Should Crypto and NFT Traders File Foreign Asset Reporting Forms? (FBAR & FATCA)

Taxes February 05, 2025
Should Crypto and NFT Traders File Foreign Asset Reporting Forms? (FBAR & FATCA)

Introduction

For U.S. taxpayers holding significant foreign financial assets, the IRS requires reporting under FATCA (Foreign Account Tax Compliance Act) and FBAR (Foreign Bank Account Report).

Although cryptocurrency is not explicitly listed as a foreign financial asset in IRS guidelines, crypto held on foreign exchanges may trigger disclosure requirements under Form 8938 (FATCA) or FBAR (FinCEN Form 114). This article explains:

  • When U.S. crypto and NFT traders must report foreign assets to the IRS.
  • Penalties for failing to disclose foreign cryptocurrency holdings.
  • Best practices for compliance with U.S. tax laws.


Understanding Foreign Asset Reporting: FBAR vs. FATCA

1. IRS Form 8938 (FATCA - Foreign Account Tax Compliance Act Reporting)

  • Required if foreign financial assets exceed $50,000 (single) or $100,000 (joint) at year-end.
  • Must be filed with the annual 1040 tax return.
  • Applies to bank accounts, brokerage accounts, and foreign-held financial assets.
  • The IRS has not officially confirmed whether cryptocurrency is covered under Form 8938, but if digital assets are stored in foreign financial institutions, they may be considered reportable.

2. FBAR (FinCEN Form 114 - Foreign Bank Account Report)

  • Required if a U.S. person has more than $10,000 in foreign financial accounts at any time during the year.
  • Must be filed separately from tax returns, directly with FinCEN.
  • Applies to bank accounts, securities, and foreign-held assets in financial institutions.
  • The IRS has not explicitly ruled whether crypto must be reported on FBAR, but crypto held in foreign exchanges may fall under the reporting requirement.


Do Crypto and NFT Traders Need to File FBAR or Form 8938?

The IRS has not provided explicit guidance on whether cryptocurrency falls under FBAR or FATCA requirements. However, crypto stored on foreign exchanges may be considered reportable foreign property.

  • Crypto held on foreign exchanges (e.g., Binance, KuCoin, OKX, Bitstamp) → May require Form 8938 & FBAR reporting.
  • Crypto held in U.S.-based exchanges (e.g., Coinbase, Kraken, Gemini) → Not reportable on Form 8938 or FBAR.
  • Crypto held in self-custody wallets (MetaMask, Ledger, Trezor, Trust Wallet) → Currently not considered a reportable foreign asset.


FBAR & FATCA Exemptions for Crypto Traders

Crypto holdings may be exempt from foreign asset reporting if:

  • They are stored in a U.S.-based exchange or institution.
  • They are self-custodied in private wallets (cold wallets or non-custodial wallets).
  • The taxpayer is below the minimum FATCA or FBAR filing thresholds.

However, if crypto is actively traded as part of a business, it may fall under business income classification, which has separate tax implications.


Penalties for Non-Compliance

Failing to file Form 8938 or FBAR when required can lead to steep penalties:

  • Failure to file Form 8938 (FATCA):
    • $10,000 fine per year, increasing to $50,000 for continued non-compliance.
    • Additional 40% penalty on underreported foreign assets.
  • Failure to file FBAR:
    • $10,000 penalty per year for non-willful violations.
    • Willful violations may result in fines of $100,000 or 50% of the foreign account balance, whichever is greater.
    • Criminal charges for tax evasion may apply for deliberate non-reporting.

The IRS is actively increasing enforcement of offshore crypto holdings. Failing to comply with foreign asset reporting laws can lead to IRS audits, penalties, and legal consequences.


Best Practices for IRS Compliance

  1. Determine if Your Crypto Requires Foreign Asset Reporting
    • If stored on a foreign exchange, it may require Form 8938 or FBAR reporting.
    • If stored in a private wallet or U.S.-based exchange, it is not currently reportable.
  2. Keep Detailed Records
    • Track all foreign exchange accounts, wallet addresses, and transaction history.
    • Retain exchange statements, tax records, and fair market values in USD.
  3. File Required Forms to Avoid IRS Penalties
    • If unsure, file Form 8938 and FBAR preemptively to avoid future IRS scrutiny.
    • Seek professional tax guidance if your holdings exceed reporting thresholds.
  4. Monitor IRS Regulatory Updates
    • The IRS is expanding crypto tax enforcement, meaning rules may change.
    • Stay informed about future IRS guidance on foreign-held digital assets.


Conclusion

The IRS has not explicitly ruled that cryptocurrency must be reported on Form 8938 or FBAR, but foreign-held crypto may still trigger disclosure obligations.

  • Crypto held in foreign exchanges (Binance, KuCoin) may require reporting.
  • Crypto held in U.S. exchanges or self-custody wallets is generally exempt.
  • Failing to file required IRS forms can lead to substantial penalties.

Given the evolving nature of IRS regulations, working with a crypto tax professional ensures compliance and minimizes risk.


If you have any questions or require further assistance, our team at Block3 Finance can help you.

Please contact us by email at inquiry@block3finance.com or by phone at 1-877-804-1888 to schedule a FREE initial consultation appointment.

You may also visit our website (www.block3finance.com) to learn more about the range of crypto services we offer to startups, DAOs, and established businesses.

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