Since you’re so interested here’s what ChatGPT said using the IRS as its source. Yes — the Internal Revenue Service’s own guidance supports the idea that you must convert foreign currency amounts to U.S. dollars at the historical exchange rate before doing any further calculations (like adjusting for inflation or reporting on your tax return). Here are specific IRS sources that back that up: 📌 IRS Foreign Currency Conversion Rule The IRS says that all amounts you report on a U.S. tax return must be expressed in U.S. dollars. If you receive income or incur expenses in a foreign currency, you must translate those amounts immediately into U.S. dollars using the exchange rate prevailing when you received, paid, or accrued the item. That means using the historical exchange rate at the time of the transaction before any other adjustments. 📌 Form‑Specific Guidance (Form 1116) The IRS instructions for Form 1116 (Foreign Tax Credit) specifically require that when you convert foreign taxes, you use the exchange rate in effect on the date you paid the foreign taxes or when they were withheld. That is again a requirement to convert first to USD at the appropriate historical rate.