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Lev
Lev, Tax Advisor
Category: Tax
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Experience:  Taxes, Immigration, Labor Relations
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I have 40 million in Iraqi Dinar that I want to exchange into

Customer Question

I have 40 million in Iraqi Dinar that I want to exchange into US dollars. Are they any tax implications for doing this? I bought the dinar with wages that I have already paid taxes on.
Submitted: 5 years ago.
Category: Tax
Expert:  Lev replied 5 years ago.

What is your basis in this investment? When and what the amount you paid for 40 million in Iraqi Dinar?

 

What is the amount you expect to receive?

Customer: replied 5 years ago.
paid 30,000.00 for the dinar while working in Iraq expect to only get at the maximum 33,000.00 will be exchanging it for US dollars.
Customer: replied 5 years ago.
there is no basis for an investment, at this time i would just like to exchange it for US dollars as it is much needed money.
Customer: replied 5 years ago.
I bought the dinar between 2005 and 2006 while working in iraq
Expert:  Lev replied 5 years ago.

In your situation the price you paid is the basis.

Your taxable gain would be $33,000(selling price) - $30,000(basis) = $3,000.

 

The tax rate would depend on your other income, filing status, deductions, etc.

 

Please let me know if any clarification is needed or you need any reference to reporting forms.

Customer: replied 5 years ago.
I am not sure that is the answer I am looking for. How do I file this as there is no receipts on the dinar that I purchased. What forms would I use?
Expert:  Lev replied 5 years ago.

There are several issues - how to identify the taxable gain from your investment; how to report the income; and

how to support your income and deduction in case of audit.

 

The first question was addressed above and so far it doesn't need any clarification.

 

As for the second issue -

A gain on a personal foreign currency will be recognized if the transaction occurred.

If the gain is less than $200 - it will not be a taxable income (see IRS publication 525 page 30 for reference - http://www.irs.gov/pub/irs-pdf/p525.pdf).

The gain of more than $200 is reported as capital gain on the Schedule D and on line 13 of Form 1040 - http://www.irs.gov/pub/irs-pdf/f1040.pdf

The section 988 provides that gains and losses from currency trades are treated as ordinary income - not long term capital gain.

 

The last issue...

first of all you do not need to send any supporting documents unless you are audited.

The IRS has some specific requirements for supporting documents - see for details the IRS Publication 552, Recordkeeping for Individuals - http://www.irs.gov/pub/irs-pdf/p552.pdf

If you would not able to provide such document - your deductions may be disallowed.

As you do not have any purchase records - you may need to find some supporting information what was the price for Iraqi Dinar at that time - and that would support your deduction. But you do not need to send any supporting documents to the IRS with your tax return - just keep them for your record.

 

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