Unfortunately, as with many cryptocurrency tax issues, the answer isn’t fully clear.
FBAR reports are required of all “United States persons” who have an account with a foreign financial institution. This makes a few things clear.
First, any cryptocurrency held in a paper wallet, hardware wallet, or other similar method by which you personally hold your private key would not be disclosable on an FBAR, as no foreign financial institution would be involved.
Second, any cryptocurrency held on a US-based exchange would not be disclosable on an FBAR. While GDAX and Gemini, for example, probably are “financial institutions” for FBAR purposes, because they’re based in the United States FBAR disclsoure wouldn’t apply.
The situation becomes murky for clients using non-US exchanges, such as Binance. Since cryptocurrency held in an exchange is held under the exchange’s keys, not your own, the exchange effectively has custody of its customers’ funds. While there are no FBAR regulations addressing cryptocurrency exchanges, their custodial function makes them seem a lot like “financial institutions”. This would make any cryptocurrency held in a non-US exchange disclosable on an FBAR.
You have nothing to lose by disclosing foreign cryptocurrency exchange accounts on an FBAR (and the related Form 8938), so it makes sense to take the safe route by disclosing. At any time, the Treasury Department could retroactively issue guidance clarifying that non-US exchanges are foreign financial institutions. The penalties for failure to disclose an account at a foreign financial institution on a timely FBAR form are some of the most severe in existence.
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Disclaimer: Information provided is for educational purposes only. Nothing herein constitutes legal advice or investment advice.