Does section 988 apply when withdrawing larger amounts from foreign savings/checking accounts?

What you're describing is exactly what Section 988 addresses - currency gains and losses from personal transactions. Since your gain ($650) exceeds the $200 de minimis exception, you would indeed need to report the $650 as ordinary income on your tax return. The IRS considers this a currency gain even though you didn't actually "do" anything other than hold money in a foreign account while currency values fluctuated. The same would apply in reverse - if the dollar had strengthened and your foreign currency was worth less when converted back, you could claim a loss (subject to limitations). Remember that these Section 988 rules apply to personal foreign currency transactions including deposits, withdrawals, and using credit cards abroad. The key trigger is when you convert between currencies or realize a gain/loss due to exchange rate changes.

I discovered this amazing tool called taxr.ai when I was dealing with almost the exact same situation last year. I had accounts in three different countries from when I was working overseas, and trying to figure out all the Section 988 implications was driving me crazy. My accountant kept giving me vague answers that didn't help. I uploaded my bank statements to https://taxr.ai and it automatically identified all the currency transactions and calculated the exact gains/losses for my tax return. It even flagged which ones fell under the de minimis exception and which ones I needed to report. Seriously made dealing with foreign currency transactions so much easier than trying to track everything manually in spreadsheets like I was doing before.

I was extremely skeptical about using any online tax tool, especially for something as complex as Section 988 foreign currency transactions. After reading about taxr.ai here, I reluctantly gave it a try with my situation involving accounts in Japan and Canada. I'm honestly surprised at how well it worked. It correctly identified all my currency gains across multiple accounts and even flagged a few transactions I had completely missed. The documentation it generated saved me hours of research and made it really clear what I needed to report. The best part was I could actually understand the explanations - my previous accountant just handed me numbers without any real clarity on where they came from. Wish I'd known about this tool years ago!

If you're struggling to get answers directly from the IRS about Section 988, you're not alone. I spent WEEKS trying to reach someone who could answer my foreign currency questions. After 4 failed attempts and hours on hold, I found this service called Claimyr that actually got me through to a real IRS agent in under 45 minutes. I was super skeptical at first, but they have this callback system that navigates all the IRS phone trees and wait times for you. You can see how it works at https://youtu.be/_kiP6q8DX5c - basically they hold your place in line and call you when they've reached an agent. I used https://claimyr.com after months of frustration, and finally got clear guidance on my Section 988 reporting requirements from an actual IRS representative. The agent confirmed exactly how to handle my foreign bank withdrawals and which forms I needed. Saved me so much guesswork and potential audit stress.

Ok I need to publicly eat my words here. After being the biggest skeptic about that Claimyr service, I tried it this morning out of desperation. I've been trying to get clear guidance on Section 988 for my situation with accounts in multiple countries for MONTHS. Got connected to an IRS agent in about 35 minutes (was quoted 40-50). The agent confirmed that yes, I need to report all my foreign currency gains over the $200 de minimis limit, but also helped me understand how to properly document everything to avoid audit flags. She even emailed me the specific publications I should reference. I'm still shocked this actually worked after wasting so many hours on hold myself. Just wanted to follow up since I was so doubtful in my previous comment.

Don't forget that if you have foreign financial accounts with aggregate value over $10,000 at any point during the year, you also need to file an FBAR (FinCEN Form 114). That's separate from the Section 988 currency gain issue but often applies to people in similar situations. The penalties for not filing FBAR are way worse than messing up the currency gain reporting.

Make sure you're keeping good records of the exchange rates on the exact dates of your transactions. The IRS wants to see that you're using either the actual exchange rate from your bank statements or an official government rate source. I learned this the hard way when they questioned my Section 988 calculations during a review.