Governments are struggling with how to manage virtual currency. The Internal Revenue Service (IRS) and Department of Treasury continue to struggle to find the right way to handle this asset and have taken different stances.
Digital currency has similarities to other assets that the government requires taxpayers to report on their tax filings. People can trade Bitcoins for assets like real estate. The assets could provide valuable revenue to the United States government, but the problem of tracking digital currency remains an issue.
Although issues of tracking and reporting digital assets remain far from solved, some recent guidance provides answers — at least for the short-term. At this time, we know that the United States government does not require taxpayers to report digital currency … at least not on the Report of Foreign Bank and Financial Accounts (FBAR). However, the authors behind the clarification were careful to point out two possible caveats:
- The FBAR goes to the Treasury’s Financial Crimes Enforcement Network (FinCEN), not the IRS. As a result, the IRS may have a different take on the matter.
- FinCEN stated that it, along with the IRS, continue “to evaluate the value of incorporating virtual currency” into reporting requirements.
This last statement provides support for the fact taxpayers do not need to report digital currency on FBAR filings. However, it also leaves the door wide open for future changes.
Que the IRS. Just last week, the IRS announced it was sending out thousands of letters to taxpayers who may have reportable digital currency. This issue will be addressed in more detail in a future post.
Those who hold digital assets are wise to keep abreast of changes as they become available and make changes as needed to better ensure compliance. The attorneys with Goldburd McCone are familiar with complex, international tax law challenges and can provide guidance as needed.