U.S. Taxpayers Must Report Foreign Digital Asset Accounts in Major Crypto Policy Shift

The White House has proposed legislation requiring U.S. taxpayers to report digital asset accounts held overseas, marking a significant shift in the U.S. approach to regulating cryptocurrencies and closing perceived tax and compliance loopholes. The initiative is outlined in a 168-page report from the Digital Asset Market Working Group, led by David Sacks, the White House’s head of Crypto and AI Affairs [1]. This policy aims to enhance transparency, prevent illicit financial activity, and level the playing field for domestic crypto platforms by ensuring that digital assets held abroad are subject to the same oversight as traditional financial accounts [1].

Under the proposed framework, U.S. taxpayers would be mandated to disclose any foreign digital asset accounts, including those on international crypto exchanges [1]. The administration argues that the current absence of such reporting mechanisms has allowed for significant tax avoidance and regulatory arbitrage, which could undermine the competitiveness of U.S. crypto platforms against foreign counterparts [1]. The proposal draws parallels to existing requirements such as the Foreign Bank and Financial Accounts Report (FBAR), which requires disclosure of foreign bank accounts exceeding $10,000 [4]. Extending these rules to digital assets would bring them under similar scrutiny, reinforcing accountability across the sector [4].

Notably, the proposal does not extend to decentralized finance (DeFi) transactions, where users operate without intermediaries or identifiable identities [1]. This exclusion acknowledges the unique challenges of tracking and regulating such activities within the current legal framework. The report also highlights the need for regulatory agencies to streamline approvals for crypto-focused bank charters and master accounts, unless extraordinary circumstances apply [1].

The White House has already taken enforcement actions against major crypto exchanges, including Coinbase and Binance, signaling a broader commitment to compliance [2]. The proposed policy also includes guidance for banking regulators to facilitate access to traditional financial services for crypto banks, including those offered by the Federal Reserve [1]. These measures aim to integrate digital assets more seamlessly into the U.S. financial system while maintaining robust regulatory standards.

The administration describes the initiative as a key step toward reinforcing U.S. leadership in the digital economy [5]. The report references the re-election of President Trump as a pivotal moment—termed a “hard fork”—that has reshaped the regulatory approach to crypto in the U.S. [1]. By promoting a structured and enforceable framework, the White House seeks to ensure that the U.S. remains a secure and attractive environment for digital asset investment and innovation [1].

The move underscores a broader push to bring digital assets into the fold of conventional financial regulations. While critics have raised concerns about the impact on privacy and innovation, the administration maintains that the proposal is designed to enhance market integrity and investor confidence [1]. As the legislation moves forward, it is expected to influence investor behavior, platform operations, and compliance practices across the U.S. crypto ecosystem [1].

Sources:

[1] White House Wants Americans to Report, Pay Taxes on Foreign Crypto Accounts (https://decrypt.co/332718/white-house-report-taxes-foreign-crypto-accounts)

[2] White House set to unveil closely watched crypto policy ... (https://ca.news.yahoo.com/white-house-set-unveil-closely-100450836.html)

[4] What is the minimum income to file taxes - guide 2025 (https://www.taxesforexpats.com/articles/financial-planning/minimum-income-to-file-taxes.html)

[5] The Payments Newsletter including Digital Assets & ... (https://www.jdsupra.com/legalnews/the-payments-newsletter-including-1351633/)