An important feature of expatriate tax compliance is the need to translate foreign currencies into the U.S. dollar equivalent (which is the basis for all income tax calculations). The IRS provides taxpayers with a few options of how to convert foreign currencies. One option is to use the average foreign exchange rates provided on the IRS website. Interestingly, the IRS does not require taxpayers to use the foreign currency exchange rates it provides and it also allows for the use of average exchange rates found on major foreign exchange websites such as Oanda.com and XE.com. What is most interesting about the IRS openness to accept other exchange rates is that it allows taxpayers the opportunity to choose an exchange rate that might be more beneficial to their particular situation. For example, a taxpayer with a salary of 300,000 Euro might want to elect the exchange rate that values the US dollar less than the other listed rates so as to report the lowest US dollar salary value on the tax return. It is also noteworthy that the IRS provided exchange rate average occasionally differs significantly from the average rates provided on the aforementioned websites without much explanation for the discrepancy.
