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Are you a UNITED STATES resident with Binance or KuCoin accounts? Your funds may get FROZEN if you fail this important reporting obligation

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An essential overview of reporting obligations under FBAR and FATCA

Many individuals who entered crypto space assume anonymity.  Those who were early miners may have gotten some of that anonymity but those who have started buying, trading and transferring their first Bitcoin and other cryptocurrencies were shaken up when IRS won the court grant to subpoena Coinbase to gather taxpayer information from 2013 thru 2015.

We expect this trend to continue into the 2018 tax year (implemented in 2019) where IRS may go back and request information related to 2016 thru 2018.

If the only place you ever bought your cryptocurrency is Coinbase or Gemini or Bittrex or other US-based exchanges and you hold all of your cryptocurrencies in these US-based exchanges or your private digital wallets (like Myetherwallet) – then you are NOT subjected to FinCEN but may be subject to FATCA rules. Read on to learn more.

However, if you are among the 1000s of individuals who held accounts with Binance, KuCoin, Huobi or other non-US exchanges any time during 2018 calendar year then you are required to disclose your account value to the United States treasury under FBAR guidance on a FinCEN Form 114, if you meet the filing thresholds.


Failure to do so can result in serious monetary penalties and/or criminal proceedings, or both.  Below is the direct screenshot from the instructions:

U.S.C Section 5322 (a) and (b) both cover penalties ranging from $250,000 to $500,000 or 5 to 10 years of prison time or both.

That is the extent of seriousness involved in failing to disclose the foreign financial accounts.

Even if you are not required to file FinCEN Form 114, you may have Form 8938 reporting requirements under FATCA regulations. More details can be found in the FREE guide here.

What is FBAR and FinCEN, and who is required to file?

FBAR stands for Foreign Bank Account Reporting. This is an informational disclosure made to the United States Treasury on an annual basis on FinCEN Form 1141.

FinCEN stands for Financial Crimes Enforcement Network.

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Who needs to file FinCEN Form 114?

Instructions say that “A United States person that has a financial interest or signatory authority over foreign financial accounts must file an FBAR if the aggregate value of foreign financial accounts exceeds $10,000 at any time during the calendar year” needs to file FinCEN Form 114.

United States person includes US citizens, green card holders, and US tax residents.

Foreign Financial account(s) includes a financial account located outside the US.
Please note that while the digital wallets (like Myetherwallet) are not covered under the
definition of Foreign Financial account – crypto exchanges located outside the US still falls
into the definition of Foreign Financial account and is subjected to FinCEN Form 114
rules.

Aggregate value: In determining whether you have FinCEN Form 114 filing
requirement or not, you have to consider the aggregate value of ALL non-US accounts
together. Even if you have minimal amounts in most accounts, once you cross the
$10,000, you will have to report ALL of your non-US accounts on the FinCEN Form
114.

Example: Let’s say, you have accounts with Binance, KuCoin, Huobi as below.

Binance: Highest balance during the calendar year 2018 – $4500
KuCoin: Highest balance during the calendar year 2018 – $1500
Huobi: Highest balance during the calendar year 2018 – $500
OkEX: Highest balance during the calendar year 2018 – $5000
Cryptopia.co.nz: Highest balance during the calendar year 2018 – $50

Remember, what you are looking for is NOT balance as of December 31st, rather, highest balance during the year, even for a day counts.

Since the total of all of the above accounts exceeds $10,000 you will need to report ALL
of your foreign financial accounts. Even the Cryptopia account with $50 needs to be disclosed.


How to file?

FinCEN Form 114 needs to be filed online and cannot paper filed.

You have to go to the BSA page and select the appropriate account type (individual or institution) and enter the information requested.

Line by line filing instructions are included in the FREE guide.

Due date: FinCEN Form 114 is due by April 15 of filing year (for 2018 calendar year –US tax returns are due on April 15, 2019), however, if you timely extend your IRS tax returns to October 15, 2019 – your FinCEN Form 114 forms are due by October 15, 2019.

IMPORTANT: Your FinCEN Form 114 is due by a maximum extended due date of October 15.  Even if your federal tax returns are extended beyond October 15 – such extension beyond October 15 does not apply to FinCEN Form 114

What is FATCA and why should I care?

FATCA, Foreign Account Tax Compliance Act, was enacted to avoid tax evasion by investing in offshore financial accounts/assets.  FATCA regulations cover the following forms2:

  • Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts
  • Form 3520-A, Annual Information Return of Foreign Trust With a U.S. Owner
  • Form 5471, Information Return of U.S. Persons With Respect To Certain Foreign Corporations
  • Form 8621, Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund
  • Form 8865, Return of U.S. Persons With Respect to Certain Foreign Partnerships
  • Form 8938, Statement of Specified Foreign Financial Assets

We will confine our discussion to Form 8938, Statement of Specified Foreign Financial Assets, in this document.

Form 8938

Who needs to file Form 8938?

You can get the details here, however, keeping it simple, a United States person who has any financial account maintained by a foreign financial institution (or holds stocks or securities in the foreign entity) and the aggregate value of such accounts is above the filing thresholds.

Who is a United States person for Form 8938?

Definition of United States person is same for Form 8938 as it was for FinCEN Form 114.  A US citizen, green card holder or US tax resident, all fall within the definition of United States person.

What are the filing thresholds for Form 8938?

Thresholds change based on your marital status and where you live. Below table summarizes the Form 8938 filing thresholds.

Marital StatusLiving In31-Dec
(Value as of)
Any time of the year
(Value as of)
UnmarriedUnited States$50,000 $75,000
Married, filing jointlyUnited States$100,000 $150,000
Married, filing separatelyUnited States$50,000 $75,000
UnmarriedOutside United States$200,000 $300,000
Married, filing jointlyOutside United States$400,000 $600,000

Difference between FBAR and FATCA

FinCEN Form 114 is part of FBAR filing with the United States Treasury and Form 8938 needs to be filed with the IRS tax forms.  Both of these filings are based on threshold, as we discussed earlier.  These thresholds are summarized below.

Everyone who has Form 8938 reporting requirement has FBAR reporting.  However, everyone who has FBAR reporting may not have Form 8938 reporting.

One page summary of filing thresholds and due dates for FinCEN Form 114 and Form 8938

FinCEN Form 114Form 8938
Filed with
United States Treasury
Internal Revenue Service (IRS)
Address to file
Online, no paper filing allowed
Include as part of your 1040 tax return
Value to disclose
$10,000 or more in aggregate value
Thresholds depend on your filing status and whether or not you live in United States, see below
When to file?
April 15 of following year (for instance, for 2018 calendar year - by April 15 of 2019
April 15 of following year (for instance, for 2018 calendar year - by April 15 of 2019
Is extension of date available?
Yes. If you filed a timely extension for your Form 1040, that same extension applies to FinCEN Form 114. If your tax returns are extended beyond October 15, you CANNOT extend beyond October 15
Yes. If you filed a timely extension by April 15, you can extend up to October 15
Exchange rate source
Link
Link
Joint disclosure?
Yes, specify Spouse details on lines 25 onwards in the joint section
Joint disclosure is available on a married filing jointly filed tax return

Download the FREE guide here to get:

binance irs

Line-by-line filing instructions for FinCEN Form 114 and FAQ covering below questions.

  • What exchange rates do I use to arrive at US Dollar values?
  • I own accounts jointly with my spouse, can I disclose them on the same form?
  • Exchanges do not assign account number, what do I write in place of Account number?
  • None of my accounts had more than $10,000 during 2018 calendar year, do I still file FinCEN Form 114?
  • Do I include account values in CoinBase and Gemini when determining the thresholds?
  • What if I work for an exchange but do not own crypto myself?
  • I maintain the account on behalf of a company, what are my obligations?
  • Are disclosure requirements different if I hold security tokens?
  • Are tokens held in my personal wallets, like MyEtherWallet or Trezor, need to be disclosed on FinCEN Form 114?
  • Are tokens held in my personal wallets, like MyEtherWallet or Trezor need to be disclosed on Form 8938?
  • Are all tokens considered securities for the purpose of Form 8938 filing for 2018 calendar year?
  • What is the big deal if I fail to disclose the FinCEN Form 114?

Thank you for reading this article.

All product and company names are trademarks™ or registered® trademarks of their respective holders. Use of them does not imply any affiliation with or endorsement by them.

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IMPORTANT DISCLAIMER

Everything in this article is an opinion, not an advice of any kind. This material has been prepared for general informational purposes only and it is not intended to be relied upon as accounting, tax, investment, legal or other professional advice. Please consult with a professional for specific advice.

We do not endorse or guarantee the accuracy of the information and claims made.

About the author

RK Reddy holds two Masters degrees, one in Accounting and another in Business Administration with over 15 years of experience in the financial services industry.

Read more about the author here.


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