FBAR Reporting of Foreign Financial Accounts
The FBAR regulations originated with the Bank Secrecy Act (BSA) of 1970 (see 31 C.F.R. §§1010.810(g), 1010.350, and 1010.420). Under the FBAR regulations, U.S. persons with a financial interest in, or authority over, bank accounts, securities, or "other financial accounts" located in foreign countries must file a FinCEN Form 114 (formerly Form TD-F 90-22.1) if the aggregate value of these accounts exceeds $10,000 at any time during the calendar year (31 C.F.R. §1010.350(a)).
In the context of the FBAR regulations, "other financial accounts" includes accounts with investment funds or with any business that accepts deposits as a financial agency (31 C.F.R. §1010.350(c)(3)).
Currently, there are no licensed bitcoin banks, but there are numerous bitcoin payment services and currency exchanges. Many of these businesses offer bitcoin deposit accounts similar to bank savings accounts: A customer transfers his or her bitcoins to an account with the business, and the business records the customer's balance on its books. The business retains control and custody over the bitcoins held in its customers' deposit accounts. Moreover, bitcoins held in deposit accounts are fungible, so on withdrawal customers are not guaranteed to get back the same bitcoins they deposited.
Some businesses offer online wallets, which are internet-accessible wallets that provide more convenient means of accessing one's private keys than a wallet stored on a home computer. An online wallet is also conceptually like a safety-deposit box used to store backup printouts of combinations to safes located elsewhere. When a customer transfers copies of his or her private keys to an online wallet, he or she does not transfer any bitcoins. Thus, a customer who retains copies of the private keys may continue to access his or her bitcoins without ever using the online wallet.
In "Application of FinCEN's Regulations to Persons Administering, Exchanging, or Using Virtual Currencies," issued March 2013, the U.S. Treasury Financial Crimes Enforcement Network (FinCEN) stated that any business that transfers virtual currencies, or that exchanges virtual currencies for real currencies, would be considered a money transmitter for registration and reporting purposes under the BSA.
Under that guidance, these bitcoin payment services and currency exchanges should be regarded as financial institutions for FBAR purposes. As of March 2014, the largest bitcoin exchanges were located in foreign countries: BTCChina in China, Mt. Gox in Japan (Mt. Gox filed for bankruptcy protection and suspended its website in February), BitStamp in Slovenia, and BTC-e in Bulgaria. Each of these exchanges offers bitcoin deposit accounts to hold bitcoins purchased on the exchange and bitcoins held for sale on the exchange. Thus, a U.S. individual storing bitcoins with any of these exchanges should be subject to the FBAR reporting requirements if the value of his or her bitcoin holdings exceeded $10,000 at any time during the year.
Some foreign bitcoin businesses, such as blockchain.info (located in the U.K.), offer online wallet services but do not otherwise provide financial services. As previously discussed, an online wallet merely stores copies of private keys for accessing bitcoin addresses-the user of the online wallet does not need to use the online wallet, or the copies of the private keys it contains, to access his or her bitcoins. An online wallet service never has control or custody over its users' bitcoins. Consequently, an online wallet service should not be considered a money transmitter and thus should not be a financial institution for FBAR purposes. Thus, a U.S. individual using a foreign online wallet should not be subject to FBAR reporting requirements.
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