Form 5471 Exchange Rates: Average Rate, Year-End Rate and the Divide-By Convention by Schedule

Form 5471 is the information return for US persons with interests in foreign corporations. Its schedules mix functional-currency columns and dollar columns, and the instructions do not use one exchange rate throughout. Preparers lose time on two things: which rate each schedule wants, and how the rate itself must be written on the form. This guide maps both, from the Instructions for Form 5471 (revision December 2025).

Not tax advice. This is a practical summary for people who prepare the spreadsheets, scripts and working papers. Quotations are from the IRS, Treasury and Federal Reserve texts current in November 2026; read the instructions for your own tax year and confirm your case with a US tax adviser.

How the rate must be reported: the divide-by convention

The instructions are explicit: "all exchange rates must be reported using a 'divide-by convention' rounded to at least four places." That is, "the exchange rate must be reported as the units of foreign currency that equal one U.S. dollar, rounded to at least four places. Do not report the exchange rate as the number of U.S. dollars that equal one unit of foreign currency." You must round to more than four places if four would materially distort the rate or the dollar amount.

This trips up anyone taking euro, sterling, Australian dollar or New Zealand dollar rates from the Federal Reserve, which quotes those four in dollars per unit. They have to be inverted:

Treasury and IRS tables are already in units per dollar, but they are published to three decimals (0.851, 0.886), which does not meet "at least four places" on its own. A daily series you can average and round yourself is the practical source.

Which rate on which schedule

The Schedule E exceptions mirror section 986(a): taxes paid before the year begins, taxes not paid within 2 years, a section 986(a)(1)(D) election, a cash-basis corporation, and inflationary currencies all use the payment-date rate. Corporations using the dollar approximate separate transactions method follow Reg. section 1.985-3 for Schedule F instead.

Section 989(b) in two lines

• Actual distributions of earnings: "the spot rate on the date such distribution is included in income."
• Subpart F inclusions under section 951(a)(1)(A): "the average exchange rate for the taxable year of the foreign corporation."

So a dividend paid on a specific day needs that day's rate, while the year's inclusion uses the year's average.

What "average for the tax year" means for a fiscal-year corporation

The average is for the foreign corporation's tax year, not the calendar year and not the US shareholder's year. A German subsidiary with a year ending September 30, 2025 needs the average of October 1, 2024 to September 30, 2025. The IRS calendar-year average table does not cover that; you compute it from a daily series:

import pandas as pd
base = "https://raw.githubusercontent.com/AllRates-Today/central-bank-exchange-rates/main/data/fed/history/{}.csv"
df = pd.concat(pd.read_csv(base.format(y), parse_dates=["date"]) for y in (2024, 2025))
eur = df[df.base == "EUR"].set_index("date").value            # USD per EUR
fy = eur["2024-10-01":"2025-09-30"]
print(round(1 / fy.mean(), 4))                                # divide-by rate, units per USD

State in the working papers that the average is the simple mean of the daily Federal Reserve H.10 rates for the business days of the period, and use the same construction every year.

Calendar 2025 reference rates

Units of foreign currency per one US dollar, in divide-by form:

The year-end sources do not agree to the last digit: Treasury's quarterly table reflects rates reported for the last business day of the prior month, while H.10 is the noon buying rate on the day. Pick the source that matches your GAAP translation policy and use it for both the financial statements and Schedule F.

Pulling the rates

# the H.10 table for a balance sheet date
curl -H "Authorization: Bearer YOUR_KEY" \
  "https://allratestoday.com/api/v1/central-bank/fed/2025-12-31"

# a daily series for a fiscal-year average
curl -H "Authorization: Bearer YOUR_KEY" \
  "https://allratestoday.com/api/v1/central-bank/fed/history?symbol=EUR&from=2024-10-01&to=2025-09-30"

Every table endpoint returns JSON, CSV, XML or Excel through ?format=. Dated tables and history are on paid plans. For currencies outside the Federal Reserve's list, the same endpoints serve each country's own central bank table.

FAQ

How must exchange rates be reported on Form 5471?

Using the divide-by convention: units of foreign currency that equal one US dollar, rounded to at least four places. The instructions say not to report the number of US dollars per unit of foreign currency.

Which exchange rate does Schedule H use?

Line 5d of Schedule H translates current earnings and profits at the average exchange rate for the foreign corporation's tax year, citing section 989(b).

Which exchange rate does Schedule F use?

Schedule F is reported in US dollars and the balance sheet is generally translated using US GAAP translation rules, which means the current rate at the balance sheet date for assets and liabilities.

Which rate applies to foreign taxes on Schedule E?

The average exchange rate for the tax year to which the tax relates, under section 986(a), unless an exception applies. The exceptions, such as taxes not paid within 2 years or a cash-basis corporation, use the payment-date rate.

Can I use the IRS yearly average table for a fiscal-year foreign corporation?

The IRS table is a calendar-year average published to three decimals. A corporation with a different tax year needs an average over its own year, computed from a daily series, and Form 5471 asks for at least four places.

Originally published on AllRatesToday. The Treasury, Federal Reserve and IRS tables used above are served as JSON, CSV, XML and Excel at allratestoday.com/tax-authority-rates-api/.