I have submitted my TD F90-22.1 form in with my 2012 tax return for transferring monies from my bank in the US into a European bank. The money was transferred in US dollars and converted by the European Bank into Euros at a specific exchange rate for the term deposit. I will receive the interest earned in Euros this year after tax is withheld by the bank and I will have to file form 1116 for 2013. The taxes are automatically deducted from the earned interest at 26.5%. Are the losses in exchange rate taken into account when filing 1116? When I file 1116, do I have to attach some documentation showing the tax that I have paid in the interest earned with the term deposit?

ANSWER

The BIDaWIZ Team's Answer:

There's no FX gain or loss to report here given that this is not considered an investment in foreign currency. Rather, this is an asset valued in US Dollars that happens to be held in foreign currency. The only income from this is the bank interest. As for the currency reporting question, you will convert the euros to $ as of the day the taxes were withheld or paid, and you will attach a statement showing the conversion on that date. Make sure you include the support for the conversion you use. Here's an excerpt from form 1116: "Report all amounts in U.S. dollars except where specified otherwise in Part II of form 116. If you have to convert from foreign currency, attach a detailed explanation of how you figured the conversion rate. If you take a credit for taxes paid, the conversion rate is the rate of exchange in effect on the day you paid the foreign taxes (or on the day the tax was withheld). If you receive a refund of foreign taxes paid, the conversion rate is the rate in effect when you paid the taxes, not when you receive the refund." Also, you stated that you submitted form TD F90-22.1 with your tax form, is that correct? If so, this form actually should not be submitted with your return. It has a separate mailing address and a due date of June 30.