Publication 54 - Tax Guide For U.s. Citizens And Resident Aliens Abord - 2011 Page 5
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44Paying U.S. tax in foreign currency. To
possible because you must pay interest on any
(see Fulbright Grant, later), you must pay taxes
tax due after the regular due date of the return
due on it in U.S. dollars.
qualify for this method of payment, you must
(even though an extension was granted).
If, because of restrictions in a foreign coun-
prepare a statement that shows the following
try, your income is not readily convertible into
information.
You should make any request for an
U.S. dollars or into other money or property that
!
•
extension early, so that if it is denied
You were a Fulbright grantee and were
is readily convertible into U.S. dollars, your in-
you still can file your return on time.
paid in nonconvertible foreign currency.
CAUTION
come is “blocked” or “deferrable” income. You
Otherwise, if you file late and additional tax is
•
can report this income in one of two ways:
The total grant you received during the
due, you may be subject to a penalty.
year and the amount you received in non-
•
Report the income and pay your federal
Return filed before test is met. If you file a
convertible foreign currency.
income tax with U.S. dollars that you have
return before you meet the bona fide residence
•
in the United States or in some other
At least 70% of the grant was paid in non-
test or the physical presence test, you must
country, or
convertible foreign currency.
include all income from both U.S. and foreign
•
Postpone the reporting of the income until
sources and pay the tax on that income. If you
The statement must be certified by the U.S.
it becomes unblocked.
later meet either of the tests, you can claim the
educational foundation or commission paying
foreign earned income exclusion, the foreign
the grant or other person having control of grant
If you choose to postpone the reporting of the
housing exclusion, or the foreign housing de-
payments to you.
income, you must file an information return with
duction on Form 1040X.
You should prepare at least two copies of this
your tax return. For this information return, you
statement. Attach one copy to your Form 1040
Foreign Currency
should use another Form 1040 labeled “Report
and keep the other copy for identification pur-
of Deferrable Foreign Income, pursuant to Rev.
poses when you make a tax deposit of noncon-
Rul. 74-351.” You must declare on the informa-
You must express the amounts you report on
vertible foreign currency.
tion return that you will include the deferrable
your U.S. tax return in U.S. dollars. If you receive
income in your taxable income for the year that it
all or part of your income or pay some or all of
Figuring actual tax. When you prepare
becomes unblocked. You also must state that
your expenses in foreign currency, you must
your income tax return, you may owe tax or the
you waive any right to claim that the deferrable
translate the foreign currency into U.S. dollars.
entire liability may have been satisfied with your
income was includible in your income for any
How you do this depends on your functional
estimated tax payments. If you owe tax, figure
earlier year.
currency. Your functional currency generally is
the part due to (and payable in) the nonconvert-
You must report your income on your infor-
the U.S. dollar unless you are required to use
ible foreign currency by using the following
mation return using the foreign currency in
the currency of a foreign country.
formula.
which you received that income. If you have
You must make all federal income tax deter-
blocked income from more than one foreign
minations in your functional currency. The U.S.
country, include a separate information return
dollar is the functional currency for all taxpayers
Adjusted
for each country.
gross
except some qualified business units (QBUs). A
Income becomes unblocked and reportable
income that
QBU is a separate and clearly identified unit of a
is blocked
for tax purposes when it becomes convertible, or
trade or business that maintains separate books
Tax on
Total
income
when it is converted, into U.S. dollars or into
×
and records.
=
blocked
U.S. tax
other money or property that is convertible into
income
Even if you have a QBU, your functional
Total
U.S. currency. Also, if you use blocked income
currency is the dollar if any of the following
adjusted
for your personal expenses or dispose of it by
apply.
gross
gift, bequest, or devise, you must treat it as
income
•
You conduct the business in U.S. dollars.
unblocked and reportable.
You must attach all of the following to the
•
If you have received blocked income on
The principal place of business is located
return.
which you have not paid tax, you should check
in the United States.
to see whether that income is still blocked. If it is
•
A copy of the certified statement dis-
•
You choose to or are required to use the
not, you should take immediate steps to pay tax
cussed earlier.
U.S. dollar as your functional currency.
on it, file a declaration or amended declaration of
•
A detailed statement showing the alloca-
•
estimated tax, and include the income on your
The business books and records are not
tion of tax attributable to amounts received
tax return for the year in which the income be-
kept in the currency of the economic envi-
in foreign currency and the rates of ex-
came unblocked.
ronment in which a significant part of the
change used in determining your tax liabil-
business activities is conducted.
If you choose to postpone reporting blocked
ity in U.S. dollars.
income and in a later tax year you wish to begin
Make all income tax determinations in your
including it in gross income although it is still
•
The original deposit receipt for any bal-
functional currency. If your functional currency is
blocked, you must obtain the permission of the
ance of tax due that you paid in noncon-
the U.S. dollar, you must immediately translate
IRS to do so. To apply for permission, file Form
vertible foreign currency.
into U.S. dollars all items of income, expense,
3115, Application for Change in Accounting
etc. (including taxes), that you receive, pay, or
Method. You also must request permission from
Figuring estimated tax on nonconvertible
accrue in a foreign currency and that will affect
the IRS on Form 3115 if you have not chosen to
foreign currency. If you are liable for esti-
computation of your income tax. Use the ex-
defer the reporting of blocked income in the
mated tax (discussed later), figure the amount
change rate prevailing when you receive, pay, or
past, but now wish to begin reporting blocked
you can pay to the IRS in nonconvertible foreign
accrue the item. If there is more than one ex-
income under the deferred method. See the
currency using the following formula.
change rate, use the one that most properly
instructions for Form 3115 for information on
reflects your income. You can generally get ex-
changing your accounting method.
change rates from banks and U.S. Embassies.
Adjusted
If your functional currency is not the U.S.
gross
Fulbright Grant
income that
dollar, make all income tax determinations in
Estimated
is blocked
your functional currency. At the end of the year,
Total
tax on
All income must be reported in U.S. dollars. In
income
translate the results, such as income or loss, into
× estimated =
blocked
most cases, the tax also must be paid in U.S.
U.S. tax
U.S. dollars to report on your income tax return.
Total
income
dollars. If, however, at least 70% of your Ful-
adjusted
bright grant has been paid in nonconvertible
gross
foreign currency (blocked income), you can use
Blocked Income
income
the currency of the host country to pay the part
You generally must report your foreign income
of the U.S. tax that is based on the blocked
If you must pay your host country income tax
in terms of U.S. dollars and, with one exception
income.
on your grant, subtract any estimated foreign tax
Chapter 1 Filing Information
Page 5
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