justadude

IBKR would most likely not generate a FX Income Worksheet at the end of the year if what you say is true. As they have stated, a deposit in non-functional currency is considered a fx transaction. I have contacted Director of International Taxation at my place of employment and will hear from her in next few days. I will keep everyone posted.

justadude

Myself being a US resident and the IBKR account belonging to a US resident, makes GBP a non-functional currency in that account. The functional currency of the account is USD. Hence, as soon as I deposited GBP, it is as good as me buying GBP using my USD in the IBKR account. GBP in that account is not money but an instrument of money. Now, there arises an opportunity of real speculation due to GBP being a non-functional currency. And that is exactly what happened. I speculated incorrectly and I generated a loss. If I had generated a gain, I will have to pay taxes on those gains whenever the non-functional currency is converted to USD. In fact, you can think of GBP as being an international stock holding which I transferred from a brokerage in UK to brokerage in US. I would have to pay/deduct capital gains whenever I close that position. Myself buying that stock using GBP years ago is irrelevant as soon as I transferred the stock to US based brokerage.

morpeth

You wrote "In fact, you can think of GBP as being an international stock holding which I transferred from a brokerage in UK to brokerage in US" - actually it is not the case, which seems to be what you are missing.The issue of functional vs non functional currency is related to trading not just holding a currency outside of an exchange transaction,

morpeth

I think you are still missing the point, just holding a different currency is not a trading transaction,

Hopefully the Director of International Taxation is savvy enough to respond on the issue, if he is smart he will direct you to your own CPA or tax lawyer. Let us know what he says.

morpeth

Actually looking at the sample on their website, it doesn't appear definite for a simply holding of a currency would be included, and in any case it is the 1099 which is more important. And 1099s are not always reflective of the correct tax reporting.

In any case from your posts it seems you believe your interpretation correct, best to get some definitive advice from a very competent tax lawyer or CPA. And if the amount significant and you deduct, there may be a possibility of a tax audit.The IRS can be reasonable- but usually doesn't lose a case in tax court. Then if your are in a state like California or New York,additional potential issues,

justadude

I agree that a professional input will be much more productive and I will definitely pursue that avenue after exhausting my research. In a case about community property few years ago, I filed my taxes with my interpretation and a letter which was accepted by the IRS. Sate of California sent me a letter telling me that my capital gains amounts were not correct. I protested and they did accept my explanation and dropped that case. The sum was paltry compared to what I'm dealing with so I'm very confident of my ability to research a subject matter and then accept whatever the outcome may be. I'm due a refund due to other circumstances and hence an audit will not cost me anything other than dealing with IRS.

justadude

I was not holding a currency. My non-functional currency balance was 0 and that changed with a deposit which created a forex transaction according to IBKR.

A brokerage which caters to hedge funds knows what it is doing by generating a FX income worksheet.

A 1099 are not generated for clients who has not opted out of section 988 tax treatment of FX transactions. This means FX gains/losses are not capital gains and can will be applied against/with ordinary income.

Pulaski

You seem to think you know more than anyone here, despite the knowledge, qualifications, and experience of the people replying to you. Not only am I puzzled as to why you are continuing arguing, given your supreme confidence in your interpretation, I am struggling to understand why you even posted here in the first place.

lansbury

I think this explains the various nuances quite well

https://www.johnschachter.com/intern...able-write-off

It would seem from the OPs postings that the "vacation" exception applies. This being the sentence that stood out. You held your pounds for personal purposes, so your loss is not deductible.

morpeth

Well let us know what you come up with to support your analysis, but I wouldn't go by what IBKR says or reports but instead a tax professional.

morpeth

The IRS can accept a return with an explanation , but that doesn't necessarily by itself the treatment was correct- it can equally be simply it wasn't reviewed in detail.I know of a situation where seven people filed returns based incorrect 1099's from the same source- two just disregarded the 1099, then got letters from the "matching program" the IRS does, two filed their taxes with different explanations and never heard back, the last one did the same and ended up in tax court. The IRS is a large agency, and certainly works on profiling by amounts involved and using various other analysis including which areas they have more potential of securing revenue. And the higher up you go, the more competent the tax official get.

The IRS can be very reasonable on most matters, but an audit is not an easy process- and generally not only drawn out and bothersome, but can end up needing a tax attorney- on particular if the sums are large. Most people end up settling.The State of California is well known for having one of the most aggressive and unreasonable tax agencies - a dispute or audit from them should be avoided at all cost, especially if you have any assets in California.

However, good luck and let us know how it turns out.

justadude

Actually that website explains everything very clearly. The vacation exception is indeed true when the GBP was held in UK bank because it was being used for personal expenses. As soon as it was transferred to IBKR, it became a non-functional currency because it has no value in US. Like the website states, "The currency of other countries – and non-state currency like Bitcoin – is considered “property.” That is the reason IBKR mentions deposits as a forex transaction.

Furthermore, it states "Regardless of where you live, keeping savings in a currency other than the US dollar can expose you to taxable gains or losses when the currency is converted to US dollars."

I thank you sir for the website.

tht

If the deposit/transfer was the same currency that is not a “trade” if you move 100 shares from broker A to broker B that is not a trade. The exact same asset has just moved, there has not been any change of ownership, only who the custodian is..

You can ignore the transfer, you had x GBP and still have x GBP…


http://publications.ruchelaw.com/news/2014-05/Vol.1No.04-03_Tax%20101-FX.pdf

RELIEF FOR PERSONAL TRANSACTIONS

”As noted above, a personal transaction is any transaction other than a transaction which is a trade or business expense or a §212 expense (i.e., an expense in a for profit activity).”

justadude

Thank you for the pdf file. I will read through it but meanwhile the following has perked my interest:
Example 2
On January 1, 2014, Mr. FX Guy acquires 10,000 Canadian dollars. On January 15, 2014, Mr. FX Guy converts the 10,000 Canadian dollars to U.S. dollars. The acquisition of the 10,000 Canadian dollars is a Section 988 transaction for purposes of establishing Mr. FX Guy’s basis in such Canadian dollars. The conversion of the 10,000 Canadian dollars to U.S. dollars is a Section 988 transaction.

PetrifiedExPat

Holding GBP for too long and getting a worse rate upon conversion, not sure what kind of break you are looking for. Lesson learned it seems