Kirk Phillips, CPA, member of the AICPA Virtual Currency Task Force, has published his article, Virtual currency not FBAR reportable (at least for now) in the AICPA Tax Advisor. His article begins as follows:
Tax practitioners and taxpayers alike have long grappled with whether virtual currency, aka cryptocurrency, is reportable for purposes of FinCEN Form 114, Report of Foreign Bank and Financial Accounts(FBAR). Normally the value of fiat currency, i.e., U.S. dollars and other assets held by a foreign financial institution (FFI) on behalf of a taxpayer, is reportable on FinCEN Form 114 when the aggregate value of all offshore accounts exceeds $10,000 at any point during the tax year.
Virtual currencies have several simultaneous properties that make them challenging for practitioners and regulatory bodies to classify. Sometimes cryptocurrency is an alternative medium of exchange, a store of value, a utility, a 1:1 peg to fiat currency (stable coins), or a tokenization of assets (securities or real estate), or it can have several of these properties at the same time. This is the classic regulatory lag all technology goes through as we move from gray areas into a realm of clarification.
While practitioners have also pondered if wallets (free downloadable software) could be a reportable account, the exercise was more professional due diligence because it is an example of true self-custody. The issue arises when a taxpayer uses a foreign third-party exchange to buy and sell virtual currency, for example bitfinex or bitstamp. The exchange in this case is akin to an FFI, but the question remains if a customer account is considered a reportable account for FBAR purposes.
Posted by Lewis J. Saret, Co-General Editor, Wealth Strategies Journal..