In the USA, the Foreign Account Tax Compliance Act (FATCA) requires “US taxpayers with specified foreign financial assets that exceed certain thresholds [to] report those assets to the IRS.” FATCA also requires “foreign financial institutions to report directly to the IRS information about financial accounts held by US taxpayers, or held by foreign entities in which US taxpayers hold a substantial ownership interest.”
Generally, the FATCA requirement to file Form 8938 kicks in, once the total value of non-US assets under a US tax resident’s control exceeds USD 50,000.
If FATCA were applied to Bitcoin, how this might affect the nascent Bitcoin market comes down to who Bitcoin’s biggest users are perceived to be by policy makers and law enforcement officials, and how much economic activity they represent.
If Bitcoin’s user base is perceived to be predominantly weapons smugglers and drug dealers, then Bitcoin is a godsend for law enforcement agents. They just need to seize a few hard drives, identify a few account keys, and sniff the blockchain for leads. It isn’t the perfect honeypot, but it is less inconvenient that trying to subpoena bank records in n jurisdictions. Then again, maybe law enforcement agents will try to shut Bitcoin down, in spite of the fact that this only would lead to a fractured market of clone payment systems. The fat cat is, after all, out of the bag.
If Bitcoin’s user base is perceived to be predominantly anarcho-libertarian and neo-revolutionary sovereign citizens plotting the demise of the nation-state, then really, who cares? They might believe their own brochures, but they’ve been threatening darkly to rise up as one for a half-century, and they still can’t buy a vote, not least of which because most of them seem to worship money from afar. They might perceive themselves to present an existential threat to the viability of a centralized leviathan—fantasizing that they will widow their spouses and orphan their children before they surrender their home security equipment—but they are little more than a nuisance for local police, and they rarely go much further than throwing empty beer cans at their televisions. (I say this as one who sympathizes with some of their aspirations, but who has grown weary of waiting for Godot.)
If Bitcoin’s user base is perceived to be predominantly offshore money managers and accredited investors on the one hand and retail sellers and their customers on the other hand—i.e., normal business—then those for whom FATCA applies already have hot and cold running paperwork, and their software already handles FATCA; and those for whom FATCA does not apply, should be able to carry on business as usual.
Where all of this will lead, only time will tell. As Ludwig Lachmann stated throughout his career, the future is unknowable, even if it is not unimaginable. However, I remain optimistic about Bitcoin and about regulators’ responses to it and other financial innovations.