if they were stored in an online wallet like mybitcoin where they were no longer directly under your control nor still spendable by you should that site disappear, then that site's geographical location would be where they are held.
Q. Is an FBAR required for accounts maintained with financial institutions located in a foreign country if the accounts hold noncash assets, such as gold?
A. Yes. An account with a financial institution that is located in a foreign country is a financial account for FBAR purposes whether the account holds cash or non-monetary assets.
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http://www.irs.gov/businesses/small/article/0,,id=210249,00.html#FA3Sounds simple, right? Funds held at a foreign bitcoin exchange, such as Mt. Gox, TradeHill would need to be reported on an FBAR if at any point in 2011 the total (USD + value of the bitcoins) held exceeded $10K USD.
There was a little clarification recently as to what is a financial institution:
Financial account: The new FBAR instructions specify that a “financial account” for purposes of FBAR reporting includes commodity futures and options accounts and life insurance or annuity products with a cash surrender value, in addition to bank and securities accounts. They also clarify that a financial account includes shares of a mutual fund or similar pooled fund that is available to the general public with a regular net asset value determination and regular redemptions. Private equity funds and hedge funds fall outside of this definition.
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http://www.thewolfgroup.com/TaxServices/nl006001.htmlSo it doesn't seem to matter if bitcoin is a currency, a security, a commodity, or none of the above, though these are relvant:
John William Nelson believes Bitcoin cannot be considered a security (under U.S. law):
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http://www.lextechnologiae.com/2011/06/26/why-bitcoin-isnt-a-security-under-federal-securities-lawAnd J. Thomas Johnson (@BitcoinTitan) believes they would be considered a commodity
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http://blog.bitcointitan.com/post/17789738826Here's another relevant post:
While the law requiring the FBAR to be filed has existed since 1970, it was largely ignored prior to 2008. The FBAR rules were unclear in many areas, and as few taxpayers were filing FBARs, many of these rules and definitions remained ambiguous.
A foreign financial agency means "a person acting for a person as a financial institution, bailee, depository trustee, or agent, or acting in a similar way related to money, credit, securities, gold, or a transaction in money, credit securities, or gold."
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http://www.freemantaxlaw.com/Articles/Interests-in-Gold-and-FBAR-Reporting-Requirements.shtmlSo there is little disagreement so far regarding FBAR and the use of a foreign exchange.
Well, here's one countering argument:
Does the U.S. citizen need to report [value held on a foreign stored value card] on FBAR?
It seems likely that the agency or company that administers the PETC Card would likely not be considered a financial institution or financial agency.
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http://intltax.typepad.com/intltax_blog/2010/05/foreign-ez-pass-a-foreign-financial-account.htmlThat argument might also be applied to bitcoin for use as a payment method. Perhaps bitcoins held with a foreign e-wallet (e.g., ViBanko in the U.K.) would not apply towards the FBAR as they are simply acting as custodian and not as a financial institution?
If bitcoins were securities, that argument could almost be confirmed with this:
Individual bonds, notes, or stock certificates held by the filer are not a financial account.
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http://www.irs.gov/businesses/small/article/0,,id=210249,00.html#FA1Now, as far as bitcoins held personally (in a local wallet) the argument has been made that since they are actually "held in the blockchain" which is stored globally, that an FBAR might need to be recorded for them.
That argument is likely a fail though. Nodes stored outside the U.S. do hold my transactions but there is nothing to indicate that the nodes are operating as a financial institution. It wouldn't seem that FBAR applies there at all.
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