[Joe_Baker]

Hi,

Can you please help me understand how to report foreign exchange (forex) currency transactions? Unbelievably, the IRS seems unable to tell me. I only traded major currency pairs such as British Pound / US Dollars, Japanese Yen / US Dollars, etc. I think the IRS classifies forex under Section 1256 Contracts. I'm a small time, retail investor…not a professional trader.

My forex broker is based in Switzerland and I doubt that I'll receive a 1099-B. Without a 1099-B, I think I have to report each individual transaction (a nightmare). With a 1099-B, I think I can just report the amount from the 1099-B on Form 1040 line 21. Can you please clarify?

I attached a file containing an example forex transaction. Can you please tell me how to report it? A few notes regarding the attached transaction:

(a) Forex rules require that any trade still open at 21:00:00 hours must be closed and then reopened for the next day. This is why there are 2 Rollover lines in the attachment (see Trade # column).
(b) In the attachment, on 5/19/10 I bought 16,611.25 British Pounds (GBP) and simultaneously sold an equivalent amount of US Dollars based on the exchange rate in effect at the time. Then I held onto the trade past 21:00:00 (so they closed it and reopened another trade). Finally, to close the position, I had to do the opposite and sell 15,744.12 GBP and buy an equivalent amount in US Dollars. The transaction closed at a loss.
(c) The transaction belongs to one single Position # and consists of multiple trades, since forex orders can be split up and filled in whatever market offers the best price at the time, regardless of where that market is (Singapore, Germany, US, etc.).

Thank you very much,
Joe

[AtlantaTaxExpert]

Joe:

There are tax firms that specialize in reporting foreign exchange transactions, and there are forums that cover tax treatment of such transactions.

This is NOT one of those forums.

I have virtually no experience in reporting these type of transactions, but my cursory research indicates, that, in some cases, you CAN declare profits or losses on FOREX transactions as "Other Income" on Line 21 of Form 1040.

STRONGLY recommend you find a tax professional who has experience reporting these transactions to make sure they are reported correctly. It is a rather complex taxation issue.