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: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.
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.