The Internal Revenue Service's position on digital currency such as Bitcoin continues to evolve. As we discussed previously, the IRS issued a decision in March to categorize Bitcoin as taxable property and not official currency. While Bitcoin essentially functions as money, no nation recognizes digital currency as legal tender, though the IRS decision means that federal income taxes and payroll taxes will apply to wages paid in Bitcoin.
In an interesting turn of events, however, an analyst from the IRS disclosed that taxpayers will not have to report Bitcoin holdings, at least not this tax season.
If you have money in a foreign bank, then you are probably aware of the Report of Foreign Bank and Financial Account (FBAR), also known as Form 114. You have to file Form 114 with the Financial Crimes Enforcement Network (FinCEN) if you have more than $10,000 in a non-U.S. bank. However, this tax season, holders of Bitcoin will not have to report the property on the FBAR, though that policy may change in the future.
Back in March, the IRS said that holders of Bitcoin would have to pay a capital gains tax, as they would with stocks or bonds. In May a director at the IRS Criminal Investigation division said the agency plans to closely scrutinize digital currency to prevent abuses.
The most recent announcement comes as the June 30 deadline for electronic FBAR filing quickly approaches.
If you have questions about tax compliance, then a tax law attorney can help clarify your options and protect your interests.
Source: Bloomberg BNA, "IRS: No Bitcoin Reporting on FBARs for This Filing Season, but Future Changes Possible," Alison Bennett, June 5, 2014