Note:
Ronald C. Kalteyer, The Foreign Tax Credit and Foreign Currency Translations: A Case for Recognition of Gain or Loss upon Foreign Currency Exchange Fluctuations, 57 Texas L. Rev. 101 (1978).
 

Abstract:
Currency fluctuations under the present flexible exchange system affect the tax liability of corporations conducting business abroad. The recent development of a “weak” dollar has significant tax results for a domestic corporation operating abroad on the accrual basis and in the form of a foreign branch. Nevertheless, neither Congress nor the Treasury Department has acted to promulgate guidelines for dealing with the tax consequences of liquidating a foreign tax liability with foreign currency during a fluctuating market. This note observes that the present system for converting the creditable foreign taxes or a foreign branch from the foreign currency into a U.S. dollar equivalent results in double taxation and defies the concepts of accrual accounting. The Note therefore recommends that Congress adopt an approach that recognizes a foreign currency gain or loss when the exchange rate differs between the date a tax liability accrues and the date it is paid, in order to replace the present scheme in which the foreign tax credit is actually adjusted. In addition, the Note recommends the use of an average exchange rate to convert taxes and foreign income.