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I am US citizen living in Spain, and received interest income from deposits in Spain and India. I am reporting these on Schedule B and form 1116 to get credit for the taxes I paid on the interest earned. The IRS says:

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.

I recd. interest from several short-term deposits from Spanish banks, none of which report the exact date on which they paid me the interest or deducted the tax at source. They all report the total amounts on an end-of-the-year statement.

I also recd. interest from an Indian bank, four times a year. For these, I do have the dates when I got the interest and the tax was deducted.

  1. Does IRS really want me to report a separate line for every time the interest was posted to my account and tax was deducted, and find out the exchange rate for that day using some random website for historical currency rates?

  2. And, what do I do for the banks that don't tell me the dates when they posted the interest?

For most of other reporting (for example, for Schedule B), I have been using the IRS suggested end-of-the-year exchange rate as available on https://fiscaldata.treasury.gov/currency-exchange-rates-converter/

Suggestions?

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I recd. interest from several short-term deposits from Spanish banks, none of which report the exact date on which they paid me the interest or deducted the tax at source.

That's extremely unlikely. I haven't heard of any bank that wouldn't provide monthly transaction statements. This claim will not fly with the IRS at audit because it's just implausible.

Does IRS really want me to report a separate line for every time the interest was posted to my account and tax was deducted, and find out the exchange rate for that day using some random website for historical currency rates?

No, you report interest paid per bank on each line of your Schedule B, and you summarize the totals for each bank. But you do that in USD, so each individual transaction needs to be converted to USD.

As to rate, not some random website, you can use the US Treasury rates.

And, what do I do for the banks that don't tell me the dates when they posted the interest?

Ask again. This just makes no sense.

I have been using the IRS suggested end-of-the-year exchange rate

No, you have to use the rate at the date of the transaction.

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  • You are right, I do have the monthly statements and I can get the exact dates. I just find it incredibly labor-intensive to calculate indiv. amounts separately rather than summarizing them as is possible when using the accrual method. In my case esp. such small sums are involved that the amount of work just seems disproportionate. Anyway, thanks for the guidance
    – punkish
    Commented Apr 10 at 18:37
  • Well, you could overestimate, overpay, and let them correct it back down if and when they audit you; you won't generally get in trouble for paying too much. That would minimize labor...
    – keshlam
    Commented Apr 10 at 19:36
  • I also have a savings account that pays me interest every month. This IRS requirement would imply 12 entries on Sched B for the interest from just one source. What a pain
    – punkish
    Commented Apr 10 at 20:03
  • @punkish why? there's no such requirement.
    – littleadv
    Commented Apr 10 at 20:03
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    I see what your confusion is about. No, you don't need to list each transaction separately on the forms. What you do is attach a statement listing the transaction, date, and rate, and on the form you only write the totals. You don't even really have to attach such a detailed statement, you can just attach a statement about conversion rate source (e.g.: "I used the TD exchange rates for currency conversions").
    – littleadv
    Commented Apr 10 at 20:45

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