FinCEN Tells Cryptocurrency Traders That It’s a New Year
Article At A Glance:
- FinCEN Notice 2020-2 announced cryptocurrency accounts held outside of the US as a reportable account for FBAR filings.
- The notice does not provide an effective date for the reporting change. Watch for further developments.
- Cryptocurrency exchanges make it simple to move from US dollars (or whatever) into a cryptocurrency and vice versa.
- New regulations will make cryptocurrency exchanges act more like banks.
- These regulations may signal that cryptocurrency’s wild west days are numbered.
In Notice 2020-2, the Financial Crimes Enforcement Network (FinCEN) announced that the regulations implementing the Bank Secrecy Act (BSA) would be amended to add cryptocurrency accounts held outside of the US as a reportable account for FBAR filings.
FinCen Notice 2020-2 states:
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(c)). 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). However, 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.
US cryptocurrency exchanges, such as Coinbase, are required to file Forms 1099-K for customers who have gross cryptocurrency transactions of more than $20,000 or have more than 200 transactions in a year. With Form 1099-K, the IRS can keep track of large traders and look to see if transactions are reported on their tax returns. This would bring cryptocurrency closer in line with the traditional banking system, perhaps giving greater relief to institutional investors who are increasingly weighing the asset class, and it may signal that cryptocurrency’s wild years are over — and privacy will be harder to find. Transparency has not been the case for US taxpayers who hold their cryptocurrency in foreign exchanges. FinCEN is about to change that. However, the notice does not provide an effective date for the reporting change. Watch for further developments.
Planning. It’s unlikely that FinCEN can change regulations to affect the 2020 FBAR filing. It is more likely that the change will be for 2021 FBARs. At the least, we will need to warn clients that a change is coming and that the minimum penalty for failure to file an FBAR is $10,000 per year.
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The new reporting requirements on brokers are addressed in Section 80603 of the bill. “Broker,” by definition in Sec. 6045 (c)(1), is expanded to include “any other person who (for a consideration) regularly acts as a middleman with respect to property or services…A person shall not be treated as a broker with respect to activities consisting of managing a farm on behalf of another person.” In turn, the bill defines a “digital asset” as “any digital representation of value which is recorded on a cryptographically secured distributed ledger or any similar technology as specified by the Secretary.