FinCEN Will Require Cryptocurrency Reporting

One of the major ambiguities in virtual currency reporting in recent years has been the question of whether non-US exchanges should be considered “foreign financial accounts” for the purpose of reporting on FinCEN Form 114 (commonly known as the FBAR). Generally, a U.S. person who has a financial interest in, or signature or other authority over, any foreign financial accounts, including bank, securities, or other types of financial accounts located in a foreign country, must file an FBAR with FinCEN if the aggregate value of those foreign financial accounts exceeds $10,000 at any time during the calendar year. The purpose of the FBAR reporting regime is to encourage taxpayers to identify offshore accounts that have traditionally been used to hide assets or evade taxes. The penalty for willfully failing to report is the larger of $100,000 or 50% of the unreported account value.

In the absence of formal guidance, we have always advised clients to declare their holdings when they otherwise meet the reporting requirements and valuation threshold. Our justification for this advice was two-fold: First, preparing and submitting the form was too easy and the penalty too severe to take a chance that it would come up during an audit. Second, since no tax is assessed with the filing, there was no harm in over-reporting or reporting when it was not required.

Now, FinCEN proposes to amend the regulations regarding FBARs to include virtual currency as a type of reportable account under 31 CFR 1010.350 (see FinCEN Notice 2020-2). While FinCEN has not announced when it plans to publish these revisions or when they would take effect, we will continue to recommend cryptocurrency reporting when otherwise required.

If you have any questions regarding the FBAR, please contact us.