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Abstract: 

The increasing public acceptance of bitcoins, other cryptocurrencies, and virtual assets has presented challenges to the IRS with regard to how they should be reported for tax and Bank Secrecy Act purposes. With the IRS expressing concern that some taxpayers are using virtual currencies to hide income or engage in other illegal activities, taxpayers who own digital assets should focus on when virtual assets, which are held in offshore accounts, should be reported to FinCEN on FBARs. The authors suggest a framework to assist with this inquiry until such time as the IRS or FinCEN issues formal guidance.

Keywords: Notice 2014-21, Bank Secrecy Act, cryptocurrency, offshore exchanges, virtual account, reportable financial account, United States v. Hom

Affiliations:  1: Seward & Kissel LLP; 2: Seward & Kissel LLP.