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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 28084
Experience:  Taxes, Immigration, Labor Relations
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I have a question on foreign sourced income. What rate I

Customer Question

Hi I have a question on foreign sourced income. What rate I should use for 2014 to convert a foreign currency into USD when the currency significantly depreciated at the end of the year. Should any consideration be given to this fact, in order to make a payment I have to use a rate which was not in place during the year.
Submitted: 1 year ago.
Category: Tax
Customer: replied 1 year ago.
The question is about Russia sourced income. The Ruble depreciated in Nov-Dec 2014 by about 100%, now in order to pay my US taxes on income in Russian Rubles I have to use a significantly different exchange rate. Can I use current exchange rate so it would decrease my income converted in USD.
Expert:  Lev replied 1 year ago.
Hi and welcome to our site!The Internal Revenue Service has no official exchange rate. Generally, it accepts any posted exchange rate that is used consistently.If your functional currency is the US dollar, you must immediately translate into dollars all items of income, expense, etc. (including taxes), that you receive, pay, or accrue in a foreign currency and that will affect computation of your income tax.However, if you receive income evenly throughout the tax year, you may translate the foreign currency to US dollars using the yearly average currency exchange rate for the tax year.In this case - you may use Yearly Average Currency Exchange Rates published by the IRS here -http://www.irs.gov/Individuals/International-Taxpayers/Yearly-Average-Currency-Exchange-RatesSpecifically for Russian Rouble - the rate for 2014 is 40.118
Customer: replied 1 year ago.
Lev, thank you. I am a cash basis taxpayer and all my incomes and expenses are in Russia, so my primarily economic environment is in Rubles, so my functional currency is Rubles. For this reason, I should be able to use the rate of the first USD cash flow, i.e. when I make USD tax payment. No?
Expert:  Lev replied 1 year ago.
You may not simply swish your functional currency... The US dollar is the functional currency for all taxpayers except some qualified business units (QBUs). A QBU is a separate and clearly identified unit of a trade or business that maintains separate books and records.See here https://www.law.cornell.edu/uscode/text/26/985and regulationshttps://www.law.cornell.edu/cfr/text/26/1.985-1
Expert:  Lev replied 1 year ago.
If your functional currency is not the U.S. dollar, make all income tax determinations in your functional currency. At the end of the year, translate the results, such as income or loss, into U.S. dollars to report on your income tax return.In this case - you should use annual exchange rates mentioned above.
Customer: replied 1 year ago.
Ok, no luck... I am getting screwed by the significant devaluation of Ruble in the last two months of 2014.
Expert:  Lev replied 1 year ago.
You may separately report losses on foreign currency conversion.
That is different issue.
But if there were no conversions - you would not recognize the loss.

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