Irs Publication 54 - Tax Guide For U.s. Citizens And Resident Aliens Abroad

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include all income from both U.S. and foreign

in the United States or in some other

At least 70% of the grant was paid in non-

sources and pay the tax on that income. If you

country, or

convertible foreign currency.

later meet either of the tests, you can claim the

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Postpone the reporting of the income until

The statement must be certified by the U.S.

foreign earned income exclusion, the foreign

it becomes unblocked.

educational foundation or commission paying

housing exclusion, or the foreign housing de-

the grant or other person having control of grant

duction on Form 1040X.

If you choose to postpone the reporting of the

payments to you.

income, you must file an information return with

Foreign Currency

You should prepare at least two copies of this

your tax return. For this information return, you

statement. Attach one copy to your Form 1040

should use another Form 1040 labeled “Report

and keep the other copy for identification pur-

You must express the amounts you report on

of Deferrable Foreign Income, pursuant to Rev.

poses when you make a tax deposit of noncon-

your U.S. tax return in U.S. dollars. If you receive

Rul. 74-351.” You must declare on the informa-

vertible foreign currency.

all or part of your income or pay some or all of

tion return that you will include the deferrable

your expenses in foreign currency, you must

Figuring actual tax. When you prepare

income in your taxable income for the year that it

translate the foreign currency into U.S. dollars.

becomes unblocked. You also must state that

your income tax return, you may owe tax or the

How you do this depends on your functional

you waive any right to claim that the deferrable

entire liability may have been satisfied with your

currency. Your functional currency generally is

income was includible in your income for any

estimated tax payments. If you owe tax, figure

the U.S. dollar unless you are required to use

earlier year.

the part due to (and payable in) the nonconvert-

the currency of a foreign country.

ible foreign currency by using the following

You must report your income on your infor-

formula.

You must make all federal income tax deter-

mation return using the foreign currency in

minations in your functional currency. The U.S.

which you received that income. If you have

dollar is the functional currency for all taxpayers

blocked income from more than one foreign

Adjusted

except some qualified business units (QBUs). A

country, include a separate information return

gross

QBU is a separate and clearly identified unit of a

for each country.

income that

trade or business that maintains separate books

Income becomes unblocked and reportable

is blocked

Tax on

Total

and records.

for tax purposes when it becomes convertible, or

income

blocked

U.S. tax

when it is converted, into dollars or into other

Even if you have a QBU, your functional

income

Total

money or property that is convertible into U.S.

currency is the dollar if any of the following

adjusted

currency. Also, if you use blocked income for

apply.

gross

your personal expenses or dispose of it by gift,

income

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You conduct the business in dollars.

bequest, or devise, you must treat it as un-

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blocked and reportable.

The principal place of business is located

You must attach all of the following to the

in the United States.

If you have received blocked income on

return.

which you have not paid tax, you should check

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You choose to or are required to use the

A copy of the certified statement dis-

to see whether that income is still blocked. If it is

dollar as your functional currency.

cussed earlier.

not, you should take immediate steps to pay tax

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The business books and records are not

on it, file a declaration or amended declaration of

A detailed statement showing the alloca-

kept in the currency of the economic envi-

estimated tax, and include the income on your

tion of tax attributable to amounts received

tax return for the year in which the income be-

in foreign currency and the rates of ex-

ronment in which a significant part of the

came unblocked.

change used in determining your tax liabil-

business activities is conducted.

ity in U.S. dollars.

If you choose to postpone reporting blocked

Make all income tax determinations in your

income and in a later tax year you wish to begin

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The original deposit receipt for any bal-

functional currency. If your functional currency is

including it in gross income although it is still

ance of tax due that you paid in noncon-

the U.S. dollar, you must immediately translate

blocked, you must obtain the permission of the

vertible foreign currency.

into dollars all items of income, expense, etc.

IRS to do so. To apply for permission, file Form

(including taxes), that you receive, pay, or ac-

3115, Application for Change in Accounting

Figuring estimated tax on nonconvertible

crue in a foreign currency and that will affect

Method. You also must request permission from

foreign currency. If you are liable for esti-

computation of your income tax. Use the ex-

the IRS on Form 3115 if you have not chosen to

mated tax (discussed later), figure the amount

change rate prevailing when you receive, pay, or

defer the reporting of blocked income in the

you can pay to IRS in nonconvertible foreign

past, but now wish to begin reporting blocked

accrue the item. If there is more than one ex-

currency using the following formula.

income under the deferred method. See the

change rate, use the one that most properly

instructions for Form 3115 for information.

reflects your income. You can generally get ex-

Adjusted

change rates from banks and U.S. Embassies.

gross

If your functional currency is not the U.S.

Fulbright Grant

income that

dollar, make all income tax determinations in

Estimated

is blocked

Total

your functional currency. At the end of the year,

tax on

income

All income must be reported in U.S. dollars. In

× estimated =

translate the results, such as income or loss, into

blocked

most cases, the tax must also be paid in U.S.

U.S. tax

Total

income

U.S. dollars to report on your income tax return.

dollars. If, however, at least 70% of your Ful-

adjusted

bright grant has been paid in nonconvertible

gross

foreign currency (blocked income), you can use

income

Blocked Income

the currency of the host country to pay the part

of the U.S. tax that is based on the blocked

If you must pay your host country income tax

You generally must report your foreign income

income.

on your grant, subtract any estimated foreign tax

in terms of U.S. dollars and, with one exception

credit that applies to your grant from the esti-

(see Fulbright Grant, later), you must pay taxes

mated tax on the blocked income.

Paying U.S. tax in foreign currency. To

due on it in U.S. dollars.

qualify for this method of payment, you must

If, because of restrictions in a foreign coun-

prepare a statement that shows the following

Deposit of foreign currency with disbursing

try, your income is not readily convertible into

information.

officer. Once you have determined the

U.S. dollars or into other money or property that

amount of the actual tax or estimated tax that

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is readily convertible into U.S. dollars, your in-

You were a Fulbright grantee and were

you can pay in nonconvertible foreign currency,

come is “blocked” or “deferrable” income. You

paid in nonconvertible foreign currency.

deposit that amount with the disbursing officer of

can report this income in one of two ways:

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The total grant you received during the

the Department of State in the foreign country in

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Report the income and pay your federal

year and the amount you received in non-

which the foundation or commission paying the

income tax with U.S. dollars that you have

convertible foreign currency.

grant is located.

Chapter 1 Filing Information

Page 5

Irs Publication 54 - Tax Guide For U.s. Citizens And Resident Aliens Abroad - 2008 Page 5

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