Virtual Currency FBAR Filings in 2022: Your Questions, Answered
Articles by: Richey May, Jan 13, 2022
The new year begins with important news for U.S. investors holding virtual currency.
The Financial Crimes Enforcement Network (FinCEN) has released guidance related to requirements for Foreign Bank and Financial Accounts Reporting (FBAR), also known as FinCEN Form 114. Generally, a U.S. Person is required to file the FBAR if the U.S. Person has possession of a financial interest, signature authority, or other authority over at least one financial account located outside the United States.
The proposed guidance is noted in FinCEN Notice 2020-2. The notice foreshadows developments regarding the intention of reporting requirements that investors holding virtual currency will need to complete.
NOTE: The dollar threshold for filing is the aggregate value of the foreign financial accounts exceeding $10,000 at any time during the calendar year. A “U.S. Person” is not only a citizen or resident of the United States, but also includes any domestic legal entity encompassing domestic partnerships, corporations, limited liability companies, estates and trusts.
With current regulation, FinCEN has taken a vague approach on whether nondomestic virtual currency accounts should be reported on the FBAR. In Notice 2020-2, FinCEN states: “Currently, the Report of Foreign Bank and Financial Accounts (FBAR) regulations do not define a foreign account holding virtual currency as a type of reportable account. (See 31 CFR 1010.350©). For that reason, at this time, a foreign account holding virtual currency is not reportable on the FBAR (unless it is a reportable account under 31 C.F.R. 1010.350 because it holds reportable assets besides virtual currency)…”
In other words, investors are not required to disclose foreign financial accounts that hold only cryptocurrency assets. However, if an account is “reportable,” meaning it holds non-cryptocurrency assets exceeding the $10,000 threshold, this account must be reported to the FinCEN on the FBAR.
Further into the notice, FinCEN does lay out their intentions of anticipated regulatory changes. As Notice 2020-2 states: “FinCEN intends to propose to amend the regulations implementing the Bank Secrecy Act (BSA) regarding reports of foreign financial accounts (FBAR) to include virtual currency as a type of reportable account under 31 CFR 1010.350.”
At the time of this article, the current guidance does not reflect this change; however, there is no doubt FinCEN is attempting to amplify the reach of the FBAR requirements with the objective of finding fraud, money laundering, and other financial crimes the forms are intended to detect.
As we wait for new guidance on virtual currency reporting, the current rule suggests it is not mandatory to disclose these assets, although it may be encouraged. It does seem FinCEN is working toward changing this rule in the near future, which comes with the potential to vastly increase the amount of FBAR filings cryptocurrency investors must currently complete.
If you have questions about FBAR filings, Richey May’s professionals are here to help. Please contact Stephen Vlasak for any questions regarding this summary or the services Richey May provides to the Alternative Investments industry.