On May 30, 2018, the AICPA (American Institute of Certified Public Accountants) wrote a letter to the IRS to obtain further definition and clarity regarding Virtual Currency (VC) FATCA and FBAR reporting requirements. The letter states that there is VC traded on centralized exchanges that operate in jurisdictions outside the U.S. The exchanges are either pure virtual currency exchanges or a virtual currency exchanges which allow VC to exchange into fiat currencies. The AICPA indicates that these centralized exchanges function similarly to Foreign Financial Institutions (FFI), and as a result, U.S. Taxpayers, are obligated to report the value of VC and fiat currencies held at these exchanges when they meet the necessary FATCA and FBAR thresholds. Moreover, the letter addresses how some VC investors control or are in possession of a “private key for a VC wallet” and have total custody and control of the VC held in that wallet with no FFI involvement.
This is how IRS Responded to the AICPA Questions:
VC holders have FATCA and FBAR reporting obligations if their VC holdings are held in VC Exchanges OUTSIDE of the U.S.
A U.S. Person is required to file an FBAR if:
- He or she has a financial interest in or signature authority over at least one financial account located outside of the United States; and
- The aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year reported.
Financial Crimes Enforcement Network (FinCEN) 114, Report of Foreign Bank and Financial Accounts (FBAR) is due April 15 to coincide with the federal income tax filing season. Nonetheless, FinCEN grants filers a maximum six-month automatic extension to October 15 each year.
A U.S. Person is required to file Form 8938 (Statement of Specified Foreign Financial Assets) if:
- He or she has specified foreign financial assets with an aggregate value exceeding $50,000.
- Filing Form 8938 does not replace a taxpayer’s obligation to file the FBAR.
Don’t be a victim of your own making
US Taxpayers utilizing foreign exchanges have FATCA and FBAR foreign reporting requirements if they meet the filing thresholds. The tax treatment of VC remains a gray area with minimal IRS guidance. The AICPA is recommending positions to the IRS on the reporting and tax treatment of various situations so that taxpayers and tax practitioners have clarity. Taxpayers holding VC ought to consult their specialized tax representative to analyze potential reporting requirements and the proper application of tax laws covering VC.