Hello!
My name is dennis. I have a int'l tax question for reporting foreign currency exchange gain.

Here is the case: A China Citizen with 9 yrs green card in US. He seldom comes to US. He bought a china stock at 8M rmb the translation spot rate is 1usd vs 8 rmb before he got green card. He sold out the stock for 7M rmb but never exchange into USD. the translation spot rate is 1usd vs 6.2 rmb this year.

RMB 7M-8M=-1M (LT CAPITAL LOSS)
USD 1.13M-1M=130000(CURRENCY TRANSLATION GAIN)

Questions:1. Which functional currency he should use for file his us tax return?Should he report the phenomenon gain?
2. If he sold out for 9M rmb instead of 7M, should he report the currency trnslation gain?
3.bought the china stock after getting the green card anything reporting difference?

Thank you!

1) He converts the Chinese currency to USD on the dates of purchase and sale, and reports the stock purchase and sale in USD.

2) Since the foreign exchange is factored into the stock sale, it is NOT reported separately, but is considered part of the stock sale.

3) No.

Hi AtlantaTaxExpert,
Thank you for the reply. I agree with your opinion. But IRS has a rule about if the functional currency is not USD, the functional currency could be converted into USD using Dec 31 exchange rate. But there is no clear example or more explanation. I feel above case may be satisfied with the functional currency is not USD rule. Because the taxpayer is also a china citizen and lived in china most of the time. The two country are all world wide income taxation. If the functional currency can be recognized as RMB technically. Then the phenomenon gain couldn't be a problem. What do you think about it?

Best
Dennis

Dennis,

Irrespective of whatever currency is used, the final loss or gain MUST be reported in USD so that the U.S. income tax can be assessed.