# Exchange rates changed!



## Scootercat (Jan 9, 2013)

Does anyone know that the IRS "Yearly Average Currency Exchange Rates" were revised in Nov 2011? They were increased 4% across the board for all previous years based on a random sample that I checked. This means you can amend your previous year taxes and get money back. Or can you...this is my question.

Here are the current rates: Google Yearly Average Currency Exchange Rates 

I can't post a link to the original rates prior to Nov 2011 as I'm not allowed but I used the Way Back Machine site to find them.

Here is an example: Using Hong Kong currency, if you earned 777,000 HKD in 2010 then using the original rate of 7.77 you would pay tax on 100,000 USD. Using the new rate of 8.08, the taxable amount is 96,163 USD. That's a difference of 3,837 USD and if you are in the 28% tax bracket the tax savings is 1,074 USD. Not chump change!

Can you amend a tax return for the change in currency rates published by IRS?


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## Bevdeforges (Nov 16, 2007)

You can always try - but I wouldn't hold my breath on getting a refund based on a change in the tables the IRS has posted. The yearly averages are here: Yearly Average Currency Exchange Rates but note well the section headed Currency Exchange Rates (emphasis is mine):



> Currency exchange rates
> 
> The Internal Revenue Service *has no official exchange rate.* Generally, it accepts any posted exchange rate that is *used consistently*.
> 
> When valuing currency of a foreign country that uses multiple exchange rates,* use the rate that applies to your specific facts and circumstances.* For example, if you have a single transaction such as the sale of a business that occurred on a single day, use the exchange rate for that day. However, if you receive income evenly throughout the tax year, you may translate the foreign currency to U.S. dollars using the yearly average currency exchange rate for the tax year.


Besides, if you earned 777,000 HKD in 2010, why wouldn't you have taken the FEIE, which would have eliminated taxation on the first $90,000 or so?
Cheers,
Bev


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## Scootercat (Jan 9, 2013)

Thanks for the reply, Bev.
I realize that the IRS leaves it up to the taxpayer to use a legitimate tax conversion. But since their own site does show yearly average rates (which I use for my returns) and they chose to change them for prior years, why can't I use the updated values? What is the purpose of revising this list if you can't use the numbers? Is there some other reason someone could use these revised rates for prior years?
I gave a simple example of 100K USD which is too low if you consider the FEIE. Yes, I use the FEIE but if income is higher than the rate change is significant.


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## Bevdeforges (Nov 16, 2007)

You're free to try amending your return based on the change in rates. It's possible you'll be asked to justify the change in your circumstances, but it's also possible they'll just let it fly.

Basically, the keep publishing the back rates because there are lots of circumstances where people file really really late, or are back-filing a number of years (like expats who didn't realize they were supposed to be filing). People also need the old rates for figuring things like capital gains.

However, the higher the income involved, the more likely they are to insist that you use the exchange rates based on the date of the transaction, and not the annual averages.
Cheers,
Bev


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## Scootercat (Jan 9, 2013)

UPDATE: I successfully amended my 2009 US tax return using the new exchange rates table from IRS (google Yearly Average Currency Exchange Rates) and received a refund of >$2,000 USD.
So it works and now I can amend my 2010 tax return as well. For other high income earners who convert foreign earned income to USD, you can also potentially save hundreds if not thousands of dollars in tax. For example, I estimate savings >$1,000 USD in tax for foreign income equivalent to $130,000 USD


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