Hello reinhartkind:
Thanks for your follow-up question. While I don't have a full legal citation for you, this concept is a long-standing principle in international taxation, as well as international financial (non-tax) accounting; and it applies to taxpayers whose primary currency is the United States dollar.
It is discussed in layman's terms on the following official IRS.gov webpage (but without any corresponding legal citations):
<a rel="nofollow" target="_blank" href="
https://www.irs.gov/individuals/international-taxpayers/foreign-currency-and-currency-exchange-rates...>
In particular, there is a relevant quote there that reads:
"Make all income tax determinations in your functional currency. If your functional currency is the U.S. dollar, you must immediately translate into dollars all items of income, expense, etc. (including taxes), that you receive, pay, or accrue in a foreign currency and that will affect computation of your income tax. Use the exchange rate prevailing when you receive, pay, or accrue the item."
Really, when you take a moment and think about it, the basic underlying principle is logical, and it makes good common sense. To disaggregate foreign currency exchange rate fluctuations from price movements in the underlying assets would just add another layer of complication to an already cumbersome tax code. By having such a straightforward foreign currency rule in place (i.e., translate all transactions completed in a foreign currency back to U.S. dollars at the moment in time they occur), it simply makes things easier. This is true both for the taxpayer, and for the government (in their role as potential tax auditor).
Thanks again, and good luck with your future investing.
