will this effect?

Potentially everyone holding any type of crypto asset. While the notice indicates that virtual currency will become a “reportable account” for purposes of the F.B.A.R., it does not specify more details at this time. It is unclear if this will apply only to crypto currency or also to other types of digital assets, for example, utility tokens. It is also unclear if virtual currency will be considered among other types of financial accounts in the determination of the aggregate value and the minimum threshold requirement and whether the blockchain address would have to be provided.

3. What kind of penalties are levied for non-compliance?

Failure to comply with the F.B.A.R. requirements may result in a $10,000 fine per violation for non-willful violations and up to $100,000 or 50% of the balance in the account for willful violations.

Click here for the official notice.

Ruchelman P.L.L.C. is here to help you with tax planning and compliance needs. We look forward to keeping you up-to-date on this evolving matter.