lansbury

For those interested the IRS have already posted their average exchange rate for the $ to £ for 2013. The rate is £0.665 to $1 which equates to $1.5037 to £1.

http://www.irs.gov/Individuals/Inter...Exchange-Rates

MsElui

Does that mean you should use it for any transaction in 2013? Or can you chose the rate on the day if its better?

MMcD

I could be wrong about this - but I believe you can use this rate if you receive periodic payments over the course of the year.
But if you receive one specific payment from one source - then you must use the rate on that day....or something like that

lansbury

If like myself you receive regular income over the year, in my case monthly pension payments you can just total up all the income and use the average rate to convert to dollars. The IRS page says if you receive income evenly thoughout the year you can use the average rate. If you have a single transaction you should use the rate on that day.

I posted this because last year the IRS didn't publish the average rate until March 2013, for the 2012 tax year.

durham_lad

This is how I understand it as well. I total my monthly pension checks and interest payments then use the IRS average figure.

Thanks for letting us know that the rate had been published.

robin1234

I always get the official Treasury rate for December 31, since that is needed for FBAR and Form 8938. I've used that same rate for calculating the bank interest and British pension for the 1040. I realise now that probably is not right.

lansbury

The Treasury rate is worse than the IRS average rate. For the 1040 the IRS average rate is acceptable.

Treasury rate Dec 31 - £1 = $1.652

IRS Average Rate - £1 = $1.5037

I know which I would prefer to use to convert UKP for tax purposes.

JAJ

If income is received throughout the year then an average rate should be used. HOWEVER, while you should file correctly for 2013, it's probably not worth worrying about on prior years. If you filed on time, only 2010-12 are open and the difference between average rate and year end could just as easily favor the IRS as the taxpayer.

robin1234

That is a huge difference for 2013. I don't really understand that average rate, since the rate is 1.65 for end of year, the average rate seems to mean that for periods early in the year it was in the low 1.4 region! I don't remember that.

MMcD

It is strange, isn't it?
Using that number certainly seems advantageous when figuring the average
2013 £ to $ conversion rate.
This is what I just found on XE for the year (going back, however, from TODAY):
close: 1.65542
low: 1.46789
high: 1.68449

http://www.xe.com/currencycharts/?fr...to=USD&view=1Y

So given all that, does the IRS rate make sense
(I'm hopeless at all this.....)

If using that IRS rate for payments received over the course of the past year actually makes a difference of several hundred dollars in ones favor?
Is it still OK to use?
What's your opinion about this?

durham_lad

In my case, I calculate the conversion of my small monthly UK pension and bank interest using XE.com on the day they are paid into the bank. I also calculate using the total of my annual UK pension and the annual IRS exchange rate. This year the difference is ~$220 lower with the official average IRS rate so I pay $55 less tax.

theOAP

The OandA average yearly rate (not low or high) for all 365 days during 2013 is £1 = $1.565. The average IRS yearly figures have been much lower than the average OandA yearly figures for last several years. Maybe that's why they call it the IRS unofficial yearly exchange rate.

The IRS/Treasury can ask for the use of specific exchange rates for FBAR, Form 8938, other specific forms, and when a noted specific taxable event occurs. All other income occurring on regular basis throughout the year can use the IRS average yearly rate. In fact, it allows the use (or did) of any published, publicly displayed yearly recognised rate such as OandA.

The key requirement is that whenever an average yearly rate is used, it must be used consistently throughout the 1040 and associated schedules and forms. The exceptions are the above mentioned specific requests.

It is unlikely a rate will be challenged, but if it is, it would only be as a result of an IRS inquiry into the return. At this point, it's wise (in fact, very wise) to have used the IRS rate or a recognised rate.

Most people use the IRS unofficial average yearly rate.

As always, my opinion only.

lansbury

I think that the IRS rate tends to be more the average exchange rate you would receive from banks, rather than the average spot rate.

MMcD

You always provide such patient clarification OAP
So to summarize (tell me if I've misunderstood)...as you understand it:
On the 1040:
1) Any pounds sterling payment that is made one time only during course of the yr. or that consists of differing pounds sterling amounts - should not use the IRS unofficial rate for it's dollar conversion.
2) Instead - such payment conversions should be reported on the 1040 per a published, recognized rate on day payment received
3) Such individual amounts, calculated per a published, recognized rate on day received, can be combined with a conversion per IRS rate for payments made over course of a year - when entering amounts on lines 16a and 16b.

If the above is correct - then what about the following scenario:

Many on this forum receive a UK State Pension (equivalent of US social security).
And per their arrangement with the UK Pension Service - it's wired directly into their US bank account in dollars every 30 days over the course of the year.
Except for 1 annual cost of living increase during the year - the actual pound sterling amount of the pension remains consistent.
Nevertheless, the amounts received in dollars, here in the States, vary with each $ deposit, because of the fluctuating exchange rate.

Given the above:
A) Does one have the discretion or the option to report - not the total of the actual dollar amounts received in their US bank - but instead a calculation based upon the actual total of their Pounds Sterling, Jan. - Dec. pension, converted to a dollar amount using the IRS unofficial rate for 2013?
This will be an entirely different amount from the actual $ sum received - and might be a good deal less.
Is that legitimate/acceptable to the IRS?
and.....
B) If one-time-only Lump Sum amounts (2 of them for differing amounts, wired to ones bank by the UK Pension Service on different dates) are also received following the above scenario - should they be reported in the dollar amount actually received from the Pension Service, - (since they are not recurring payments)?

OMG: .....now I'll bury my aching head in an ice bucket
This is crazy-making!

MMcD

ok....I think I can answer my own question raised in previous post....and for anyone else who is receiving UK State Pension wired in $s directly to their US bank.....
NO....we can't use the IRS unofficial exchange rate when reporting it on form 1040.
Why not?
Because, according to what I just found on the irs.gov web site:
"... you must translate foreign currency into U.S. dollars if you receive income ...... in a foreign currency"
....And we're not RECEIVING it in "a foreign currency" (since it's already converted to $s, as far as the IRS is concerned.
At least that's the way I read the matter.
Oh well....good try, right?