IRS States California and Other U.S. Residents Are Not Required to Include Bitcoin Assets on FBAR
In the United States, taxpayers who hold one or more financial accounts with more than $10,000 in aggregate assets overseas or who have signature authority over such an account are required to complete a Report of Foreign Bank and Financial Accounts (FBAR). The FBAR is filed to alert the Internal Revenue Service to an individual taxpayer’s relationship with certain offshore financial or securities accounts. All U.S. taxpayers with an ownership interest in a foreign account that meets the specified requirements must complete the FBAR by June 30th each year. Taxpayers who willfully fail to do so may be penalized up to half of the highest balance of the overseas bank or other account.
A “financial account” subject to FBAR reporting requirements includes a savings, checking, or secured credit card account. Additionally, foreign securities, insurance policies that may be cashed out, and mutual funds must be reported using the FBAR. Despite the broad scope of foreign asset reporting requirements, the IRS has stated taxpayers are not currently required to report Bitcoin holdings on an annual FBAR. Bitcoin is a digital or virtual form of currency that is stored on your computer and does not rely on a central bank.
According to the Financial Crimes Enforcement Network, a bureau of the United States Department of the Treasury that issues formal guidance regarding FBAR requirements, taxpayers are not currently required to report so-called digital currency like Bitcoin on the FBAR. Although this decision may change in the future, the IRS has stated Bitcoin should be treated as a capital asset rather than foreign currency for income tax purposes. For FBAR reporting requirements, Bitcoin held by an individual should be treated in a similar fashion as precious metals that are held directly by a taxpayer. Essentially, the IRS will treat convertible Bitcoin as stock rather than a foreign financial account at this time. The agency cautioned, however, that this decision applies only to the 2014 tax year and might change at any time in the future.
For now, often favorable capital gains and loss rules apply to convertible Bitcoin assets. A convertible asset is one that acts as a substitute or has a substantially equivalent value to real world money. Bitcoin reportedly has a number of taxation limitations as well. For example, the IRS has issued guidance stating standard income tax rules apply whether or not a taxpayer is compensated in virtual or real world currency.
Annual modifications to federal regulations can make seemingly simple international taxation laws and requirements tough to understand. Too many California and other U.S. taxpayers are unaware of FBAR and other foreign asset income tax laws. If you have questions about reporting your foreign assets for income tax purposes, you should consider consulting with a veteran international taxation attorney. William Hartsock is committed to advising Southern California clients about successfully complying with international income tax law requirements. To speak with an established tax law attorney, do not hesitate to call Mr. Hartsock at (858) 481-4844 today. You may also contact him online through his website.
IRS Says Bitcoin Not Reportable On FBAR (For Now), by Kelly Phillips Erb, Forbes.com
IRS Says Bitcoin, Other Convertible Virtual Currency To Be Taxed Like Stock, by Kelly Phillips Erb, Forbes.com
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