Increased IRS Visibility into Foreign Crypto Assets
Foreign cryptocurrency assets may soon be subject to enhanced scrutiny by the Internal Revenue Service (IRS). The Organization for Economic Cooperation and Development (OECD) is advancing its Crypto-Asset Reporting Framework (CARF), which aims to provide the IRS with better access to information concerning foreign crypto accounts. Currently, the IRS has limited visibility into these accounts, but CARF is designed to address these gaps.
U.S. Commitment to CARF Implementation
The United States, alongside more than 70 other nations, has committed to the OECD’s CARF initiative. This framework parallels the Common Reporting Standard (CRS), which facilitates the exchange of banking and securities account information among member countries. The U.S. has clearly expressed its intention to incorporate CARF into its domestic legislation by the year 2029.
Advancements in CARF Implementation
In a significant step toward actualizing CARF, the Treasury Department has proposed regulations to align U.S. law with this framework. The proposal was submitted to the White House Office of Information and Regulatory Affairs on November 14, 2025, and is currently under review. Once approved, the regulations will be published in the Federal Register, allowing for public commentary. If finalized, foreign centralized exchanges, brokers, and custodial wallet providers will be obligated to relay information about U.S. account holders to the IRS. Reporting Crypto-Asset Service Providers (RCASPs) would need to disclose details such as the taxpayer’s name, address, Taxpayer Identification Number (TIN), year-end asset value, gross sales proceeds, and significant transfers. Under CARF, a digital asset is reportable if it represents value used for payment or investment, excluding central bank digital currencies or regulated e-money products. This would encompass most cryptocurrencies, stablecoins, non-fungible tokens (NFTs), and tokenized assets, unless they fall under existing CRS definitions. However, since the proposed regulations are still confidential, it remains unclear how closely they will adhere to CARF guidelines or if U.S.-specific adaptations will be included.
Addressing Current Reporting Deficiencies
Currently, the IRS has minimal automatic access to information regarding foreign crypto accounts, but CARF aims to rectify this. Presently, U.S. tax and reporting regulations include the FBAR (FinCEN Form 114), which defines “financial accounts” as traditional bank or securities accounts. As it stands, the Treasury and Financial Crimes Enforcement Network have not expanded this definition to encompass pure cryptocurrency holdings or non-custodial wallets. Consequently, direct crypto holdings or those on foreign non-custodial platforms may not be reportable on the FBAR. However, if a foreign account holds both cryptocurrency and other assets, the total must be reported if the taxpayer’s combined foreign financial accounts exceed the annual $10,000 threshold. Tax professionals often recommend a conservative approach, suggesting that individuals report foreign crypto accounts even if they solely contain virtual currency. Notably, FinCEN has indicated plans to amend FBAR reporting requirements to include foreign accounts holding virtual currencies, suggesting that mandatory reporting is on the horizon.
Understanding Form 8938 Reporting
Form 8938, often referred to as the FATCA reporting form, requires U.S. taxpayers to report specified foreign financial assets (SFFAs) if their total value meets a certain threshold during the tax year. SFFAs encompass various assets, including those held in foreign financial institutions, as well as certain foreign financial assets not maintained in accounts, such as stocks and securities. Currently, the IRS has not provided clear guidance on whether cryptocurrencies should be classified as SFFAs. According to its definition, cryptocurrency must be reported if held through a foreign financial institution or custodial arrangement, provided its aggregate value surpasses the applicable thresholds.
Considerations for DeFi Transactions
Decentralized finance (DeFi) refers to a blockchain-based financial ecosystem that allows users to engage in financial services without relying on traditional banks or centralized intermediaries. DeFi operates through automated smart contracts, which facilitate peer-to-peer transactions without central oversight. There has been speculation about whether the U.S. Treasury might exclude DeFi transactions from reporting requirements, potentially aligning with domestic regulations for non-custodial protocols. However, without the release of official draft regulations, any claims of a DeFi exemption remain unverified. The absence of publicly available regulations leaves the U.S. stance on crypto tax reporting, including its alignment with CARF, open to interpretation and ongoing discussion.
Real-World Implications: The Case of Roger Ver
The case of Roger Ver, known as “Bitcoin Jesus,” serves as a cautionary tale regarding the consequences of failing to report offshore cryptocurrency holdings. In April 2024, Ver was indicted for allegedly evading taxes on approximately $240 million worth of Bitcoin held through foreign entities. The charges included mail fraud, tax evasion, and submitting false returns. Prosecutors accused him of intentionally relocating coins offshore and neglecting to file or pay exit taxes upon renouncing his U.S. citizenship. In October 2025, Ver entered a deferred prosecution agreement with the Department of Justice and the IRS, admitting to his misconduct and paying around $50 million in back taxes, penalties, and interest. His experience underscores how unreported offshore cryptocurrency can escalate from a simple oversight to serious criminal liability. Civil penalties for undisclosed foreign custodial accounts can reach 50% of the highest account balance annually, while failing to file Form 8938 may incur a $10,000 penalty plus a 40% accuracy-related penalty on any resulting underpayments. With the anticipated flow of CARF data, discrepancies are likely to be detected automatically, leading to significant consequences.
Conclusion: Preparing for Changes in Reporting Obligations
Centralized foreign cryptocurrency platforms may soon be required to report U.S. account holders to the IRS in a manner similar to the automatic reporting established under FATCA for foreign banks. The specifics concerning DeFi and self-custodied assets depend on forthcoming information from the Treasury Department. U.S. taxpayers with offshore crypto holdings should meticulously review their tax returns to ensure accurate reporting of crypto transactions, as well as compliance with FBAR and Form 8938. Seeking advice from experienced tax professionals is advisable, and taxpayers may want to explore their options promptly. Some individuals may find it prudent to transition to domestic platforms to mitigate uncertainties surrounding U.S. reporting requirements.
