FBAR and FATCA Filing for Crypto Traders
A lack of guidance has left crypto traders unsure of their reporting obligations for foreign accounts. We are joined with Andrew Gordon, a tax attorney, who understands the ins and outs of foreign account reporting in relation to cryptocurrency trading. Andrew discusses FBAR, FATCA, penalties associated with not reporting, and to answer the question - do cryptocurrencies have to be included in these reports?
Our guest, Andrew Gordon, is a tax attorney who understands the ins and outs of foreign account reporting in relation to cryptocurrency trading. Andrew joins us to discuss FBAR & FATCA reporting, the penalties associated with not reporting, and to address whether he believes crypto traders should be filing these forms.
Andrew has been working in the crypto-space since 2014. [00:24]
Andrew: Actually several years ago, ago in 2014, we had a client approach us who was getting paid "magic internet money", from the Ethereum Foundation. Back then the IRS had not released any guidance - it wasn't till later in 2014 that the IRS even defined Crypto as property. That was our first introduction and we were and presented the question of, well, if I'm getting paid these random tokens called Ethereum, how do we account for this?
In terms of foreign account reporting, there's two main forms you need to know about: FBAR & FATCA. The FBAR is a separate form that is due the same day as your returns. [02:42]
Andrew: FBAR is my favorite four letter word. It stands for "Foreign Bank Account Report". It isn't actually filed with your tax return. It's a separate form. It's filed online, electronically. It has the same due dates as your tax returns - April 15th and it can be extended six months to October 15th. So same due dates, but it's filed differently, still sent to the Department of Treasury - it's a separate form.
On the FBAR form, what taxpayers have to do is they have to identify the maximum value at any time during the tax year of their foreign bank accounts. If that value at anytime exceeded $10,000, you have to report. The FBAR is an informational form, which means that there's no tax actually owed.
There are popular exchanges that ARE considered foreign entities and some that are NOT considered foreign entities. [04:15]
Andrew: Unfortunately, it's not that easy because a lot of exchanges don't even make their address public - it's pretty hard to find. Even just as a starting point, I would list out all of the exchanges that you've used and try to use Google to find their addresses.
There's a couple that we know are considered foreign financial institutions at this point, and the most popular is Binance. In addition, many people suspect that Bitfinex has kind of self-reported themselves as a foreign financial institution and their information is being shared with taxing authorities.
Coinbase, Gemini, GDAX, and a number of others are considered a US-based institution.
The FATCA form is 8938, and is part of your tax-return. [06:15]
Andrew: It's very similar to the FBAR, but it's not exactly the same. One of the first differences is that the threshold for FATCA is higher. For the FBAR, your aggregate maximum holdings have to exceed $10,000. Aggregate meaning that when you add your bank accounts or crypto exchanges together, the maximum during the year exceeds $10,000.
The FATCA threshold, for a single person, is $50,000. FATCA, just like the FBAR, is an informational form, which means again, there's no tax due. The government just wants to know the maximum value of each account. One of the other differences is that FATCA is more general, so FBAR only requires foreign bank accounts to be recorded, whereas FATCA is both bank accounts and foreign assets.
There's no tax involved with these forms - but there are significant penalties for not filing when required to do so. [07:57]
Andrew: The penalties for not filing an FBAR can be very severe. One of the most basic penalties for not filing an FBAR is $10,000 per year - for non-willful offenders.
If you were willful and you just disregarded your requirement to file? Well then the penalties can be even higher - up to 75% of the maximum value of your account or your exchange values. It can be very severe. So while there's no tax, the penalties are much greater. It's one of those things to do to comply with the rules.
The FATCA form also has similar penalties.
The burden of proof for "non-willfulness" is on you. [10:14]
Andrew: To be able to prove that you are not-willful is very difficult. In general, if you file and sign your tax returns, you are signing under penalties of perjury that everything is correct. You have an obligation to know the requirements and just saying "I didn't know the law" is not sufficient proof of non-willfulness.
If you've exceeded these limits in previous years, but didn't file these forms, there are still feasible options to consider…but these options may not last forever. [16:25]
Andrew: I would suggest that if you met these requirements in earlier years, take corrective action to amend or file the returns properly. There are some IRS programs that are available to come forward and file these forms for earlier years with a reduced penalty - or in some cases, no penalty at all.
The IRS Streamlined Offshore Disclosure Program. Under this program, you have to be non-willful and you will actually self-certify - so you'll sign a statement saying I didn't file the FBAR because I basically didn't know about it. There are some other requirements to be aware of as well. In this program, you'll pay a five percent penalty on the maximum balance of your foreign exchange value.
If you enjoyed our podcast, be sure to check back frequently for more great discussions about a range of topics in the crypto space. If you have any questions for Andrew Gordon, he can be reached via his website, Gordon Law LTD, or via Twitter @Accounting.