Do I need to disclose my bitcoin on an FBAR report?

A question I would often receive when I was in private law practice, before coming to Unchained, was whether clients holding bitcoin are required to file FinCEN Form 114 (colloquially called the “FBAR”). This is a good question because failing to file one when necessary can bring severe penalties.

What is FinCEN Form 114 (“FBAR”)?

In the words of the IRS:

The Bank Secrecy Act (BSA) gave the Department of Treasury authority to collect information from United States persons who have financial interests in or signature authority over financial accounts maintained with financial institutions located outside of the United States. This provision of the BSA requires that a FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR) be filed if the aggregate maximum values of the foreign financial accounts exceed $10,000 at any time during the calendar year.

The FBAR is a tool used by the United States government to identify persons who may be using foreign financial accounts to circumvent United States law. Information contained in FBARs can be used to identify or trace funds used for illicit purposes or to identify unreported income maintained or generated abroad.

The FBAR is required because foreign financial institutions may not be subject to the same reporting requirements as domestic financial institutions.

FBAR reports are required of all “United States persons” who have an account (or even just “signatory authority” over an account) with a foreign financial institution if at any time during the year the value of that account exceeds $10,000.

For Unchained clients

The good news for Unchained clients is that if you hold your bitcoin in an Unchained vault, and you purchased your bitcoin through the Unchained trading desk or an Unchained IRA, you don’t need to file an FBAR for your Unchained account. This is because Unchained vaults do not constitute custody with a foreign financial institution.

For everyone else

Outside of the Unchained ecosystem, a bit more analysis is required. A couple of things are clear:

Self-custodied bitcoin is not disclosable on an FBAR

Any bitcoin held through a paper wallet, hardware wallet, or another similar method by which you personally hold your private key would not be disclosable on an FBAR, as no foreign financial institution would be involved.

Bitcoin held on US-based exchanges is not disclosable on an FBAR

Any bitcoin held on a US-based exchange would not be disclosable on an FBAR. While exchanges like Kraken, Coinbase, and Gemini probably are “financial institutions” for FBAR purposes, FBAR disclosure wouldn’t apply because they’re based in the United States.

When you might need to file an FBAR

The situation becomes murky for clients using non-US exchanges, such as BitMex or Binance (as opposed to Binance US). Since bitcoin held in an exchange is held using the exchange’s keys rather than your own, the exchange has custody of its customers’ funds. While there are no FBAR regulations addressing bitcoin exchanges, their custodial function makes them seem a lot like “financial institutions”. This would make any bitcoin (or dollars, or other investments for that matter) held in a non-US exchange disclosable on an FBAR.

If you aren’t sure, there’s no downside to filing

You have nothing to lose by disclosing foreign bitcoin exchange accounts on an FBAR (and the related Form 8938), so it makes sense to take the safe route by disclosing if you aren’t sure.

At any time, the Treasury Department could retroactively issue guidance clarifying that non-US exchanges are foreign financial institutions, and the penalties for failure to disclose an account at a foreign financial institution on a timely FBAR form are some of the most severe in existence.

This article is provided for educational purposes only, and cannot be relied upon as tax or legal advice. Unchained makes no representations regarding the tax or legal consequences of any transaction described herein, and all such questions should be directed to an attorney or CPA of your choice.