Taxpayers don’t have to report Bitcoin on the FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR), for the current filing season, an Internal Revenue Service official said.
Rod Lundquist, a senior program analyst for the Small Business/Self-Employed Division, cautioned June 4 that could change in the future as the IRS continues to monitor developments on virtual currency closely.
Lundquist’s comments came during an IRS webinar as a June 30 deadline approaches for mandatory electronic FBAR filing.
Bitcoin is a convertible virtual currency that can be digitally traded between users and purchased for, or exchanged into, U.S. dollars, Euros, and other real or virtual currencies. Although Bitcoin and other virtual currency are widely known for use in making illegal black market purchases, over the past year, an increasing amount of mainstream businesses have begun to accept Bitcoin as payment, such as online retailer overstock.com.
Back in March, IRS issued long awaited guidance on the tax treatment of virtual currency. In general, the guidance provided that virtual currency is treated as property for U.S. federal tax purposes, and the general tax principles that apply to property transactions apply to transactions using virtual currency. More particularly the guidance included the following points:
• Virtual Currency not treated as currency that can generate foreign currency gains/losses
• Taxpayers are liable for determining the fair market value of their virtual currency
• Taxpayers must report gains/losses upon exchange from virtual currency to fiat currency, for example
• Miners must report mined coins at fair market value upon receipt
• A miner’s income is subject to self-employment tax
• Virtual currency paid as wages is subject to federal income tax withholding
• Payments made using virtual currency are subject to information reporting
• Payments made using virtual currency are subject to backup withholding
• Taxpayers not in compliance with the notice are subject to penalties
U.S. citizens who have an interest in, or signature authority over, a foreign financial account are required to disclose the existence of such account on Schedule B, Part III of their individual income tax return. Additionally, U.S. citizens must file a Report of Foreign Bank and Financial Accounts (FBAR) with the U.S. Treasury disclosing any financial account in a foreign country with assets in excess of $10,000 in which they have a financial interest, or over which they have signatory or other authority.
Those who willfully fail to file their FBARs on a timely basis (i.e., on or before June 30 of the following year) can be assessed a penalty of up to the greater of $100,000 or 50% of the balance in the unreported bank account for each year they fail to file a required.
Bitcoin and virtual currency are proving to have greater lasting power than many initially predicted when they first attracted broad-scale public attention. Many speculate that FinCEN and IRS will have to formally address the issue sooner or later; for now, you do not have to reported it on your 2013 FBAR report.
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Source: Bloomberg, newsbtc
Original Post By: Ronald Marini