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Friday, December 5, 2014

Bitcoin and FBAR

Bitcoin may seem a bit exotic for most of us. Bitcoin is an electronic currency often associated with speculators and users interested in disguising their payment exchanged for illicit goods but it is used in legitimate commerce as faster, cheaper way to make payments across borders, skipping over currency conversions and exchange rates through commercial banks.  As such, Bitcoin represents something that we may see as increasingly useful for legitimate purposes, even in personal transactions.

The IRS seems to think Bitcoin warrants serious consideration, particularly in its efforts to track offshore funds held by U.S. taxpayers.  Now, Bloomberg BNA reports:

Taxpayers may soon have to report bitcoin and other virtual currency accounts held in foreign exchanges to the IRS as the agency's focus on foreign assets sharpens, experts tell Bloomberg BNA. They say there is a strong possibility that bitcoin accounts could fall within the scope of assets individual taxpayers must reveal to the IRS on the Report of Foreign Bank and Financial Accounts (FBAR). Eventually, experts say, it is even possible that the foreign exchanges themselves may be considered foreign financial institutions that have to report the accounts to the IRS under the Foreign Account Tax Compliance Act.
FBAR and FATCA are major efforts to track accounts across borders.  Also associated with this effort is FATFA, the Financial Action Task Force on money laundering.  The United States actually lags behind much of the rest of the world in the effort to gain more transparency with respect to financial accounts and transactions.  This is partly due to the strongly imbedded American legal principle of client confidentiality.  International pressure gradually is forcing change here.

The IRS considerations are a part of this broader effort.  For more information, see:

IRS News Release 2014-68 06/02/2014.


Final Regulations Expand on FBAR Reporting for Trusts,
Charles Rubin and Jenna Rubin
Estate Planners Alert Newsletter (RIA)

FBAR and FATCA Compliance in the Age of Digital Currencies, Rajiv Prasad, J.D., LL.M., Los Angeles, Published 05/01/2014.

 

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