AICPA DEBUNKED: Beware Of Unclear Crypto Tax Advice For FBAR Filing

Find out where to find the lack of FinCEN guidance regarding the FBAR filing and how it confused the AICPA into misleading crypto tax advice.

crypto tax advice

After reading this article from the American Institute of CPAs (AICPA), a well-known crypto client influencer believed misleading crypto tax advice and thought that the FBAR was not necessary to file.  

The Journal of Accountancy is the flagship publication of the American Institute of CPAs (AICPA). 

The FBAR form is the short name for the Report of Foreign Bank Accounts and Financial Accounts. This form is also called FinCEN Form 114.

crypto tax advice

This article titled “Virtual currency not FBAR reportable (at least for now)” assumes very unclear and highly misleading crypto tax advice regarding FBAR filing.  

The title alone makes crypto readers believe that virtual currency is not reportable at this juncture in time.   

However, a closer read of the article near the final paragraph states, “Absent this clarity, the conservative approach would be filing the FBAR.” So the author actually does recommend filing. 

This poorly written article misleads most readers to think that they don’t have to file, when, in fact, the advice given is to file. 

Be careful to read between the lines when seeking crypto tax advice, ask questions, and don’t be afraid to seek a second opinion when it comes to your crypto taxes.

Crypto Tax Advice On Whether Virtual Currencies Need To Be Generated On The FBAR

crypto tax advice

A long debated question among the crypto community has yet to be answered, “Do virtual currencies need to be generated on the FBAR?”. 

So, what is the FBAR anyway? It is a FinCEN form that is administered by the IRS.  

The Financial Crimes Enforcement Network (FinCEN) was established in April 1990 by Treasury Order Number 105-08.

The Internal Revenue Service (IRS) is a US government agency responsible for the collection of taxes and enforcement of tax laws (such as the wash sale rule). 

Find Out More Here: How are Cryptos Reported on Anti-Money Laundering Forms?

In a document produced by the United States Government Accountability Office (GAO), FinCen had the opportunity to provide an FBAR answer in writing once and for all, but they refused to do so.

The following text has been taken directly from the document produced by the GAO: “In correspondence and interviews, FinCEN officials have stated that, based on their understanding of the regulations, virtual currency does not need to be reported on the FBAR. For example, FinCEN officials told us that FinCEN provides a standard response when members of the public ask FinCEN’s Resource Center about reporting virtual currency on the FBAR. The response states, in part, “as of right now, reporting [virtual currency exchange accounts] on the FBAR is not required.”

Likewise, in March 2019, FinCEN responded in writing to a question from the American Institute of Certified Public Accountants by stating that the FBAR regulations do not define virtual currency held in an offshore account as a type of reportable account. 

While FinCEN has provided responses to direct questions, it has not made information about whether foreign virtual currency accounts are subject to the FBAR requirement readily available, such as by posting this information on its website. FinCEN officials stated that FinCEN and the IRS had issued a statement on the IRS’s website in 2014 informing the public that virtual currencies did not need to be reported on the FBAR. 

However, the officials noted that the statement was no longer available on the website, but they did not say when it may have been removed or why. Neither the IRS’s FBAR Reference Guide nor FinCEN’s instructions for filing the FBAR mention virtual currencies. Footnote 1

The big mistake people make is that opinions expressed by authorities in the FinCEN organization are made official, but these opinions are not official until they are put in writing.

Therefore, good crypto tax advice is that you should always err on the side of caution when filing the FBAR form. 

GAO went straight to the commissioner of FinCEN and while the organization has expressed opinions, they refuse to put any of it in writing.  

FinCEN put their opinion in writing back in 2014, but they since withdrew it and the GAO has documented this lack of response in this downloaded PDF.  

Click here for the GAO Document Download.

MISLEADING (UNSUPPORTED) CRYPTO TAX ADVICE: Published By The AICPA

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Note: the following text is taken directly from the article titled, “Virtual Currency Not FBAR Reportable (At Least For Now)”.  As this article is titled and reads below, it could easily mislead a crypto owner to believe that it is unnecessary to file the FBAR.

“Tax practitioners and taxpayers alike have long grappled with whether virtual currency, aka cryptocurrency, is reportable for purposes of FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR). Normally the value of fiat currency, i.e., US dollars and other assets held by a foreign financial institution (FFI) on behalf of a taxpayer, is reportable on FinCEN Form 114 when the aggregate value of all offshore accounts exceeds $10,000 at any point during the tax year.

Virtual currencies have several simultaneous properties that make them challenging for practitioners and regulatory bodies to classify. Sometimes cryptocurrency is an alternative medium of exchange, a store of value, a utility, a 1:1 peg to fiat currency (stable coins), or a tokenization of assets (securities or real estate), or it can have several of these properties at the same time. This is the classic regulatory lag all technology goes through as we move from gray areas into a realm of clarification.

While practitioners have also pondered if wallets (free downloadable software) could be a reportable account, the exercise was more professional due diligence because it is an example of true self-custody. The issue arises when a taxpayer uses a foreign third-party exchange to buy and sell virtual currency, for example bitfinex or bitstamp. The exchange in this case is akin to an FFI, but the question remains if a customer account is considered a reportable account for FBAR purposes. 

The AICPA Virtual Currency Task Force reached out to Treasury’s Financial Crimes Enforcement Network (FinCEN) to help practitioners answer this question. FinCEN responded that regulations (31 CFR §1010.350(c)) do not define virtual currency held in an offshore account as a type of reportable account. Therefore, virtual currency is not reportable on the FBAR, at least for now. This may change in the future, especially considering the influx of stable coins, so practitioners should stay abreast on this topic. FinCEN did tell the task force that it, “in consultation with the IRS, continue[s] to evaluate the value of incorporating virtual currency held offshore into the FBAR regulatory reporting requirements.” Absent this clarity, the conservative approach would be filing the FBAR.

A taxpayer could have US dollars on a foreign third-party exchange in addition to virtual currency, therefore the US dollar amount should be considered for filing purposes. Also keep in mind that Foreign Account Tax Compliance Act (FATCA) and Form 8938, Statement of Specified Foreign Financial Assets, compliance is administered by the IRS; therefore, while the reporting is similar, this article only applies to FBAR.”

DEBUNKED CRYPTO TAX ADVICE: The Truth About The FBAR Filing

crypto tax advice

The penalty for not filing the FBAR on time is $10,000 when required. Then an additional $10,000 penalty can be assessed for every unreported foreign account. These penalties can get very high.

An accounting or tax professional should think twice before telling a client not to file the FBAR. Their professional errors and omissions liability insurance may not protect them for acting outside their area of expertise.

The American Institute of CPAs (AICPA) is the world’s largest member association representing the accounting profession, with more than 431,000 members and a history of serving the public interest since 1887.

Other than this brief article, the AICPA has never released the text of the FINCEN letter. The authors of the alleged letter are nameless. So far, this letter falls into the evidentiary category of hearsay. No further information has been provided from the AICPA as we cited above in the GOA documentation.  

The author, being a CPA and not a lawyer, completely misconstrued the comment from the FINCEN that, “regulations (31 CFR §1010.350(c)) do not define virtual currency held in an offshore account as a type of reportable account.”

Here is the regulation for you to read yourself. 

The term virtual currency is not used. It is not used anywhere in the tax code or IRS regulations. FinCEN has said nothing. 

The alleged letter was misunderstood and does not provide clear crypto tax advice. 

This may be the reason why this news article received no further comment. 

The regulation does define a category called “other financial accounts,” which include “An account with a [entity] that is in the business of accepting deposits as a financial agency”.

How could Binance not be considered in the business of accepting deposits? 

You have to deposit coins into their wallets before trading. 

How could Binance not be considered a financial agency? 

Crypto coins are all financial. They have a daily value in USD. 

The word “agency” should be understood as an entity performing as an agency which means carrying out instructions from someone else, not just government agencies, etc. 

The question on Schedule B Part III required all taxpayers to answer yes or no to the question “Did you have a financial interest in or signature authority over a financial account in a foreign country?”. 

As explained above, the correct answer is YES is you owned a foreign crypto account. If you left this question blank or answered NO in past returns, you have a perjury problem. 

The second question asks, “Are you required to file the FBAR? Please see the instructions in FBAR”.

What do the instructions in the FBAR say?

crypto tax advice

They define a financial account as “other account maintained with a financial institution (or other person performing the services of a financial institution)”. 

That sounds like Binance to me. 

Find Out More Here: How The IRS Will Use Anti-Money Laundering Forms To Come After Crypto – Part 2 of Charlie Shrem Interview Video (Transcribed)

A Second Opinion Could Save You Money And Provide Clear Crypto Tax Advice

When the lack of FinCEN guidance regarding the FBAR filing went as far as confusing the AICPA into writing a misleading crypto article, it may be time for a second opinion when it comes to your crypto tax return.

For individual tax advice, please schedule a consultation at Donnelly Tax Law.  

For DIY solutions to your crypto tax filing, visit our E-Books and Online Courses. 

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