theOAP

I'm afraid there are no creative solutions that I know of.

The actuarial tables of 939 have decided there is a chance you will live for another 20 to 24 years, and your basis in the pension (your 57% voluntary contributions) is spread over this period. At 5% a year for 20 years, it's correct.

The publication mentions foreign plans that were in existence prior to a certain date wherein you may include employer contributions. When I questioned the IRS on that point (the companies plans were in existence prior to that date) their response was my interpretation was incorrect. I've read posts from professionals that disagree with the IRS determination.EDIT: I should have looked at the latest 939 before I made this comment. The wording in 939 has changed from 6 years ago. It is now worded to agree with the determination given by the IRS, changing the meaning of the "old" wording completely. In other words, disregard this paragraph. OAP

If you want to be 'creative', consider whether or not any figure you come up with now, in $US due to the current exchange rate, is a result you would be happy with for the next 20 years. I can find nowhere in the publication that states the actuarial calculations must be done using $US. The actuarial tables are not dependent on any particular currency, and the results are the same whether it's $'s, £'s, or pesos. Although the result must be in $US, calculating in £'s, or whatever, may give you a constant figure that can be converted yearly at future prevailing rates. I'm sure there will be some who may disagree with this approach and we'll hear from them shortly.

Eycott

Thanks for your advice. I'm using £'s first and then converting fairly!

carolm

Hi I have a question about W-2s and foreign exchange rates. I work for a subsidiary of a US company. This year for the first time, I received a W-2 (in the past my accountant simply used the annual total from my payslips and converted into dollars according to the IRS annual average). The problem is, my employer did not use an annual average exchange rate in preparing the W-2 ... instead, they did the conversion on the date of each monthly paycheck, and then added up the resulting dollar amounts to calculate the amount on the W-2. My accountant says this creates a mess, because we need to report taxes and other expenses that I paid in foreign currency ... but we can't use one exchange-rate for those payments and then a different rate when calculating my salary. He is advising me to file IRS Form 4852 but as I understand it, that form is used when the employer has failed to file an accurate W-2 ... Has anyone else had this problem, and how did you solve it? Oh, and by the way the method used by my employer overstates my annual income by about $10,000 compared to what the figure would be if they had used the IRS annual average conversion rate!

nun

If you have an incorrect W-2 you should ask your employer to correct it.

carolm

Hello, I did ask them, and they refused! (sorry forgot to mention that in my original post) So...what do I do now?

nun

Then you would talk to the IRS and request a 4852, just as your accountant said.

carolm

Thanks very much, I'm just worried that this could get me in trouble with my employer, or trigger an IRS audit ... or both. But honestly can't think of any other solution.

lansbury

They don't have to use the annual average rate, they can do what they did and use the rate on the day the salary is paid. All that is required is they can point to where they obtained the rate from, and that they consistently used that method across all payments. There is nothing to stop you using the rate on the days you made your foreign exchange payments.

The IRS publish an average rate as a convenience there is no requirement to use it.

carolm

Hmmmm... well I guess it would be possible to figure out the exchange rate on the dates that I made each tax payment and incurred each deductible expense ... but that sure does create a lot of extra work ... I know there's no obligation to use the IRS rate, but I sure wish my employer had done that! In any case thanks for the advice!

lansbury

Go to xe.com, click on tools, then click on historical currency rates. You can get the rate for any given day.

Cook_County

Your employer may have used a daily spot rate which is less generous to the taxpayer than the rate used by the IRS for unofficial purposes. Ask your accountant to explain the IRS methodology of figuring spot exchange rates.

carolm

Thanks to nun, lansbury and Cook_County for helpful information! Haven't been able to discuss with my accountant yet, but I'm thinking we should probably go the spot-rate route ... although I fear it will increase my tax bill! In any case many thanks to all of you.