After 32 years of IRS work — and more than $100 million in resolved tax debt — I've seen just about every version of the problem you're dealing with. I'm Darrin Mish, a tax attorney in Tampa. Here's what you should know.
The Question That Has No Simple Answer
U.S. taxpayers holding crypto on foreign exchanges – Binance, Bybit, KuCoin, OKX, Kraken’s non-U.S. arm, Bitstamp, BitMEX, and dozens of others – face a reporting framework that has been changing rapidly. The reporting obligations now span at least four different IRS and Treasury regimes, each with its own forms, thresholds, and penalty structures.
The short answer is yes, foreign crypto activity has U.S. reporting obligations. The longer answer is that which forms apply depends on the account type, the assets held, and the activity in the account.
The Income Tax Layer
Start with the basic income tax framework: U.S. persons are taxed on worldwide income, including crypto gains. This applies regardless of which exchange the crypto was held on. A U.S. person who sold Bitcoin on Binance International for a $50,000 gain owes U.S. tax on that gain just as if the transaction had occurred on Coinbase.
Crypto-to-crypto trades are taxable events. Every time Ethereum was swapped for Solana, every time Bitcoin was swapped for USDT, every time a stablecoin was used to enter a different position – each transaction has a gain or loss that should have been reported.
For active traders on foreign exchanges, this means hundreds or thousands of taxable transactions per year that need to be calculated, reported on Form 8949, and summarized on Schedule D.
The FBAR Question for Foreign Exchanges
FBAR (FinCEN Form 114) applies to U.S. persons with financial interest in or signature authority over foreign financial accounts exceeding $10,000 in aggregate at any time during the year.
Whether a foreign crypto exchange account is a “foreign financial account” for FBAR purposes has been debated. FinCEN proposed regulations in late 2020 that would explicitly include foreign crypto accounts in FBAR reporting. As of 2025, those regulations have not been finalized.
The conservative practitioner position – and the position I take with clients – is that foreign crypto exchange accounts holding fiat balances (USD, EUR, USDT, etc.) are FBAR-reportable, while pure-crypto custody accounts may or may not be depending on how FinCEN ultimately rules.
For accounts with mixed crypto and fiat (most exchange accounts), the safer path is to file FBAR if the aggregate value exceeded $10,000. The downside of overinclusion is zero. The downside of underinclusion is potentially significant penalty exposure.
Form 8938 and FATCA
Form 8938 (Statement of Specified Foreign Financial Assets) is the FATCA reporting form. The thresholds depend on filing status and residency:
For unmarried U.S. residents: $50,000 on the last day of the year or $75,000 at any time.
For married filing jointly U.S. residents: $100,000 / $150,000.
Higher thresholds apply for taxpayers living abroad.
The Form 8938 instructions specifically address virtual currency. As currently interpreted, foreign crypto held in an account at a foreign financial institution is reportable on Form 8938 if the threshold is met. Crypto held in a self-custody wallet (where the U.S. person controls the private keys directly, with no third-party institution) is generally not reportable on Form 8938 – the IRS treats the wallet as not constituting a “financial account” with a third party.
This distinction matters. The same Bitcoin held at Binance is reportable; held in a Trezor hardware wallet, it generally is not.
Form 1040 Question and Schedule 1
Form 1040 has a digital asset question that must be answered by every taxpayer regardless of activity: “At any time during the year, did you receive, sell, exchange, or otherwise dispose of any digital asset?”
The question applies to all digital asset activity, not just U.S.-based activity. A taxpayer who held crypto on a foreign exchange and made any trades must answer yes.
The answer is part of the return, signed under penalties of perjury. False answers on this question can support willfulness arguments in any later enforcement action.
The IRS Investigation Track Record
The IRS has been aggressive on foreign crypto reporting in recent years. The agency has obtained John Doe summonses against multiple foreign and U.S. exchanges, including Kraken, Circle, sFox, and others. These summonses force the exchange to produce account information for specified categories of users.
The IRS has also pursued specific cooperation agreements with foreign exchanges. The information obtained through these channels is matched against filed returns. Taxpayers who held substantial foreign crypto positions and did not report them have been receiving inquiry letters with increasing frequency.
For 2025 and 2026 tax years, the new digital asset broker reporting regime under IRC Section 6045 takes effect. While the initial implementation focuses on U.S. brokers, the framework is moving toward international information exchange similar to FATCA.
If You Have Not Been Reporting
Taxpayers with unreported foreign crypto activity have disclosure paths similar to other offshore noncompliance.
The Streamlined Filing Compliance Procedures cover non-willful failures. Three years of amended returns, six years of FBARs (if applicable), and a non-willful certification. The miscellaneous offshore penalty (5 percent for U.S. residents) applies to the highest aggregate value of the unreported foreign assets.
The Voluntary Disclosure Practice covers willful conduct. Heavier civil penalties but criminal exposure is closed.
The Delinquent FBAR Submission Procedures cover taxpayers whose only failure was missed FBARs with no other reporting issues.
The decision among these programs depends on whether the underlying crypto income was reported, whether the failure was willful, and the dollar amounts involved.
The Wash Sale and Tax Loss Harvesting Wrinkle
One area where foreign exchanges currently have favorable treatment: the wash sale rules under IRC Section 1091. The wash sale rule disallows a loss on the sale of stock or securities if substantially identical stock or securities are purchased within 30 days before or after the sale.
The IRS has taken the position that crypto is not a “stock or security” for purposes of the wash sale rule. This means crypto losses can be harvested and the position immediately re-entered without triggering wash sale disallowance.
This is a current position that Congress has periodically considered changing. Legislation has been proposed to extend wash sale rules to crypto. As of 2025-2026, the rule has not been extended.
The opportunity here: legitimate tax loss harvesting on foreign exchange positions remains available, and the immediate re-entry is permitted. The reporting still has to be done correctly.
Three Steps for Foreign Crypto Holders
First, identify every foreign exchange you have used. Account balances, account history, transaction logs. Most foreign exchanges allow data export.
Second, reconstruct the transaction history. Every taxable event – sales, swaps, conversions, payments – generates a gain or loss that must be calculated. Crypto tax software (CoinTracker, Koinly, ZenLedger, others) can ingest exchange exports and produce Form 8949 data.
Third, evaluate the reporting framework. Income reporting (Form 1040, Form 8949, Schedule D), FBAR (if accounts exceeded $10,000), Form 8938 (if thresholds met), and any other applicable forms.
Get the Reporting Done Correctly
After 32 years of working international tax cases and several years now focused on the crypto layer, I will tell you the cleanest outcomes come from doing the reporting voluntarily and completely. Contact the Law Offices of Darrin T. Mish, P.A. at (813) 229-7100. We map the foreign exchange activity, file the right forms, and use the disclosure programs where prior years need cleanup.