Check System
Send us your comment!

Your comment will be read by our web staff, but will not be published.

Please do not enter any personal information. Your comment is voluntary and will remain anonymous, therefore we do not collect any information which would enable us to respond to any inquiries.

However, provides a How to Contact the IRS page where you will find guidance on where to submit specific questions.

Share this presentation
Copy and paste the following URL to share this presentation
To email a link to this presentation, click the following:
This program writes a small 'cookie' locally on your computer when you set a bookmark.
If you want to utilize this feature, check the following checkbox. Otherwise, bookmarks will be disabled.
This is an IRS
audio presentation.

To view this page, ensure that Adobe Flash Player
version 10 or greater is installed.

Get Adobe Flash player

Slides PDF

LEY MILLS: Let´s get going here.

I can see that we are on the top of the hour.

Great. Time to have some fun here.

For those who just joined, welcome to today´s webinar, Foreign Tax Credit Common Issues.

We´re glad you´re joining us today.

My name is Ley Mills and I am a stakeholder liaison with the Internal Revenue Service.

And I´ll be your moderator for today´s webinar, and that´s slated for 100 minutes.

Before we begin, if there is anyone in the audience that is with the media, please send an email to the address on the slide.

Be sure to include your contact information and the news publication that you are with.

Our media relations and stakeholder liaison staff will assist you and answer any questions that you might have.

As a reminder, this webinar will be recorded and posted to the IRS Video Portal in a few weeks.

This portal is located at

Please note, continuing education credit or certificates of completion -- I am sorry, but they are not offered.

If you view any version of our webinars after the live broadcast, we hope that you won´t experience any technol-- Let me try this again -- technology issues.

But if you do, this slide will show some helpful tips and some reminders.

We have posted a technical help document that you can download from the materials section on the left side of your screen.

It provides the minimum system requirements for viewing this webinar, and also along with some best practices and quick solutions.

If you have completed and passed your system check and you are still having problems, try one of the following.

The first option is to close the screen where you´re viewing the webinar and relaunch it.

The second option is to click on settings on your browser viewing screen and select HLS.

You should have received today´s PowerPoint in a reminder email, but if not, hey, don´t worry about it.

You can download it by clicking on the materials drop-down arrow on the left side of your screen, as shown on this slide.

Closed captioning is available for today´s presentation.

If you are having trouble hearing the audio through your computer system, please click the Closed Captioning drop-down arrow, and that´s located on the left side of your screen.

This feature will be available throughout the webinar.

During the presentation, we´ll take a few breaks to share knowledge-based questions with you.

At those times, a polling style feature will pop up on your screen with a question and multiple-choice answers.

Select the response you believe is correct by clicking on the radio button next to your selection and then clicking Submit.

Some people may not get the polling question, and this may be because you have your pop-up blocker on.

So please, take a moment to disable your pop-up blocker.

Please do it now so you can answer the questions.

If you have a topic-specific question today, please submit it by clicking the Ask Question drop-down arrow to reveal the text box.

Type the question on the text box and then click Send.

Very important -- Please, do not enter any sensitive or taxpayer-specific information.

Again, welcome and thank you for joining us for today´s webinar.

Before we move along with our session, let me make sure you´re in the right place.

Today our Large Business and International Division will share information relating to the Foreign Tax Credit Common Issues.

This webinar is scheduled for approximately 100 minutes.

So, let me introduce today´s speakers.

Jim Wu and Maria Nikolaou are senior revenue agents in our Large Business and International Division.

Both have Masters in taxation and extensive experience working in the foreign tax credit group.

Rod Peters and Sandra Lyons are senior revenue agents in our Large Business and International Division.

Both have extensive experience working in international individual compliance at the IRS and Sandy is a foreign tax credit guru.

I am now going to turn this over to Jim to begin the presentation.

Jim, it is now in your hands.

JIM WU: Thank you, Ley, and hello everyone.

Welcome to today´s webcast on Foreign Tax Credit Common Issues.

Before we get into our presentation, let´s look at our agenda for today.

First, we want to explain the credibility of foreign taxes with respect to treaty rates versus statutory withholding rate.

And then we want to explain the impact that the recent Tax Cuts and Jobs Act of 2017 has on the foreign tax credit.

And finally, we want to be able to define foreign tax redeterminations and then discuss their impact.

Before we get into the meat of the topics, I think it might be a good idea to first do a quick refresher on some of the basic foreign tax credit concepts.

The general purpose of the foreign tax credit is to mitigate the effects of double taxation on foreign source income.

More specifically, the foreign tax credit, or the FTC, reduces a U.S. taxpayer´s tax liability with respect to its foreign source income by all or part of the foreign taxes paid or accrued during the tax year.

But it´s subject to a limitation.

And what is this limitation?

To try to put it simply, the credit is generally limited to the lesser of the foreign tax paid or accrued or the U.S. tax liability on the foreign source income.

Another important FTC-related concept is that the income must be properly sourced as either U.S. source income or foreign source income.

U.S. source income is income that is determined by tax law to have originated from within the United States.

Foreign source income is income determined by tax law or applicable tax treaties to be earned outside of the United States.

The code sections on sourcing of income is sections 861 to section 865.

Again, 861 to section 865.

Publication 514, in IRS publication, is also a very good guide on the specifics of income sourcing.

So, why is sourcing of income so important?

It´s important because the amount of allowable foreign tax credit or the foreign tax credit limitation is ultimately computed based on foreign source income.

If U.S. source income is erroneously included in the foreign tax credit computation, there is a potential to overstate the foreign tax credit that could result in the reduction of U.S. tax liability with respect to U.S. source income.

And this, obviously, is not allowed.

Okay, moving on.

After properly sourcing income as either U.S. source or foreign source, you then have to further separate the foreign source income into separate categories or baskets of income, because each separate category or basket has its own limitation computation.

Form 1116, used to compute the foreign tax credit, previously had five separate categories of income for tax years before 2018.

It now has seven categories of income for tax years beginning in 2018, with the addition of two categories, which are section 951A income, or what is known as GILTI, and foreign branch income.

Again, I just want to stress that it is very important to source income correctly, since the tax credit is calculated based on foreign source income, not based on U.S. source income.

And it´s equally important to include foreign source income in the correct category or basket of income.

Not doing so can distort and even overstate the FTC.

Again, as you can see here on this slide, towards the top of the Form 1116, there are now seven separate categories of income.

And a separate Form 1116 has to be completed for each category of income.

So for example, if you have both general and passive foreign source income, you will need to complete two separate forms, two separate Forms 1116.

We will address briefly the two new categories, Section 951A and foreign branch income, in the next objective.

For now, just know that these two new categories of income resulted from the Tax Cuts and Jobs Act of 2017.

Unfortunately, an in-depth discussion of the different categories of income for FTC purposes is beyond our scope today.

But if you want additional guidance or information on this topic, again, I want to refer you to Publication 514.

Continuing with our refresher of the general concept of the FTC, I´m going to briefly discuss what qualifies as a foreign tax credit -- excuse me, as a foreign tax for FTC purposes.

This is sort of like the bread and butter of the FTC.

For a foreign tax or levy to qualify for the FTC, all four of the following tests that you see on the slide -- four criteria must be met.

All four.

Number one, the foreign tax must be an income tax, or a tax in lieu of an income tax.

Do not include any foreign levies such as gasoline taxes, MOT fines, inheritance taxes, certain Social Security taxes, or value added tax, VAT, et cetera.

These types of taxes or not income taxes in the U.S. sense or based on U.S. tax principles, because they generally are not imposed on the basis of net gain and thus do not qualify for the FTC.

The second criteria or requirement is that the foreign tax must be the legal and actual tax liability, what we refer to as the compulsory amount.

This concept is very important, and we will cover it in more details on the subsequent slide.

The third test that must be met is that the foreign tax must be imposed on the taxpayer.

For example, a tax that is withheld from the taxpayer´s wages is considered to be imposed on the taxpayer, not on the employer or the withholding agent.

Likewise, any withholding tax on any foreign portfolio income, such as dividend or interest income, is considered to be imposed on the taxpayer, not on the withholding agent.

Generally, it is the taxpayer who is responsible for paying the foreign tax that can claim the foreign tax credit.

Finally, the foreign tax must be paid or accrued by the taxpayer.

The taxpayer can claim a credit only if he or she paid or accrued the foreign tax in a foreign country or U.S. possession.

We should note here that an individual taxpayer who uses the cash method will by default take foreign taxes into account when paid.

However, a cash-method taxpayer may make a special election to take foreign taxes into account on the accrual basis if the election is made on the timely filed original return.

The election is binding.

Once made, it´s binding for all future years.

And the cite for that is IRC Section 905(a).

IRC Section 905(a).

So now, having refreshed ourselves on some of the foreign tax credit basics, how about we move on to our first polling question.

And I´m going to turn it over to Ley.

MILLS: Well, thank you very much.

Looks like it´s a good time to have the first question.

Audience, our first polling question is, Which of the following is not a requirement for FTC credibility?

Is it A, the foreign tax must be a tax assessed on income?

B, the foreign country must be European?

Is it C, the foreign tax must be imposed on the taxpayer?

Or is it D, the foreign tax must either be paid or accrued?

So take a moment to check and click the radio button that best answers the question.

And let me give you a few seconds to take a look and make your selection.

Okay, we are going to stop the polling now, and let´s share the correct answer on the next slide.

And the correct response is B, "the foreign country must be European." Well, my gosh. This is outstanding.

It looks like we have 94% correct.

Jim, you are giving this information top of the notch there.

So, I tell you what -- Maria, it looks like you are the next one up, so I will turn this over to you.


So, we are going to go into our objective of treaty rates versus statutory withholding rate.

As we begin our discussion on this treaty versus statutory rate withholding issue, let´s briefly talk about some income tax treaties.

And this is going to be an overview.

There are not going to be any specifics on any particular kind of treaty.

As many of you know, the United States is party to tax treaties with more than 60 countries, with the goal of mitigating the effects of double taxation.

Under the terms of these tax treaties, residents or citizens of the United States are taxed at a reduced rate, or sometimes even exempt from tax altogether, on certain types of income they receive from sources within these foreign countries.

Often negotiated into the terms of these income tax treaties are specified rates for specified types of income, such as dividends and interest.

For example, in many countries, the treaty rate on interest income received by U.S. persons as defined by the treaty from sources in that other country is stipulated at 5%, 10%, or even 0%.

A tax treaty may contain a similar stipulation for dividend income and other types of income.

So, to repeat, it is important to keep in mind that for foreign tax credit purposes, a lower treaty rate often applies to passive category income, such as interest and dividends, and other types of income, as well.

When I say a lower treaty rate, it means that the tax rate that is assessed on certain types of income is lower than the regulatory tax rate outside of the tax treaty, or what is referred to as the statutory rate.

Essentially, what these treaties are designed to do is to reduce the amount of taxes that U.S. citizens or residents pay to these treaty countries on certain types of income.

Of course, these treaties are reciprocal, so foreign nationals earning the same kind of income in the U.S. enjoy the lower tax rates, as well.

That is why it is important when computing the FTC, especially when portfolio or passive income is involved, to see, first of all, if a tax treaty exists between the U.S. and the foreign country.

Second, if a tax treaty does exist, look up the treaty to see if a treaty rate is applicable to the certain type of income earned in the foreign country.

The website hosts the latest tax treaties with various foreign countries.

And I´m going to read you... It´s not on the slide, but I´m going to give you the website for this -- international-taxpayers/ tax-treaty-tables.

You can also access these treaty documents simply by typing the name of the foreign country in the search box in

Now that we´ve talked about tax treaties and treaty rates, let´s talk about the statutory withholding rate.

What exactly is the statutory withholding rate?

I alluded to it moments ago, but the statutory rate is the legal rate of tax that is withheld on a particular type of income in a particular country.

This rate is based on the internal tax law of that particular country.

For instance, let´s say a U.S. person receives dividend income from a foreign country, a foreign company in a foreign country.

The withholding agent in that foreign country is most likely going to withhold taxes on that dividend income at the rate established by the internal tax law of the country -- or the statutory rate, as we call it -- unless the withholding agent is informed of another rate per a treaty.

So, practically speaking, when a taxpayer receives any kind of dividend or interest income from a foreign country, the taxpayer would be wise to find out if there is a tax treaty with that foreign country that would mitigate and provide a lower withholding rate.

If there is a treaty, it is the taxpayer who should notify the withholding agent to have the reduced treaty rate applied.

Otherwise, the tax will be withheld at the higher statutory rate.

How does this affect the computation of foreign tax credit?

If you remember back to an earlier part of the presentation, Jim said the amount of foreign tax that is eligible for foreign tax credit purposes is the legal and actual tax liability.

Well, when there is a treaty in place between the U.S.

and a foreign country, the legal and actual tax liability is the treaty rate, not the statutory withholding rate.

So, when a taxpayer receives income from a foreign country on which tax is withheld, it is the taxpayer´s responsibility to determine, one, if there is a treaty in place.

And two, whether the tax is withheld at the statutory rate or the reduced treaty rate.

If the taxpayer is claiming the foreign tax credit, the amount of foreign taxes claimed must be based on the treaty rate, even if that is less than the amount of tax actually withheld at the statutory rate.

The excess amount of tax withheld at the statutory rate over the treaty rate is not eligible for the foreign tax credit, because it is considered a noncompulsory tax.

Meaning, the taxpayer is not legally required to pay.

If that excess amount is withheld, it is the taxpayer´s responsibility to seek relief by filing for a refund with the foreign country for this excess.

If the taxpayer fails to file for the refund, they may end up being subject to double taxation.

Here on this slide is a 1099-DIV for 2019.

I want to highlight some relevant information on this 1099.

Boxes 1-3 show the amount of applicable income.

Box 7 indicates the amount of foreign taxes paid, and box 8 indicates the foreign country.

These are the boxes on the form you want to pay close attention to.

Once you have the relevant country, you want to determine if there is a tax treaty in place.

Again, you can type in tax treaties in the search window of or just google for the applicable treaty.

The point being, if you receive a 1099-DIV or any other 1099 with foreign source income, you need to determine whether the amount of foreign tax, as reported in box 7, was withheld based on the treaty rate, which is the correct amount for foreign tax credit computation purposes, or was it based on the statutory withholding rate, which is not the correct amount.

As mentioned previously, unless the taxpayer proactively informs the withholding agent by whatever means necessary to claim eligibility for the lower treaty rate, chances are, that foreign withholding agent will withhold at the higher statutory rate.

One thing to keep in mind -- Even though the U.S.

doesn´t have a tax treaty with a particular country, it is possible there are other agreements in place, such as consular agreements that can act like a treaty and allow for lower treaty rates.


MILLS: I´m sorry, I just need to interrupt just for a brief second here.


MILLS: I´m looking at the questions, and we have received a lot of questions asking you to repeat the treaty web address.

Can you give that again?

NICKOLAOU: Sure, and there´s shortcuts to get to it, but I´d be happy to do that right now because I did not have it on the slide.

So I just thought this would be helpful.

Okay let´s start.

It´s international-taxpayers/ tax-treaty-tables.

And again, you can type in tax treaties in the Google search box and that will get you there, too.

But if you wanted to save this as your favorite, that is the website for that.

Should I repeat it? MILLS: Thank you very much.

NICKOLAOU: Should I repeat it one more time?

MILLS: Yeah, that would be good, just to make sure.

NICKOLAOU: Okay, one more time, because I know sometimes the audio goes in and out -- international-taxpayers/ tax-treaty-tables.

So everyone can look. MILLS: Thank you very much.

Thank you. NICKOLAOU: No, no, not a problem at all.

MILLS: Thanks again. I´ll get out of your way, let you talk.

NICKOLAOU: [ Laughs ] I am doing a lot of that.

Alright, what you see here is a screenshot.

Let me take a look and make sure we are all on the same page.

You are looking at part two of Form 1116 for 2019.

And this is where you will be entering the foreign taxes paid or accrued.

You have to enter both the taxes paid in the foreign currency and the conversion to U.S. dollars.

Here, of course, the foreign income is dividends.

So we have it in the dividend column, but you can also have interest in column O or you could even have column P, which is Other.

It´s hard to see because it´s so small on my screen.

And for other kinds of income.

And we´re not going to go into depth here, but generally if the taxpayer elected the paid method, the conversion rate used should be the rate on the date the foreign tax is paid.

If, however, the taxpayer elected the accrued method, then the conversion should be based on an average rate for the year.

The main point here is the amount of foreign taxes paid or accrued that you report in part two, down where it says "total foreign taxes paid" and in these cells, must be based on the treaty rate if one exists, regardless of what was withheld.

We are going to look at a couple of examples, but before we do that, Ley, how about another polling question?

MILLS: Well, I think that is a great idea, to have number two.

So, audience, here is our second polling question.

Question is, when a tax treaty rate is lower than the statutory rate of a foreign country, the foreign tax credit must be based on...?

Is it A, the tax treaty rate?

B, the statutory rate of the foreign country?

C, whichever is the highest?

Or is it D, whichever will render the highest credit?

So take a moment and click the radio button that best answers the question, and I will again give you all a few seconds to make your selection.

Okay, we are going to stop the polling now, and let´s share the correct answer on the next slide.

And the correct response is A, the tax treaty rate.

Well, we did a pretty good job again.

We are hitting pretty high numbers here.

We ended up with 87% correct.

Again, that is a very good result.

So, I know you don´t want me to say this, Maria, but, Maria, I am turning this back to you again.

NICKOLAOU: Ugh! Thank you.

Alright, we are going to start off with a pretty easy example and then we are going to move on and come up with a better one.

Let´s take taxpayer A here, who earned $10,000 of interest income from foreign country B.

Foreign country B requires taxpayers provide a reduced withholding statement to a withholding agent in order to apply the reduced treaty withholding rate of 15%.

The taxpayer, however, did not provide such a statement to this withholding agent.

So the withholding agent withheld at the higher statutory rate of 30%.

So, if our taxpayer were to include the $3,000 as foreign taxes paid on what we just saw, part two of Form 1116, that would be incorrect.

Because the treaty rate is 15%, and that $1,500 is the legal tax liability, and therefore the only amount eligible for FTC.

The other $1,500 is noncompulsory, and not allowed for the FTC.

[ Coughs ] Pardon me.

What this example just illustrates is the importance of claiming the lower treaty rate instead of the higher statutory rate that was withheld.

So now let´s move on to -- I believe we have another example.

We have taxpayer B received a 1099 with the following information.

Taxpayer B received $20,000 in dividend income, with $6,000 in foreign taxes withheld.

So, first thing I do is I do the math, and, boy, that looks like a straight 30% to me.

Not only that, but the foreign country on the 1099-DIV is listed as "various." So we are talking about more than one country.

So we need to dig deeper.

And we find out that this $20,000 of dividend income that taxpayer B received is made up of two parts.

$10,000 in dividends are from foreign country C.

And we look this up, and foreign country C has a treaty with the U.S., and it lowers the tax rate to 15% for dividends paid to U.S. persons.

The other $10,000 is dividend income taxpayer B received from foreign country D.

And there is a treaty with that country, as well, and the dividend rate, or the rate for dividend income is 0.

Basically, it´s tax-exempt.

So, let´s continue.

When taxpayer B filed the U.S. return, he just assumed the information on the 1099 was correct.

So he reported on part two of Form 1116 that he paid $6,000, and he listed the country as "various." Was he correct?

I should say, he or she correct?

Of course not, no.

What should he have done? Or she?

They should, first of all, have broken down the dividends by country -- country C and country D.

Good way of getting your return kicked out, to say "various." Secondly, he should´ve clearly reported that he received $10,000 in dividends from country C and $10,000 of dividends from country D.

More importantly, he erroneously claimed the $6,000 in foreign taxes paid.

And again, this is the amount withheld, but it is not his legal tax liability.

That is the treaty rate.

So, this is what the taxpayer should have claimed.

Even though he paid $6,000, again, only $1500 from country C is allowed for foreign tax credit computation, and $0 from country D was allowed.

Now, we have a YouTube video that gets into this specific issue in more detail.

The video is called -- everyone got their pen?

"Foreign Tax Credit Statutory Withholding Rate Versus Treaty Rate." And there´ll be a link to this video at the end of the presentation.

So, now I get to turn it back over to Ley and give the audience another chance for polling questions.

MILLS: Well, I appreciate that, Maria.

Always fun to participate.

So, audience, here is our third polling question.

Taxpayer A earned $1,000 passive income in country X, with which the U.S. has a tax treaty.

The tax treaty stipulates a 10% withholding rate on passive income.

What is the maximum amount of country X tax taxpayer A can claim for FTC purposes?

Is it A, $100?

Is it B, $200?

Is it C, $300?

Or is it D, actual amount withheld by country X?

So, just take a few minutes and click on the radio button that best answers the question.

And we will give you a few more seconds to make your selection.

Okay, we are going to stop the polling now, and let´s share the correct answer in the next slide.

And the correct response is A, $100.

And I tell you, you people are doing an absolutely outstanding performance here with answering these questions.

The rate right now was 90%.


So, Maria, thanks for all the information you provided.

-And now, Sandy, looks like you are up right now and will be covering the Tax Cuts and Jobs Act.

SANDRA LYONS: Thanks, Ley.

Now we are going to move on to the next objective.

The 2017 Tax Cuts and Jobs Act, also known as TCJA.

This created two new income baskets for the foreign tax credit for individuals.

The two new income categories are the global intangible low-taxed income, more commonly known as GILTI, and the foreign branch income.

The code sections for these new categories are listed on the slide.

For tax years beginning after December 31, 2017, the definition of a U.S. shareholder of a controlled foreign corporation is expanded to include U.S. persons who own 10% or more of the total value of shares of all classes of stocks of such foreign corporation.

Prior to this change, 10% or more ownership only applied to the total voting power of all classes of the controlled foreign corporation´s stocks.

You can look at Internal Revenue Code Sections 951(b)

and 958(b) for more information.

Again, that is 951(b) and 958(b).

One other thing to note regarding GILTI income is that unused foreign tax credit of GILTI is not eligible for a carryback or a carryover, unlike the other categories of income.

Also, for tax years beginning after December 31, 2017, foreign branch income must be allocated to a specific foreign tax credit basket.

Foreign branch income is the business profits of a U.S. person which are attributable to one or more qualified business units in one or more foreign countries.

And you can see, you can take a look at Internal Revenue Code section 904(d) for more information.

Passive category income, however, is not part of the definition of foreign branch income.

So, now let´s take a look at section 962.

Generally, individual taxpayers are not allowed to take indirect foreign tax credits, unlike domestic corporations, who can claim indirect foreign tax credits.

With an Internal Revenue Code section 962 election, a taxpayer can take a credit for the foreign taxes paid by the controlled foreign corporation as if they had paid those foreign taxes directly themselves.

The section 962 election allows an individual to take indirect foreign tax credit to help offset the tax on the subpart F or GILTI income.

This election is made annually by attaching a statement to the Form 1040, and this election applies to all controlled foreign corporations and not just for those controlled foreign corporations for which an advantage would result.

With this election, the individual shareholder will be taxed on their share of both the subpart F income and the GILTI income at a tax rate applicable to a domestic corporation, which is currently at 21%.

Additionally, the individual taxpayer is allowed the 50% GILTI deduction under Internal Revenue Code section 250.

A taxpayer making the section 962 election attaches Form 1118, Foreign Tax Credit for Corporations, to support their claim for this indirect foreign tax credit.

And remember, the foreign tax credit will be limited to 80% of foreign taxes paid or accrued.

And there is also no option for a carryback or a carryforward, for unused taxes elected under section 962.

Ley, I think you have another polling question.

MILLS: Well, I appreciate that.

It is always fun to submit a question.

So, let´s start off with the next one.

Audience, here is our fourth polling question.

Well, I tell you what, it´s actually more like a statement, and we want you to choose the response that best answers this statement.

New categories of income were created by the 2017 TCJA for FTC purposes.

Choose the best answer.

Is it A, foreign branch income?

Is it B, 951A income?

Is it C, both A and B?

Or is it D, none of the above?

As we´ve said before, just take a few minutes and click on the radio button that best answers the question.

And as always, we will give you a few seconds to think about it and select your answer.

Okay, we are going to stop the polling now, and let´s share the correct answer.

And the correct response is C, "both A and B." Well, we are -- well, not me, but you are all doing very consistently.

This is great.

The results of this is 85%.

So with that, Rod, I believe it is now your turn, so let me turn this over to you.

ROD PETERS: Alright, thanks, Ley.

Moving on to our final objective, let´s switch our focus to foreign tax redeterminations, or FTRs.

This is also an area where we have seen significant noncompliance, as well as some confusion.

First of all, what exactly is a foreign tax redetermination?

Well, a foreign tax redetermination occurs when there is a change to a taxpayer´s foreign tax liability, which in turn affects the taxpayer´s FTC.

This could result from a foreign tax audit or a subsequent foreign tax refund.

When a redetermination occurs, taxpayers must notify the IRS on a amended return, or returns if a change affects multiple years.

To reiterate, a redetermination occurs when any foreign tax paid is refunded in full or in part, or if the accrued method of election was made and either the taxpayer paid a different amount from what was accrued for the FTC, or the accrued taxes claimed for FTC remain unpaid after two years.

So a foreign tax redetermination occurs anytime there is a change to foreign taxes claimed for FTC.

This in turn requires a redetermination with tax liability for the year in which the tax is claimed as a credit and any year in which unused foreign taxes were carried.

When a foreign tax redetermination occurs, what do taxpayers need to do in order to properly notify the IRS?

This is done by filing an amended tax return, Form 1040-X that includes a revised Form 1116 and a corresponding explanation that contains sufficient information for the IRS to redetermine the U.S. tax liability for every year affected.

May be something like an Excel spreadsheet showing the FTC computation along with proper documentation showing the correct amount of foreign tax actually assessed and paid by the taxpayer.

There are a couple of exceptions to the requirement of filing an amended return.

First, if the redetermination is under a certain threshold amount.

That amount is $300 for individual filers, and $600 for joint filers.

And the second, the taxpayer meets other certain criteria found in Publication 514.

And this is rather a narrow exception.

But if taxpayers meet these exceptions, they do not need to file an amended return.

They can notify the IRS by attaching a statement to their original return for the year in which the redetermination occurred.

To illustrate, if a taxpayer claimed this credit in 2017 and received a refund of at least some of those taxes in 2020, the original 2020 return would be the return that should have the statement attached.

So, here is an example.

Let´s assume that taxpayer B accrued $50,000 of country X income tax with respect to his 2018 tax return.

However, after filing his country X tax return for that year, he discovered that he only owed $25,000 in taxes to foreign country X.

Taxpayer B had already filed his 2018 return before he filed his 2018 country X tax return, so on the U.S. return, he over-reported foreign taxes for FTC.

The reason for this change is not important.

What´s important is the fact that taxpayer B only paid $25,000 in foreign taxes, but accrued $50,000 in foreign taxes.

So a foreign tax redetermination occurs.

He must notify the IRS of the discrepancy.

There is no statute of limitations on this.

This is an example that is pretty straightforward in illustrating how a redetermination can occur.

Now, I want to talk a little bit about the statute of limitations.

When it comes to additional tax assessment, IRC section 6501(c)(5) -- that is 6501(c)(5), together with section 905(c), provides for an exception to the normal statute under a long one, 6501(a), and allows the IRS unlimited time to assess additional tax.

What this means is when foreign tax redeterminations occur and taxpayers don´t notify the IRS, the IRS has an unlimited time period to make FTC-related adjustments.

Now let´s look at the example.

Taxpayer C does business in country Z.

Taxpayer C pays income tax on net business income with respect to his or her business activities in country Z.

Taxpayer C claimed a foreign credit on his or her tax return for the taxes paid to country Z.

Pretty straightforward so far.

However, subsequent to filing his country Z tax return, taxpayer C found out about some deductions he was entitled to, but failed to claim on his tax return.

So what did he do?

As most savvy taxpayers would do, taxpayer C filed a claim with country Z and got a refund.

In this example, taxpayer C has a foreign tax redetermination due to the refund of foreign taxes from country Z, because he or she claimed the full amount in foreign taxes for FTC on their U.S. return.

If taxpayer C does not inform the IRS of this change, and it was later discovered by the service, the service would have an unlimited amount of time to assess.

Even if the taxpayer did inform IRS after the normal three year statutory time expired, the IRS would still be allowed to make the assessment.

Now what about refund claims?

What if a taxpayer ends paying more foreign taxes than was originally claimed?

Under IRC 6511(d)(3)(a), and that is 6511(d)(3)(a), if an over payment of tax is attributable to a foreign tax for which a credit is allowed, a refund claim must be filed within 10 years from the original due date of the return for the years in which the foreign taxes were paid or accrued.

In other words, if a redetermination results in a U.S. tax refund, in other words it is an overpayment attributable to a foreign tax for which a credit results in U.S. tax refund, taxpayers are allowed a 10 year period to file a claim for a refund.

For example, let´s say we are dealing with 2017 tax year.

The original due date of the individual return for 2017 is April 15, 2018.

This means the taxpayer has until April 15, 2028 to file for a refund.

I want to emphasize this means the taxpayer has until April -- I´m sorry. The special 10-year statute of limitations starts with the due date of the original return without regard to any extensions.

And this is in contrast to the normal refund claim in which a taxpayer has until later, three years from the date the return was filed or two years from the date the tax was paid.

Ley, do we have time for another polling question?

MILLS: We certainly do.

Audience, here is our final polling question.

Taxpayers´ 2010 tax return was audited by a foreign country in 2020, but ended up having to pay more taxes.

After paying the additional foreign tax, the taxpayer decides to file an amended return with the U.S. to redetermine the FTC.

The taxpayer must file claim by...

is it, A, April 15, 2021...

is it, B, October 15, 2021...

is, C, anytime...

or is it, D, the statute has expired?

Again, just take a moment, check the radio button that best answers the question, and as always I will give you a few more seconds to make your selection.

Okay, we are going to stop the polling now.

And let´s share the correct answer on the next slide.

And the correct response is, A, April 15, 2021.

Let me see how we did.

Well, we had a little bit of a slight downturn this time.

The correct response, we had right now is we had 68%.

Rod, could you just go through a few more things before we continue?

PETERS: Sure, Ley. Be happy to.

Well, the rule is simply that taxpayer has 10 years from the due date of the return to which the tax FTC to determine relates.

So in this case, we have the 2010 tax return that was audited by the foreign country in 2020, okay?

So the taxpayer has 10 years from the due date of the 2010 tax return, which is due to April 15, 2011.

So, 10 years from that is April 15, 2021.

Year 2020 doesn´t really enter into the equation.

And again the extensions of time to file do not count.

It must be the original date of the return that is affected by the redetermination.

MILLS: Thank you, Rod, for putting in that additional explanation there.

We all appreciate that information.

And guess what I´m going to be doing.

Rod, I am turning this back to you again.

PETERS: Alright, well, we have finally come to an end.

Thank you for hanging in there.

Here´s a list of resources that you may find useful when dealing with foreign tax credit issues.

First of all, Publication 54 contains filing and reporting information for U.S. citizens and persons residing abroad.

Pub 514 is the Bible, so to speak, on foreign tax credits.

And Publication 901 had detailed information on tax treaties.

All of these pubs can be accessed at

Last but not least, here is the web address of the YouTube video that Maria mentioned earlier.

You can either go to this link or you can go to the YouTube site and in the search box type the words "foreign tax credit statutory withholding rate versus treaty rate." I know Maria gave that to you earlier.

But it´s "foreign tax credit statutory withholding rate versus treaty rate." The video´s only 9 minutes long, but it has some great information about the treaty rates versus statutory withholding rates issued.

Ley, that is all we have. Back to you.

MILLS: Thank you very much, Rod.

And hello, everyone.

It is me, Ley Mills, and I will be moderating the Q&A session.

Before we start the Q&A session, I want to thank everyone for attending today´s presentation, "Foreign Tax Credit Common Issues." Earlier, I mentioned we want to know what questions you have for our presenters.

Here is your opportunity.

If you haven´t input your questions, there´s still time.

Go ahead and click on the drop-down arrow next to "Ask Question" field.

Type in your question, and click send.

Jim, Maria, Rod, and Sandy are staying on with us to answer your questions.

One thing before we start.

We may not have time to answer all the questions submitted, ´cause there´s been a lot.

However, let me assure you that we will answer as many as time allows.

If you are participating to earn a certificate and related continuing education credit, you´ll qualify for one credit by participating for at least 50 minutes from the official start time of the webinar, and you´ll qualify for 2 credits by participating for at least 100 minutes from the "official start time" of the webinars.

Now, what am I talking about?

The first few minutes when we had our chatting before the top of the hour, unfortunately that does not count towards the 50 or 100 minutes.

So, let us get started, and we can get in as many questions in as possible.

Let me start off with Jim.

First one with you, the question is...

you said one of the four requirements in order for a foreign tax to be creditable for the FTC is if the tax is an income tax in the U.S. tax or a tax in lieu of an income tax.

Can you explain what is a tax in lieu of an income tax?

WU: Sure, Ley.

If a foreign country has a tax that is not like income tax based on U.S. tax principles, so let´s say for example, it´s not a tax on the net income.

Because the U.S. tax, the tax base is generally based on the net principal.

So let´s say in a foreign country, the tax is on a gross receipts.

Like, a gross receipts tax.

And that gross receipts tax is a tax that´s not lieu of income tax structure, income tax regime already in a foreign country but it´s in addition to it.

Now, if it´s in addition to and it does not have the characteristics of a tax that´s based on U.S. tax principles, then it is not creditable for the foreign tax credit because it is not a tax in lieu of but in addition to a income tax already in existence in that foreign country.

And if you have something like that, you may want to explore this a little bit further, a little bit deeper to see exactly what the character of that foreign tax that´s not sort of like an income tax.

And I will give you a site, it´s treasury reg 1.903-1.

Again, treasury reg 1.903-1.

It has some examples in there that can shed some light on this topic.

MILLS: Well, thank you very much, Jim.

I appreciate the information.

Let me see what we have here.

Maria, I have one that might be interesting for you to address here.

NICKOLAOU: Shoot. MILLS: We had a question -- We´ll get this right. [ Chuckles ] We had a question about how treaties affect different types of taxpayers.

Can you expand on types of taxpayers?

NICKOLAOU: Sure. I´ll take the stand.

Treaties affect individuals that we refer to as either inbound or outbound taxpayers.

So let me explain those terms.

Individual outbound taxpayers refers to U.S. citizens and residents, and we collectively call those U.S. persons.

Individual inbound refers to nonresident aliens.

So on an outbound scenario, and it´s kind of what we have talked about here, the treaty limits the taxes a foreign country can impose on a U.S. person.

And that was basically how our session went today.

These are persons who are investing working or doing business in a foreign country.

Now, treaties generally have more impact on inbound taxpayers and we are not going to get into all of the different scenarios.

You could spend weeks on this.

But, for example, on an inbound context, a treaty might affect and withholding rate applicable to U.S.-sourced incomes.

Think about it as interest dividends or royalties made to a foreign individual investor.

It usually has greater impact on those where foreign individuals are investing working or doing business in the U.S.

But one thing, and I´m not sure and forgive me, I just don´t remember this slide, also look at Publication 901.

It is the go-to publication for U.S. tax treaties.

There is no way we can answer specific questions on treaties.

I mean, each treaty, each country is unique and that´s pretty much all I´m going to say about that because I know we´ve got other questions.

MILLS: Thank you very much, Maria.

Great information.


Sandy, your turn.

How do we report the section 962 election on the form 1040?

LYONS: Yes. That´s a great question.

The amount of income itself is not reported on form 1040.

But the tax computed for making a section 962 election is reported online (12)(a) of form 1040, check box 3, and enter 962 in the space next to box 3.

Then enter the amount of the section 962 tax inbox (12)(a).

So, that´s the tax portion.

Then on schedule 3, line 1, enter the allowable foreign tax credit.

And if you can, add a note that this amount is from form 1118.

The total from this section will transfer to form 1040, line (13)(b).

And remember to attach form 1118 along with the election statements.

MILLS: Thank you, Sandy. LYONS: Back to you, Ley.

MILLS: Thank you so much. I was a step ahead of you.

Well, time for yours, Rod.

Rod, here´s one for you.

You mentioned a redetermination occurs when a foreign tax is refunded or if an election is made to use the accrued method, and either the taxpayer paid a different amount from what was accrued or the accrued taxes remain unpaid after 2 years.

My client did not elect the accrued method.

Can we make the election on an amended return?

PETERS: Thanks, Ley, and I´m glad someone asked that question, ´cause we get this a lot.

The simple answer is no.

The law does not allow this method to be made or changed on an amended return.

Now, most individual taxpayers on a cash basis of accounting, and even so, they may elect to take a credit for foreign taxes in the year they accrued.

They make the election by checking the box in part two form 1116.

There are two boxes.

One is paid and the other is accrued.

Once the election is made, they must follow it in all later years and take a credit for foreign taxes paid in the year they accrued.

Now, IRC section 905 -- that´s IRC section 905 -- provides the framework for this.

But let´s make a distinction here.

If a taxpayer, on the paid method, receives a refund of foreign taxes paid in a prior year, the tax payer must amend the return for the year in which the refund relates back to.

If a taxpayer on the paid method paid additional tax for a prior year, the tax payer can only accept the additional tax in the year it was paid.

And there´s a really, really good example in the regs -- and I´m gonna list it.

It´s a long site, so I´ll read it slowly and I´ll repeat it.

It´s treasury reg 1.905-3(b) -- as in "boy" -- (1)(ii)(f) -- as in "Frank" -- example 6.

Let me just go over that one more time.


example 6.

And here they describe a scenario of a taxpayer on the paid method and provide an analysis.

Bottom line, taxpayers are only allowed to make a credit when the foreign taxes are paid unless the taxpayer has elected to take the accrual method.


MILLS: That sounds good to me. Great information.

Okay, another one here.

Jim, I believe this will be a good one for you here.

How do you report income from foreign source if the tax year ending is different than the December 31 -- Trying to read this.

WU: Yeah, Ley, that´s a very good question, and that is always a point of confusion for a lot of people because the U.S. tax year generally is a calendar year running from January to December, so what happens if the foreign country has a fiscal year?

For example, let´s say India or Hong Kong, they might have a tax year ending March or April or something like that.

It seems like many countries, it has a connection to the UK, including the UK itself, has a fiscal year.

So, in that case, what you have to do is you´re gonna have to include the income earned in that foreign country and also the related taxes from that income on a calendar year basis, meaning from January to December.

So, you´re gonna probably straddle two physical years.

So, for example, let´s say the foreign country´s fiscal year is March 31st.

I think that´s the case for Hong Kong for example.

And for the income, the foreign source income portion of the FTC computation, you´re gonna have to -- you can only include income from Hong Kong from January 1st through March -- Okay, so there´s two parts here.

You include income from that foreign country from January 1st till March 31st, which is the fiscal year for, say, Hong Kong.

Okay, then you´re gonna have to add to that income earned in that foreign country -- in our example, Hong Kong -- April through December.

So you have two parts to this.

And the April through December falls into the next physical year of that foreign country.

So it´s the same for the foreign taxes paid as well.

And I hope that answers that question.

MILLS: Thank you very much, Jim.

Appreciate that information.

Let me find one here.

Maria, I have one for you here.

If the tax is paid by general partnership on behalf of taxpayer and reflected in partner´s capital account as such?

NICKOLAOU: Well, anytime you have separately stated items on a partnership, those will be broken out on a schedule K-1.

Yes, the foreign taxes paid are passed through to the partners, and there are sections for international transactions -- and don´t ask me the line items ´cause the forms have changed.

But they´re the ones that have all the international codes in, gosh, I want to say boxes P, Q, R, S -- somewhere down at the bottom of the K-1 now, ´cause I don´t have one open in front of me.

They do pass that information out, and there are generally supplemental statements to support that information.

If you don´t get the details, you need to contact the preparer of the partnership return and have them give them to you.

MILLS: Great information.

Okay, what else do we have here?

Sandy, here´s one for you.

Would you have to separate passive income from foreign branch income and file two separate 1116s?

LYONS: Yes. For this question, let´s just say the passive income is rental income, which is generally considered passive.

However, a business activity could be set up like a real estate company offshore.

It has a branch there, and their main income or their active income is rental.

Then they could be considered being in the rental business.

It is possible, then, that the rental income could be categorized or characterized as a foreign branch income.

So it really just depends on the facts and circumstances.

And if you have passive and foreign branch income, then you need to have a separate Form 116.

And a separate Form 1116 is required for each income category.

Back to you, Ley.

MILLS: That was great information.

Thank you so much, Sandy.

Now let me keep on looking at these things, find out -- oh, here´s a good one.

Rod, I believe I have one for you.

Is a credit available for a reclaimable tax that is a tax that was imposed by a foreign country and could be reclaimed if the taxpayer filed a form in that country, but the taxpayer hasn´t, and doesn´t intend to, file that foreign return to claim refund?

Long one!

All yours. [ Laughs ] PETERS: Alright. Thank you, Ley.

Right. That´s a good question, also.

We ran into this a lot when we were working voluntary disclosure cases.

But Switzerland, for example, withholds tax at a rate of 35% on income earned in one of their banks, for example.

However, the treaty rate for Switzerland is only 15%.

So taxpayers are only allowed the treaty rate, which is 15%.

If they choose not to try to get a refund from Switzerland, then that is their decision, and they would be...

But they´re not allowed to take a credit for a tax that could have been refunded.

Thank you.

MILLS: Thank you for that information.

Thank you very much.

Maria, another one for you here.

Can we get a citation for the requirement that the treaty rate is the legal and actually tax liability as opposed to the statutory withholding rate?

There is often confusion on this front because in the U.S. treaty rights are not automatic. NICKOLAOU: That´s correct.

You have to invoke the treaty to get the lower withholding rate, You usually do that with a certificate of withholding to the withholding agent.

But specifically, the issue of whether a tax is compulsory or not, you can find that under regulation 1.901-2(e) -- as in Edward -- (5)(i) -- as in iPad.

And that speaks to the limitation and the fact that, you know, if there is a treaty rate, that that becomes the compulsory amount in a nutshell.

So, again, that´s 1.901-2(e)(5)(i), I believe.

MILLS: Alright.

Thank you very much for the information.

Jim, I think this will be good for you to address.

American working in Singapore has local taxes withheld from paycheck.

Can American working in Singapore take the foreign tax credit and foreign earned income exclusion?

WU: Yeah, that´s a very good question, and we see that quite often.

So, the short answer to that is yes.

The American taxpayer working in Singapore can claim the foreign tax credit as well as take the section 911 exclusion.

Now, however, when the taxpayer computes the foreign tax credit on the form 1116, there has to be an adjustment or a reduction to the foreign source income in Singapore by the portion of the excluded section 911 income.

So, let´s say that the total foreign source income in Singapore´s $100,000 -- or, let´s say $200,000.

Let´s say the section 911 is, just for example, $85,000.

So when the taxpayer puts $200,000 foreign source income on the form 1116, the taxpayer also has to exclude that gross foreign income by the $85,000 that tax credit has excluded on the U.S. return.

One other thing on this is not only does the taxpayer have to reduce the foreign source income by the section 911, FEIE, but on next page of the form 1116, the taxpayer also has to exclude a portion of foreign taxes paid or accrued that relate proportionally to the excluded portion of the income.

So hopefully that answers the question.

Just make sure that that local top that you were talking about in Singapore meets the requirement.

One of the requirements is it has to be an income tax in the U.S. sense.

Back to you, Ley.

MILLS: Thanks, Jim, and I´m gonna do a favor by giving you another one.

This is -- I lost it. Okay.

Are you able to take both a foreign tax credit, FTC, and a foreign gross income exclusion on the same income?

WU: I think it´s good you raise a question because I think I sort of just answered the same question in the last question.

Yes, you can. You can take the FTC on the source income.

However, if you claim the FEIE on that part of the foreign source income, you have to make that adjustment.

In other words, you have to reduce the foreign source income by the amount of the excluded amount in the section 911 because, you know, if you look at it there´s no double taxation because obviously the excluded income was not subject to U.S. tax liability, therefore, when you claim the foreign tax credit, that part of the excluded income has to be backed out of the foreign source income.

MILLS: Thank you, Jim.

I just wanted to put that in again.

I appreciate that information.

[ Hums ] Sandy, one for you here.

Any document need to keep as supporting for claiming foreign tax credit?


Basically what you want is to have documentation showing what foreign taxes were assessed by the foreign country.

Examples of that would be supporting documentation to include official documents from the foreign country, proof of payment such as copy of canceled checks, or account statements showing foreign taxes withdrawn, maybe a receipt from the foreign taxing authority, and also a copy of the foreign tax return filed.

Essentially, you need to prove that you assessed the taxes you are claiming, and that you paid those taxes.

It is important to have enough documentation and information to substantiate the foreign taxes claimed.

Back to you, Ley.

MILLS: Thank you, Sandy.

Maria, another one for you here.

Okay. Okay.

What is reason for withholding at statutory rate instead of the agreed treaty rate?

NICKOLAOU: Well, the tax laws of each country, including the U.S., you see at times they can´t -- the people doing the withholding, the entities...

doing the withholding, they have a general rule about what the withholding is.

That is based on the tax laws of the country.

So there is a default.

You see a lot of times it is a flat 30% withheld, even in the U.S., on things because that is how our tax laws are written.

Those kind of fall into all of the withholding questions, but they will default to the statutory withholding rate, whatever that country´s tax laws are, unless the taxpayer has an avenue, and is the taxpayer´s burden to find that avenue that reduces that tax.

So the default is the statutory rate.

MILLS: Thank you, Maria. That´s great information.

Okay, Rod, I have one for you here.

What conversation rate -- [ Chuckles ] I´m sorry.

We are all doing that.

Alright, try this again.

What conversion -- I knew I´d get this -- What conversion rate should be used -- U.S. Treasury or other?


Actually, the IRS does not have a specific requirement for use of a certain type of conversion.

The taxpayers are allowed to use the Treasury rate.

There´s a conversion table on

Or they can use OANDA, or I think there´s another one I can´t remember.

But any commercial, respectable conversion rate is allowed to be used.

The important thing, the thing we care about, is that it´s used consistently.

So if you are converting income, use the same conversion rate for income as you do for expenses and not use one for one and one for the other.

So that is the only stipulation that we have is that you be consistent with what you do.

Otherwise, it´s really up to the taxpayer or practitioner to use whatever conversion software they prefer.

Thank you. MILLS: Thank you very much, Rod.

NICKOLAOU: And I just want to spell that acronym that Rod used It´s O-A-N-D-A. OANDA.

Is that right, Rod? The spelling?

OANDA, I believe?

PETERS: Yeah, it is. It´s OANDA.

I´m sorry. NICKOLAOU: That´s okay.

PETERS: I guess I assumed everyone knew what that was.

[ Laughs ] Then I realized not necessarily.

Thank you, Maria.

MILLS: Thank you both for the information.

Alright. Jim, here is one for you.

If the client is in Scotland, is a psychologist for a patient in Texas, the dollars is earned in Scotland, is it foreign income or because it is sourced in the U.S.

is it U.S.?

WU: Yeah, so the question here is the taxpayer or client lives and works in Scotland, a psychologist, but has a patient in Texas in the United States.

So obviously the psychologist earns a certain amount of income and how should that be sourced.

So generally speaking, when we are talking about personal services, it´s the sourcing is based on where that service is performed.

So if that service is performed in Scotland, and I think this is the case here because the taxpayer, the psychologist, lives and works and provides a service in Scotland, then that income should be sourced to Scotland as a foreign source.

Now, if the psychologist travels for some reason to Texas to meet with the patient, for a week or whatever, and earns some amount of income here, then because the personal service was provided in the United States, that portion of the income earned by the psychologist would be sourced domestically.

So, when it comes to personal services, it is rather black and white, although with tax law, it is never black and white.

But I can tell you for this question, it´s where the personal service is performed.

MILLS: Thank you so much, Jim.

Let me find another one here.


Oh, okay, okay. Here´s one.

And, Maria, it´s for you, by the way.


Some countries have taxes based on income that are used for specific purposes, such as healthcare coverage, general military preparation, pensions, et cetera.

How do we decide which are eligible for FTC and which are not?

NICKOLAOU: Well, this falls under the four requirements of credibility.

Most social taxes and benefits are not income tax-like.

That is important that you look at that country and their taxing system.

They have to be income tax-like in the U.S. sense.

And that´s, you know, a question you have to look at country by country for the different types of taxes.

And every country´s got a whole plethora of taxes that are foreign to us, of course, because, you know, we deal with U.S. taxation.

But what I would speak to on that particular thing is to take a look at that kind of tax and do some research on that country´s tax system, and there are websites for that.

I don´t have them off the top of my head.

But they will talk about whether or not these are income-type taxes.

MILLS: Okay, thank you so much for the information.

Great information.

Let me take a look.

See if we can squeeze in one quick one.

I´m not sure if we have enough time.

Okay, it looks I have time for one or two more.

Jim, I´m gonna go back to you on one.

Let me see if I can find one good here.


How does that work if the foreign tax is on the 1099-DIV?

I´m sorry, Maria, looks like you might be the one to address this one.

How does the work if the foreign tax is on their 1099-DIV?

NICKOLAOU: If the tax is listed as taxes paid on the 1099-DIV, obviously the first thing you want to know is, does that country have a treaty?

That number is the number that goes in part two, where the foreign taxes paid go.

And if it´s dividend income, it would go in the dividend column.

If it´s interest, interest column.

So there are a few breakouts for what those taxes are for.

There´s a catchall -- other income, but, you know, you can look at the instructions for the 1116, as well as Pub 514.

But that will tell you line by line where to put those numbers.

MILLS: Alright, thank you so much for the information.

Let me see if we have time for one more.


Let me see here.

Let me ask -- Rod, let me see if I can come up with you here.

I´ll do a quick one here.



This might be good.

Rod, what if the broker gives only the dividend amount in U.S. dollar and no indication of the amount in the foreign currency?

PETERS: Alright, thanks.

Yeah, that´s the best thing that can happen, actually, is for them to give you the U.S. dollar amount.

You don´t have to worry about converting it from foreign to U.S. dollars.

So, yeah, if they don´t give you that, that´s great.

If they give it to you in U.S. dollars, that´s the best they can hope for, I think.

So, yeah. There you go.

MILLS: Well, that´s great.

I really appreciate that information.

Well, looks like we´re kind of running out of time here.

So first of all, I want to thank our speakers.

Thank you so much for sharing your knowledge and your expertise and, of course, for answering your questions.

Before we actually close the Q&A session, Jim, what key points do you want the attendees to remember from today´s webinar?

WU: Yes, Ley.

I´ll start with my key point and then I´ll pass it off to the other presenters.

So the fundamental purpose of the foreign tax credit is to mitigate double taxation on the same income.

The FTC is limited, however, to the foreign tax paid or accrued or the lesser of foreign tax paid or accrued or the U.S. tax on the foreign-source income.

Now, there are four requirements that we talked about.

Each one must be met, all of them, in order for foreign tax to be eligible for the FTC.

I´m just going to read them off really quick one more time.

The first requirement is it must be income tax in the U.S. sense.

And can you go back to the previous slide, please?

I don´t have them all memorized.

So the foreign tax, the character must be income tax in the U.S. sense, first of all, and secondly, it must be tax that´s either paid or accrued, and it must be a tax that´s imposed on the taxpayer.

And it must be a legal and actual foreign tax liability, meaning it´s compulsory, like Maria mentioned about the treaty.

So all these four -- the quadrants that you see on the slide, they all must be met.

And I´m gonna pass it off to Maria.

NICKOLAOU: Thanks, Jim.

So in a nutshell, what I was talking about was when dealing with countries that have a treaty with the U.S., you always have to make sure the treaty rate is what´s being claimed on the FTC.

Because as Jim said, the treaty rate is the legal and actual tax liability, not the statutory rate.

And again, you know, we have the website for those tax treaties.

And I know there were a lot of questions.

I´m just gonna throw this out there about the mutual funds.

Nowadays, there are supplemental statements to these brokerage statements, and many of them do have that information broken out.

That´s all I can say.

I know the instructions have some caveat that mutual funds and RICs, you can just put the total in.

And so there is that slight -- I guess it´s a caveat.

So if you have the word "various" there, I guess it´s incumbent upon the tax preparer to inquire or to find out from the brokerage firm.

I personally have seen those statements, and they do have them broken out on the supplemental by country.

I have seen it.

They can attach it to the tax return.

Nobody expects everyone to type in 25 different countries.

But as long as you have that information, you can start with that and then see if there is a treaty rate and they withheld it lower.

I´m gonna turn it over now to Sandy.

LYONS: Thank you, Maria.

The TCJA created two new categories of foreign-source income -- GILTI and the foreign branch income.

These two new categories have been added to the Form 1116.

In addition, an individual taxpayer can elect, under Section 962, to be taxed at the corporate rates on subpart F income and GILTI.

Taxpayers electing to use the corporate rate will have to compute foreign tax credits in the same manner as how a corporation computes the foreign tax credit using Form 1118.

Okay, Rod, it´s your turn.

PETERS: Thank you, Sandy.

Okay, my key points are foreign tax redetermination.

If there is one, the taxpayer is responsible to notify the IRS, and they do that by filing an amended return and a revised Form 1116.

If the taxpayer does not inform the IRS and a redetermination is discovered later, the IRS has an unlimited amount of time to assess additional tax.

If the redetermination results in additional foreign tax paid, the taxpayer has 10 years from the original due date of the return to file a claim for refund.

And remember that´s the original due date of the return and without regard to any extension.

Back to you, Ley.

MILLS: Thank you very much, Rod.

Audience, we are planning additional webinars throughout the year.

To register for an upcoming webinar, please visit, keyword "search webinars." And select the webinars for tax practitioners or webinars for small businesses.

When appropriate, we will be offering certificates and CE credit for upcoming webinars.

We hope that you´ll join us next Thursday, October the 29th, for our next webinar, and that is "Foreign Tax Credit: Credibility of Taxes Around the Globe." It will be at 2:00 p.m. Eastern, and you will be able to earn up to two CE credits.

We invite you to visit our video portal at

There you can view archived versions of our webinars.

But please note continuing education credit or certificates of completion are not offered if you view any version of our webinars after the live broadcast.

Again a big thanks for the speakers for a great webinar, for sharing your expertise, and for staying on to answer your questions.

I also want to thank our attendees for attending today´s webinar, "Foreign Tax Credit: Common Issues." If you attended today´s webinar for at least 50 minutes from the official start time of the webinar, you´ll qualify for one possible CPE credit.

If you attended today´s webinar for at least 100 minutes from the official start time of the webinar, you will qualify for two possible CPE credits.

And as I mentioned in the past, the time we spent chatting before the webinar started, that does not count towards the 50 or 100 minutes.

Eh, nice try. It´s fun to do.

If you´re eligible for continuing education from the IRS and registered with your valid PTIN, your credit will be posted on your PTIN account.

If you are eligible for continuing education from the California Tax Education Council, your credit will be posted to your CTEC account, as well.

If you registered through the Florida Institute of CPAs, your participation information will be provided directly to them.

If you qualify and you have not received your certificate and/or your credit by November the 12th, please e-mail us at

And the e-mail address, you can see that on the slide, too.

If you are interested in finding out who your local stakeholder liaison is, you can send us an e-mail using the address shown on the slide, and we´ll send you that information.

We would greatly appreciate if you would take a few minutes to complete a short evaluation before you exit.

If you´d like to have more sessions like this one, let us know.

If you have thoughts of how we can make them better, please let us know that, too.

If you have requests for future webinar topics or pertinent information that you´d like to see in an IRS fact sheet or a tax tip or FAQ on the, please include your suggestions in the comments section of the survey.

Click the "survey" button on the screen to begin.

If it doesn´t come up, check to make sure you disabled your pop-up blocker.

It has been absolutely a pleasure to be here with you.

And on behalf of the Internal Revenue Service and our presenters, we would like to thank you for attending today´s webinar.

It´s important for the IRS to stay connected with the tax professional community, with individual taxpayers, with industry associations, as well as federal, state, and local government organizations.

You make our job a lot easier by sharing the information that allow for proper tax reporting.

Thanks again for your time and attendance.

We wish you much success in your business or practice.

You may exit the webinar at this time.