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Crypto Companies Based in the US and Their FATCA Obligations

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Crypto Companies Based in the US and Their FATCA Obligations

As the cryptocurrency market continues to grow, the regulatory environment surrounding it is also evolving. One aspect of this is the Foreign Account Tax Compliance Act (FATCA), which requires foreign financial institutions to report certain information about their US account holders to the Internal Revenue Service (IRS). In this article, we will discuss which US-based crypto companies are subject to FATCA and what their obligations are.

What is FATCA?

FATCA is a US law enacted in 2010 that aims to prevent tax evasion by US taxpayers with assets held in offshore accounts. It requires foreign financial institutions (FFIs) to report information about their US account holders to the IRS or face a 30% withholding tax on certain payments from US sources.

Which Crypto Companies are Subject to FATCA?

Under FATCA, a crypto company based in the US may be considered an FFI if it meets certain criteria. Specifically, the company must be engaged in the business of accepting deposits, holding financial assets for others, or investing, administering, or managing financial assets on behalf of others.

Based on these criteria, the following US-based crypto companies are likely to be considered FFIs and therefore subject to FATCA:

  • Coinbase
  • Gemini
  • Kraken
  • Bitstamp
  • itBit
  • Genesis Trading
  • Circle
  • Paxos

It is important to note that this list is not exhaustive and other US-based crypto companies may also be subject to FATCA.

What are the FATCA Obligations for Crypto Companies?

As FFIs, crypto companies subject to FATCA have certain obligations. These include:

  • Registering with the IRS and obtaining a Global Intermediary Identification Number (GIIN).
  • Conducting due diligence to identify US account holders and report certain information to the IRS, including the account holder’s name, address, taxpayer identification number, and account balance or value.
  • Withholding 30% of certain payments made to account holders who do not provide the necessary information to the company.

Crypto companies subject to FATCA must comply with these obligations or face potential penalties from the IRS.

Conclusion

In summary, certain US-based crypto companies are subject to FATCA and must comply with the law’s obligations, including registering with the IRS, conducting due diligence, and withholding certain payments from non-compliant account holders. As the regulatory environment surrounding cryptocurrency continues to evolve, it is important for crypto companies to stay informed and comply with applicable laws and regulations.

FAQs

  1. What is the penalty for non-compliance with FATCA?

A: Non-compliant crypto companies may face penalties of up to $50,000 per violation.

  1. What information must a crypto company report to the IRS under FATCA?

A: Crypto companies must report certain information about their US account holders, including the account holder’s name, address, taxpayer identification number, and account balance or value.

  1. Is every US-based crypto company subject to FATCA?

A: No, only crypto companies engaged in the business of accepting deposits, holding financial assets for others, or investing, administering, or managing financial assets on behalf of others are subject to FATCA.

  1. What is a Global Intermediary Identification Number (GIIN)?

A: A GIIN is a unique identification number assigned to a financial institution that has registered under FATCA.

  1. Can US account holders avoid FATCA reporting by using a non-US-based crypto company?

A: No, US taxpayers with assets held in offshore accounts, including those held through non-US-based crypto companies, are still subject to FATCA reporting requirements.

  1. Are there any exemptions from FATCA reporting for crypto companies?

A: Yes, some crypto companies may be exempt from FATCA reporting if they are considered “depository institutions” or “custodial institutions” under the law. However, these exemptions are rare and depend on specific circumstances.

  1. How can crypto companies ensure compliance with FATCA?

A: To ensure compliance with FATCA, crypto companies should register with the IRS and obtain a GIIN, implement a due diligence program to identify US account holders, and report the necessary information to the IRS. Additionally, they should stay informed of any updates or changes to FATCA regulations.

  1. Can crypto companies face legal action for non-compliance with FATCA?

A: Yes, crypto companies that fail to comply with FATCA obligations may face legal action and potential penalties from the IRS.

  1. Does FATCA apply to individuals holding cryptocurrency?

A: No, FATCA applies only to foreign financial institutions, including certain US-based crypto companies, and not to individual cryptocurrency holders.

  1. What other regulatory requirements do US-based crypto companies face?

A: US-based crypto companies are subject to a variety of regulatory requirements, including state money transmitter laws, federal securities laws, and anti-money laundering regulations. It is important for these companies to stay informed and comply with all applicable laws and regulations to avoid legal and financial consequences.

In addition to FATCA, US-based crypto companies face a range of other regulatory requirements. One significant set of regulations is state money transmitter laws, which require companies that transmit money or digital currency to obtain licenses and comply with various reporting and compliance obligations.

Another area of regulation is federal securities laws, which may apply to certain types of crypto assets, such as those that are considered securities. These laws require companies to register with the Securities and Exchange Commission (SEC) or qualify for an exemption and comply with various disclosure and reporting requirements.

US-based crypto companies are also subject to anti-money laundering (AML) regulations, which aim to prevent the use of financial systems for illicit purposes. These regulations require companies to implement AML programs, perform customer due diligence, and report suspicious activity to regulators.

Compliance with these regulations is essential for US-based crypto companies to avoid legal and financial consequences. Non-compliance can result in significant penalties, fines, or legal action, as well as damage to the company’s reputation.

Therefore, it is crucial for US-based crypto companies to stay informed about regulatory developments and requirements and to implement robust compliance programs. This may include hiring experienced compliance professionals, investing in compliance technology, and regularly reviewing and updating compliance policies and procedures.

US-based crypto companies are subject to a range of regulatory requirements, including FATCA, state money transmitter laws, federal securities laws, and AML regulations. Compliance with these requirements is crucial to avoid legal and financial consequences and to ensure transparency and accountability in the cryptocurrency market. By staying informed and implementing robust compliance programs, crypto companies can navigate these regulatory challenges and contribute to the growth and maturation of the industry.

In conclusion, FATCA is an important law that US-based crypto companies must comply with to prevent tax evasion and ensure transparency. Crypto companies that are considered foreign financial institutions must register with the IRS, conduct due diligence, and report information about their US account holders. Compliance with FATCA is crucial to avoid penalties and legal action. As the cryptocurrency market continues to evolve, it is essential for crypto companies to stay informed and comply with all applicable regulations.