Taxpayer asks:
Dear Tax Girl,
Do I have to pay my taxes in US dollars?
Taxgirl says:
What a fun question!
At first, I was going to say “Of course!” But then I decided to do a little research and found out that I was wrong (sort of).
According to the Tax Code (§6316 Payment by foreign currency):
The Secretary is authorized in his discretion to allow payment of taxes in the currency of a foreign country under such circumstances and subject to such conditions as the Secretary may by regulations prescribe.
The law has been on the books since 1954 (I suspect as a response to the problems trading with European eastern bloc nations) and was amended in 1976 (the words “or his delegate” were deleted after “The Secretary”).
You must report the amounts owed in US dollars on your tax return. If you wish to pay in another currency, you then apply to the Treasury for permission. Permission is generally granted only for money considered to be “nonconvertible foreign currency.” “Nonconvertible foreign currency” is defined as:
currency of the government of a foreign country which, owing to (1) monetary, exchange, or other restrictions imposed by the foreign country, (2) an agreement entered into with the United States of America, or (3) the terms and conditions of the U.S. Government grant, is not convertible into U.S. dollars or into other money which is convertible into U.S. dollars. The term shall not, however, include currency which, notwithstanding such restrictions, agreement, terms, or conditions, is in fact converted into U.S. dollars or into property which is readily disposable for U.S. dollars.
In the case of nonconvertible foreign currencies (also called “blocked currencies”), there is also opportunity for tax deferral. This is an area of taxation not for the faint of heart, so if you think this applies to you, you should definitely consult with your tax professional (and drop me a note because I’m dying to learn more).
With all of this info, I’ve scoured the web looking for an example. I mean, it seems nearly impossible to me that in today’s economic and technological climate, you wouldn’t be able to convert a currency to US dollars. Even if you were paid in goats, you could convert that to dollars… Apparently, there are some restrictions regarding the amount of foreign currency that can be removed or exchanged in some countries like Pakistan and Nepal but I haven’t been able to find out any additional details – anyone?
So there you go. The bottom line is that if you’re trying to pay in Euro just because the exchange rate is soooo much better, you’re out of luck. But if you have a real hardship with respect to conversion, the government will cut you a break. Uncle Sam does, after all, want to get paid.
See? You learn something new every day!
Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.
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Wishing you and your loved ones a great 2009.
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I cannot understand how anything, and I mean anything, cannot be converted to money of some type. They even managed to convert rocks into money not to long ago (remember “pet rocks”). As far as converting goats into dollars (as well as chickens, a dog, a horse, moonshine, a saddle, several beat up vehicles, some property, brownies, peanut butter candy, cheese, eggs and some things I cannot remember)all are convertible (or usable). I know – I have been paid in all of them.
Skip
I know, I’ve been paid in baked goods, plants and old toys myself…
But apparently some currencies have government restrictions on conversion, including the Cuban peso and the malatsian ringett which “is not convertable (from ringett to another currency) outside of malaysia” according to one of my twitter peeps (Maya).