What is the FBAR Filing Requirement for Virtual Currency?February 02, 2021
Do you have a foreign account holding virtual currency? You’ll want to be aware of new reporting guidance from FinCEN.
If you have foreign accounts holding virtual currency, you’ll want to be aware of new proposed guidance regarding how to report the currency on your Report of Foreign Bank and Financial Accounts (FBAR). After a few years of silence, guidance has been issued by the Department of the Treasury's Financial Crimes Enforcement Network (FinCEN) on how to report this on your FBAR. Read on.
What is virtual currency?
It is a digital currency which has a value that functions as a medium of exchange, a unit of account, and/or a store of value only available in electronic format.
Common types of virtual currencies
- Cryptocurrency- This type of virtual currency is an algorithm and distributed data structure for managing electronic cash and contracts in a decentralized fashion. It is a public system protected by secured keys. All transactions are verified by computers with complex math problem solving capabilities which confirm and verify its accuracy and privacy.
- Bitcoin, the most prominent cryptocurrency, can be digitally traded between users, purchased, and exchanged into hard currencies like the U.S. dollar, Pound Sterling, etc.
Who Must File the FBAR?
- U.S. persons, which include U.S. citizens, resident aliens, trusts, estates, and domestic entities that have a financial interest in or signature authority over foreign financial accounts must file an FBAR if the aggregate value of the foreign financial accounts exceeds $10,000 at any time during the calendar year.
- The maximum value of the accounts maintained must all be reported.
- Example: If the balance in Account A is $3,500 and Account B is $6,500, the aggregate of $10,000 must be reported at fair market value.
- The information is required to be disclosed by e-filing the FBAR, FinCEN Form 114.
- The FBAR is due by April 15th with an automatic extension available until October 15th.
How is virtual currency reported?
Currently, the FBAR regulations do not define a foreign account holding virtual currency as a type of reportable account. Therefore, at this time, a foreign account holding virtual currency is not reportable on the FBAR if this is the ONLY asset it holds.
The recently released FinCEN Notice 2020-2 proposes that cryptocurrencies held overseas should be subject to the FBAR. If the existing rules do change, cryptocurrency holders with account(s) overseas will have to disclose their holdings exceeding the $10,000 threshold at any point of the year.
Stay tuned as FinCEN intends to propose to amend the regulations at some point soon.
If you have any questions or need assistance with your U.S. and foreign tax affairs, please contact our International Tax Services team.