For Now, Taxpayers Do Not Have to Report Bitcoins on FBARSAugust 18, 2014
The tax community debates whether virtual currency should be reported on the FBAR.
Virtual currency, or a digital representation of value that functions as a medium of exchange, is becoming popular in mainstream international transactions. In March, the IRS addressed the tax treatment of virtual currency and how it is affected by Foreign Bank Account Report (FBAR) requirements.
Why the debate?
The debate as to whether virtual currency such as Bitcoins should be included under FBAR reporting is a topic in the financial and tax community. Since the IRS decided that virtual currency is treated as property for U.S. federal tax reasons, tax principles for property transactions could apply. Some of the requirements under the FBAR that virtual currencies could be subject to in the near future include:
- On Schedule B, Part III of an individual tax return, a U.S. citizen or U.S. entity is required to reveal any financial accounts they are involved in.
- Taxpayers who neglect to file their FBARs on a timely basis can suffer a penalty of 50% of the balance in the undisclosed bank account for each year they fail to file the report.
There are a number of others who are required to file FBARs, so many are wondering if Bitcoin’s and other virtual currencies will be subject as well. The answer is still up in the air as of now, but the IRS urges you to stay tuned for updates. For a more detailed explanation of virtual currency and the debate, please read our article, "IRS official: Taxpayers don’t have to report virtual currency on FBARs — yet".