I have heard that FinCEN requires people in the U.S. to report foreign financial accounts with greater than $10,000 in them. This is the FBAR if I'm not mistaken.

Do I need to report to FInCEN if I had greater than $10,000 worth of bitcoin (or any other cryptocurrency) in a foreign bitcoin exchange? What if the money is in limbo (like the accounts at Mt. Gox are right now)?


Yes, I'd say you do. This is similar to reporting a brokerage account.

Also, don't forget the requirements for form 8938.

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Lets look at possible use cases:

If you ever converted your cryptocurrency to cash on a foreign exchange, then **YES** you had to report.

That means if you ever daytraded and the US dollar (or other fiat) amount was $10,000 or greater when you went out of crypto, then you need to report. Because the regulations stipulate you need to report over $10,000 at any point in the year.

If you DID NOT convert your cryptocurrency to cash, and only had them on an exchange's servers, perhaps traded for other cryptocurrency pairs, then NO this did not fall under the regulations.

Example, In 2013 I wanted to cash out of a cryptocurrency that didn't have a USD market in the United States, but I didn't want to go to cash on a foreign exchange specifically for this reason (amongst others). So I sold my Litecoin on BTC-E (Slovakia) for Bitcoin, and then I sold the Bitcoin on Coinbase (USA). (even though BTC-E had a Litecoin/USD market, and then I could day trade the swings easily to make more capital gains, but I wanted cash in my bank account AND didn't want the reporting overhead).

Read the regulations yourself. Financial instruments that are reportable: Cash (fiat), securities, futures and options.

Also, http://www.bna.com/irs-no-bitcoin-n17179891056/ whether it is just in the blockchain or on a server, IRS and FINCEN said bitcoin is not reportable on FBAR. When they update their guidance, it'll be in the news.

The director of FinCEN is very active in cryptocurrency developments and guidance. Bitcoin has been around for six years, it isn't that esoteric and the government isn't that confused on what it is (IRS and FinCEN's hands are tied by Congress in how to more realistically categorize cryptocurrency)

Although at this point in time, there are several very liquid exchanges within the United States, such as the one NYSE/ICE hosts (Coinbase).

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Firstly you have to know exactly what you are asking here.

What you have if you "own" bitcoins is a private key that allows you to make a change to the blockchain that can assign a piece of information from yourself to the next person. Nothing more nothing less.

The fact that this small piece of information is considered to have a market value, is a matter of opinion, and is analagous to owning a domain name. A domain name is an entry in a register, that has equal weight to all other entries, but the market determines if that information (eg: CocaCola.com) has any more value than say another less well know domain. Bitcoin is the same - an entry in a register, and the market decides which entry is more valuable than another.

So what exactly are you wanting to declare to FinCEN? Are you willing to declare the ownership of private key? Of course not. So what then?

An uncrackable private key can be generated at will by anyone, without even needing to "own" or transact in bitcoins, and that same private key would be equally valid on any of the 1000's of other bitcoin clones.

The point I want to make is that owning a private key in itself is not valuable. Therefore you do not need, nor would anyone advise notifying FinCEN of that fact. To put this into context, every time you connect to online banking, your computer secretly generates a new random private key to secure your communications with the bank. Theoretically that same private key could also be used to sign a bitcoin transaction. Do you need to declare every private key your computer generates? No.

Secondly, if you are using any of the latest generation of HD wallets, your private key changes with every single transaction. Are you seriously saying that you want to take it on your shoulders to inform FinCEN every time you move information (bitcoin amounts) around even in your own wallets?

The fact is FinCEN could never "discover" your ownership of bitcoins (or any of the 1000s of alt coins) other than by you informing them of this fact.

You may want to carefully consider the personal implications of starting down this road especially as all FinCEN would need to do is subpoena your bitcoin private key to steal your so-called funds, as they have done recently to other more prominent persons in the community.

EDIT to clarify the points raised in comments. You do not own the private key to the bitcoins stored on a foreign exchange, nor can you discover it. The exchange owns the private key. You therefore do not either technically have control over the coins (MtGox is a very good example here - they went out of business because they allowed their private keys to be used by some other party who was able to siphon off the coins). Your balance is only yours when you own the private keys and the ability to spend. Any other situation you can neither recover the bitcoin to sell (to pay for any taxes due). So you do not either have the legal right nor the technical right to consider those coins in your possession.

For those who do not understand the technical or legal implications of private key ownership, please do not speculate about what "owning" bitcoin actually means, or how ownership can be discovered. Holding Bitcoin is not illegal, and the US government who until recently were the single largest holder of Bitcoin demonstrate simply by this fact alone that there is nothing untoward here.

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    The main suggestion you seem to be making is not to report them because you won't get caught - as well as encouraging illegal behaviour, I think that's misleading because there are plenty of ways the government might eventually discover the ownership. – GS - Apologise to Monica Jun 4 '15 at 12:18
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    And how does this differ from having a brokerage account in which you "own" various bits (CUSIP numbers) on the brokerage's server and the "market" decides the value of those bits and whether the bits that you own on your broker's server are more valuable than the bits that I own on my brokerage's server? – Dilip Sarwate Jun 4 '15 at 12:55
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    This doesn't answer the question because you made too many assumptions. OP is asking specifically about holdings in an account on a foreign exchange, hosted. Not private keys or the blockchain. ALso, that too is a red herring to the discussion. And for @DilipSarwate instead of making legal analogies, read the actual regulations. You aren't reporting what you think. – CQM Jun 4 '15 at 14:34
  • @DilipSarwate it differs because FinCEN reporting applies to cash (fiat), securities, futures and options. And if you think there is any ambiguity, it further doesn't apply to things FinCEN specifically says it doesn't apply to, like bitcoin. This answer is still incorrect though. – CQM Jun 4 '15 at 14:58

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