FBAR Violations for Crypto Accounts: What You Need to Know About $100,000 Penalties

If you hold cryptocurrency on a foreign exchange and you’re a U.S. person, you could be facing a FBAR violation - and penalties as high as $100,000 per year. This isn’t a hypothetical risk. The IRS has already started enforcing it. In 2024, the first known case of a $100,000 FBAR penalty for unreported crypto holdings was filed in federal court. You might think, "I didn’t know crypto counted." But ignorance isn’t a defense. The rules are changing fast, and the penalties are real.

What Exactly Is an FBAR?

The FBAR, or Foreign Bank Account Report (FinCEN Form 114), is not a tax form. It’s a disclosure requirement. If you’re a U.S. citizen, resident, green card holder, or certain business entities, and you had more than $10,000 in foreign financial accounts at any time during the year, you must file an FBAR. This includes bank accounts, brokerage accounts, and now - as of recent regulatory moves - cryptocurrency accounts held overseas.

The filing deadline is April 15, with an automatic extension to October 15. You file electronically through FinCEN’s BSA E-Filing System. No paper forms allowed. And here’s the catch: you don’t need to owe any taxes to trigger this requirement. Just owning crypto on a foreign platform above the $10,000 threshold is enough.

Why Crypto Is Now Covered

For years, many people assumed cryptocurrency didn’t count. After all, the FBAR was written before Bitcoin existed. But in June 2023, FinCEN published a rulemaking notice explicitly stating it intends to classify virtual currency held in foreign exchanges as a "financial account" under the Bank Secrecy Act. This isn’t just a rumor. It’s official regulatory intent.

The IRS has been preparing for this for years. Their 2024-2026 Strategic Plan lists cryptocurrency as a "high-risk compliance area." Major exchanges like Binance, Kraken EU, and Coinbase International now collect U.S. taxpayer IDs. They’re sharing data under FATCA treaties with over 110 countries. The IRS doesn’t need your word anymore - they can get your balance directly from the exchange.

How the $100,000 Penalty Works

There are two types of FBAR violations: non-willful and willful.

Non-willful means you didn’t know you had to file. Maybe you forgot. Maybe you thought crypto didn’t count. For this, the penalty is capped at $16,536 per violation in 2025 (adjusted for inflation). That’s still a lot, but it’s manageable.

Willful means the IRS believes you knew you had to file and chose not to. That’s where the $100,000 penalty comes in. The rule is simple: you pay either $100,000 or 50% of the highest balance in your foreign accounts during the year - whichever is higher.

Let’s say you had $200,000 in Bitcoin on Binance International in 2022. You never filed an FBAR. The IRS determines this was willful. You owe $100,000. Not $200,000. Not $50,000. Exactly $100,000.

And here’s the worst part: this penalty applies per year. If you didn’t file for 2021, 2022, and 2023, you could face $300,000 in penalties - even if your total holdings never exceeded $100,000.

What Counts as a "Foreign Financial Account" for Crypto?

Not every crypto wallet triggers FBAR. Only accounts held on foreign exchanges or platforms that act as financial institutions. That means:

• Exchanges headquartered outside the U.S. - like Binance (registered in Malta), Kraken EU (Netherlands), or Bybit (Dubai)
• Custodial wallets where the exchange holds your private keys
• Any account where you don’t have full control over your assets

It does NOT include:

• Self-custody wallets (like Ledger or Trezor)
• U.S.-based exchanges (Coinbase, Kraken US, Gemini)
• Peer-to-peer trades where you directly receive crypto to your own wallet

The key is control. If the exchange holds your keys, it’s a financial account. If you hold them yourself, it’s not.

Real Cases, Real Penalties

In early 2024, the IRS filed its first FBAR penalty lawsuit against a U.S. taxpayer for unreported crypto on Binance. The account balance peaked at $12,000. The IRS sought $100,000 in penalties. The taxpayer claimed they didn’t know crypto counted. The IRS argued that the rules were clear enough to require due diligence.

Reddit threads from early 2024 are full of panic. One user, u/OverseasCrypto, wrote: "IRS assessed $100k for my $12k Kraken EU account. I had no idea crypto counted." Another, u/CryptoTaxConfused, admitted to holding $8k on Binance while thinking only bank accounts mattered.

The TaxAudit 2024 Crypto Taxpayer Survey found that 43% of U.S. crypto holders with foreign exchange accounts didn’t know FBAR applied to them. That’s nearly half. And now, the IRS is auditing.

How to Fix It If You Haven’t Filed

If you’ve held crypto on a foreign exchange and didn’t file FBARs, you’re not out of options. The IRS has programs to help you get compliant without penalties.

Streamlined Filing Compliance Procedures - This is the most common path. You file the last three years of FBARs, plus three years of amended tax returns, and submit a statement explaining why you didn’t file before. If you can show it was non-willful, penalties are usually waived.

Reasonable Cause - If you can prove you relied on bad advice (like a tax preparer who told you crypto didn’t count), you may avoid penalties. Documentation matters. Save emails, screenshots, notes.

Do nothing - This is the riskiest move. The IRS is actively cross-referencing exchange data with tax returns. If they find you, you’ll get a notice - and you won’t get a second chance.

One user, u/CompliantCryptoTrader, filed amended FBARs for 2020-2023 using the Streamlined Procedure. He paid nothing. His only cost was $150 for a crypto tax tool.

How to File Correctly Going Forward

If you’re holding crypto on a foreign exchange now, here’s how to stay compliant:

1. Track all foreign crypto accounts - even if they’re small. Add up the highest value across all accounts in a year.
2. If the total exceeds $10,000 at any point, you must file an FBAR.
3. Use reliable exchange rates (like CoinGecko or CoinMarketCap) to convert crypto to USD at year-end or peak value.
4. Document everything: screenshots of account balances, transaction histories, exchange jurisdiction details.
5. File electronically via FinCEN’s BSA E-Filing System by October 15.

Many people use crypto tax software like CoinLedger or Bitwave to auto-generate FBAR reports. These tools cost $99-$299 per year. That’s cheaper than one penalty.

What’s Coming Next

The final rule to include crypto in FBAR is expected by late 2024. Once it’s official, the IRS will have even stronger legal footing to enforce penalties. By 2025, the OECD’s new Crypto-Asset Reporting Framework will automate data sharing between countries and the IRS. You won’t be able to hide.

The IRS projects FBAR penalty collections from crypto will jump from $340 million in 2023 to $890 million by 2026. This isn’t a crackdown. It’s a full-scale shift in enforcement.

Don’t Wait for a Notice

If you’ve held crypto on Binance, Kraken EU, Bybit, or any non-U.S. exchange, you need to act. The clock is ticking. The penalties are severe. The IRS already has your data.

The best time to fix this was two years ago. The second-best time is now. File your FBARs. Use the Streamlined Procedure. Get compliant. Pay nothing. Avoid the $100,000 nightmare.

Don’t gamble with your future. This isn’t about tax evasion. It’s about disclosure. And the IRS is watching.