Glossary

Hot wallet versus cold wallet

A hot wallet is connected to the internet (exchange accounts, browser and mobile wallets); a cold wallet is offline (hardware or paper). The distinction affects security and reporting, not how transactions are taxed.

How it works

Exchange-hosted hot wallets are custodial and generate Form 1099-DA reporting. Self-custodied wallets, hot or cold, generate no third-party report, but every transaction in them is on chain and fully traceable.

Why it matters

For FBAR purposes, a wallet you control is not a foreign account; an account at a foreign exchange may be. For audits, moving assets between your own hot and cold wallets is a transfer, not a sale, and must be recorded as one so software does not report it as a disposal. Self-custody wallets.

Related terms

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Where this comes up in our work

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Definitions are general information, not legal advice, and may not reflect the most recent changes in law.

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