Do you have to file an FBAR for a bitcoin account? | Hacker News Reader

Do you have to file an FBAR for a bitcoin account?

irsmedic.com

50 pointsbabuskov46 comments

It is unlikely the IRS would need a new law to require Americans to report significant Bitcoin positions on their returns.

If you have a stack of cash in a drawer, you are supposed to tell the IRS about it. It does not matter if it's in dollars, yen, Swiss francs, or pounds sterling. The fact that a lot of people don't doesn't make it legal, just unlikely to be enforced unless you give the IRS a reason to hate you. If, on the other hand, you have a garage with millions of dollars of un-reported cash in it you become an IRS priority. This is no different, under present law, from someone holding millions of dollars in bitcoins across several wallets.

The IRS could also treat bitcoins as an asset, which would classify bitcoin transactions as barter and make holdings subject to capital gains (and losses) in dollar terms. All said, it would not need new legislation to deal with this.

> If you have a stack of cash in a drawer, you are supposed to tell the IRS about it.

Under what regulation?

If it's a heretofore unreported accession to wealth, that regulation would be the US Tax Code.

> Under what regulation?

Unfortunately when it comes to the IRS, current laws and regulations are irrelevant. They prosecute retroactively and change the rules as they see fit to scare the public into compliance.

The fact that people are so quick to ask about IRS compliance with bitcoins is evidence of this. People feel an obligation to an entity they owe nothing to, because they are scared to death if they don't report a couple bitcoins, that FBI, secret service, or even ATF is going to break down their door and storm in with assault rifles.

Stop spreading FUD. That's not how the IRS operates. It very frequently loses court cases, including Tax Court cases, in which the taxpayer challenges IRS actions.

More to the point--the IRS does not have police powers, it can only levy civil sanctions after full due process. That means no ATF involvement, ever. The IRS can, in limited circumstances, refer cases to the DOJ for further investigation as a criminal matter.

In other words, there are frequently cases in which IRS tries to take what does not belong to them? If so, it only proves the point that people are scared by IRS and it is IRS that spreads soul-killing FUD.

You don't...unless it is in an offshore drawer.

See http://www.fincen.gov/news_room/nr/html/20110224.html, http://www.gpo.gov/fdsys/pkg/FR-2011-02-24/pdf/2011-4048.pdf.

The headline is entirely speculation. The article itself is heavy on the ideology and light on facts.

Edit: The edited headline is STILL inaccurate. It's not a "law proposal". It's one tax lawyer's speculation.

While I agree with you, I'm having a hard time explaining the article in a single short sentence. I actually found this link inside a long thread on a closed LinkedIn group discussing potential law, so it's not just one lawyer talking about it.

And how is this not any different from our reporting requirements now? Any bank account we (US citizens) have over $10k must be reported.

Because it's just something you have, which might be worth $10k if you sold it.

If you own a car worth over $10k, do you need to report that?

Until explicitly stated otherwise bitcoins are considered, by definition, a cash-equivalent for US citizens. I take it you don't file taxes in the US (or at least don't have very many assets)?

If it's held in a foreign account, for sure.

A car is not a liquid asset. Bitcoins do purport to be liquid assets.

If someone pays you in cars, yes.

I don't think that's quite true. Any _foreign_ bank account over $10k must be reported. However US bank accounts may be reported by the banks directly.

Yes, but the effect is the same: just if we have foreign bank accounts, we must report them ourselves. They are all reported.

Of course. I'm just not sure about whether domestic bank accounts are reported.

It's actually a validation of Bitcoin as another currency. What this (proposed/speculative) law says is that Bitcoin is equally valid as the Euro or Yen, and thus a "foreign currency holding" which must be reported.

Validity of bitcoin as a currency is irrelevant. What is relevant is that a US citizen can possess a cash-equivalent that behaves in a fashion similar to foreign currencies or commodities. The tax law is pretty clear on investments and cash-equivalents, bitcoin is both without addressing a question of currency status.

I fail to see how any regulation regarding BitCoin would work in practice. I think it would be hard to prove you have a BitCoin wallet as it's a quite anonymous system. Besides, I could have my wallet.dat file on a remote server and manage transactions through that.

I get the feeling the IRS right now think BitCoin is a joke and if/when it becomes a big deal, they'll panic and try to pass shifty laws. None of which will make any real sense.

If anything, they'll try to pass laws regarding moving money to/from USD <-> BTC.

Excellent article, but it needs a title change.[0]

[0]: At the time of writing the title is "US citizens to report BitCoin accounts over $10.000 to the IRS"

I think a comma might be more appropriate here. North Americans usually use the $1,000 over the $1.000 format.

Thanks, fixed it.

Interesting idea for a startup if they go through with this: a service that provides plausible deniability for bitcoin wallets.

This begs the question, what is an "account" in Bitcoin? Can I not just make multiple Bitcoin addresses with $10,000 each?

The exchanges will all eventually have reporting requirements for US citizens making transfers above a certain threshold in a certain period of time.

Once the IRS actually gets to work and addresses this they'll probably end up altering terminology so that a bit coin "account" is comparable to all bit coins within an individuals direct ownership and control.

In the end investment proceeds from bitcoin will be taxed and traced. I wouldn't try to outsmart or game the US government in terms of account balances, I could see a "smart" early adopter going to jail because of their efforts to avoid taxes.

And if the money's never on an exchange, but just in the network? And how do they prove I own any bitcoin?

I wondered about this too, if it gets to the point where you can buy significant goods and services with bitcoin then it's basically a tax evaders dream.

Only to the point where the IRS audits you for spending significantly more money than you earn. Drug dealers and organized criminals get caught for this very problem concerning undeclared cash.

Good point. But even if you reveal ownership of any bitcoins "as soon as you have to" (oh yeah I sold some consulting overseas for 100 BTC ...), and pay the taxes on them, it still functions as a great way to protect your savings against inflation-happy governments, in a way that commodities and "inflation-protected government bonds" can't.

Ask any Argentinian if they'd like to have kept a stash before the Corralito.

That's true, if you have a ferrari and declare minimum wage income you'll have problems though there are many less conspicuous ways to spend/save/invest the money.

You would certainly get a significant rise in tax evasion. I'm not actually convinced that's a bad thing overall (though I'm not inherently anti tax). If it brings tax schemes previously only available to the wealthy into the hands of commoners.

If you make money buying and selling bitcoins, that is a taxable capital gain.

Note the FBAR language:

United States persons are required to file an FBAR if .. . The aggregate value of all foreign financial accounts exceeded $10,000 at any time during the calendar year to be reported.

http://www.irs.gov/Businesses/Small-Businesses-&-Self-Em...

However, if I have my bitcoins here in the US, does that count as a foreign financial account? Or is it more akin to having a local store of gold. I doubt the IRS has any real guidance for these questions yet...

Since ownership of bitcoins is having the private key that controls the address on a globally distributed general ledger, what the hell does location mean in this case?

location = wallet.

What if it's a brainwallet?

https://en.bitcoin.it/wiki/Brainwallet

The brain presumably still has a location.

No, it really doesn't.

As Bitcoin has no country or jurisdiction of origin, I fail to see how Bitcoin can be classified as foreign.

I also fail to see how the IRS has any regulatory power over a currency not defined by US tax law.

One easy way to disabuse yourself of this notion is to take a job working remote for a Canadian company.

The difference being they can't see you getting paid in bitcoins. They can see you getting paid through banks.

They have no regulatory power regarding Bitcoin because they have no way to enforce it.

The IRS is not regulating the foreign currency. It is regulating your conduct as an American taxpayer, pursuant to a Congressional grant of such authority.

> It is regulating your conduct as an American taxpayer

It can't regulate conduct it can't see.

Suppose you have the Bitcoin on a local wallet, and your computer crashed, losing all the private keys (perhaps presenting the requisite Apple Store receipts when you took it down to the store to get repaired). A bit like losing your cash in a fire; computers do crash quite a bit. Not a lawyer, but I think something like that might be difficult to disprove in court. On the other hand, subsequent spending from those addresses would then be monitored. So perhaps best to report that computer lost/stolen.

How would anybody know a particular address belongs to you?

Unless there's a direct connection with transactions, or you generate a vanity address with your name in it, there's probably not much way that you could.

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