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 Rev. Rul. 75-90

1975-1 C.B. 17

Section 61 -- Gross Income Defined

IRS Headnote

Foreign rental profits; currency conversion. A U.S. calendar year individual whose rental profits from property he owns in a foreign country are deposited in that country and periodically transferred to him in the U.S. should, before deducting depreciation, convert the transfers into dollars at the exchange rate in effect on each transfer date and may compute the rate for any unremitted profit by dividing by 12 the total of the closing rates of exchange for all months in the year. Depreciation computed in dollars is separately determined.

Full Text

Rev. Rul. 75-90

A United States individual calendar year taxpayer owns an apartment building in foreign country R. A bank located in R acts as agent for the taxpayer in administering the income and expenses of the apartment building. For 1974, as well as for all prior years, the taxpayer realized a net profit from his ownership of this rental property. The income is received and the expenses are paid in the currency of R. During the year 1974, over 100 separate transactions were recorded in the taxpayer's account held by the bank. The taxpayer arranges about once a year for the transfer to the United States of part or all (depending on need) of the accumulated funds in the bank account. Foreign exchange rates fluctuated constantly during 1974. For each of the taxable years prior to 1974 the unremitted rental profit in R currency was converted to United States dollars by use of the exchange rate at December 31. For the taxable year 1974, the taxpayer requested that he be permitted to convert his rental profit by use of an average monthly exchange rate.

The taxpayer was granted permission to compute his rental income as follows:

From the rental profit for the taxable year computed in R currency without deducting depreciation, subtract any remittances computed in R currency during the taxable year to determine the unremitted profit expressed in R currency. Convert the remittances in R currency to dollars at the rate of exchange on each date of the remittance and convert the unremitted profit in R currency to dollars by using a simple average exchange rate determined by dividing the sum of the closing rate of exchange for each of the calendar months ending in 1974 by 12. From the sum of these two amounts expressed in dollars subtract depreciation computed in dollars by reference to the basis of the property as of the date of acquisition by using the rate of exchange of the foreign currency used in the acquisition of the property on such date. The remainder is the rental income expressed in United States dollars to be taxed in 1974.

Any further change in the method of determining the profit of rental property located in country R in terms of dollars would be a change in method of accounting under section 446(e) of the Internal Revenue Code of 1954 that would again require the consent of the Commissioner of Internal Revenue.