If you are a US citizen living in a country that restricts access to dollars, the IRS still expects you to report your worldwide income in US dollars — even when you cannot actually get your money out. That gap between what you owe on paper and what you can actually move creates questions most expat tax guides never touch: which exchange rate to use when the official and street rates differ, whether you can defer tax on money that is stuck, and how to report a bank account you cannot access.
This guide walks through each of those questions, with the rules that apply and the primary sources behind them.
Where this hits Americans abroad
Currency controls are not limited to a few sanctioned regimes. Below are the situations US expats most often run into, and the tax question each one raises. Restrictions change often, so check the current rules in your country before relying on this overview.
| Country | What is restricted (as of 2026) | The US tax question it raises |
|---|---|---|
| Argentina | Individuals can buy official dollars since April 2025; a temporary 90-day ban on cross-trading (buying official dollars and selling dollar-settled assets, or the reverse) was imposed in September 2025. Check the current rules with the Central Bank (BCRA) | Which rate to use for income earned under the old split-rate system |
| China | $50,000 annual conversion quota per person; outbound capital screened | Is income above the quota "blocked"? |
| India | Up to $250,000 per year can be sent abroad; capital account partly closed | Timing of large repatriations, such as a property sale |
| Russia | Transfers capped; residents of "unfriendly" countries largely blocked | Deferring tax on funds you cannot move; FBAR on frozen accounts |
| Lebanon | No formal law, but banks have frozen dollar withdrawals since 2019 | How to value a frozen account on the FBAR |
| Nigeria, Egypt, Ethiopia | Rates unified or floated in 2023–2024; dollar access still managed | Which rate applies to income earned before the reforms |
| Algeria, Morocco, Tunisia | Currencies not freely convertible; transfers need approval | Paying US tax in dollars on income stuck in local currency |
| Venezuela, Cuba, Iran | Near-total controls; large parallel markets | Official versus street rate, plus US sanctions rules |
Official rate or street rate: which one goes on your return?
Every amount on your US return must be in dollars. The IRS tells individuals to translate each item at the rate prevailing when it is received, paid or accrued — and, crucially, that when more than one exchange rate exists, you should use the one that most properly reflects your income (IRS).
That single sentence matters enormously in a split-rate economy. If you were paid in pesos in Argentina when the official rate was half the street rate, the official rate would inflate your dollar income on paper. The rate that "most properly reflects your income" is generally the one at which you could actually convert your money.
Three practical rules follow:
- Use the rate you could really access. If the only legal way to obtain dollars was a specific market (such as Argentina's MEP or "blue-chip swap" rate), that is a strong candidate.
- Be consistent. Apply the same method to income, foreign taxes paid and deductions, and keep it from year to year unless the facts change.
- Document your choice. Keep the source of each rate (bank records, central bank publications, financial press) in case the IRS asks why you did not use the official rate.
The IRS's yearly average rates are a convenience, not an obligation, and they may not reflect the rate you could actually obtain. In a country with a large gap between rates, applying them blindly can overstate your income.
The little-known option: deferring tax on blocked income
If your money is genuinely stuck, the IRS offers a relief most expats have never heard of. When foreign restrictions prevent your income from being readily converted into dollars, or into property that is readily convertible into dollars, it counts as "blocked" or "deferrable" income (IRS Pub. 54).
You then have two choices: report the income now and pay the tax with dollars you hold elsewhere, or postpone reporting it until it becomes unblocked.
How the deferral works. You attach an information return to your regular return: a separate Form 1040 labeled "Report of Deferrable Foreign Income, pursuant to Rev. Rul. 74-351." On it you:
- Report the blocked income in the foreign currency you received it in, with one information return per country.
- Declare that you will include the income in the year it becomes unblocked.
- Waive any right to argue later that it belonged in an earlier year.
When the clock restarts. The income becomes taxable when it becomes convertible, when it is actually converted, or when you use it for personal expenses or give it away. That last point is the trap: spending blocked pesos on your rent locally ends the deferral for that amount.
Keep watching. If the restrictions are lifted, you are expected to act promptly: pay the tax, update your estimated payments and report the income for the year it was unblocked. Changing method after the fact is a technical question: confirm with a professional how and on which form it must be done.
This election is not a loophole: the tax is postponed, not erased. But for someone whose salary or sale proceeds are trapped in a frozen banking system, it can prevent paying US tax in dollars on money they cannot touch.
Your account is frozen. Do you still file an FBAR?
In most cases, yes. The FBAR (FinCEN Form 114) is triggered by a financial interest in, or signature authority over, foreign accounts whose combined maximum value exceeds $10,000 at any time during the year (IRS Pub. 54). Nothing in FinCEN's valuation instructions exempts an account because a bank or government restricts withdrawals. A depositor in Beirut whose dollars have been frozen since 2019 still has a financial interest in that account.
The harder question is the value. FinCEN's method has two steps: find the highest balance during the year in the account's own currency, then convert it at the Treasury's reporting rate for the last day of the year. For countries with several exchange rates, FinCEN adds a rule written for exactly this situation: use the rate that would apply if the money in the account were converted into dollars on the last day of the year. If no Treasury rate exists, use another verifiable rate and give its source (FinCEN).
For a dollar-denominated account, FinCEN's instructions simply ask for the largest dollar balance during the year. Read literally, a frozen dollar account in Lebanon is reported at its nominal balance, even though the local market values those "lollars" at a steep discount; if you want to report a lower value, discuss it with a professional and document your reasoning. A local-currency account in a multiple-rate country is converted at the rate you could actually have obtained at year-end, with the source noted.
The same accounts usually also count toward Form 8938 (FATCA) if your total foreign financial assets exceed its higher thresholds. The penalties for missing either form are steep, which makes a frozen account a poor reason to skip them.
Claiming the foreign tax credit in a controlled currency
Most Americans abroad avoid double taxation through the foreign tax credit (Form 1116). Currency controls complicate it in two ways.
The translation date. If you claim the credit for taxes when paid, you convert them at the exchange rate on the day you paid them, or on the day they were withheld from your pay (IRS, Form 1116 instructions). If you use the accrual method, the default is the average rate for the year, with an election to use the payment-date rate instead. In a country where the currency loses a large share of its value within a year, the gap between those rates can noticeably change the size of your credit.
Inflationary currencies. The same instructions add a specific rule: accrued but unpaid foreign taxes denominated in an inflationary currency are translated at the rate on the last day of the US tax year. Many currency-control countries, from Argentina to Nigeria, have also had high inflation, so this rule is more relevant to them than to expats in Europe.
Keep income and taxes aligned. Whatever rate logic you use to convert your income should be defensible alongside the rate used for the taxes on that income. Converting income at an official rate and taxes at a parallel rate, or the reverse, distorts the credit limit and invites questions. If you defer blocked income under Rev. Rul. 74-351, how and when to claim credit for the foreign tax on it is a point to confirm with a professional, since the income and the tax may land in different years.
Worked example: renting out, then selling, an apartment in Buenos Aires
The figures below are hypothetical and simplified, chosen to show the mechanics. They are not current market rates.
Sarah, a US citizen living in Buenos Aires, rents out a second apartment. Over the year she collects ARS 12,000,000 in rent. Suppose the average official rate was 1,000 pesos per dollar, while the legal financial-market rate she could actually use to buy dollars averaged 1,300.
| Method | Rate (ARS per USD) | Rental income reported |
|---|---|---|
| Official rate | 1,000 | $12,000 |
| Rate she could actually obtain | 1,300 | $9,231 |
The difference is $2,769 of income that exists only on paper. Under the IRS rule that, where several rates exist, the one that most properly reflects income should be used, Sarah has a solid case for the second line, provided she documents it.
The next year she sells the apartment. Like most Argentine property deals, the sale is priced in US dollars: she bought for $150,000 and sells for $210,000. Because both figures are in dollars, there is no translation issue on the $60,000 gain itself. But three US points remain:
- The foreign earned income exclusion does not help. It covers earned income only, not capital gains, so the gain is taxable at US long-term capital gains rates.
- The home sale exclusion might. If this had been her main home for at least two of the last five years, the US exclusion for the sale of a principal residence applies to foreign homes too. As a rental, it generally does not.
- Where the dollars sit matters. If the proceeds land in an Argentine bank account, that account counts toward her FBAR for the year, at its highest balance.
Any Argentine tax paid on the sale can then be claimed as a foreign tax credit, translated at the rate on the date it was paid.
Checklist before you file
- ☐ List every foreign account, including frozen or restricted ones, and find each one's highest balance of the year.
- ☐ For each currency you were paid in, decide which exchange rate most properly reflects your income, and keep the source.
- ☐ Check whether any income was truly blocked: not convertible into dollars or into property convertible into dollars.
- ☐ If so, decide whether to report it now or defer it with a Rev. Rul. 74-351 information return.
- ☐ Make sure the foreign taxes you claim as a credit are translated on a basis consistent with the income they relate to.
- ☐ Review any gain on a foreign property sale separately: the earned income exclusion does not cover it.
Ask about your own situation
Every case turns on details: which country, which years, which accounts, whether the money is still stuck. You can put your exact situation to TaxLatitude, which answers from the Internal Revenue Code, IRS guidance and the relevant tax treaty, cites each source and lists what it could not confirm. For example:
"I'm a US citizen in Lagos. Part of my 2025 salary is still sitting in naira because my bank limits dollar purchases. Can I defer reporting it, and which exchange rate should I use for the part I report?"
This article is general information, not tax advice. Rules change and every situation is different, so check the cited sources and, for any filing decision, consult a qualified tax professional.
Sources
- IRS Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad (Rev. December 2025) — foreign currency, blocked income and Rev. Rul. 74-351, FBAR and Form 8938
- IRS, Foreign currency and currency exchange rates — the rule for choosing among several exchange rates
- FinCEN, Reporting Maximum Account Value — FBAR valuation and multiple exchange rates
- IRS, Instructions for Form 1116 (2025) — translating foreign taxes, inflationary currencies
- Country restrictions in the table are a summary as of 2026 and should be checked against current local rules.