Your Ledger Is Private. Your Exchange Account Is Not.
I met a developer who made $50,000 trading Solana on Bybit (a non-US exchange). He paid his capital gains tax. He thought he was clean. The IRS sent him a letter demanding $30,000. Not for taxes. For Penalties.
He missed the FBAR (Foreign Bank Account Report). He thought: "It's crypto, not a bank account." The Treasury Department (FinCEN) disagrees. In 2025, foreign crypto exchanges are treated as "Foreign Financial Accounts."
1. The "$10,000" Hair Trigger
Here is the rule: If the aggregate value of all your foreign accounts exceeds $10,000 at any time during the year, you must file FinCEN Form 114.
The Trap: It is Aggregate.
- Binance: $4,000
- KuCoin: $4,000
- Swiss Bank Account: $3,000
- Total: $11,000.
Even though no single account hit $10k, the total did. You now have to report all of them. And it’s "at any time." If Bitcoin spiked for 10 minutes and pushed your balance to $10,001 before crashing, you legally triggered the requirement.
2. The "Non-Willful" Penalty
You didn't know? Too bad. The penalty for a "Non-Willful" violation is $10,000 per account per year. If you missed filing for 3 years on 2 exchanges:
- 3 Years x 2 Accounts x $10,000 = $60,000 Penalty.
This is not a tax on profit. You could have lost money trading, and you would still owe the $60,000 penalty for failing to tell them about the account.
3. The "VPN" Fallacy
"But I use a VPN! They don't know it's me!" Yes, they do. The US has data-sharing agreements (FATCA) with almost every country. And now, with the CARF (Crypto-Asset Reporting Framework) effective in 2025, exchanges automatically report user data to tax authorities. Bybit and Binance might not serve US customers officially, but if they find out you are US-based (via KYC leaks or IP slips), they will hand your data to the IRS to save their own skin.
The Real Numbers: Reporting vs. Hiding
I compared the cost of compliance vs. the risk of the penalty.
| Scenario | Cost to File | Penalty Risk |
|---|---|---|
| File FBAR (On Time) | $0 (It is free to file) | $0 |
| File Late (Quiet Disclosure) | Lawyer Fees ($2k) | Low (Usually waived) |
| Get Caught (Audit) | $0 | $10,000 - $100,000+ (50% of account value) |
The Verdict: If you hold crypto outside Coinbase/Kraken/Gemini, assume you need to file an FBAR. It costs $0 and takes 10 minutes. The alternative is bankruptcy.
Leon Staffing connects candidates with International Tax CPAs who specialize in Crypto/Equity compensation. Don't let a form ruin your exit. Get a referral.