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Anne, Master Tax Preparer
Category: Tax
Satisfied Customers: 2343
Experience:  Enrolled Agent with 25 Years Experience specializing Individual and Small Businesses
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I understand that to qualify Foreign currency transactions,

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I understand that to qualify Foreign currency transactions, it must be held for 1 year and 1 day. I have read the Publication 525 (2012) on Foreign currency transaction that it would be considered a capital gain at the current rate of 20%. But I have read other articles that it would be considered ordinary income , and taxed at the highest rate of 39.6 + 3.8 Medicare Investment tax :Obamacare" Does anyone have a factual answer..xxxxx xxxxx

Hi Sonny

Thank you for your question. Unfortunately, in all probability, any foreign currency transaction that results in a gain will be considered as ordinary income.

Please see below: (this is NOT an IRS website. )

26 USC § 988 - Treatment of certain foreign currency transactions


Just in case the link doesn't work, here's the web address:



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Customer: replied 3 years ago.

I have gotten conflicting states from many CPA's and International Tax attorneys. Some say when you exchange the Foreign there is no tax. Some say that you will be taxed as capital gains., 20% + 3.8 Medicare tax. Some say, it will be treated as ordinary income. If I go to all the banks worldwide, and I know Wells Fargo is the only Bank that will exchange the Iraqi Dinar as of this time is true. But, as Iraq goes from Chapter 7 to Chapter 6, and they Kuwait 11 billion dollars that is owed them, then the RV will take place, no one knows when or how much the Iraqi Dinar will be RV now. Some say $ 1.00 to $1.00 U.S. , some say as $3.32 - 3.50 the Iraqi Dinar will RV to. Time will tell, I am prepared to go to overseas banks they deal with foreign exchange and open offshore bank accounts. Sometime I hope soon there will be one and only answer. But, when you say in all probability any foreign exchange would be treated as ordinary income There is a Supreme court ruling that states that it is not ordinary income. I have that in my archives. June 27 th , is the day that Iraq will be clean of Chapter 7, then go into chapter 6. They must RV if they are going to survive. the UN, the WTO/IMF all see this happening very soon. When , is anyone guess.

Hi again

I can understand why you keep getting different answers. The language of the law is, at times, ambiguous.

However, if you look at the bottom of page 11 ofOutline Taxation of Foreign Currency Transactions and Translation
I hope that this may help.

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