Buying Crypto on Foreign Exchanges? Better Tell the IRS

Foreign Exchanges
The IRS may be cracking down on crypto bought on foreign exchanges as part of a technicality involving overseas holdings. Americans who hold more than $10,000 abroad are required to file Foreign Bank and Financial Accounts (FBAR) reports each year with the U.S. Treasury Department. They are also required by the Foreign Account Tax Compliance Act (FATCA) to describe their overseas accounts on Form 8938 of their IRS tax forms. The penalty for non-compliance? A potential $100,000-plus fine, plus prison time. The IRS has previously defined some tax-related parameters with cryptocurrency – for example, they have made clear that digital currency is defined as property no matter where it was purchased, with holders thus being required to pay capital gains taxes on it. But much to the chagrin of tax professionals, the government has been less clear about whether investors need to file these additional reports about their foreign crypto accounts. Kevin Sweeney, a former federal tax prosecutor currently practicing at Chamberlain Hrdlicka in Philadelphia, calls the government’s lack of direction a “black hole”: “It would seem awfully unfair if they would expect taxpayers to know [to file the two forms] – and to then issue penalties for taxpayers who didn't do that – when practitioners can't even 100 percent figure out if there's an FBAR requirement," he said. The American Institute of Certified Public Accountants has attempted to clarify the issue with the IRS but has not received a definitive answer at this time. Unfair or not, most specialists still recommend cryptocurrency investors err on the side of caution and file the appropriate paperwork. Selva Ozelli, a lawyer, CPA, and cryptocurrency specialist, cited recent cases involving foreign online gambling accounts as an example. “A lot of the transactions still take place on foreign cryptocurrency exchanges," she said. “If you're using foreign exchanges, it's going to qualify as a foreign reportable account for FBAR.” With the 8938 being the only tax form that carries a potential felony for failing to file, it is best to complete the forms now – and hope the government clarifies the requirements later. Featured Image: DepositPhotos/ Mehaniq

If You Liked This Article Click To Share

Sponsored Crypto Content