IRS Seeking Comments On FATCA Rules
The US Internal Revenue Service is currently accepting comments regarding the applicability of rules that govern reporting of so-called “Specified Foreign Financial Accounts” to virtual currencies (the agency’s preferred term for bitcoin et al). The rules governing the current reporting requirements, which replaced temporary rules in place since 2011, were released last December in Internal Revenue Bulletin 2014-53.
Most bitcoiners are aware of the requirement to file FinCEN Form 114 (otherwise known as the “Foreign Bank Account Report” or simply the “FBAR”) to report foreign financial holdings each year. If you are unfamiliar with this requirement, it applies to holdings valued at more than $10,000 held outside the United States. Guidance provided by FinCEN leaves substantial ambiguity as to the circumstances (if any) under which bitcoin would be reportable. However, a cautious interpretation would include bitcoins on deposit at non-US exchanges (this is what I recommend to my own clients). The filing is due no later than June 30th for 2015.
Less well known to the bitcoin community is the requirement under the Foreign Account Tax Compliance Act (FATCA) to report certain foreign assets to the IRS on Form 8938 with the taxpayer’s individual return. For a single taxpayer, the FATCA reporting requirement applies to accounts with a value of $50,000 on the last day of the tax year or $75,000 on any day of the tax year. These amounts are double for a couple filing married/joint.
Specified Foreign Financial Accounts include ownership of or interest in the following:
- Foreign bank and financial accounts
- Foreign trusts and foreign estates
- Stock issued by a foreign corporation
- Foreign partnerships
- Notes, bonds, debentures or other debt issued by a foreign person
- Swaps or similar agreements with a foreign counterparty
Under FATCA, the term “foreign” means that the account is held outside the United States.
The final regulations issued last winter do not specify whether a bitcoin exchange account would be considered a “financial account” or any other specified account. However, the IRS noted that it will accept comments regarding this issue from interested parties. The agency also did not identify the form or method of submission for such comments, but provided a point of contact for further information regarding the new regulations in general.
The IRS takes a deliberate (read: sloth-like) approach to rulemaking under normal circumstances. With deep budget cuts looming, don’t expect clarity on this topic anytime soon. As always, consult a qualified tax practitioner if you have questions concerning your obligations under the law.
