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Thread: IRS rules on currency exchange

  1. #1
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    Default IRS rules on currency exchange

    Maybe I have missed it since I haven't read every post on this site, but I have not read any post that gives what the IRS rules are on paying taxes when we exchange our Dinar back to Dollars. I have read numerous postings on this site in the time I have been on that state "what the rules are", but without an IRS reference I take them with a grain of salt. I have seen and heard "my accountant told me..." but I have heard numerous things from accountants and even IRS employees that were wrong. Being a person that wants to see it in the rules, I have finally found a reference. I contacted the IRS and here was their response:

    Your Question Was:
    If I have foreign currency in a safety deposit box, an account in a foreign bank or a foreign currency account in a US bank (such as at EverBank), where does the tax code cover tax due on the appreciation of the value of the currency due to the change in exchange rates? I understand that I would owe tax on the US equivalence of any and all interest paid to an account using the exchange rate of the date the interest was paid into the account. I have not, however, been able to locate anywhere in the tax code that covers whether or not any tax is owed on the difference between the amount paid (in US currency) when exchanged for a foreign currency and the amount received (in US currency) when the foreign currency is exchanged back. Could you please shed a little light as to where I should look to find this information? I have been told numerous things on this, but nobody has been able to cite anywhere in the tax law that supports their version.


    The Answer To Your Question Is:
    Thank you for your inquiry. We are answering your question based on the assumption that you are a U.S. citizen or resident. If you have a gain on a personal foreign currency transaction because of changes in exchange rates, you do not have to include that gain in your income unless it is more than $200.00. If the gain is more than $200.00, report it as a capital gain. Capital gains are reported on Schedule D, Capital Gains and Losses, and line 13 of the Form 1040, U.S. Individual Income Tax Return (2005). For more information, please refer to Publication 525, Taxable and Nontaxable Income. Thank you for using this service.
    The reference can be located at http://www.irs.gov/pub/irs-pdf/p525.pdf, the 2007 issue of Taxable and Nontaxable Income, on page 30:

    Foreign currency transactions. If you have a gain on a personal foreign currency transaction because of changes in exchange rates, you do not have to include that gain in your income unless it is more than $200. If the gain is more than $200, report it as a capital gain.

    I just received this response yesterday. I do not know why their answer included "(2005)" unless this was a response that was written in 2005 or early 2006 and has been put in their list of standard responses without any update. It also does not give any indication that it can be classified as a long term capitol gain. If anyone finds anything else - with reference - please let me know.

  2. #2
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    Thanks for taking the time to do this Stuck.



    From threads in the past, personal conversations, and the IRS website and publications (as you pointed out), I'd pretty much come to the same conclusion: it's a Capital Gain.

    I hope everyone's keeping their receipts.

    The Lop. It's for real...

  3. #3
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    What I am curious about is how this applies to stock bought through Warka?

    Does the LTCGs start only from when you bought the currency, or does it start all over again when you buy the stock?

    The Lop. It's for real...

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    Right now I believe long term capital gain is 15%. But Barack Obama wants to change it to 28%.

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    Quote Originally Posted by Sponson View Post
    Thanks for taking the time to do this Stuck.



    From threads in the past, personal conversations, and the IRS website and publications (as you pointed out), I'd pretty much come to the same conclusion: it's a Capital Gain.

    I hope everyone's keeping their receipts.

    Spons,

    Reciepts really dont matter. If this thing hits to say 1-1. then cashing in what you bought for 700-1000 bucks for 1 million dollars really doesnt effect the capital Gains. Instead of paying Capital gains on 1 mill, you would pay it on 999,300. Not much difference. know what I mean? about the only difference is if you bought it more than a year ago ( with reciepts-15%/without reciepts-20%) or less than a year- 20% flat out....sure beats paying 35% being based as income as we all thought.

  6. #6
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    I wouldn't accept this thread as the last IRS word.

    Katt

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    Quote Originally Posted by Stuck@Cedar View Post
    Maybe I have missed it since I haven't read every post on this site, but I have not read any post that gives what the IRS rules are on paying taxes when we exchange our Dinar back to Dollars. I have read numerous postings on this site in the time I have been on that state "what the rules are", but without an IRS reference I take them with a grain of salt. I have seen and heard "my accountant told me..." but I have heard numerous things from accountants and even IRS employees that were wrong. Being a person that wants to see it in the rules, I have finally found a reference. I contacted the IRS and here was their response:



    The reference can be located at http://www.irs.gov/pub/irs-pdf/p525.pdf, the 2007 issue of Taxable and Nontaxable Income, on page 30:

    Foreign currency transactions. If you have a gain on a personal foreign currency transaction because of changes in exchange rates, you do not have to include that gain in your income unless it is more than $200. If the gain is more than $200, report it as a capital gain.

    I just received this response yesterday. I do not know why their answer included "(2005)" unless this was a response that was written in 2005 or early 2006 and has been put in their list of standard responses without any update. It also does not give any indication that it can be classified as a long term capitol gain. If anyone finds anything else - with reference - please let me know.
    This does not sound like AN OFFICIAL RULING on anything. It is just somebodies guess as to what THEY HAPPEN TO THINK. If it was for real it would be much more definitive, exact, documented, AND at least explain IF IT IS Long Term or Short Term. IT REALLY DEALS with one little issue that someone thought about and that has something to do with travelers + or - $200. What happens if you lose money? Lots of questions ignored and not answered so TO ME it is pretty much in that 50/50 error ratio of IRS.

  8. #8
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    I am not so sure the person who gave you this information is correct. I checked with IRS on this subject about 6 months ago. I was on the phone with them for over an hour. I do not have the section information that they sent to me any longer. But in a nut shell this is what was conveyed:

    *Currency has never been and is still not considered a long or short term investment. Any money made through speculation is considered income and will be taxed as such.

    So basically 35% tax.
    __________________________________________________ ______________

    Anyway right or wrong, make sure you have the correct info when you file or you may end up with a tax headache.

    Anyway for me it would be a great problem to have as it would mean one way or the other I would be in the money.

  9. #9
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    Default 35 % are you mad ???

    New investors will get hit harder than we old-timers , but it is not considered income by any stretch of the imagination.
    I don't follow your logic Mario
    However I really liked the way you jumped over flaming barrels in the original donkey kong.....lol



    http://www.irs.gov/newsroom/article/...106799,00.html
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  10. #10
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    Quote Originally Posted by SuperMario View Post
    I am not so sure the person who gave you this information is correct. I checked with IRS on this subject about 6 months ago. I was on the phone with them for over an hour. I do not have the section information that they sent to me any longer. But in a nut shell this is what was conveyed:

    *Currency has never been and is still not considered a long or short term investment. Any money made through speculation is considered income and will be taxed as such.

    So basically 35% tax.
    __________________________________________________ ______________

    Anyway right or wrong, make sure you have the correct info when you file or you may end up with a tax headache.

    Anyway for me it would be a great problem to have as it would mean one way or the other I would be in the money.
    Thanks SM.
    I have a question, did you get anything in writing?
    Evidently, IRS sent S@C written communication with answer and referenced a specific IRS publication.
    “Oh my God, I know the answer to life and the universe." I thought to myself, "if I could just get off the toilet and tell someone." James
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  11. #11
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    i want the code.....
    i want the code.....
    gimme the irs tax code or im not paying...

  12. #12
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    I too asked the IRS, about six times to different departments. They told me currency is not treated as a taxable gain, any interest is that is earned on it yes, but not we consider a gain like a stock or an asset. Unless you trade as a futures business. Currency is not an investment, it is an exchange of currency, not the sale of anything. It is not a taxable event. This is after speaking with the schedule D folks, the capital gains folks, and the complex individuals issues. I wasn't sure I still believed them, so I asked for a code that would be definitive. No one had one, because it wasn't considered a gain, as we might expect, there was no code. In the end, though, they recommended speaking with a tax attourney. Apparently, what the IRS tells you may not be the final ruling, as they are not responsible, should the information they give you be incorrect. Go figure.

  13. #13
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    Here's a recent and interesting email I received. If any of you remember WmKnowles this is his recent conversation with the IRS.

    I spent some time on the phone with the IRS the other day, spoke with the "Complex tax law" extension that handles foreign currency, they said no tax due as capital gain, interest earned would be, but not the conversion. Then spoke with the "schedule D" extension that handles capital gains, their publication 525 does not deal with conversions of currency, and was quoted that this is not an investment, and that currency is valued differently than stocks or bonds, so long as you are not in the currency futures business, private funds held in cash or currency is not the sale "of anything," only an exchange of currency. I then asked for a ruling, or code that I could quote if I should need to defend my position and was then transfered to the "complex individual issues" department. I was agian told that there was nothing in the code that says an exchange of currency is a capital gains, again so long as you are not a proffessional currency trader. It is not a capital gain because it is not the sale of anything. Currency exchange is treated as an exchange and not the sale of an assett.

    They all told me the same thing.

    I should note that you should do your own due diligence, that the above may be entirely incorrect.

    I did present the situation as that I had been holding Euro for over 5 years.
    Didn't get into the Dinar. I plan on taking this up on my next 2 hour phone call to the IRS. I will post if anything other outcome is presented.



    Quote Originally Posted by Stuck@Cedar View Post
    I have not read any post that gives what the IRS rules are on paying taxes when we exchange our Dinar back to Dollars.
    Amazing! Then you need to learn how to use the search feature. Tax threads are numerous and lengthy. Mostly from 2006 when everyone thought the RV was imminent.
    If you voted for Obama in 2008 to prove you're not a racist, you'll have to find someone else to vote for in 2012 to prove you're not an idiot.

  14. #14
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    Default RoyalNorthBeach.com Clearwater Beach, Florida

    Early last year on here, someone posted a link with a new law our government had just passed on Dec. 1, 2007. From what I remember, it stated that all gains on currency as of 2008 was to be taxed as ordinary income. So it didn't matter how long you held the dinars (the 1 year/1 day). I thought it was a good sign that they knew what was coming and wanted their 35%. Is someone good out there that could try and find that posting?

  15. #15
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    Quote Originally Posted by dwthomas View Post
    Be smart. When the time comes to cash in, pay the $100 or $150 and set up a consultation with a tax lawyer.

    ****yawn****


    I couldnt agree more!

    Saving a couple hundred bucks trying to do it yourself, just doesnt make sense. Put someone elses name on that responsibility line.
    I learned everything I need to know about Islam, on 9-11

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  16. #16
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    Quote Originally Posted by REITman View Post
    Here's a recent and interesting email I received. If any of you remember WmKnowles this is his recent conversation with the IRS.

    I spent some time on the phone with the IRS the other day, spoke with the "Complex tax law" extension that handles foreign currency, they said no tax due as capital gain, interest earned would be, but not the conversion. Then spoke with the "schedule D" extension that handles capital gains, their publication 525 does not deal with conversions of currency, and was quoted that this is not an investment, and that currency is valued differently than stocks or bonds, so long as you are not in the currency futures business, private funds held in cash or currency is not the sale "of anything," only an exchange of currency. I then asked for a ruling, or code that I could quote if I should need to defend my position and was then transfered to the "complex individual issues" department. I was agian told that there was nothing in the code that says an exchange of currency is a capital gains, again so long as you are not a proffessional currency trader. It is not a capital gain because it is not the sale of anything. Currency exchange is treated as an exchange and not the sale of an assett.

    They all told me the same thing.

    I should note that you should do your own due diligence, that the above may be entirely incorrect.

    I did present the situation as that I had been holding Euro for over 5 years.
    Didn't get into the Dinar. I plan on taking this up on my next 2 hour phone call to the IRS. I will post if anything other outcome is presented.





    Amazing! Then you need to learn how to use the search feature. Tax threads are numerous and lengthy. Mostly from 2006 when everyone thought the RV was imminent.
    Gee REITman, maybe you should learn to read and/or comprehend someone’s post before you start commenting on it!

    If you had read the entire comment instead of taking part of it out of context, you would have realized that I covered the post by WM Knowles. You seem to have missed the following parts of my post that are in red “Maybe I have missed it since I haven't read every post on this site, but I have not read any post that gives what the IRS rules are on paying taxes when we exchange our Dinar back to Dollars. I have read numerous postings on this site in the time I have been on that state "what the rules are", but without an IRS reference I take them with a grain of salt. I have seen and heard "my accountant told me..." but I have heard numerous things from accountants and even IRS employees that were wrong.”

    Yes, I had read the post by WM Knowles a good while back… but it does not conflict with my statement. As I indicated, I was looking for posts that had an IRS reference – his post did not have one. A statement from an IRS agent is not what I am referring to as an IRS reference. If an IRS agent gives incorrect information and it causes your taxes to be wrong, it is still your fault. His post said that Publication 525 did not cover conversion of currency – it does cover currency conversion on page 30 as I stated in my post. The error was not his fault however; he just made the mistake of taking the word of an erroneous IRS agent without any document reference. Gee, that sounds familiar.

    To his credit, WM Knowles did include the all important phrase of "I should note that you should do your own due diligence, that the above may be entirely incorrect."

    The sole intent of my post was to give the other members of this forum at least one official reference of how the Dinar gains are taxed by the IRS…the only one I have found so far. Is this the final word? Probably not. I am not asking anyone to take my word about anything, I am just pointing out what the IRS documents say and they can interpret it for themselves. It will also let them be forewarned in case their accountant, or whoever else is doing their taxes, doesn’t know about this. Obviously some of the IRS agents don’t know about it.

    As I previously stated, if anyone finds anything else - with reference - please let me know.

  17. #17
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    Default Stuck is right.

    Heres' the link:

    http://www.irs.gov/pub/irs-pdf/p525.pdf

    middle column just over halfway down.
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  18. #18
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    Quote Originally Posted by IITB View Post
    New investors will get hit harder than we old-timers , but it is not considered income by any stretch of the imagination.
    I don't follow your logic Mario
    However I really liked the way you jumped over flaming barrels in the original donkey kong.....lol



    http://www.irs.gov/newsroom/article/...106799,00.html
    First of all, this isn't my logic, it is only what was told to me after a lengthy phone call to the IRS and being transferred to 3 different people. It doesn't matter how IRS handles it if there should be an RV, as I would have a nice problem to deal with.

  19. #19
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    Here is something to keep in mind
    holding currency in your hand is not the same as investing in currency
    investing in currency involves buying on the (forex) market which is done with contracts.
    They are 2 different scenarios. How the taxes work I don't know

    Laws can change on the fly and if the Libs find out about the Iraq windfall Profits you will most likely loss more than half from your War Profits in the New laws they will write
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  20. #20
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    Foreign currency transactions.
    If you have a gain on a personal foreign currency transaction because of changes in exchange rates, you do not have to include that gain in your income 1unless it is more than $200. If the gain is more than $200, report it as a capital gain.
    If it is in your hand there is no proof of a gain.
    Did I buy it a yr ago or 10 min ago
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