The Government Accountability Office (GAO), a U.S. Congress watchdog, published a report evaluating the IRS’s approach to regulating virtual currency (crypto) and the guidance it has offered the public.
The GAO’s Recommendation
However, a portion of the report was directed at the IRS and the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Treasury Department..
To date, the IRS and FinCEN have not clarified whether or not the requirements for reporting financial assets held in foreign countries apply to virtual currencies.
The GAO recommended that FinCEN and the IRS clarify if foreign asset reporting laws apply to virtual currency and how they apply.
IRS and FinCEN respond
The IRS disagreed with the GAO’s recommendation, stating that it’s premature to address virtual currency foreign reporting.
However, FinCEN agreed with the GAO’s recommendation. According to FinCEN director Kenneth Blanco, “FinCEN will coordinate with the IRS to determine the best approach to provide clarity to the public regarding the application of the Report of Foreign Bank and Financial Accounts to virtual currency. Currently, the FBAR regulations do not define virtual currency held in an offshore account as a type of reportable account.”
The GAO also recommended that FinCEN share more information about applying foreign account reporting requirements under the BSA. FinCEN agreed to this recommendation as well.
Experts believe that clarifying these requirements would improve compliance and make it less likely that taxpayers will file reports that are not legally required.
Treasury Secretary Echoes the GAO
Treasury Secretary Steven Mnuchin’s recent statements on crypto echo the GAO recommendations. Mnuchin told the Senate Finance Committee that FinCEN is preparing “significant new requirements” around cryptocurrencies and we’ll “be seeing a lot of work coming out very quickly.”
“We want to make sure that technology moves forward but, on the other hand, we want to make sure that cryptocurrencies aren’t used for the equivalent of old Swiss secret number bank accounts,” Mnuchin said.
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