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Virtual Currency

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Level 1

I have a client that answered no to the virtual currency question on sch 1 form 1040 2019.  Recently he call to ask if he should amend his tax return to report his virtual currency acquisition.  Since there is no sale what should I answer him.

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10 Replies 10
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Level 13
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Level 15

FBAR and 8938 reporting may be required.

Did you ask him why he lied?


ex-AllStar
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Level 15

There has been no formal guidance on the reporting of crypto accounts on FBAR.  However, the FinCEN did respond to an inquiry from the AICPA Virtual Currency Task Force and stated that crypto held in an offshore account is not within the definition of reportable accounts.  Cash balances in such foreign accounts and wallets, on the other hand, may still be reportable on FBAR.

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Still an AllStar
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Level 15

Thanks for this info. 


ex-AllStar
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Level 15

NP, Susan!  There's much that you have also shared and that I have learned from you.  Good night!

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Still an AllStar
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What is the requirement to file FBAR and form 8938? I understand the foreign asset, what about owning Ethereum for example,  does the FBAR require you to file just by owning or it depends where the ethereum is held (in digital wallet, so where is the boundary)? Thank you.

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Level 15

@dbtaxsolutions wrote:

What is the requirement to file FBAR and form 8938? I understand the foreign asset, what about owning Ethereum for example,  does the FBAR require you to file just by owning or it depends where the ethereum is held (in digital wallet, so where is the boundary)? Thank you.


You can find the answer to your question from the discussions above.

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Still an AllStar
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That is exactly the point of that question is to catch those that are not reporting and risk the audit. It is a simple yes and no, if you lied, you can be subject to penalty.

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Level 11

This reminds me of the branch chief at IRS National Office, when I worked there, who never  filled out the "Occupation" line on his 1040 because he said there was no law that required it.  So, where is the law that requires an answer to this question?  Maybe it was an executive order, or maybe the wishy-washy Regulations that authorize IRS to design forms that help it administer the tax laws.  I think there's a Supreme Court case involving whether tax shelters have to turn themselves in by filing some form, but that issue is above my pay grade.

However, I don't find where "acquisition" of virtual currency has anything to do with the Schedule 1 question.  The instructions for that question cover only the situation where the VC is acquired for free, or in a transaction:

"The receipt or transfer of virtual currency for free (without providing any consideration), including from an airdrop or following a hard fork"

We could all jam the IRS phone lines by calling to ask the difference between an airdrop or a hard fork.  Or, we could just ask "How high?" when IRS says "Jump!"

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Level 15
But if I jump will I be air dropped onto a hard fork? OUCH!

ex-AllStar