An unwanted consequence of using IBKR for currency exchange

[Larry Lain]

This question might be slightly off-topic but it seems to fit here nonetheless. I'm bringing it up here because I had ignored idea of potential tax liability on currency exchange since I never ran into with regular bank accounts. Brokerage account create an issue.

I had been using Wise (formerly TransferWise) and Revolut for transferring money from USD to EUR in larger (for me) amounts.
I then found myself opening a USD-based IBKR account to get access to European stocks and discovered transferring USD to EUR thru IBKR cut the fees up to 90% versus Revolut or Wise. When I transferred some of this money the USD:Euro exchange rate was close to parity. It's now closer to 1.10 : 1.
It now seems that withdrawing this Euro cash from IBKR into a regular Euro bank account will create a tax event because IBKR is a brokerage account. There's a roughly 10% currency capital gain involved on which I am now taxable in the US. Had I paid the extra fee to use Wise or Revolut, it seems no taxable event would arise. In my situation it therefore appears that to save about $400 in fees on a 100k USD/Euro exchange, I've become liable for about $2,500 in capital gains in the US.

Of course, had the USD:Euro exchange rate gone the other direction, I'd be looking at a capital loss to reduce my capital gains liability.

I presume IBKR would create similar tax events for those transferring EUR, or Sterling, to USD for the purpose of buying US stocks on US exchanges, or when withdrawing USD for use in the USA by EU or UK residents.

Anyone here familiar with this situation?

 

[MugsGame]

Why do you think a tax liability would not also arise from FX gains on a round-trip made using Wise/Revolut?

At least for Irish tax purposes, the gain is what creates the potential liability. The type of financial service provider used is immaterial. (For example, if I as an Irish tax resident were to mine cryptocurrency, I pay income tax on the coin value when mined and CGT on any gain when selling.).

 

[Larry Lain]

In the US, retail banks send the IRS a 1099-INT showing earned bank interest but I've never seen a retail bank issue any tax document on currency profits/losses to non-profesional individuals. In the last 10/15 years since I've used things like Revolut, TransferWise, etc, I have never had them send a 1099-B to the IRS and those accounts are registered in the US. Do European banks send docs showing profit/loss on currency transactions to their respective taxing authorities?

If you took a trip to London, used sterling to pay for a hotel, bought dinner, rented a car, had a cup of coffee, etc, would your Irish bank be expected to issue Irish Internal Revenue a currency capital gains/loss statement on all these transactions?

 

[MugsGame]

No, but at the levels where gains become material, you'd still be expected to declare them.