Monday, December 16, 2013

FORBES: Bitcoin Is Not Anonymous, Is Always Taxable AND You May Have to File a FBAR with the IRS If You Own Bitcoins

I have always understood the tax consequences of Bitcoin and that it isn't anonymous, but that a FBAR report may have to be filed by holders of Bitcoin was something I hadn't considered. Cameron King of Forbes makes a strong case here that the IRS could very well hold that owners of bitcoins need to file an FBAR,if they hold more than $10,000 i bitcoins. He writes:
Bitcoin is surrounded by questions.  While I can’t answer most questions, I can answer the questions related to tax.  The most important answer is yes – bitcoin is entirely taxable and no it is not anonymous[...]

The beauty of bitcoin is that it’s distributed and there’s a public record of every transaction.  Thus, every transaction is always recorded.  It’s like an accountant’s wet dream – debits and credits everywhere.  Some may say that their identities are “hidden” or “obscured,” but that really doesn’t matter unless you’re actively trying to hide the fact that you earned income.  If so, then we’re talking about something entirely different.  That is tax fraud – plain and simple.  You’re attempting to defraud the government of its fair share of your gains.

Bitcoin is taxable, whenever a taxable event occurs.  A taxable event is whenever you cash out your bitcoin for any fiat currency (dollars, euros and etc.) or when you trade a bitcoin for anything (bartering).  In taxation, bitcoin is best understood as an “asset.”  Whenever you hold an asset, it can increase or decrease in value.  When you trade the bitcoin for fiat currency, then you’re trading an asset for dollars.  It works the same way as when you trade gold bullion for dollars[...]

Bitcoins are everywhere and possibly nowhere.  The problem with bitcoins is that it could be argued by the IRS that it is a value held overseas.  The burden of proof is placed upon the taxpayer (AKA you).   Unless you’re able to prove that your “bitcoins” are within the United States, then you may be required to file FBARs.  The FBAR rules requires any United States person with at least one financial account outside the United States and has over $10,000 dollars in aggregate value overseas at any time to file.  The penalties can be the greater of $100,000 dollars or 50% of the value underreported.  It’s worth mentioning that owning 10 bitcoins or more would be more than the $10,000 dollar threshold.


  1. When the Chinese government and the IRS have identical motives, you are already up the creek.

  2. Bitcoin is attracting the greedy (6), panicking the markets and central banks which are trying to regulate it (7). If its recent moves are mainly due to speculation as we analysed in the GEAB n°79, nevertheless its success is very revealing of current developments: distrust of fiat currencies (primarily the Dollar), the need for a currency which can’t be “manipulated” by central banks, decentralised, not dominated by a country or an entity, dematerialised… This is a first attempt, not perfect, with high volatility (due to low volume and fixed monetary creation), and which comes up against the reluctance of various legislators and, therefore, which risks disappearing or being marginalised in the near future. Nevertheless, the characteristics of this virtual currency should be taken into account in the thinking on the innovation of a new international currency exchange.

  3. Getting people to file an FBAR on bitcoin holdings would be about as effective as getting people to report their gold and cash holdings.

    1. I don't think Anon gave advice so much as make a prediction.

      As of yet, I don't think the IRS/Treasury Dept have required an FBAR for bitcoins. So I can't see any reason to file one, at least until they tell you to.

      Even the, and I'm certainly no lawyer, but an IRS ruling isn't the law until it is upheld by a court.

      But all that is besides the point. OF COURSE the IRS wants its 'fair share' of your money. And if bitcoin proves to be not so anonymous, then they will go after it, if there's revenue to be confiscated. However, ***IF*** bitcoin is truly anonymous, then the IRS will have to depend on the good grace of private citizens to report their holdings. That's not a position the IRS ever wants to be in, for obvious reasons.

      However, if as you expect bitcoin is worthless and headed for near zero, it's all a moot point.

      Once again I reiterate I have never owned or traded any bitcoins, but I do root for its success.

    2. So are you advising that people break the law and not file an FBAR, if the IRS rules they must?

    3. @ Robert Wenzel December 17, 2013 at 1:02 AM

      Of course not. Do everything your good master tells you to do.

    4. @AnonymousDecember 17, 2013 at 1:23 AM The question isn't, smart ass, whether you should do "everything your good master tells you to do," the question is Do you seriously believe the risk reward ratio is in your favor so that you would recommend that Bitcoin holders not report FBARs if the IRS says they are required?

      You can't answer the question straight, so you resort to smart ass commentary and distortion.

    5. Let me risk answering for Anon.

      I'm neither a lawyer, nor financial adviser nor bitcoin expert. I know nothing of IRS procedures or methods of investigation. What I AM saying is:

      1) If bitcoin really is easily traceable, easily confiscated, and there isn't much you can buy with it, then it really has no value and long term it will eventually collapse to zero. In which case, I doubt the IRS would waste resources on something that would not be a source of revenue.

      2) If bitcoin IS anonymous, very difficult to trace and hard to confiscate, and easily transported across borders and traded for things of value (I'm saying 'IF' because I don't know) then the IRS will have to depend on people voluntarily reporting income. I'm not suggesting what people should or should not do. I suspect the IRS would try very hard to make an example of someone, so all should be aware of the risk.

      Whether bitcoin pricing is pure tulip mania or whether the market is assigning value to its potential security from the state remains to be seen. As I said before, I'm hoping for the latter.

    6. Anonymous December 17, 2013 at 1:23 AM

      Sure, because what are the odds that the statute of limitations from the moment of your last bitcoin transaction or holding will expire before the NSA gets a few peepholes into the users?

      Or the odds that the NSA isn’t involved already?

      In algorithm we trust!

      The religion of the naïve.

    7. @Robert Wenzel December 17, 2013 at 1:33 AM

      The only thing I recommend people do is think for themselves. Personally, I know how to keep my coins anonymous because I've taken the time to understand the technology. What other people do with their money is none of my business.

    8. @ bionic mosquito December 17, 2013 at 9:32 AM

      "Or the odds that the NSA isn’t involved already?"

      This shows your ignorance of the technology. When you understand the math you do not have to have faith.

  4. To all those who own gold bullion and silver bullion, please be aware of your responsibilities.

    The author says, "It works the same way as when you trade gold bullion for dollars".

    If one has economic trade in gold bullion and silver bullion, one has a responsibility to report.

  5. Whether or not you file an FBAR holding declaration (a good case could be made not to) any gains you make in Bitcoins are still 100% taxable. It would be no different than barter transactions which are also 100% taxable. To not report income by purposeful omission is considered tax fraud by the Treasury dept. I know the public tends to believe that its only income if someone hands them a 1099 or W2, but that isn't the case. Even if no one reports the income to the IRS, that does not absolve the taxpayer of reporting the income themselves.

  6. "As of yet, I don't think the IRS/Treasury Dept have required an FBAR for bitcoins."

    The IRS doesn't have to issue a ruling on this. If you have a foreign financial account, or various other financial holding that in total exceed $10K, you are required to file. This is already in the code.

    Ask your tax accountant, and I bet I know how they would advise.

    Now, you might argue interpretation, and the IRS might argue a different interpretation. But if the state wants to make an example of a few in order to maintain their monopoly franchise, which interpretation do you think will win in the state's courts?

    The point is, file the FBAR or take the chance.

    1. If you have an account at Mount Gox, I can see the problem. If you have a bitcoin wallet on your hard drive it will be hard to call that a foreign account. I'm no lawyer but I just don't see that sticking.

      The IRS still demands you report all income on your tax return, but that's quite different from an FBAR.

  7. The courts will uphold an IRS ruling requiring that an FBAR be filed. Judges get paid through taxes.

  8. If someone (or a group of someones) seeks to take your property without your voluntary consent, would you take the steps necessary to protect your property? With bitcoin, a little knowledge goes a long way in providing a means of protection.

  9. Hate to point out the obvious, but "fair share"? WTF???

    What is "fair" about taking something you haven't earned from someone who has through their own labor, and spending it on something against their wishes, or even worse, giving it to someone who has not earned it?

  10. I find it rather amusing how adamantly and to what great lengths the pro-shitcoin people will go to defend shitcoins. we could get a report tomorrow (no, really, we could) saying shitcoins are at zero, have all been seized, or all have been lost/stolen, and they would still continue to defend them. There's is just too much heat and too much risk to buy/trade shitcoins. what's the current price now, $500? wow, they've dropped in the last week since people have been arguing what a saving grace they are. No thank you, I'll stick with gold or silver or even cash. now go ahead and tell me how "great" they are...I've heard it all before. yawn.