Treasury Department’s Bureau of the Fiscal Service is generally beneficial to use the same exchange rate - in order to keep it consistent - absent spot rates. So, in situations where a person has both a foreign income and foreign reporting requirement, the U.S. Foreign IncomeĪccording to the IRS, you can essentially use any exchange rate that is acceptable. That is because if the taxpayer is audited, it is best for the 8938 to match the FBAR - give or take $1 to reflect the rounding rule disparity between the FBAR and 8938. When it comes to the FBAR, most practitioners will also use the Department of Treasury - especially if a Form 8938 is included in the submission. He then asked if it was okay for him to go back and use the year-end Department of Treasury Exchange Rate Value for each asset - and it resulted in nearly the exact outcome without the headache. When talking with the experienced IRS Agent on the case, I recall him asking me “ Why on earth would someone do it that way instead of just using the year-end exchange rate and keeping it consistent?” Each year, they had different exchange rates for the different quarters based on when the maximum value of the account was for each asset. I recall once our firm took over an audit for another law firm that did exactly that. Some practitioners prefer to use the exchange rate that is closest to the maximum account balance. The Treasury Department rates are published each quarter, but most practitioners refer to the December 31st value (or Quarter 4) for reporting. Treasury Department’s exchange rate and if you use anything different from that, then let us know.” Some people simply prefer the IRS average exchange rate and that’s fine - others may journey into unofficial territory, which is unnecessarily dangerous and risky to the client - but you really can’t go wrong using the Treasury Department exchange rates. Based on the IRS wording here, basically they are saying “Hey, use the U.S. Practice Pointer: You don’t want to make it any more difficult for the IRS examiner than it needs to be. Treasury Department’s Bureau of the Fiscal Service” “Source of exchange rate used if not from U.S.When it comes to exchange rates on Form 8938, there is a subsection under each asset that provides the following statement:
IRS EXCHANGE RATES SOFTWARE
The form is part of your tax return and included with most commercial tax software such as TurboTax or TaxAct. The Form 8938 is used to report Specified Foreign Financial Assets. When a Form 8938 is Required and Working Backwards The two most commonly used exchange rates are the IRS Average Annual Exchange Rate and the Treasury Department Exchange Rates - the latter is published quarterly. So in this particular situation, which exchange rate should Marion use? Department of Treasury vs IRS Average Exchange Rates “…t accepts any posted exchange rate that is used consistently.”.The IRS does not have an official exchange rate that Taxpayers are required to use on their tax return. dollars if you receive income or pay expenses in a foreign currency…” Therefore, you must translate foreign currency into U.S. “You must express the amounts you report on your U.S.As he sits down to prepare his tax returns, he starts his Google research and finds the following excerpt on the IRS website: He is originally from Spain and still has some foreign accounts, specified assets, and income from overseas that must be reported on his US tax return. Marion is getting ready to file his current year tax return. Let’s walk through an example of Foreign Exchange Rates for Tax Returns, FBAR & Form 8938. It can get a bit confusing in matters involving a multi-year submission such as in an offshore disclosure, when taxpayers must refer to prior year exchange rates when filing past tax year returns - but don’t let it overwhelm you. Essentially, as long as you are using a reasonable and appropriate exchange rate - you will be fine. The main reason for the confusion is because there is not one specific exchange or official exchange rate you have to use (although you should always try to stick to an official rate). Which Foreign Income Exchange Rate for Tax Returns, FBAR & 8938: As if preparing tax returns involving foreign income, assets, accounts, or investments is not hard enough - the IRS does not make it much easier when it comes to deciphering foreign exchange rate rules. Foreign Income Exchange Rate Which Foreign Income Exchange Rate does IRS Require?
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