Reporting Requirements of U.S. Persons’ Buying, Selling and Holding Digital Assets on Foreign Exchanges

In 2026, FinCEN and the IRS began strengthening and vigorous enforcement of foreign account rules on “United States persons” who buy, sell, and hold digital assets on foreign exchanges.  Federal law traditionally has defined the term “U.S. persons” as U.S.  citizens, resident aliens, trusts, estates, and domestic entities that have an interest in foreign financial accounts and meet the reporting threshold.” Traditionally these regulations and enforcement terms were applied to “U.S. persons” with ownership interest, signatory authority or other financial control of assets in traditional financial institutions.  

This new enforcement by the IRS and FinCEN begun around May 2026 or so expands the category of foreign assets to “digital assets”.  What this all means is that more and more American citizens and Green Card Holders; who have never had to report to FinCEN before, are now being pulled into the complex Bank Secrecy Act web of international tax law and regulatory compliance.  FinCEN is not well known by many Americans; but, some more recent immigrants to the U.S. with bank accounts and signatory authority over bank accounts in traditional foreign institutions knows FinCEN and Form 114 reporting requirements really well. Also, many high-net-worth individuals in America with foreign accounts held in traditional offshore institutions know FinCEN and FinCEN’s annual reporting requirements well.  Our tax law, business law, estate law firm has been helping high-network and recent arriving immigrant individuals comply with FBAR (Form 114) reporting requirements for years.  The rules are not new!  The expansion of vigorous enforcement on U.S. persons holding digital assets on foreign exchanges began around May 2026!   This legal article is being written to alert unsuspecting “U.S. persons” buying, selling, and holding digital assets of the IRS and FinCEN’s 2026 expansion of FBAR—Report of Foreign Bank and Financial Accounts (FBAR)- Form 114) reporting requirements to U.S. persons buying, selling, and holding foreign digital assets.

Starting during the 1^stQuarter of 2026, the IRS and FinCEN bolstered by robust Artificial Intelligence’s driven investigatory systems have began identifying Americans of all wealth categories who are buying, selling, and holding digital assets on foreign exchanges.  

The IRS and FinCEN’s position are that those U.S. persons (citizens, green card holders and certain others) activities on foreign exchanges are subject to the FBAR (FinCEN filing requirements if they meet the $10,000 or more reporting threshold.  The FBAR (FinCEN Form 114), which must be filed by April 15^th of the following year, with an automatic extension to October 15^th of the following tax year applies to “U.S. Persons”.  The trigger that mandates the FBAR reporting requirement is; if during the reporting year, the U.S. dollar amount in the account was $10,000 or more at any time during the reporting period.  Furthermore, the rules mandate that the $10,000 or more threshold can be met by amounts in one single account or by amounts in multiple accounts. For example, if during the reporting period ending 2025; one single digital account held $10,000 at any point during the year; the digital account holder would have to report and file Form 114 with FinCEN by the reporting deadline(s).  Now let us look at another example:  Assume that the digital assets account holder did not have a single account that met the $10,000 or more reporting threshold; but owned, had signatory authority or other control of (10) ten different digital assets accounts on foreign exchanges; each holding $2,000 or any multiple of that amount during the reporting year— totaling $10,000 at any point during the reporting period; that digital account holder has to file an FBAR in 2026 with FinCEN by the reporting deadlines. Every single trade, swap, transfer of a digital asset during the reporting period is a tax event.  That simply mean all property transfers must be documented because in federal tax law—a digital asset is considered property or commodity.  Also, recent developments in IRS investigations and enforcement are that starting in 2026, the IRS has begun requiring that brokers report transactions to the IRS on Form 1099-DA.  This is a mandatory report; it is not left to the broker’s option or election.  Digital Asset owners might also have to comply with FATCA and file tax Form 8938.  Form 8938, Statement of Specified Foreign Financial Assets is an income tax form that must be attached to the taxpayers’ annual tax form if certain threshold is met.   As I pointed out at the outside of this legal article; this is a complex area of international tax law that involves many federal statutes containing very severe civil and criminal penalties and consequences.   It is prudent for U.S. persons with these issues (or think they have these issues) to consult with an international tax attorney; immediately, and certainly before receipt of an IRS inquiry or FinCEN probe subpoena.  An international tax lawyer can help, advise and represent U.S. persons in these complex international tax law issues.   

Does the digital account holder know where their exchange is located?  Really, where is the digital asset exchange located where the U.S. person is active?  Probably some of those in the digital market knows; but probably many U.S. persons do not know where the digital asset exchange is located.  Some foreign exchanges are prohibited— that is, it is illegal for U.S. persons to be active on those exchanges.  That fact—ignorance could in some circumstances be the origins of a reasonable cause defense for failure to comply with FBAR reporting requirements; but, breaking the law is illegal and has consequences.  Activity by a U.S. person on an unlawful foreign exchange exposes those U.S. persons to federal prosecution.  On the other hand, the U.S. persons trading on lawful exchanges, ignorance could be the basis for a ‘reasonable cause’ defense.  As the tax law, business law and estate law attorneys at Coleman Jackson, P.C. can advise complex laws are involved here and all facts and circumstances matter!   But some digital assets buyers, sellers, and holders might be wondering, right now, while reading this legal article— how would or could the IRS and FinCEN discover their digital assets activities on far flung foreign exchanges.  Do you remember; have you heard, do you know about Artificial Intelligence Investigatory System?  AI systems are proving to be wonderful in the hands of investigators.  Enhanced investigatory tools coupled with intentional robust enforcement the IRS and FinCEN—the discovery of non-filers is like prey in the eagle’s eyesight.  The IRS and FinCEN investigators increasingly are able to see digital asset holders’ foreign exchange activities.   At least, digital assets buyers, sellers and holders had best assume that IRS and FinCEN agents can see their digital assets activities conducted on foreign exchanges.  With the aid of AI tools; that is true today and is likely to become even truer in the near future as AI systems learn and develop AI systems of their own.  These investigatory AI enabled tools are improving day-by-day.  Remember that FinCEN is a law enforcement agency with worldwide investigatory powers.  The U.S. government and law enforcement agencies are increasingly using automated smart systems to identify non-filing U.S. persons here and abroad through FATCA bank data systems; FinCEN files (perhaps even the Beneficial Ownership Information (BOI) files mandated by the Corporate Transparency Act of 2021 are available to FinCEN investigators, the IRS, State & Local law enforcement and even international law enforcement agencies).  How about other digital activity files; such as third-party data bases that can be available to the public?  To put it blunt; if you are a buyer, seller, holder of digital assets; the IRS, FinCEN and other law enforcement agencies probably already know about your digital assets’ activities.  The Eagle can see that other bird—the Ostrich.  Let us explore this problem deeper; let me explain with more details below.

The Bird’s View:  What is the Nature of the Problem

U.S. persons who buy, sell, and hold digital assets — particularly those transacted on platforms outside the United States — face a layered web of federal reporting and disclosure obligations administered primarily by the Financial Crimes Enforcement Network (FinCEN) and the Internal Revenue Service (IRS). The primary federal frameworks governing these obligations are the Bank Secrecy Act (BSA); 31 USCA § 5311, the Foreign Bank Account Report (FBAR) statute; 31 USCA § 5314, the Foreign Account Tax Compliance Act (FATCA); 26 USCA § 6038D, and amendments to the broker reporting statute enacted by the Infrastructure Investment and Jobs Act of 2021 26 USCA § 6045. Note that the Bank Secrecy Act affords no privacy protections because in 1986, the U.S. Supreme Court in Doe v. United States (487 U.S. 201) ruled that no privacy protections are afforded U.S. persons who elect to hold accounts offshore.  Further SCOTUS held in the Doe decision that forced disclosure of those accounts to the United States government does not violate the U.S. Constitution’s 5^th Amendments protections against self-incrimination.  Now digital assets are not held in traditional financial institutions.  How would SCOTUS view digital assets accounts and the 5^th Amendment’s self-incrimination protections?    Don’t hold your breath; SCOTUS if asked; would likely, see foreign digital exchanges as analogous to foreign financial institutions.  But until SCOTUS’ rule on this question, we don’t know whether there are any 5^th Amendment protections afforded to digital assets traded on foreign exchanges.  The 5^th Amendment is probably a very weak legal step for U.S. persons trading on foreign digital assets exchanges to try to make their stand.   SCOTUS, if asked to weigh in; is most likely to saw that step right off sending digital exchanges and those U.S. persons on them tumbling to reality… these are foreign exchanges.  Digital assets have a propensity for vagueness, lack-of- transparency, an increased susceptibility of secrecy and an enhanced potential ability for use in laundering.  These are the very types of things FinCEN regulates, worldwide.    Let’s get back to the eagle’s eye view.

Ordinary individual buyers, sellers, and holders of digital assets who use platforms as customers are generally treated as “users” rather than money services businesses, meaning their principal obligations are disclosure-based (FBAR, Form 8938) rather than operational compliance obligations (CTR/SAR filings). However, if the aggregate value of their accounts on foreign digital assets platforms exceeds $10,000 at any point during the calendar year, they face significant FBAR reporting obligations, and if values exceed FATCA reporting thresholds, potentially Form 8938 obligations as well. The consequences for non-disclosure can be severe: civil FBAR penalties range from $10,000 per non-willful violation to the greater of $100,000 or 50% of the account balance for willful violations of the FBAR reporting rules, with criminal exposure up to 5 years imprisonment for standard violations and up to 10 years for pattern violations.   There is no formal grace period, though the IRS Voluntary Disclosure Program (VDP), FBAR only Program and Streamlined Filing Compliance Procedures offer structured pathways to come into compliance. Right now, we are not going to go into International and State and Local rules and reporting requirements that might apply to those Americans (U.S. Persons) buying, selling and holding digital assets.  Texas has implemented some rules governing digital assets and exchanges; but the federal rules are enough for this legal article.  Come back to our Legal Articles often; attorneys at Coleman Jackson, P.C. write numerous legal articles dealing with tax law, business law and estate law.  All areas of law that our law firm practices regularly.  

The Eagle Coming Up on the Ostrich:  What is the meaning of Digital Assets and the term Broker for Federal Law Reporting and Enforcement Purposes:

Federal law provides several overlapping definitions of digital assets. Under 26 U.S.C. § 6045(g)(3)(D) and 26 USCA § 6045, as amended by the Infrastructure Investment and Jobs Act of 2021, a “digital asset” means “any digital representation of value which is recorded on a cryptographically secured distributed ledger or any similar technology as specified by the Secretary.” The implementing regulation, 26 C.F.R. § 1.6045-1(a)(19) 26 CFR § 1.6045-1, further defines the term for broker reporting purposes as “any digital representation of value that is recorded on a cryptographically secured distributed ledger (or any similar technology), without regard to whether each individual transaction involving that digital asset is actually recorded on that ledger, and that is not cash.”

CONTEXT— WHY WERE THESE STATUTES PASSED BY CONGRESS?

U.S. Persons Who Might Have a Problem?  Where Are Digital Assets Exchanges Located?  Why Does Location Matters? What problems were the various federal laws designed to fix?  Why did the U.S. Congress pass these foreign transaction transparency laws:  The U.S. Congress says that they passed these laws to combat money laundering, tax evasion, tax fraud, terrorist financing and numerous other nefarious financial transactions to protect the worldwide financial system and to protect hardworking Americans. 

Movement of Worldwide Assets are in the Eagle’s Eye Sight:  Location of the Digital Asset Exchange Is Key

Let’s determine where the digital exchange is located. Location is key!   If the exchange is not inside the United States; then, it is a foreign exchange.  That means the digital asset exchange is located outside of the United States.  The FBAR laws applies to foreign exchanges.  The problem is determining the actual location of a digital exchange.  But generally speaking; it seems that the following categories of digital assets and their foreign platforms are where digital assets are traded today:

Location of Major Cryptocurrencies and Tokens:

1. Bitcoin (BTC) – Available on Binance (Cayman Islands/Malta), By bit (Dubai/UAE), OKX (Seychelles), Ku Coin (Seychelles), Bitfinex (British Virgin Islands), Gate.io (Cayman Islands)
2. Ethereum (ETH) – Available on Binance, By bit, OKX, Ku Coin, Bitfinex, Crypto.com (Singapore), Bit stamp (Luxembourg)
3. Binance Coin (BNB) – Binance and affiliated entities (Cayman Islands/Malta)
4. Tether (USDT) – A stablecoin issued in part through Bitfinex (British Virgin Islands); tradeable on most foreign exchanges
5. USD Coin (USDC) – Available on Binance, OKX, Ku Coin and other foreign exchanges
6. Ripple (XRP) – Available on Bit stamp (Luxembourg), Binance, OKX
7. Cardano (ADA) – Available on Binance, By bit, Ku Coin, OKX
8. Solana (SOL) – Available on Binance, OKX, By bit, Ku Coin, Crypto.com
9. Dogecoin (DOGE) – Available on Binance, OKX, By bit, Ku Coin
10. Polkadot (DOT) – Available on Binance, Ku Coin, OKX, By bit
11. Chain-link (LINK) – Available on Binance, OKX, Ku Coin, By bit
12. Litecoin (LTC) – Available on Bit stamp, Bitfinex, Ku Coin, OKX
13. Monero (XMR) – Available on OKX (historically), Gate.io, MEXC (Seychelles)
14. Tron (TRX) – Available on Binance, OKX, Huobi/HTX (Singapore), Ku Coin
15. Avalanche (AVAX) – Available on Binance, OKX, Ku Coin, By bit
16. Non-Fungible Tokens (NFTs) – Available on international platforms such as Open Sea (which has international operations)
17. Various DeFi tokens – Available through decentralized exchanges and international platforms.  The following prominent foreign exchanges host accounts for U.S. persons (to the extent permitted under their terms of service and U.S. sanctions programs):
    

Exchange	Jurisdiction	Type
Binance (international)	Cayman Islands/Malta	Centralized
By-bit	Dubai, UAE	Centralized
OKX	Seychelles	Centralized
Ku-Coin	Seychelles	Centralized
Bitfinex	British Virgin Islands	Centralized
Huobi/HTX	Singapore	Centralized
Gate.io	Cayman Islands	Centralized
MEXC	Seychelles	Centralized
Crypto.com	Singapore	Centralized
Bit-stamp	Luxembourg	Centralized

*New digital assets and exchanges are coming online almost monthly.  This list is by no means comprehensive and all inclusive.  The legal urgency is to pen down where the digital asset exchanges are located.  If it is overseas; consult an international tax lawyer because you might have FBAR and/or FATCA problems.  These are serious problems that ought not be merely jotted down, nor delayed nor ignored until an IRS inquiry or FinCEN probe letter is received. The operative word in offshore voluntary disclosure is “voluntary”.

Key Take Aways

The Bank Secrecy Act applies to U.S. persons, which includes, U.S. citizens, lawful permanent residents of the United States and those nonresidents meeting the federal income tax substantial presence rules.  The term likely does not include non-residence who elect to be treated as residents of the United States for income tax reporting purposes.  U.S. persons buying, selling, holding digital assets on foreign exchanges are increasingly being contacted by the IRS related to their digital assets’ activities on foreign exchanges.  Location is key! The IRS and FinCEN says FBAR and FATCA regulations and potential penalties apply to U.S. persons’ digital asset activities on overseas exchanges.  This is a complex international tax law area where timely legal consultation should occur prior to the IRS notice; and most certainly after contact by the IRS or FinCEN.  There are potentially substantial penalties for FBAR and FATCA violations by U.S. persons.  The penalties range from negligence, willful and even possibly criminal, especially in pattern of abuse cases.  If you or someone you know buy, sell, hold digital assets, it is wise to explore your legal jeopardy.  This is a serious tax law and bank secrecy law problem.

This law article is written by attorneys at Coleman Jackson, P.C., which is located at 6060 North Central Expressway, Suite 620, Dallas, Texas 75206, for educational purposes; it does not create an attorney-client relationship between this tax law, business law, and estate law firm and its reader. You should consult with legal counsel in your geographical area with respect to any legal issues impacting you, your family, or your business.

Coleman Jackson, P.C. | Tax Law, Business Law, Estate Law | English: (214) 599-0431 | Spanish: (214) 599-0432.