This article is part of TokenTax's Cryptocurrency Tax Guide.
FinCEN, the Federal Crimes Enforcement Network of the Treasury Department, recently signaled its intentions to require cryptocurrency to be reported on the FBAR, or Foreign Bank Account Report. In the sections to come, we outline which holdings this proposed change would apply to and how investors can properly file.
FBAR Basics for Crypto
What is the FBAR?
The FBAR is designed to track foreign financial assets to prevent crimes like tax evasion. Although it has tax implications, the report itself is made to to the U.S. Treasury Department through the Bank Secrecy Act's e-filing system.
Who needs to file an FBAR?
If you are a U.S. investor, then you may need to file an FBAR if you ever held $10,000 or more in one or more foreign bank accounts during a tax year. Recent guidance from FinCEN suggests this regulation will soon apply to accounts on foreign crypto exchanges as well.
For example, if you held $5,000 of ETH on Bitfinex (Taiwan) and $6,500 of LTC on KuCoin (Hong Kong), you would need to file an FBAR for each account.
Even though FinCEN has not officially changed its guidance about foreign cryptocurrency holdings, it is best to interpret the rules conservatively to avoid FBAR penalties. For severe cases, there may be criminal penalties, so it is best to err on the side of caution.
Do I need to report joint ownership on an FBAR?
Yes, if accounts are jointly owned, you need to report all ownership. There is a separate space where you can disclose this information on the form, so you do not need to provide additional reports.
How to File a Crypto FBAR
First, you will need to calculate your maximum amount held in foreign financial institution accounts at any given time throughout the previous tax year. If you already have this calculation, you can skip to the section about the FinCEN website.
To calculate your maximum foreign account balance, you need to organize your account balances by crypto exchange. You then need to convert each exchange balance into USD and aggregate the total amount at any given time during the calendar year. Remember, if you have multiple foreign accounts and only one is above $10,000, each account still needs to be filed separately.
Using crypto tax software to organize your transactions
It may be helpful to use crypto tax software to aggregate and organize all your accounts if you have traded on multiple exchanges. Also, crypto tax software with a price index may be useful if you have traded multiple cryptocurrencies and need to aggregate totals.
If you are using TokenTax, it will automatically generate a report that tells you the highest value of the year in USD. If you are already a Basic or Premium user and need to purchase the FBAR add-on, you can do so at the checkout page. Be sure that you've uploaded all your crypto data, including deposits and withdrawals for all exchanges. You can then generate the FBAR form in your Documents page.
Filing on FinCEN's website
Individuals can use the Bank Secrecy Act (BSA) e-filing system to report their FBAR. FBARs should be filed before the April 15 tax deadline.
In Part I of the e-filing process, fill out your personal information.
In either Parts II or III, you will provide information about the foreign exchanges on which you hold cryptocurrency. If you are a single filer, then fill out Part II. If you are completing the FBAR for jointly held accounts where both individuals have signature authority, then use Part III.
If you need to report on multiple exchanges, in Part II or III, you can create copies of the form by clicking the + box at the top of the form.
Entering your exchange information
For each exchange, here's how we fill typically fill out the FBAR for TokenTax customers:
On the top row of your TokenTax-generated FBAR report, you'll see the maximum account value. Enter this in the applicable field on the BSA e-filing site.
For "Type of account," select "Other" and then in the box to the right, type in "Cryptocurrency exchange."
For "Financial institution name," enter the name of the exchange.
For "Account number or other designation, " enter the email address used for the exchange login.
For the exchange's physical address, fill it out to the best of your ability. Some exchanges share their addresses, while others keep them secret for security reasons. At minimum, the exchange's country should be entered. You can find a list of popular foreign exchanges' countries below.
The final parts, IV and V, are typically left blank. Finally, add your signature to the document and submit.
Consult FinCEN’s instructions, a CPA, or an enrolled agent for more support on filing the FBAR.
What is the Form 8938?
The 8938 is similar to the FBAR; however, it is a form that is reported to the IRS on your tax returns, while the FBAR is filed with FinCEN. It also has different, much higher reporting thresholds, as set in the Foreign Account Tax Compliance Act (FATCA).
When you need to file IRS Form 8938 for FATCA?
The FATCA thresholds are as follows for taxpayers living in the United States:
Single filers: foreign assets worth more than $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year
Married filing jointly: foreign assets worth more than $100,000 on the last day of the tax year or more than 150,000 at any time during the tax year
Married filing separately: foreign assets more than $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year
These thresholds are different for taxpayers living abroad. Read the IRS’s summary of FATCA reporting here for more information.
Note that if you file a Form 8938, you still need to file an FBAR as well, for which the threshold is over $10,000 in foreign assets.
You are required to determine the value of your foreign assets to figure out the threshold and to report your amounts Our FBAR report can provide you with these values for the FATCA. For our full filing clients, we handle the filing of the 8938 if applicable.
For more detailed information on the differences between the two forms, the IRS provides a table comparing Form 8938 and the FBAR.
Is the Form 8938 really required for crypto?
The IRS has not given specific guidance regarding whether the FATCA applies to crypto held with foreign financial entities like cryptocurrency exchanges, but there’s no drawback to filing just in case. Thus, many are adhering to the FATCA requirement for crypto in case it’s later said that crypto holders are required to file the 8938.
Other common FBAR and Form 8938 questions
Do I file with the report that TokenTax gives me?
Our own report is not the one you file with FinCEN, rather, it is a document that tells you the highest USD value per exchange, which is the information you’ll need to complete the FBAR. We don’t generate pre-filled FBARs because the documents require non-crypto personal information.
Which of my exchanges are non-U.S. based?
You'll need to know which exchanges qualify as foreign financial institutions if you file an FBAR. Here is a list of common non-U.S. based exchanges.
Note that wallets and decentralized exchanges are generally not reported on the FBAR, as it’s not an account on a foreign exchange but rather a wallet you control.
Common foreign exchanges
Bithumb (South Korea)
BTC Markets (Australia)
Cryptopia (New Zealand)
Gate.io (Cayman Islands)
HitBTC (Hong Kong)
KuCoin (Hong Kong)
The Rock Trading (Italy)
Common U.S. exchanges that do not need to be included on the FBAR
Here is a list of the most common U.S. based exchanges, that do not need to be included on the FBAR.
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