Hello there, I have foreign-earned income and want to use the foreign income tax credit, but it says I have to file on paper if taxes payed in foreign currency. Any help?

I'm not sure where you are seeing this message. Foreign tax would be paid in foreign currency.  You only need to convert it to USD.   https://www.irs.gov/individuals/international-taxpayers/yearly-average-currency-exchange-rates

You cannot report in TurboTax the foreign taxes in foreign currency but you do not need to.  Just enter the USD amount.

The IRS Instructions for Form 1116 say, "You must enter in Part II the amount of foreign taxes, in both the foreign currency denomination(s) and as converted into U.S. dollars, that relate to the category of income checked above Part I."

When you get to the end of the Foreign Tax Credit section in TurboTax Online, it says "Your foreign tax credit is XXXX. Certain less common circumstances may require additional computations on your part. Select more information for a complete explanation of the steps you should take.

When you select more information, it pops up with the following:

Here are a few unusual situations relating to Form 1116 that are not handled in Interview:
...
- Foreign taxes paid in foreign currency and you converted the amounts to U.S. dollars
...
If any of these situations apply to you, you cannot use TurboTax Online to prepare your return.

???

I too have this question/concern. any resolution?

@fjordlander @emagill93 @basobie  and @KarenJ , the problem is this  --- when you look at form 1116 section II, it asks you to report  your foreign taxes  ( by category of income )  either in  "foreign currency" or in  converted US$.   If you choose to enter the  details  on the left side boxes ( foreign currency ) then yes, you are asking the IRS to convert the taxes paid  to US$ -- therefore not eligible  for e-file.   On the other hand if you chose to convert the foreign currency and report everything in US$, then  you can certainly e-file.     

Just go back and report everything in US$ and things should proceed normally --- I have  filed many , many  foreign income returns  for my clients ( of course using professional software ).  TurboTax works  well here  ( except for some  small  inconveniences  here and there.

Good Luck

Thanks @pk .. However, these options are not available in the online version. From what you are suggesting, it seems like we'd need a desktop version for this. Is that correct?

Thanks again.

I know the Form 1116 instructions say to enter the foreign tax both in the foreign currency and in USD.  However, most all  of the  Forms 1116 that are submitted  to the IRS only include the USD amount.   In all my years of filing this form, I have never seen a notice about the amounts only denoted in USD.  As pk said, you can just report everything in USD, then you can e-file.

If you wish to enter the foreign currency amounts, you can do this with the CD/Desktop version in the forms view.  You will find the CD/Desktop version is much easier.  You can view your forms while you prepare your tax return.

Perfect.. Thank you @KarenJ2