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FBAR & Taxes - Exchange rate differences

FBAR & Taxes - Exchange rate differences

Old Jun 14th 2016, 3:01 am
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Default FBAR & Taxes - Exchange rate differences

So was poking around on the IRS website today working on my FBAR when I discovered the yearly average exchange rate listing here:

https://www.irs.gov/individuals/inte...exchange-rates

GBP: .681

Was a bit interesting because for the last few years I've been using a different exchange rate at the US Treasury website here:

https://www.fiscal.treasury.gov/fsre...12-31-2015.pdf

GBP: .675

I could see if you were holding or receiving income in GBP, the amount of USD could be a bit different.

Which exchange rate do you use for FBAR and tax purposes?
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Old Jun 14th 2016, 7:04 am
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Default Re: FBAR & Taxes - Exchange rate differences

I think you will find you are required to use the US Treasury rate for the FBAR. For tax purposes where I have income at regular intervals during the year I use the IRS average rate.

Last edited by lansbury; Jun 14th 2016 at 7:07 am.
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Old Jun 14th 2016, 10:17 am
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Default Re: FBAR & Taxes - Exchange rate differences

Actually using the average would save me a few on my taxes. I might try that this year.
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Old Jun 14th 2016, 11:05 am
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Default Re: FBAR & Taxes - Exchange rate differences

For FBAR it is the Treasury Exchange Rate as at December 31 of the year being reported.

For my regular income I have found the yearly average rate more favorable than using the spot rate each time I received payment.
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Old Jun 14th 2016, 11:31 am
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Default Re: FBAR & Taxes - Exchange rate differences

Originally Posted by MidAtlantic View Post
For FBAR it is the Treasury Exchange Rate as at December 31 of the year being reported.

For my regular income I have found the yearly average rate more favorable than using the spot rate each time I received payment.
An experienced accountant told me that the rate of exchange must be used at the time of income receipt. In other words for a monthly paid income, each month the prevailing rate of exchange must be used.
I cannot verify this statement on the IRS website though.
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Old Jun 14th 2016, 11:59 am
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Default Re: FBAR & Taxes - Exchange rate differences

Originally Posted by lansbury View Post
I think you will find you are required to use the US Treasury rate for the FBAR. For tax purposes where I have income at regular intervals during the year I use the IRS average rate.
Yes, this is what I do too. But I think with the 8938, I simply use the same numbers (i.e. same exchange rate) as I use for the FBAR.
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Old Jun 14th 2016, 2:05 pm
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Default Re: FBAR & Taxes - Exchange rate differences

Originally Posted by audio View Post
An experienced accountant told me that the rate of exchange must be used at the time of income receipt. In other words for a monthly paid income, each month the prevailing rate of exchange must be used.
I cannot verify this statement on the IRS website though.
If that was really the case even for recurring transactions with a fixed frequency, what would be the point of the IRS providing average exchange rates?
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Old Jun 14th 2016, 2:09 pm
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Default Re: FBAR & Taxes - Exchange rate differences

Originally Posted by robin1234 View Post
Yes, this is what I do too. But I think with the 8938, I simply use the same numbers (i.e. same exchange rate) as I use for the FBAR.
That is correct. FBAR and FATCA use the official end-of-year treasury rate. There is no official rate for actual tax calculations, but you can use the average rate where appropriate.

My understanding is that the average rate can be used where there are multiple recurring transactions, but I couldn't find confirmation on the IRS site.
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Old Jun 14th 2016, 2:25 pm
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Default Re: FBAR & Taxes - Exchange rate differences

Originally Posted by Owen778 View Post
If that was really the case even for recurring transactions with a fixed frequency, what would be the point of the IRS providing average exchange rates?
I asked the same question: I was told it is for payments such as bonuses or one off yearly payments etc. but not for monthly payments
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Old Jun 14th 2016, 2:42 pm
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Default Re: FBAR & Taxes - Exchange rate differences

Originally Posted by audio View Post
I asked the same question: I was told it is for payments such as bonuses or one off yearly payments etc. but not for monthly payments
Either you or your accountant is confused. It's the opposite way around, for fairly obvious reasons.
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Old Jun 14th 2016, 2:54 pm
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Default Re: FBAR & Taxes - Exchange rate differences

Originally Posted by Owen778 View Post
Either you or your accountant is confused. It's the opposite way around, for fairly obvious reasons.
I am not confused and I very much doubt my accountant is either.
From the IRS website I quote:
In general, use the exchange rate prevailing (i.e., the spot rate) when you receive, pay or accrue the item.


I’m sure this won’t convince you either.
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Old Jun 14th 2016, 3:16 pm
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Default Re: FBAR & Taxes - Exchange rate differences

Originally Posted by audio View Post
I am not confused and I very much doubt my accountant is either.
From the IRS website I quote:
In general, use the exchange rate prevailing (i.e., the spot rate) when you receive, pay or accrue the item.


I’m sure this won’t convince you either.
I'm not sure what you mean by that. You just stated that you should use the average rate for one-off payments. How would that make sense?

For the recurring payments, the IRS text does not explain why it provides average rates. So, I figured I would ask Google to find out what tax professionals normally say. Here are the first five links from tax professionals that came up with actual advice, using the question "When to use irs average exchange rate?"
How do I value my foreign income for U.S. tax purposes? | Nolo.com
Yearly Average Currency Exchange Rates for US Tax Returns | Yearly Average Currency Exchange Rates Page | US Expat Tax Help
AIT Services
Horton Tax Services | Horton Tax Services
https://www.artiopartners.com/blog/e...t-tax-returns/

All of them recommend using the average rate for recurring transactions and the prevailing day rate for one-off transactions, except for the fourth link, which says they will use the average rate for everything. Your post is the first time I've seen anyone suggest otherwise.

Edit to add: Using the prevailing rate for each recurring transaction is still allowed by the IRS, obviously, it's just not normal practice.

Last edited by Owen778; Jun 14th 2016 at 3:22 pm.
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Old Jun 14th 2016, 9:46 pm
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Default Re: FBAR & Taxes - Exchange rate differences

For work we used to use the BOA mid rate , before that we used the WSJ rate on a daily basis. This was on thousands of dollars per day.
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