Foreign Cryptocurrency Accounts
Overseas virtual currency investors need to be aware of the Bank Secrecy Act and the Foreign Account Tax Compliance Act (FATCA). Each imposes its own rules and regulations in relation to reporting cryptocurrency held by Americans in foreign accounts.
We’ve established that in the United States, cryptocurrency is an asset which attracts a tax liability. What about digital assets that are held outside the United States’ jurisdiction?
Is there and allure of holding assets in countries notorious for being tax havens and do the same international tax laws apply to cryptocurrency brokers and accounts?
Bank Secrecy Act
The Bank Secrecy Act is legislation that requires banks to make sure they have practices in place to keep their clients from using them for money laundering, terrorism, and other illegal practices.
The law stipulates that US citizens and residents must provide information about foreign accounts. They must disclose this information to the Financial Crimes Enforcement Network (FinCEN), which is part of the U.S Treasury Department.
The purpose of FinCEN is to safeguard your financial interests and ensure that your foreign accounts are held up to some sort of standard, thereby minimizing the risk.
FinCEN has provided specific guidance dealing exactly with the issue of cryptocurrency that is held in overseas accounts. They have recently indicated that the requirements are set to be beefed up in the not so distant future.
The Current Law
As it stands, the requirement to report offshore accounts to FinCEN only applies to applicable accounts and is not an automatic obligation.
Applicable accounts are those which are owned by a US entity (citizen, resident, or company doing business in the US), who have more than $10,000 combined held in overseas accounts.
For this calculation, the value of cryptocurrency is not considered. FinCEN will only be made aware of cryptocurrency held overseas if it forms part of an account holding other assets, which do need to be disclosed. Accounts which entirely consist of cryptocurrency and nothing else do not need to be disclosed.
Proposals for Further Disclosure Requirements
The current state of play isn’t going to last for long, however. It is on FinCEN’s radar to include the value of cryptocurrency when working out if accounts held overseas are reportable or not.
The effect of this change is going to be huge for all those in the US who invest in cryptocurrency abroad. There will be nowhere to hide and investors should expect full transparency.