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Do U.S. Taxpayers Have to File an FBAR for Cryptocurrency in 2022?

News, Offshore Account Update

Posted in on September 30, 2022

In 2020, the Financial Crimes Enforcement Network (FinCEN) provided guidance regarding the FBAR implications of holding cryptocurrency overseas. At the time, FinCEN made clear that “a foreign account holding virtual currency is not reportable on the FBAR (unless it is a reportable account . . . because it holds reportable assets besides virtual currency).” However, FinCEN also stated that it intended to propose amended regulations that would require FBARs for offshore cryptocurrency accounts.

With the extended FBAR filing deadline of October 15, 2022 just around the corner, FinCEN has not yet put these amended regulations into effect. As a result, cryptocurrency investors do not need to file FBARs in 2022—unless they hold offshore accounts that are reportable for other reasons.

What Offshore Accounts Trigger FBAR Filing Requirements in 2022?

The FBAR filing requirement applies to U.S. taxpayers who own interests in foreign financial accounts. To be reportable, the value of a taxpayer’s foreign financial accounts must exceed $10,000 at some point during the tax year. If a taxpayer has multiple foreign financial accounts and one or more of these accounts exceeds this reporting threshold (either alone or in the aggregate), then the taxpayer must include all of his, her or its accounts in an annual FBAR.

Currently, FinCEN does not classify a stand-alone cryptocurrency account as a “foreign financial account” for FBAR purposes. But, if a taxpayer holds cryptocurrency in another type of foreign financial account, then the taxpayer must report this cryptocurrency along with the account’s other holdings.

What Are the Penalties for Failing to File an FBAR?

The penalties for failing to file an FBAR can be substantial. If the Internal Revenue Service (IRS) determines that a violation is non-willful, it can impose a civil penalty of $14,489 (as of 2022). If the IRS determines that a violation is willful, it can impose a civil penalty of $100,000 or 50 percent of the taxpayer’s foreign financial account balances, whichever is greater. Taxpayers accused of willful FBAR filing violations can also face criminal prosecution in some cases.

What About IRS Form 8938 (FATCA Reporting)?

Along with filing FBARs to disclose their foreign financial accounts, many U.S. taxpayers must also file IRS Form 8938 to disclose their foreign financial assets under the Foreign Account Tax Compliance Act (FATCA). While FinCEN has stated that the FBAR filing requirement does not apply to cryptocurrency accounts specifically, the IRS has not been as forthcoming with guidance regarding Form 8938. Although it may be prudent for some taxpayers to disclose their cryptocurrency holdings on Form 8938, taxpayers should not make this decision blindly. Instead, they should seek advice from an experienced tax attorney who can provide custom-tailored advice regarding offshore account compliance.

Get Cryptocurrency Tax Advice from Managing Partner Kevin E. Thorn

If you have questions about the federal tax implications of your cryptocurrency holdings or your FBAR or FATCA compliance obligations, we invite you to get in touch. To request an appointment with tax attorney Kevin E. Thorn, Managing Partner of Thorn Law Group in Virginia, please call 703-752-3752, email ket@thornlawgroup.com or contact us confidentially online today.

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