Previously, FinCen’s and thus the Internal Revenue Service’s (IRS) policy was to not consider foreign financial accounts that hold virtual currency as subject to foreign bank and financial account reporting (FBAR). After publicly reinforcing this unofficial policy more than once, FinCen recently signaled its intent to reverse its former policy on virtual currency. FinCen recently announced that it intends to propose amendments to the Bank Secrecy Act to include virtual currency as a type of reportable account under 31 CFR 1010.350.
If you are worried about how FinCen’s changing view on virtual currency FBAR disclosure will impact your exposure for unreported offshore accounts and related unreported offshore taxable income, you should consult with our skilled International Tax Attorneys and CPAs at the Tax Law Offices of David W. Klasing. Many taxpayers are likely shocked about the policy reversal for virtual currencies, and we are ready to address any questions you may have about the matter. The Tax Law Offices of David W. Klasing is here to describe how this evolving FinCen FBAR virtual currency policy affects you and other taxpayers.
On December 31, 2020, the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) moved to amend the Bank Secrecy Act’s (BSA) FBAR regulations to “include virtual currency as a type of reportable account.” However, this directly contradicts the memo dated January 20, 2020, from the Director of FinCEN to the Director of Tax Issues of the Government Accountability Office (GAO), that states that “FBAR regulations do not currently define virtual currencies in an offshore account as a type of reportable account.”
In less than a year, FinCEN has completely gone against their initial decision, which has many taxpayers concerned about the reversal of policy. The FinCEN amendment to the BSA calls for U.S. citizens to be subject to FBAR regulations if they possess more than $10,000 in virtual currency with a foreign virtual currency service provider.
With this reversal in virtual currency policy, FinCEN would make cryptocurrencies and other types of foreign digital currencies on par with FBAR regulations for cash in foreign accounts.
Currently, foreign accounts that contain virtual currency are still not required to be reported under FBAR. More importantly, the FinCEN amendment does not list a date of when this new policy is to be executed or the type of information that taxpayers would have to supply to FinCEN.
Currently, taxpayers that are subject to FBAR must supply the following information on their form:
With FBAR regulations now applying to virtual currencies, taxpayers are left in the dark about whether they would have to supply blockchain addresses or whether other information will be requested by FinCEN.
The timing of this new regulation seems odd for taxpayers who frequently engage in the use of cryptocurrencies. While stricter regulations of cryptocurrencies are expected as the IRS has shown an interest in investigating financial crimes and tax fraud related to cryptocurrencies, a last-minute notice before the new year is not what taxpayers wanted to hear.
To know more about how FinCEN’s cryptocurrency regulation affects your foreign account reporting, consult with our California Tax Lawyers and CPAs today.
This change by FinCEN is not the only recent policy to address cryptocurrencies. For example, FinCEN is also interested in reclassifying virtual currency. The proposal by FinCEN would change virtual currencies to “monetary instruments,” which would make them subject to the BSA.
If the above proposal is passed, money service businesses would be forced to report virtual currency transactions that occur in private or un-hosted wallets. This may raise some privacy concerns for users of virtual currencies who value the freedom that comes with trading these digital currencies. This proposal, like the reversal to FBAR reporting for virtual currencies, has also drawn the ire of lawmakers and taxpayers.
If any of the recent changes to FBAR reporting will require you to report your offshore virtual currencies, you should contact the Tax Law Offices of David W. Klasing. We know that many of these unexpected virtual currency regulations could be a source of stress for taxpayers, and we are willing to work with you to determine a way to handle these new reporting requirements.
As you are likely aware, failing to report under FBAR regulations could result in thousands of dollars in fines for a taxpayer. In severe cases, the IRS may even propose criminal prosecution. Our firm will work diligently to ensure that you are not subjected to tax penalties for failing to adhere to FBAR regulations.
If you own virtual currency in a foreign financial account, you may now have to report that income to the IRS. The dual-licensed California Tax Lawyers and CPAs at the Tax Law Offices of David W. Klasing have extensive experience with IRS FBAR regulations. We know that complying with FBAR regulations is a priority for many taxpayers, and we are here to provide you with the legal representation you deserve. If you would like to schedule a confidential legal consultation to discuss whether you need to report your virtual currency, call us at (800) 681-1295. Our website could also offer information about scheduling your consultation.