The TD F 90-22.1 Form for Bitcoin

[Isosceles]

Anyone know if & how Bitcoin relates to the foreign account holdings form for US persons? http://www.irs.gov/businesses/small/article/0,,id=210244,00.html

[Gavin Andresen]

No, I bet nobody knows if or how TD F 90-22.1 applies to Bitcoin.

I am not a lawyer, but I bet the IRS would say that you should report any funds greater than $10,000 held by non-US bitcoin exchanges or wallet services.

I don't know what the IRS would say about Bitcoins held on a server that you control but that happens to be located outside the US, or if it would matter if they were also held on your computer or printed out and stored in a safe deposit box somewhere in Kentucky.

[deepceleron]

If only there was a FAQ:

Q. Who must file an FBAR?

A. Any United States person who has a financial interest in or signature authority or other authority over any financial account in a foreign country, if the aggregate value of these accounts exceeds $10,000 at any time during the calendar year.

R: Don't let your holdings in exchange account in a foreign country get over $10,000, and it won't apply.


Q. What is a foreign country?

A. A “foreign country” includes all geographical areas outside the United States

R: My bitcoins are in the US, prove they are not, there they are on my computer, actually, they are on everybody's computer. Or.. maybe they aren't money at all, my tax form doesn't have a place for BTC amounts. Or.. wait, what's bitcoins? Huh? I don't have any of those.

If you have more than $10,000 ready to invest in play money, than you should probably accountant up and pay your taxes. The IRS is a devious bunch, they have tried to tax a baseball someone caught, while it is still in baseball form.. and even is looking to tax someone on a caught ball they gave back.

[Stephen Gornick]

Added to wiki article:
  - http://en.bitcoin.it/wiki/Tax_compliance#Are_there_any_other_reporting_requirements.3F

[mc_lovin]

But the value of $10,000+... these are not dollar values in our wallets, but bitcoin values.  I thought it was entirely exempt.  So if someone had a trillion warcraft gold, would they have to report it?  If not, then you don't have to report your bitcoin balance.

[Stephen Gornick]

But the value of $10,000+... these are not dollar values in our wallets, but bitcoin values.  I thought it was entirely exempt.  So if someone had a trillion warcraft gold, would they have to report it?  If not, then you don't have to report your bitcoin balance.

[...] if the aggregate value of these accounts exceeds $10,000 at any time during the calendar year.

The fact that the value is in bitcoins, warcraft gold, or Swiss francs (CHF)s doesn't matter.  For U.S. persons, as long as the value exceeds $10K USD and is held in a foreign account the funds must be reported.  If the warcraft gold is stored in your account with a U.S. gaming site, then no -- it would not need to be reported.  Now if your foreign holdings were more than $10K and some of those holdings include linden dollars loaded at Austrian-based VirWox, for example, then that too would need to show on the FBAR.

Disclaimer: I'm not an tax advisor, accountant, lawyer, etc.

[mc_lovin]

But the value of $10,000+... these are not dollar values in our wallets, but bitcoin values.  I thought it was entirely exempt.  So if someone had a trillion warcraft gold, would they have to report it?  If not, then you don't have to report your bitcoin balance.

aggregate value of these accounts

The fact that the value is in bitcoins, warcraft gold, or Swiss francs (CHF)s doesn't matter.  For U.S. persons, as long as the value exceeds $10K USD and is held in a foreign account the funds must be reported.  If the warcraft gold is stored in your account with a U.S. gaming site, then no -- it would not need to be reported.  Now if your foreign holdings were more than $10K and some of those holdings include linden dollars loaded at Austrian-based VirWox that too would need to show on the FBAR.

Disclaimer: I'm not an tax advisor, accountant, lawyer, etc.

Damn, eh?  I hate the IRS and at least we can hide our bitcoin wallets from them.

edit: wouldn't it suck if you claimed $100,000 worth of bitcoins on your tax form when the price was $31 per and then the price plummeted?

[sunnankar]

If only there was a FAQ:

Q. Who must file an FBAR?

A. Any United States person who has a financial interest in or signature authority or other authority over any financial account in a foreign country, if the aggregate value of these accounts exceeds $10,000 at any time during the calendar year.

deepceleron, I think you bolded the non-critical part of the FAQ as applied to bitcoins. The critical issue is whether a wallet constitutes a financial account and if a wallet constitutes a financial account then what constitutes signature authority?

As I understand it a wallet would not constitute a financial account because there is not financial institution, like a bank, brokerage house, etc., that maintains the financial account. Even if a wallet were to constitute a financial account despite there not being a financial institution then whether a particular individual has signature authority over the wallet would be at issue because wallets are not titled property like bank or brokerage accounts and authority to control the wallet does not legally vest in anyone like a financial account does but instead is controlled by whoever has the cryptographic key.

A separate issue is whether an account at a foreign bitcoin exchange, like Mt. Gox in Japan, would need to be reported. As I understand, yes that would need to be reported because Mt. Gox is or is acting like a financial institution, accounts are in a particular person's name and that person has signature authority over the financial account.

On a side note, those interested in this topic may be interested in this 34 page guide by a CA attorney on Bitcoin And Taxes.

[Stephen Gornick]

A separate issue is whether an account at a foreign bitcoin exchange, like Mt. Gox in Japan, would need to be reported. As I understand, yes that would need to be reported because Mt. Gox is or is acting like a financial institution, accounts are in a particular person's name and that person has signature authority over the financial account.

So would the $10K threshold be considered using the USDs alone, or would the USD + BTC (at exchange rate) need to combined into a total and then seeing if at any time it exceeded the threshold?

[deepceleron]

Bitcoins, I don't think should be considered taxable money. Merely possessing them represents potential assets that can be sold for government currency. They can be created out of the air by mining, so they don't represent a direct investment of money to acquire, and the whole system could be catastrophically broken tomorrow, so they could be made and destroyed without having ever earned the possessor government fiat currency income.

Think of it as something like picking up pretty rocks like quartz and agates and sending them to an online mineral shop for consignment. Someone might buy them off the mineral site because they are pretty, someone might be willing to trade you goods for the rocks, or the rock shop might close down and throw them out with the rest of the rocks in the parking lot. You might have some USD in the rock shop's account to buy other rocks, does that make the mineral shop a bank? Income should be taxed, not potential income, you shouldn't have to report your Bitcoins as money until the government declares them legal tender, and is willing to do more than laugh at you when Bitcoins are stolen (whereas inconveniencing PayPal gets people jail).

The above example is analogous to an exchange. However, when Bitcoins are in your own wallet, they are simultaneously in all countries and in no country - the blockchain that contains balances is distributed everywhere. If any legal distinction were needed, perhaps the location of the primary private key holder would be relevant; 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.

[Stephen Gornick]

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.

- http://www.irs.gov/businesses/small/article/0,,id=210249,00.html#FA3

Sounds 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.

- http://www.thewolfgroup.com/TaxServices/nl006001.html

So 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):
 - http://www.lextechnologiae.com/2011/06/26/why-bitcoin-isnt-a-security-under-federal-securities-law

And J. Thomas Johnson (@BitcoinTitan) believes they would be considered a commodity
 - http://blog.bitcointitan.com/post/17789738826

Here'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."

- http://www.freemantaxlaw.com/Articles/Interests-in-Gold-and-FBAR-Reporting-Requirements.shtml

So 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.

- http://intltax.typepad.com/intltax_blog/2010/05/foreign-ez-pass-a-foreign-financial-account.html

That 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.

- http://www.irs.gov/businesses/small/article/0,,id=210249,00.html#FA1

Now, 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.

[ArticMine]

...

Now, 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.

I am not a lawyer.

But collectively all the nodes and miners are operating as a financial institution even though individually they may not be, that is the very essence of Bitcoin! The test that comes to mind is this. Consider a fundamental protocol change to the Bitcoin network. For example BIP 16 and BIP 17.  Now let us say that all the nodes and miners outside of the US went with BIP 16, and all the nodes and miners inside the US went with BIP 17.

If BIP 16 wins under this scenario then FBAR applies to a local wallet
If BIP 17 wins under this scenario then FBAR does not apply a local wallet.

[Stephen Gornick]

There are about two weeks remaining to file the 2011 FBAR (due June 30, 2012 ... or maybe a couple days later since June 30 is a Saturday).

This topic was also raised a year ago:
 - http://bitcointalk.org/index.php?topic=23537.0


So, scenario 1:

Trader had 400 BTC at Mt. Gox in June 2011 (when it was at one point worth $32 per BTC).

Does that trader need to file a 2011 FBAR (by June 30, 2012)?


Scenario 2:

Trader had $11,000 USD at Mt. Gox on June 2011.

Does that trader need to file a 2011 FBAR (by June 30, 2012)?

[proudhon]

Watching.  It's easy to imagine all kinds of interesting scenarios, BTW.  Imagine you only have ever had $100 or $100 worth of bitcoins on MtGox at any given time.  You always withdraw in bitcoin and you withdraw to a brain wallet created on an offline computer which has since been destroyed.  The brain wallet now stores over $10,000 worth of bitcoins, and you travel to Mexico.

[Philj]

or what if I have 2000BTC invested in my BS&T account and Pirate sails into international waters?

[Stephen Gornick]

scenario 1:

Trader had 400 BTC at Mt. Gox in June 2011 (when it was at one point worth $32 per BTC).

Does that trader need to file a 2011 FBAR

Sorry for the Necro thread but the IRS just made it clear that the value of Bitcoins doesn't count towards the FBAR threshold.

Rod Lundquist,  BSA Senior Program Analyst at the IRS announced the policy guidance when asked about bitcoin during a webinar:
“At this time, FinCEN has said Bitcoin is not reportable on the FBAR, at least for this filing season.”
 - http://coindesk.com/irs-no-bitcoin-reporting-fincen-foreign-banking-tax-form

Now that still doesn't make clear if a Bitcoin exchange where you can have a cash balance (for buying bitcoins or for the proceeds after selling) is considered a financial institution.

[NewLiberty]

scenario 1:

Trader had 400 BTC at Mt. Gox in June 2011 (when it was at one point worth $32 per BTC).

Does that trader need to file a 2011 FBAR

Sorry for the Necro thread but the IRS just made it clear that the value of Bitcoins doesn't count towards the FBAR threshold.

Rod Lundquist,  BSA Senior Program Analyst at the IRS announced the policy guidance when asked about bitcoin during a webinar:
“At this time, FinCEN has said Bitcoin is not reportable on the FBAR, at least for this filing season.”
 - http://coindesk.com/irs-no-bitcoin-reporting-fincen-foreign-banking-tax-form

Now that still doesn't make clear if a Bitcoin exchange where you can have a cash balance (for buying bitcoins or for the proceeds after selling) is considered a financial institution.

Thank you for your bold necromancy.  I merely contemplated doing it. 

There is also some clarity needed on FATCA, which seems to be what is causing many of the non-US exchanges to be avoiding US customers.