Contact UsWhat do international business owners( American Expatriates) need to know about IRS and yearly average currency rates. What impacts yearly average currency rates? How often do the rates vary?
Chuck Heyde, CPA, CGMA
I would like to help you but I don't understand the question.
Your US tax return is denominated in US dollars. So everything you include on your US tax return must be converted to US dollars. Technically, you should exchange the foreign items to US dollars on the date of transaction. Practically, we use the average exchange rates for the entire year.
The only big foreign exchange issue revolves around the "Foreign Mortgage Gain" which only occurs on the "substantial buy down" of a foreign mortgage - i.e. on the sale of a foreign asset (usually a home.)
Regards,
Chuck Heyde, CPA, CGMA
www.GEMMS.us
Reply
577 weeks ago
Your US tax return is denominated in US dollars. So everything you include on your US tax return must be converted to US dollars. Technically, you should exchange the foreign items to US dollars on the date of transaction. Practically, we use the average exchange rates for the entire year.
The only big foreign exchange issue revolves around the "Foreign Mortgage Gain" which only occurs on the "substantial buy down" of a foreign mortgage - i.e. on the sale of a foreign asset (usually a home.)
Regards,
Chuck Heyde, CPA, CGMA
www.GEMMS.us
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Tax Professional Answers
Kader Jawali Ameen
Further to the information on currency rates, please find below link to access the IRS year end currency ex rates.
www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Treasury-Reporting-Rates-of-Exchange-as-of-December-31,-2012
I hope this is helpful.
Regards
Kader. EA
www.taxandaccountinghub.com
Leave a Comment
577 weeks ago
www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Treasury-Reporting-Rates-of-Exchange-as-of-December-31,-2012
I hope this is helpful.
Regards
Kader. EA
www.taxandaccountinghub.com
Abraham Itani, CPA
Dear Sir/Mam,
Expats owning a a foreign business can trigger a plenty of compliance issues that need to be addressed.
First you would have to determine if the owner ship by the US person(s) exceed 50% of the foreign business entity. If the ownership by US persons exceeds 50% then you have what is technically referred to as CFC (Controlled Foreign Corporation) if the ownership is less than 50% then you would have a PFIC (passive foreign Income Corporation) in both cases you would have to file additional tax forms to show the amount of income in US dollars. And I am guessing that is where your issue arises.
In filling form 5471 and related schedule you will have to present the foreign entity's activities in home currency and in US Dollars. Also you have to present the financial statements (Income and Balance Sheet according to US GAAP).
For the Balance sheet amount you have to use the historical exchange rate (typically for big purchases date of purchase).
For Income statement you can use a yearly average unless that would result in distortion then use the actual(which can be cumbersome for small businesses)
The Treasury follows the federal reserve bank exchange rate, other professionals use OANDA (for versatility and ease of use) Which ever exchange rate source you use you have to be consistent. If the home currency is inflationary or hyper inflationary there are other specific treatments.
You have to keep in mind that there are other "relatively new" filling requirement of the FATCA and the FBAR that you personally need to comply with.
I hope this is helpful, If I can be of any further help please let me know.
Regards,
Abraham Itani, CPA
www.itanitax.com
Leave a Comment
577 weeks ago
Expats owning a a foreign business can trigger a plenty of compliance issues that need to be addressed.
First you would have to determine if the owner ship by the US person(s) exceed 50% of the foreign business entity. If the ownership by US persons exceeds 50% then you have what is technically referred to as CFC (Controlled Foreign Corporation) if the ownership is less than 50% then you would have a PFIC (passive foreign Income Corporation) in both cases you would have to file additional tax forms to show the amount of income in US dollars. And I am guessing that is where your issue arises.
In filling form 5471 and related schedule you will have to present the foreign entity's activities in home currency and in US Dollars. Also you have to present the financial statements (Income and Balance Sheet according to US GAAP).
For the Balance sheet amount you have to use the historical exchange rate (typically for big purchases date of purchase).
For Income statement you can use a yearly average unless that would result in distortion then use the actual(which can be cumbersome for small businesses)
The Treasury follows the federal reserve bank exchange rate, other professionals use OANDA (for versatility and ease of use) Which ever exchange rate source you use you have to be consistent. If the home currency is inflationary or hyper inflationary there are other specific treatments.
You have to keep in mind that there are other "relatively new" filling requirement of the FATCA and the FBAR that you personally need to comply with.
I hope this is helpful, If I can be of any further help please let me know.
Regards,
Abraham Itani, CPA
www.itanitax.com
Vincenzo Villamena
I 100% agree with Abraham. The form 5471 is where this issue comes up the most. However people living abroad face this issue on a number of occasions and also have some flexibility in the use the exchange rates. It can be based on a monthly average, end of year rate (12/31/2012) or the IRS average. It is important for the CPA to be aware of this and be consistent in using the same exchange rate throughout the return. Of course a proper analysis of which is the most optimal can be based on the cash flows of the business (i.e. maybe one month the client had a bonus in foreign currency or paid a lot of foreign taxes). We a lot of variability in these rate and help determine the optimal rate especially for foreign tax credit calculations, schedule c and form 5471.
Please let me know if you'd like a free consultation - www.onlinetaxman.com
Vincenzo
Leave a Comment
577 weeks ago
Please let me know if you'd like a free consultation - www.onlinetaxman.com
Vincenzo
Dr. Daniel Erasmus
The conversion exchange rates to convert foreign currency to US dollars is published here:
www.fms.treas.gov/intn.html#rates
Treasury Reporting Rates of Exchange as of December 31, 2012
Regards,
Daniel N. Erasmus
Int'l Tax Attorney & Counsel, EA & US Tax Court Practitioner
www.TaxRiskManagement.com
Leave a Comment
577 weeks ago
www.fms.treas.gov/intn.html#rates
Treasury Reporting Rates of Exchange as of December 31, 2012
Regards,
Daniel N. Erasmus
Int'l Tax Attorney & Counsel, EA & US Tax Court Practitioner
www.TaxRiskManagement.com