Offshore crypto wallets: what you need to know for U.S. tax season

If you’re someone who invests in cryptocurrency, especially if you use offshore wallets, 2025 is a very important year. The IRS has been strict about following the rules for cryptocurrency, and it can feel like a challenge to keep up with all the changing rules – especially since this whole digital asset space is still so new. We’ve seen some changes to the rules for people with accounts in the UK, but what about people with accounts in other countries? They’re definitely getting more.

The IRS gets serious: how crypto regulations are evolving

Before a big executive order was issued in April 2025, the IRS had already made it clear that cryptocurrencies are treated as property or capital assets. If you transfer or sell them, you will have to pay capital gains tax. The tricky part for the tax people, though, has always been the fact that digital assets are not controlled by one organisation and are not linked to a real person. To deal with these problems, the IRS has introduced new ways to make things clearer and make sure everyone follows the rules.

For instance, there’s been talk of a Form 1099-DA. This form would have mandated that brokers report your digital asset transactions directly to both you and the IRS, much like how traditional stock trades are reported on a 1099-B. By 2026, the idea is that brokers would also need to include the “cost basis” of your digital assets, which would make figuring out your gains and losses for tax purposes much clearer.

On top of that, the IRS has been really emphasizing a somewhat cumbersome requirement: “wallet-by-wallet” accounting. Previously, many investors simplified things by pooling all their crypto holdings across various wallets and exchanges. But the IRS now expects you to track and report each individual wallet separately, which, as you can imagine, is a huge administrative headache.

The global push: OECD’s CARF and your foreign crypto

It’s not just the U.S. getting tougher. The Organisation for Economic Co-operation and Development (OECD) has cooked up something called the Crypto-Asset Reporting Framework (CARF). The goal here is global tax transparency in the crypto world. Under CARF, companies that provide crypto services (they call them Crypto-Asset Service Providers, or CASPs) will have to collect and report information about their users’ tax residencies and taxpayer ID numbers. This data will then be shared among tax authorities worldwide, making it much harder to hide assets and dodge taxes.

CARF really signals a unified global effort to tackle the unique challenges that borderless digital assets present. And here’s the kicker for U.S. taxpayers: even though the U.S. isn’t directly part of the OECD framework, your foreign crypto holdings are increasingly visible to U.S. tax authorities. This just highlights how important it is to fully comply with all your reporting obligations.

Specific forms you might need: 8938, FBAR, and 3520

If you’re a U.S. taxpayer with offshore crypto, you’re likely facing some additional reporting requirements:

• Form 8938 (Statement of Specified Foreign Financial Assets): Thanks to something called the Foreign Account Tax Compliance Act (FATCA), if you have foreign financial assets (and that includes crypto in foreign accounts) that exceed certain thresholds, you must report them on this form.
• FBAR (FinCEN Form 114): If the combined value of all your foreign financial accounts (yes, including crypto wallets) hit more than $10,000 at any point during the calendar year, you have to file an FBAR. Missing this one can lead to some seriously hefty penalties.
• Form 3520: This one pops up if you’re dealing with certain foreign trusts or receiving specific foreign gifts. So, if you get crypto from a foreign trust or even an individual overseas, you might need to file a Form 3520.

Seriously, ignoring these reporting requirements isn’t a good idea. You could be looking at significant monetary fines and even potential criminal charges. So, understanding and fulfilling these obligations completely and on time is absolutely crucial.

The IRS is watching: increased enforcement and audits

The IRS has really stepped up its game when it comes to crypto transactions in recent years. Forms like the 1099-DA and the push for wallet-by-wallet accounting would make it much easier for them to spot underreported income and ensure compliance.

Beyond just new forms, the IRS is getting sophisticated. They’re using data analytics and blockchain tracing tools to identify taxpayers who aren’t playing straight. By analyzing blockchain transactions and cross-referencing them with tax filings, they can pinpoint discrepancies and take action.

Smart moves: best practices for your crypto holdings

Given how serious the IRS and international bodies are getting, it’s wise to adhere to stricter reporting standards. Here’s what you should be doing:

• Keep meticulous records: Track everything. Dates, amounts, who you transacted with, and the reason for every single crypto transaction.
• Use good tax software: Invest in reputable crypto tax software. These tools can help you track transactions across all your different wallets and exchanges, making accurate accounting much more manageable.
• Get expert advice: Don’t go it alone. Engage with tax professionals who actually understand cryptocurrency. They can ensure you’re compliant with all reporting requirements and help you integrate smart tax strategies.
• Stay informed: The rules are constantly changing. Make it a habit to regularly check for IRS updates and guidance on cryptocurrency taxation so you always stay compliant.

The truth is, with the IRS changing what it focuses on and international organisations like the OECD focusing more on taxes on crypto, reporting can feel like a real chore – especially when the rules are sometimes unclear or different in different countries. But if you are proactive about your compliance, you will reduce your risk of audits and penalties. This will also help to make the digital asset world more transparent.