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104ez Form

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104ez Form

104ez form 17. 104ez form   How To Get Tax Help Table of Contents Go online, use a smart phone, call or walk in to an office near you. 104ez form Whether it's help with a tax issue, preparing your tax return or picking up a free publication or form, get the help you need the way you want it. 104ez form Free help with your tax return. 104ez form   Free help in preparing your return is available nationwide from IRS-certified volunteers. 104ez form The Volunteer Income Tax Assistance (VITA) program is designed to help low-to-moderate income, elderly, persons with disabilities, and limited English proficient taxpayers. 104ez form The Tax Counseling for the Elderly (TCE) program is designed to assist taxpayers age 60 and older with their tax returns. 104ez form Most VITA and TCE sites offer free electronic filing and all volunteers will let you know about credits and deductions you may be entitled to claim. 104ez form Some VITA and TCE sites provide taxpayers the opportunity to prepare their return with the assistance of an IRS-certified volunteer. 104ez form To find the nearest VITA or TCE site, visit IRS. 104ez form gov or call 1-800-906-9887. 104ez form   As part of the TCE program, AARP offers the Tax-Aide counseling program. 104ez form To find the nearest AARP Tax-Aide site, visit AARP's website at www. 104ez form aarp. 104ez form org/money/taxaide or call 1-888-227-7669. 104ez form   For more information on these programs, go to IRS. 104ez form gov and enter “VITA” in the search box. 104ez form Internet. 104ez form IRS. 104ez form gov and IRS2Go are ready when you are — every day, every night, 24 hours a day, 7 days a week. 104ez form Apply for an Employer Identification Number (EIN). 104ez form Go to IRS. 104ez form gov and enter Apply for an EIN in the search box. 104ez form Request an Electronic Filing PIN by going to IRS. 104ez form gov and entering Electronic Filing PIN in the search box. 104ez form Download forms, instructions, and publications, including some accessible versions. 104ez form Order free transcripts of your tax returns or tax account using the Order a Transcript tool on IRS. 104ez form gov or IRS2Go. 104ez form Tax return and tax account transcripts are generally available for the current year and past three years. 104ez form Locate the nearest Taxpayer Assistance Center using the Office Locator tool on IRS. 104ez form gov or IRS2Go. 104ez form Stop by most business days for face-to-face tax help, no appointment necessary — just walk in. 104ez form An employee can explain IRS letters, request adjustments to your tax account or help you set up a payment plan. 104ez form Before you visit, check the Office Locator for the address, phone number, hours of operation and the services provided. 104ez form If you have an ongoing tax account problem or a special need, such as a disability, you can request an appointment. 104ez form Call the local number listed in the Office Locator, or look in the phone book under United States Government, Internal Revenue Service. 104ez form Locate the nearest volunteer help site with the VITA Locator Tool on IRS. 104ez form gov. 104ez form Low-to-moderate income, elderly, persons with disabilities, and limited English proficient taxpayers can get free help with their tax return from the nationwide Volunteer Income Tax Assistance (VITA) program. 104ez form The Tax Counseling for the Elderly (TCE) program helps taxpayers 60 and older with their tax returns. 104ez form Most VITA and TCE sites offer free electronic filing and some provide IRS-certified volunteers who can help prepare your tax return. 104ez form AARP offers the Tax-Aide counseling program as part of the TCE program. 104ez form Visit AARP's website to find the nearest Tax-Aide location. 104ez form Research your tax questions. 104ez form Search publications and instructions by topic or keyword. 104ez form Read the Internal Revenue Code, regulations, or other official guidance. 104ez form Read Internal Revenue Bulletins. 104ez form Sign up to receive local and national tax news by email. 104ez form Phone. 104ez form You can call the IRS, or you can carry it in your pocket with the IRS2Go app on your smart phone or tablet. 104ez form   Call the Business and Specialty Tax line for questions at 1-800-829-4933. 104ez form Download the free IRS2Go mobile app from the iTunes app store or from Google Play. 104ez form Use it to watch the IRS YouTube channel, get IRS news as soon as it's released to the public, order transcripts of your tax returns or tax account, check your refund status, subscribe to filing season updates or daily tax tips, and follow the IRS Twitter news feed, @IRSnews, to get the latest federal tax news, including information about tax law changes and important IRS programs. 104ez form Call to locate the nearest volunteer help site, 1-800-906-9887. 104ez form Low-to-moderate income, elderly, persons with disabilities, and limited English proficient taxpayers can get free help with their tax return from the nationwide Volunteer Income Tax Assistance (VITA) program. 104ez form The Tax Counseling for the Elderly (TCE) program helps taxpayers 60 and older with their tax returns. 104ez form Most VITA and TCE sites offer free electronic filing. 104ez form Some VITA and TCE sites provide IRS-certified volunteers who can help prepare your tax return. 104ez form Through the TCE program, AARP offers the Tax-Aide counseling program; call 1-888-227-7669 to find the nearest Tax-Aide location. 104ez form Call to order forms, instructions and publications, 1-800-TAX-FORM (1-800-829-3676) to order current-year forms, instructions and publications, and prior-year forms and instructions (limited to 5 years). 104ez form You should receive your order within 10 business days. 104ez form Call to order transcripts of your tax returns or tax account, 1-800-908-9946. 104ez form Follow the prompts to provide your Employer Identification Number, street address and ZIP code. 104ez form Call for TeleTax topics, 1-800-829-4477, to listen to pre-recorded messages covering various tax topics. 104ez form Call using TTY/TDD equipment, 1-800-829-4059 to ask tax questions or order forms and publications. 104ez form The TTY/TDD telephone number is for people who are deaf, hard of hearing, or have a speech disability. 104ez form These individuals can also contact the IRS through relay services such as the Federal Relay Service available at www. 104ez form gsa. 104ez form gov/fedrelay. 104ez form Walk-in. 104ez form You can find a selection of forms, publications and services — in-person, face-to-face. 104ez form   Products. 104ez form You can walk in to some post offices, libraries, and IRS offices to pick up certain forms, instructions, and publications. 104ez form Some IRS offices, libraries, and city and county government offices have a collection of products available to photocopy from reproducible proofs. 104ez form Services. 104ez form You can walk in to your local TAC most business days for personal, face-to-face tax help. 104ez form An employee can explain IRS letters, request adjustments to your tax account, or help you set up a payment plan. 104ez form If you need to resolve a tax problem, have questions about how the tax law applies to your individual tax return, or you are more comfortable talking with someone in person, visit your local TAC where you can talk with an IRS representative face-to-face. 104ez form No appointment is necessary—just walk in. 104ez form Before visiting, check www. 104ez form irs. 104ez form gov/localcontacts for hours of operation and services provided. 104ez form Mail. 104ez form You can send your order for forms, instructions, and publications to the address below. 104ez form You should receive a response within 10 days after your request is received. 104ez form  Internal Revenue Service 1201 N. 104ez form Mitsubishi Motorway Bloomington, IL 61705-6613 The Taxpayer Advocate Service Is Here to Help You. 104ez form   The Taxpayer Advocate Service (TAS) is your voice at the IRS. 104ez form Our job is to ensure that every taxpayer is treated fairly and that you know and understand your rights. 104ez form What can TAS do for you?   We can offer you free help with IRS problems that you can't resolve on your own. 104ez form We know this process can be confusing, but the worst thing you can do is nothing at all! TAS can help if you can't resolve your tax problem and: Your problem is causing financial difficulties for you, your family, or your business. 104ez form You face (or your business is facing) an immediate threat of adverse action. 104ez form You've tried repeatedly to contact the IRS but no one has responded, or the IRS hasn't responded by the date promised. 104ez form   If you qualify for our help, you'll be assigned to one advocate who'll be with you at every turn and will do everything possible to resolve your problem. 104ez form Here's why we can help: TAS is an independent organization within the IRS. 104ez form Our advocates know how to work with the IRS. 104ez form Our services are free and tailored to meet your needs. 104ez form We have offices in every state, the District of Columbia, and Puerto Rico. 104ez form How can you reach us?   If you think TAS can help you, call your local advocate, whose number is in your local directory and at www. 104ez form irs. 104ez form gov/advocate, or call us toll-free at 1-877-777-4778. 104ez form How else does TAS help taxpayers?   TAS also works to resolve large-scale, systemic problems that affect many taxpayers. 104ez form If you know of one of these broad issues, please report it to us through our Systemic Advocacy Management System at www. 104ez form irs. 104ez form gov/sams. 104ez form Low Income Taxpayer Clinics. 104ez form   Low Income Taxpayer Clinics (LITCs) serve individuals whose income is below a certain level and need to resolve tax problems such as audits, appeals, and tax collection disputes. 104ez form Some clinics can provide information about taxpayer rights and responsibilities in different languages for individuals who speak English as a second language. 104ez form Visit www. 104ez form TaxpayerAdvocate. 104ez form irs. 104ez form gov or see IRS Publication 4134, Low Income Taxpayer Clinic List. 104ez form Small Business and Self-Employed Tax Center. 104ez form This online guide is a must for every small business owner or any taxpayer about to start a business. 104ez form  The information is updated during the year. 104ez form Visit www. 104ez form irs. 104ez form gov/Businesses/Small-Businesses-&-Self-Employed. 104ez form Prev  Up  Next   Home   More Online Publications
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The 104ez Form

104ez form Publication 514 - Main Content Table of Contents Choosing To Take Credit or DeductionChoice Applies to All Qualified Foreign Taxes Making or Changing Your Choice Why Choose the Credit?Credit for Taxes Paid or Accrued Foreign Currency and Exchange Rates Foreign Tax Redetermination Who Can Take the Credit?U. 104ez form S. 104ez form Citizens Resident Aliens Nonresident Aliens What Foreign Taxes Qualify for the Credit?Tax Must Be Imposed on You You Must Have Paid or Accrued the Tax Tax Must Be the Legal and Actual Foreign Tax Liability Tax Must Be an Income Tax (or Tax in Lieu of Income Tax) Foreign Taxes for Which You Cannot Take a CreditTaxes on Excluded Income Taxes for Which You Can Only Take an Itemized Deduction Taxes on Foreign Mineral Income Taxes From International Boycott Operations Taxes on Combined Foreign Oil and Gas Income Taxes of U. 104ez form S. 104ez form Persons Controlling Foreign Corporations and Partnerships Taxes Related to a Foreign Tax Credit Splitting Event How To Figure the CreditLimit on the Credit Separate Limit Income Allocation of Foreign Taxes Foreign Taxes From a Partnership or an S Corporation Figuring the Limit Qualified Dividends Capital Gains and Losses Allocation of Foreign and U. 104ez form S. 104ez form Losses Tax Treaties Carryback and CarryoverTime Limit on Tax Assessment Claim for Refund Taxes All Credited or All Deducted Married Couples How To Claim the CreditForm 1116 Records To Keep Simple Example — Filled-In Form 1116Part I—Taxable Income or Loss From Sources Outside the United States (for Category Checked Above) Part II—Foreign Taxes Paid or Accrued Part III—Figuring the Credit Part IV—Summary of Credits From Separate Parts III Comprehensive Example — Filled-In Form 1116Foreign earned income. 104ez form Employee business expenses. 104ez form Forms 1116 Computation of Taxable Income Part I—Taxable Income or Loss From Sources Outside the United States (for Category Checked Above) Part II—Foreign Taxes Paid or Accrued Part III—Figuring the Credit Part IV—Summary of Credits From Separate Parts III Unused Foreign Taxes How To Get Tax HelpLow Income Taxpayer Clinics Choosing To Take Credit or Deduction You can choose whether to take the amount of any qualified foreign taxes paid or accrued during the year as a foreign tax credit or as an itemized deduction. 104ez form You can change your choice for each year's taxes. 104ez form To choose the foreign tax credit, in most cases you must complete Form 1116 and attach it to your U. 104ez form S. 104ez form tax return. 104ez form However, you may qualify for the exception that allows you to claim the foreign tax credit without using Form 1116. 104ez form See How To Figure the Credit , later. 104ez form To choose to claim the taxes as an itemized deduction, use Schedule A (Form 1040), Itemized Deductions. 104ez form Figure your tax both ways—claiming the credit and claiming the deduction. 104ez form Then fill out your return the way that benefits you more. 104ez form See Why Choose the Credit, later. 104ez form Choice Applies to All Qualified Foreign Taxes As a general rule, you must choose to take either a credit or a deduction for all qualified foreign taxes. 104ez form If you choose to take a credit for qualified foreign taxes, you must take the credit for all of them. 104ez form You cannot deduct any of them. 104ez form Conversely, if you choose to deduct qualified foreign taxes, you must deduct all of them. 104ez form You cannot take a credit for any of them. 104ez form See What Foreign Taxes Qualify for the Credit , later, for the meaning of qualified foreign taxes. 104ez form There are exceptions to this general rule, which are described next. 104ez form Exceptions for foreign taxes not allowed as a credit. 104ez form   Even if you claim a credit for other foreign taxes, you can deduct any foreign tax that is not allowed as a credit if: You paid the tax to a country for which a credit is not allowed because it provides support for acts of international terrorism, or because the United States does not have or does not conduct diplomatic relations with it or recognize its government and that government is not otherwise eligible to purchase defense articles or services under the Arms Export Control Act, You paid withholding tax on dividends from foreign corporations whose stock you did not hold for the required period of time, You paid withholding tax on income or gain (other than dividends) from property you did not hold for the required period of time, You paid withholding tax on income or gain to the extent you had to make related payments on positions in substantially similar or related property, You participated in or cooperated with an international boycott, You paid taxes in connection with the purchase or sale of oil or gas, or You paid or accrued taxes on income or gain in connection with a covered asset acquisition. 104ez form Covered asset acquisitions include certain acquisitions that result in a stepped-up basis for U. 104ez form S. 104ez form tax purposes. 104ez form For more information, see Internal Revenue Code section 901(m). 104ez form The IRS intends to issue guidance that will explain this provision in greater detail. 104ez form   For more information on these items, see Taxes for Which You Can Only Take an Itemized Deduction , later, under Foreign Taxes for Which You Cannot Take a Credit. 104ez form Foreign taxes that are not income taxes. 104ez form   In most cases, only foreign income taxes qualify for the foreign tax credit. 104ez form Other taxes, such as foreign real and personal property taxes, do not qualify. 104ez form But you may be able to deduct these other taxes even if you claim the foreign tax credit for foreign income taxes. 104ez form   In most cases, you can deduct these other taxes only if they are expenses incurred in a trade or business or in the production of income. 104ez form However, you can deduct foreign real property taxes that are not trade or business expenses as an itemized deduction on Schedule A (Form 1040). 104ez form Carrybacks and carryovers. 104ez form   There is a limit on the credit you can claim in a tax year. 104ez form If your qualified foreign taxes exceed the credit limit, you may be able to carry over or carry back the excess to another tax year. 104ez form If you deduct qualified foreign taxes in a tax year, you cannot use a carryback or carryover in that year. 104ez form That is because you cannot take both a deduction and a credit for qualified foreign taxes in the same tax year. 104ez form   For more information on the limit, see How To Figure the Credit , later. 104ez form For more information on carrybacks and carryovers, see Carryback and Carryover , later. 104ez form Making or Changing Your Choice You can make or change your choice to claim a deduction or credit at any time during the period within 10 years from the regular due date for filing the return (without regard to any extension of time to file) for the tax year in which the taxes were actually paid or accrued. 104ez form You make or change your choice on your tax return (or on an amended return) for the year your choice is to be effective. 104ez form Example. 104ez form You paid foreign taxes for the last 13 years and chose to deduct them on your U. 104ez form S. 104ez form income tax returns. 104ez form You were timely in both filing your returns and paying your U. 104ez form S. 104ez form tax liability. 104ez form In February 2013, you file an amended return for tax year 2002 choosing to take a credit for your 2002 foreign taxes because you now realize that the credit is more advantageous than the deduction for that year. 104ez form Because the regular due date of your 2002 return was April 15, 2003, this choice is timely (within 10 years). 104ez form Because there is a limit on the credit for your 2002 foreign tax, you have unused 2002 foreign taxes. 104ez form Ordinarily, you first carry back unused foreign taxes arising in 2002 to, and claim them as a credit in, the 2 preceding tax years. 104ez form If you are unable to claim all of them in those 2 years, you carry them forward to the 10 years following the year in which they arose. 104ez form Because you originally chose to deduct your foreign taxes and the 10-year period for changing the choice for 2000 and 2001 has passed, you cannot change your choice and carry the unused 2002 foreign taxes back to tax years 2000 and 2001. 104ez form Because the 10-year periods for changing the choice have not passed for your 2003 through 2012 income tax returns, you can still choose to claim the credit for those years and carry forward any unused 2002 foreign taxes. 104ez form However, you must reduce the unused 2002 foreign taxes that you carry forward by the amount that would have been allowed as a carryback if you had timely carried back the foreign tax to tax years 2000 and 2001. 104ez form You cannot take a credit or a deduction for foreign taxes paid on income you exclude under the foreign earned income exclusion or the foreign housing exclusion. 104ez form See Foreign Earned Income and Housing Exclusions under Foreign Taxes for Which You Cannot Take a Credit, later. 104ez form Why Choose the Credit? The foreign tax credit is intended to relieve you of a double tax burden when your foreign source income is taxed by both the United States and the foreign country. 104ez form In most cases, if the foreign tax rate is higher than the U. 104ez form S. 104ez form rate, there will be no U. 104ez form S. 104ez form tax on the foreign income. 104ez form If the foreign tax rate is lower than the U. 104ez form S. 104ez form rate, U. 104ez form S. 104ez form tax on the foreign income will be limited to the difference between the rates. 104ez form The foreign tax credit can only reduce U. 104ez form S. 104ez form taxes on foreign source income; it cannot reduce U. 104ez form S. 104ez form taxes on U. 104ez form S. 104ez form source income. 104ez form Although no one rule covers all situations, in most cases it is better to take a credit for qualified foreign taxes than to deduct them as an itemized deduction. 104ez form This is because: A credit reduces your actual U. 104ez form S. 104ez form income tax on a dollar-for-dollar basis, while a deduction reduces only your income subject to tax, You can choose to take the foreign tax credit even if you do not itemize your deductions. 104ez form You then are allowed the standard deduction in addition to the credit, and If you choose to take the foreign tax credit, and the taxes paid or accrued exceed the credit limit for the tax year, you may be able to carry over or carry back the excess to another tax year. 104ez form (See Limit on credit under How To Figure the Credit, later. 104ez form ) Example 1. 104ez form For 2013, you and your spouse have adjusted gross income of $80,300, including $20,000 of dividend income from foreign sources. 104ez form None of the dividends are qualified dividends. 104ez form You file a joint return and can claim two $3,900 exemptions. 104ez form You had to pay $2,000 in foreign income taxes on the dividend income. 104ez form If you take the foreign taxes as an itemized deduction, your total itemized deductions are $15,000. 104ez form Your taxable income then is $57,500 and your tax is $7,736. 104ez form If you take the credit instead, your itemized deductions are only $13,000. 104ez form Your taxable income then is $59,500 and your tax before the credit is $8,036. 104ez form After the credit, however, your tax is only $6,036. 104ez form Therefore, your tax is $1,700 lower ($7,736 − $6,036) by taking the credit. 104ez form Example 2. 104ez form In 2013, you receive investment income of $5,000 from a foreign country, which imposes a tax of $1,500 on that income. 104ez form You report on your U. 104ez form S. 104ez form return this income as well as $56,000 of U. 104ez form S. 104ez form source wages and an allowable $49,000 partnership loss from a U. 104ez form S. 104ez form partnership. 104ez form Your share of the partnership's gross income is $25,000 and your share of its expenses is $74,000. 104ez form You are single, entitled to one $3,900 exemption, and have other itemized deductions of $6,850. 104ez form If you deduct the foreign tax on your U. 104ez form S. 104ez form return, your taxable income is a negative $250 ($5,000 + $56,000 − $49,000 − $1,500 − $6,850 − $3,900) and your tax is $0. 104ez form If you take the credit instead, your taxable income is $1,250 ($5,000 + $56,000 − $49,000 − $3,900 − $6,850) and your tax before the credit is $126. 104ez form You can take a credit of only $113 because of limits discussed later. 104ez form Your tax after the credit is $13 ($126 − $113), which is $13 more than if you deduct the foreign tax. 104ez form If you choose the credit, you will have unused foreign taxes of $1,387 ($1,500 − $113). 104ez form When deciding whether to take the credit or the deduction this year, you will need to consider whether you can benefit from a carryback or carryover of that unused foreign tax. 104ez form Credit for Taxes Paid or Accrued You can claim the credit for a qualified foreign tax in the tax year in which you pay it or accrue it, depending on your method of accounting. 104ez form “Tax year” refers to the tax year for which your U. 104ez form S. 104ez form return is filed, not the tax year for which your foreign return is filed. 104ez form Accrual method of accounting. 104ez form   If you use an accrual method of accounting, you can claim the credit only in the year in which you accrue the tax. 104ez form You are using an accrual method of accounting if you report income when you earn it, rather than when you receive it, and you deduct your expenses when you incur them, rather than when you pay them. 104ez form   In most cases, foreign taxes accrue when all the events have taken place that fix the amount of the tax and your liability to pay it. 104ez form Generally, this occurs on the last day of the tax year for which your foreign return is filed. 104ez form Contesting your foreign tax liability. 104ez form   If you are contesting your foreign tax liability, you cannot accrue it and take a credit until the amount of foreign tax due is finally determined. 104ez form However, if you choose to pay the tax liability you are contesting, you can take a credit for the amount you pay before a final determination of foreign tax liability is made. 104ez form Once your liability is determined, the foreign tax credit is allowable for the year to which the foreign tax relates. 104ez form If the amount of foreign taxes taken as a credit differs from the final foreign tax liability, you may have to adjust the credit, as discussed later under Foreign Tax Redetermination . 104ez form You may have to post a bond. 104ez form   If you claim a credit for taxes accrued but not paid, you may have to post an income tax bond to guarantee your payment of any tax due in the event the amount of foreign tax paid differs from the amount claimed. 104ez form   The IRS can request this bond at any time without regard to the Time Limit on Tax Assessment discussed later under Carryback and Carryover. 104ez form Cash method of accounting. 104ez form   If you use the cash method of accounting, you can choose to take the credit either in the year you pay the tax or in the year you accrue it. 104ez form You are using the cash method of accounting if you report income in the year you actually or constructively receive it, and deduct expenses in the year you pay them. 104ez form Choosing to take credit in the year taxes accrue. 104ez form   Even if you use the cash method of accounting, you can choose to take a credit for foreign taxes in the year they accrue. 104ez form You make the choice by checking the box in Part II of Form 1116. 104ez form Once you make that choice, you must follow it in all later years and take a credit for foreign taxes in the year they accrue. 104ez form   In addition, the choice to take the credit when foreign taxes accrue applies to all foreign taxes qualifying for the credit. 104ez form You cannot take a credit for some foreign taxes when paid and take a credit for others when accrued. 104ez form   If you make the choice to take the credit when foreign taxes accrue and pay them in a later year, you cannot claim a deduction for any part of the previously accrued taxes. 104ez form Credit based on taxes paid in earlier year. 104ez form   If, in earlier years, you took the credit based on taxes paid, and this year you choose to take the credit based on taxes accrued, you may be able to take the credit this year for taxes from more than one year. 104ez form Example. 104ez form Last year you took the credit based on taxes paid. 104ez form This year you chose to take the credit based on taxes accrued. 104ez form During the year you paid foreign income taxes owed for last year. 104ez form You also accrued foreign income taxes for this year that you did not pay by the end of the year. 104ez form You can base the credit on your return for this year on both last year's taxes that you paid and this year's taxes that you accrued. 104ez form Foreign Currency and Exchange Rates U. 104ez form S. 104ez form income tax is imposed on income expressed in U. 104ez form S. 104ez form dollars, while in most cases the foreign tax is imposed on income expressed in foreign currency. 104ez form Therefore, fluctuations in the value of the foreign currency relative to the U. 104ez form S. 104ez form dollar may affect the foreign tax credit. 104ez form Translating foreign currency into U. 104ez form S. 104ez form dollars. 104ez form   If you receive all or part of your income or pay some or all of your expenses in foreign currency, you must translate the foreign currency into U. 104ez form S. 104ez form dollars. 104ez form How and when you do this depends on your functional currency. 104ez form In most cases, your functional currency is the U. 104ez form S. 104ez form dollar unless you are required to use the currency of a foreign country. 104ez form   You must make all federal income tax determinations in your functional currency. 104ez form The U. 104ez form S. 104ez form dollar is the functional currency for all taxpayers except some qualified business units. 104ez form A qualified business unit is a separate and clearly identified unit of a trade or business that maintains separate books and records. 104ez form Unless you are self-employed, your functional currency is the U. 104ez form S. 104ez form dollar. 104ez form   Even if you are self-employed and have a qualified business unit, your functional currency is the U. 104ez form S. 104ez form dollar if any of the following apply. 104ez form You conduct the business primarily in dollars. 104ez form The principal place of business is located in the United States. 104ez form You choose to or are required to use the dollar as your functional currency. 104ez form The business books and records are not kept in the currency of the economic environment in which a significant part of the business activities is conducted. 104ez form   If your functional currency is the U. 104ez form S. 104ez form dollar, you must immediately translate into dollars all items of income, expense, etc. 104ez form , that you receive, pay, or accrue in a foreign currency and that will affect computation of your income tax. 104ez form If there is more than one exchange rate, use the one that most properly reflects your income. 104ez form In most cases, you can get exchange rates from banks and U. 104ez form S. 104ez form Embassies. 104ez form   If your functional currency is not the U. 104ez form S. 104ez form dollar, make all income tax determinations in your functional currency. 104ez form At the end of the year, translate the results, such as income or loss, into U. 104ez form S. 104ez form dollars to report on your income tax return. 104ez form    For more information, write to: Internal Revenue Service International Section Philadelphia, PA 19255-0725 Rate of exchange for foreign taxes paid. 104ez form   Use the rate of exchange in effect on the date you paid the foreign taxes to the foreign country unless you meet the exception discussed next. 104ez form If your tax was withheld in foreign currency, use the rate of exchange in effect for the date on which the tax was withheld. 104ez form If you make foreign estimated tax payments, you use the rate of exchange in effect for the date on which you made the estimated tax payment. 104ez form   The exchange rate rules discussed here apply even if the foreign taxes are paid or accrued with respect to a foreign tax credit splitting event (discussed later). 104ez form Exception. 104ez form   If you claim the credit for foreign taxes on an accrual basis, in most cases you must use the average exchange rate for the tax year to which the taxes relate. 104ez form This rule applies to accrued taxes relating to tax years beginning after 1997 and only under the following conditions. 104ez form The foreign taxes are paid on or after the first day of the tax year to which they relate. 104ez form The foreign taxes are paid not later than 2 years after the close of the tax year to which they relate. 104ez form The foreign tax liability is not denominated in an inflationary currency (defined in the Form 1116 instructions). 104ez form (This condition applies to taxes paid or accrued in tax years beginning after November 6, 2007. 104ez form )   For all other foreign taxes, you should use the exchange rate in effect on the date you paid them. 104ez form Election to use exchange rate on date paid. 104ez form   If you have accrued foreign taxes that you are otherwise required to convert using the average exchange rate, you may elect to use the exchange rate in effect on the date the foreign taxes are paid if the taxes are denominated in a nonfunctional foreign currency. 104ez form If any of the accrued taxes are unpaid, you must translate them into U. 104ez form S. 104ez form dollars using the exchange rate on the last day of the U. 104ez form S. 104ez form tax year to which those taxes relate. 104ez form You may make the election for all nonfunctional currency foreign income taxes or only those nonfunctional currency foreign income taxes that are attributable to qualified business units with a U. 104ez form S. 104ez form dollar functional currency. 104ez form Once made, the election applies to the tax year for which made and all subsequent tax years unless revoked with the consent of the IRS. 104ez form The election is available for tax years beginning after 2004. 104ez form It must be made by the due date (including extensions) for filing the tax return for the first tax year to which the election applies. 104ez form Make the election by attaching a statement to the applicable tax return. 104ez form The statement must identify whether the election is made for all foreign taxes or only for foreign taxes attributable to qualified business units with a U. 104ez form S. 104ez form dollar functional currency. 104ez form Foreign Tax Redetermination A foreign tax redetermination is any change in your foreign tax liability that may affect your U. 104ez form S. 104ez form foreign tax credit claimed. 104ez form The year in which to claim the credit remains the year to which the foreign taxes paid or accrued relate, even if the change in foreign tax liability occurs in a later year. 104ez form If a foreign tax redetermination occurs, a redetermination of your U. 104ez form S. 104ez form tax liability is required if any of the following conditions apply. 104ez form The accrued taxes when paid differ from the amounts claimed as a credit. 104ez form The accrued taxes you claimed as a credit in one tax year are not paid within 2 years after the end of that tax year. 104ez form If this applies to you, you must reduce the credit previously claimed by the amount of the unpaid taxes. 104ez form You will not be allowed a credit for the unpaid taxes until you pay them. 104ez form When you pay the accrued taxes, a new foreign tax redetermination occurs and you must translate the taxes into U. 104ez form S. 104ez form dollars using the exchange rate as of the date they were paid. 104ez form The foreign tax credit is allowed for the year to which the foreign tax relates. 104ez form See Rate of exchange for foreign taxes paid , earlier, under Foreign Currency and Exchange Rates. 104ez form The foreign taxes you paid are refunded in whole or in part. 104ez form For taxes taken into account when accrued but translated into dollars on the date of payment, the dollar value of the accrued tax differs from the dollar value of the tax paid because of fluctuations in the exchange rate between the date of accrual and the date of payment. 104ez form However, no redetermination is required if the change in foreign tax liability for each foreign country is solely attributable to exchange rate fluctuations and is less than the smaller of: $10,000, or 2% of the total dollar amount of the foreign tax initially accrued for that foreign country for the U. 104ez form S. 104ez form tax year. 104ez form In this case, you must adjust your U. 104ez form S. 104ez form tax in the tax year in which the accrued foreign taxes are paid. 104ez form Notice to the Internal Revenue Service (IRS) of Redetermination You are required to notify the IRS about a foreign tax credit redetermination that affects your U. 104ez form S. 104ez form tax liability for each tax year affected by the redetermination. 104ez form In most cases, you must file Form 1040X, Amended U. 104ez form S. 104ez form Individual Income Tax Return, with a revised Form 1116 and a statement that contains information sufficient for the IRS to redetermine your U. 104ez form S. 104ez form tax liability for the year or years affected. 104ez form See Contents of statement , later. 104ez form You are not required to attach Form 1116 for a tax year affected by a redetermination if: The amount of your creditable taxes paid or accrued during the tax year is not more than $300 ($600 if married filing a joint return) as a result of the foreign tax redetermination, and You meet the requirements listed under Exemption from foreign tax credit limit under How To Figure the Credit, later. 104ez form There are other exceptions to this requirement. 104ez form They are discussed later under Due date of notification to IRS . 104ez form Contents of statement. 104ez form   The statement must include all of the following. 104ez form Your name, address, and taxpayer identification number. 104ez form The tax year or years that are affected by the foreign tax redetermination. 104ez form The date or dates the foreign taxes were accrued, if applicable. 104ez form The date or dates the foreign taxes were paid. 104ez form The amount of foreign taxes paid or accrued on each date (in foreign currency) and the exchange rate used to translate each amount. 104ez form Information sufficient to determine any interest due from or owing to you, including the amount of any interest paid to you by the foreign government and the dates received. 104ez form   In the case of any foreign taxes that were not paid before the date two years after the close of the tax year to which those taxes relate, you must provide the amount of those taxes in foreign currency and the exchange rate that was used to translate that amount when originally claimed as a credit. 104ez form   If any foreign tax was refunded in whole or in part, you must provide the date and amount (in foreign currency) of each refund, the exchange rate that was used to translate each amount when originally claimed as a credit, and the exchange rate for the date the refund was received (for purposes of computing foreign currency gain or loss under Internal Revenue Code section 988). 104ez form Due date of notification to IRS. 104ez form   If you pay less foreign tax than you originally claimed a credit for, in most cases you must file a notification by the due date (with extensions) of your original return for your tax year in which the foreign tax redetermination occurred. 104ez form There is no limit on the time the IRS has to redetermine and assess the correct U. 104ez form S. 104ez form tax due. 104ez form If you pay more foreign tax than you originally claimed a credit for, you have 10 years to file a claim for refund of U. 104ez form S. 104ez form taxes. 104ez form See Time Limit on Refund Claims , later. 104ez form   Exceptions to this due date are explained in the next two paragraphs. 104ez form Multiple redeterminations of U. 104ez form S. 104ez form tax liability for same tax year. 104ez form   Where more than one foreign tax redetermination requires a redetermination of U. 104ez form S. 104ez form tax liability for the same tax year and those redeterminations occur in the same tax year or within two consecutive tax years, you can file for that tax year one notification (Form 1040X with a Form 1116 and the required statement) that reflects all those tax redeterminations. 104ez form If you choose to file one notification, the due date for that notification is the due date of the original return (with extensions) for the year in which the first foreign tax redetermination that reduced your foreign tax liability occurred. 104ez form However, foreign tax redeterminations with respect to the tax year for which a redetermination of U. 104ez form S. 104ez form tax liability is required may occur after the due date for providing that notification. 104ez form In this situation, you may have to file more than one Form 1040X for that tax year. 104ez form Additional U. 104ez form S. 104ez form tax due eliminated by foreign tax credit carryback or carryover. 104ez form   If a foreign tax redetermination requires a redetermination of U. 104ez form S. 104ez form tax liability that would otherwise result in an additional amount of U. 104ez form S. 104ez form tax due, but the additional tax is eliminated by a carryback or carryover of an unused foreign tax, you do not have to amend your tax return for the year affected by the redetermination. 104ez form Instead, you can notify the IRS by attaching a statement to the original return for the tax year in which the foreign tax redetermination occurred. 104ez form You must file the statement by the due date (with extensions) of that return. 104ez form The statement must show the amount of the unused foreign taxes paid or accrued and a detailed schedule showing the computation of the carryback or carryover (including the amounts carried back or over to the year for which a redetermination on U. 104ez form S. 104ez form tax liability is required). 104ez form Failure-to-notify penalty. 104ez form   If you fail to notify the IRS of a foreign tax redetermination and cannot show reasonable cause for the failure, you may have to pay a penalty. 104ez form   For each month, or part of a month, that the failure continues, you pay a penalty of 5% of the tax due resulting from a redetermination of your U. 104ez form S. 104ez form tax. 104ez form This penalty cannot be more than 25% of the tax due. 104ez form Foreign tax refund. 104ez form   If you receive a foreign tax refund without interest from the foreign government, you will not have to pay interest on the amount of tax due resulting from the adjustment to your U. 104ez form S. 104ez form tax for the time before the date of the refund. 104ez form   However, if you receive a foreign tax refund with interest, you must pay interest to the IRS up to the amount of the interest paid to you by the foreign government. 104ez form The interest you must pay cannot be more than the interest you would have had to pay on taxes that were unpaid for any other reason for the same period. 104ez form Interest also is owed from the time you receive a refund until you pay the additional tax due. 104ez form Foreign tax imposed on foreign refund. 104ez form   If your foreign tax refund is taxed by the foreign country, you cannot take a separate credit or deduction for this additional foreign tax. 104ez form However, when you refigure the foreign tax credit taken for the original foreign tax, reduce the amount of the refund by the foreign tax paid on the refund. 104ez form Example. 104ez form You paid a foreign income tax of $3,000 in 2011, and received a foreign tax refund of $500 in 2013 on which a foreign tax of $100 was imposed. 104ez form When you refigure your credit for 2011, you must reduce the $3,000 you paid by $400. 104ez form Time Limit on Refund Claims You have 10 years to file a claim for refund of U. 104ez form S. 104ez form tax if you find that you paid or accrued a larger foreign tax than you claimed a credit for. 104ez form The 10-year period begins the day after the regular due date for filing the return (without extensions) for the year in which the taxes were actually paid or accrued. 104ez form You have 10 years to file your claim regardless of whether you claim the credit for taxes paid or taxes accrued. 104ez form The 10-year period applies to claims for refund or credit based on: Fixing math errors in figuring qualified foreign taxes, Reporting qualified foreign taxes not originally reported on the return, or Any other change in the size of the credit (including one caused by correcting the foreign tax credit limit). 104ez form The special 10-year period also applies to making or changing your choice to claim a deduction or credit for foreign taxes. 104ez form See Making or Changing Your Choice discussed earlier under Choosing To Take Credit or Deduction. 104ez form Who Can Take the Credit? U. 104ez form S. 104ez form citizens, resident aliens, and nonresident aliens who paid foreign income tax and are subject to U. 104ez form S. 104ez form tax on foreign source income may be able to take a foreign tax credit. 104ez form U. 104ez form S. 104ez form Citizens If you are a U. 104ez form S. 104ez form citizen, you are taxed by the United States on your worldwide income wherever you live. 104ez form You are normally entitled to take a credit for foreign taxes you pay or accrue. 104ez form Resident Aliens If you are a resident alien of the United States, you can take a credit for foreign taxes subject to the same general rules as U. 104ez form S. 104ez form citizens. 104ez form If you are a bona fide resident of Puerto Rico for the entire tax year, you also come under the same rules. 104ez form Usually, you can take a credit only for those foreign taxes imposed on income you actually or constructively received while you had resident alien status. 104ez form For information on alien status, see Publication 519. 104ez form Nonresident Aliens If you are a nonresident alien, you cannot take the credit in most cases. 104ez form However, you may be able to take the credit if: You were a bona fide resident of Puerto Rico during your entire tax year, or You pay or accrue tax to a foreign country or U. 104ez form S. 104ez form possession on income from foreign sources that is effectively connected with a trade or business in the United States. 104ez form But if you must pay tax to a foreign country or U. 104ez form S. 104ez form possession on income from U. 104ez form S. 104ez form sources only because you are a citizen or a resident of that country or U. 104ez form S. 104ez form possession, do not use that tax in figuring the amount of your credit. 104ez form For information on alien status and effectively connected income, see Publication 519. 104ez form What Foreign Taxes Qualify for the Credit? In most cases, the following four tests must be met for any foreign tax to qualify for the credit. 104ez form The tax must be imposed on you. 104ez form You must have paid or accrued the tax. 104ez form The tax must be the legal and actual foreign tax liability. 104ez form The tax must be an income tax (or a tax in lieu of an income tax). 104ez form Certain foreign taxes do not qualify for the credit even if the four tests are met. 104ez form See Foreign Taxes for Which You Cannot Take a Credit, later. 104ez form Tax Must Be Imposed on You You can claim a credit only for foreign taxes that are imposed on you by a foreign country or U. 104ez form S. 104ez form possession. 104ez form For example, a tax that is deducted from your wages is considered to be imposed on you. 104ez form You cannot shift the right to claim the credit by contract or other means. 104ez form Foreign country. 104ez form   A foreign country includes any foreign state and its political subdivisions. 104ez form Income, war profits, and excess profits taxes paid or accrued to a foreign city or province qualify for the foreign tax credit. 104ez form U. 104ez form S. 104ez form possessions. 104ez form   For foreign tax credit purposes, all qualified taxes paid to U. 104ez form S. 104ez form possessions are considered foreign taxes. 104ez form For this purpose, U. 104ez form S. 104ez form possessions include Puerto Rico and American Samoa. 104ez form   When the term “foreign country” is used in this publication, it includes U. 104ez form S. 104ez form possessions unless otherwise stated. 104ez form You Must Have Paid or Accrued the Tax In most cases, you can claim the credit only if you paid or accrued the foreign tax to a foreign country or U. 104ez form S. 104ez form possession. 104ez form However, the paragraphs that follow describe some instances in which you can claim the credit even if you did not directly pay or accrue the tax yourself. 104ez form Joint return. 104ez form   If you file a joint return, you can claim the credit based on the total foreign income taxes paid or accrued by you and your spouse. 104ez form Combined income. 104ez form   If foreign tax is imposed on the combined income of two or more persons (for example, spouses), the tax is allocated among, and considered paid by, these persons on a pro rata basis in proportion to each person's portion of the combined income, as determined under foreign law and Regulations section 1. 104ez form 901-2(f)(3)(iii). 104ez form Combined income with respect to each foreign tax that is imposed on a combined basis (and combined income subject to tax exemption or preferential tax rates) is computed separately, and the tax on that combined income is allocated separately. 104ez form   These rules apply to foreign taxes paid or accrued in tax years beginning after February 14, 2012. 104ez form However, you can choose to apply the new rules to foreign taxes paid or accrued in tax years beginning after December 31, 2010, and before February 15, 2012. 104ez form For more details, see paragraphs (f) and (h) of Regulations section 1. 104ez form 901-2. 104ez form For similar rules applicable to prior tax years, see Regulations section 1. 104ez form 901-2 (revised as of April 1, 2011). 104ez form Example. 104ez form You and your spouse reside in Country X, which imposes income tax on your combined incomes. 104ez form Both of you use the “u” as your functional currency. 104ez form Country X apportions tax based on income. 104ez form You had income of 30,000u and your spouse had income of 20,000u. 104ez form Your filing status on your U. 104ez form S. 104ez form income tax return is married filing separately. 104ez form You can claim only 60% (30,000u/50,000u) of the foreign taxes imposed on your income on your U. 104ez form S income tax return. 104ez form Your spouse can claim only 40% (20,000u/50,000u). 104ez form Partner or S corporation shareholder. 104ez form   If you are a member of a partnership, or a shareholder in an S corporation, you can claim the credit based on your proportionate share of the foreign income taxes paid or accrued by the partnership or the S corporation. 104ez form These amounts will be shown on the Schedule K-1 you receive from the partnership or S corporation. 104ez form However, if you are a shareholder in an S corporation that in turn owns stock in a foreign corporation, you cannot claim a credit for your share of foreign taxes paid by the foreign corporation. 104ez form Beneficiary. 104ez form   If you are a beneficiary of an estate or trust, you may be able to claim the credit based on your proportionate share of foreign income taxes paid or accrued by the estate or trust. 104ez form This amount will be shown on the Schedule K-1 you receive from the estate or trust. 104ez form However, you must show that the tax was imposed on income of the estate and not on income received by the decedent. 104ez form Mutual fund shareholder. 104ez form   If you are a shareholder of a mutual fund or other regulated investment company (RIC), you may be able to claim the credit based on your share of foreign income taxes paid by the fund if it chooses to pass the credit on to its shareholders. 104ez form You should receive from the mutual fund or other RIC a Form 1099-DIV, or similar statement, showing your share of the foreign income, and your share of the foreign taxes paid. 104ez form If you do not receive this information, you will need to contact the fund. 104ez form Controlled foreign corporation shareholder. 104ez form   If you are a shareholder of a controlled foreign corporation and choose to be taxed at corporate rates on the amount you must include in gross income from that corporation, you can claim the credit based on your share of foreign taxes paid or accrued by the controlled foreign corporation. 104ez form If you make this election, you must claim the credit by filing Form 1118, Foreign Tax Credit—Corporations. 104ez form Controlled foreign corporation. 104ez form   A controlled foreign corporation is a foreign corporation in which U. 104ez form S. 104ez form shareholders own more than 50% of the voting power or value of the stock. 104ez form You are considered a U. 104ez form S. 104ez form shareholder if you own, directly or indirectly, 10% or more of the total voting power of all classes of the foreign corporation's stock. 104ez form See Internal Revenue Code sections 951(b) and 958(b) for more information. 104ez form Tax Must Be the Legal and Actual Foreign Tax Liability The amount of foreign tax that qualifies is not necessarily the amount of tax withheld by the foreign country. 104ez form Only the legal and actual foreign tax liability that you paid or accrued during the year qualifies for the credit. 104ez form Foreign tax refund. 104ez form   You cannot take a foreign tax credit for income taxes paid to a foreign country if it is reasonably certain the amount would be refunded, credited, rebated, abated, or forgiven if you made a claim. 104ez form   For example, the United States has tax treaties with many countries allowing U. 104ez form S. 104ez form citizens and residents reductions in the rates of tax of those foreign countries. 104ez form However, some treaty countries require U. 104ez form S. 104ez form citizens and residents to pay the tax figured without regard to the lower treaty rates and then claim a refund for the amount by which the tax actually paid is more than the amount of tax figured using the lower treaty rate. 104ez form The qualified foreign tax is the amount figured using the lower treaty rate and not the amount actually paid, because the excess tax is refundable. 104ez form Subsidy received. 104ez form   Tax payments a foreign country returns to you in the form of a subsidy do not qualify for the foreign tax credit. 104ez form This rule applies even if the subsidy is given to a person related to you, or persons who participated with you in a transaction or a related transaction. 104ez form A subsidy can be provided by any means but must be determined, directly or indirectly, in relation to the amount of tax, or to the base used to figure the tax. 104ez form   The term “subsidy” includes any type of benefit. 104ez form Some ways of providing a subsidy are refunds, credits, deductions, payments, or discharges of obligations. 104ez form Shareholder receiving refund for corporate tax in integrated system. 104ez form   Under some foreign tax laws and treaties, a shareholder is considered to have paid part of the tax that is imposed on the corporation. 104ez form You may be able to claim a refund of these taxes from the foreign government. 104ez form You must include the refund (including any amount withheld) in your income in the year received. 104ez form Any tax withheld from the refund is a qualified foreign tax. 104ez form Example. 104ez form You are a shareholder of a French corporation. 104ez form You receive a $100 refund of the tax paid to France by the corporation on the earnings distributed to you as a dividend. 104ez form The French government imposes a 15% withholding tax ($15) on the refund you received. 104ez form You receive a check for $85. 104ez form You include $100 in your income. 104ez form The $15 of tax withheld is a qualified foreign tax. 104ez form Tax Must Be an Income Tax (or Tax in Lieu of Income Tax) In most cases, only income, war profits, and excess profits taxes (income taxes) qualify for the foreign tax credit. 104ez form Foreign taxes on wages, dividends, interest, and royalties qualify for the credit in most cases. 104ez form Furthermore, foreign taxes on income can qualify even though they are not imposed under an income tax law if the tax is in lieu of an income, war profits, or excess profits tax. 104ez form See Taxes in Lieu of Income Taxes , later. 104ez form Income Tax Simply because the levy is called an income tax by the foreign taxing authority does not make it an income tax for this purpose. 104ez form A foreign levy is an income tax only if it meets both of the following requirements. 104ez form It is a tax; that is, you have to pay it and you get no specific economic benefit (discussed below) from paying it. 104ez form The predominant character of the tax is that of an income tax in the U. 104ez form S. 104ez form sense. 104ez form A foreign levy may meet these requirements even if the foreign tax law differs from U. 104ez form S. 104ez form tax law. 104ez form The foreign law may include in income items that U. 104ez form S. 104ez form law does not include, or it may allow certain exclusions or deductions that U. 104ez form S. 104ez form law does not allow. 104ez form Specific economic benefit. 104ez form   In most cases, you get a specific economic benefit if you receive, or are considered to receive, an economic benefit from the foreign country imposing the levy, and: If there is a generally imposed income tax, the economic benefit is not available on substantially the same terms to all persons subject to the income tax, or If there is no generally imposed income tax, the economic benefit is not available on substantially the same terms to the population of the foreign country in general. 104ez form   You are considered to receive a specific economic benefit if you have a business transaction with a person who receives a specific economic benefit from the foreign country and, under the terms and conditions of the transaction, you receive directly or indirectly all or part of the benefit. 104ez form   However, see the exception discussed later under Pension, unemployment, and disability fund payments . 104ez form Economic benefits. 104ez form   Economic benefits include the following. 104ez form Goods. 104ez form Services. 104ez form Fees or other payments. 104ez form Rights to use, acquire, or extract resources, patents, or other property the foreign country owns or controls. 104ez form Discharges of contractual obligations. 104ez form   In most cases, the right or privilege merely to engage in business is not an economic benefit. 104ez form Dual-capacity taxpayers. 104ez form   If you are subject to a foreign country's levy and you also receive a specific economic benefit from that foreign country, you are a “dual-capacity taxpayer. 104ez form ” As a dual-capacity taxpayer, you cannot claim a credit for any part of the foreign levy, unless you establish that the amount paid under a distinct element of the foreign levy is a tax, rather than a compulsory payment for a direct or indirect specific economic benefit. 104ez form    For more information on how to establish amounts paid under separate elements of a levy, write to: Internal Revenue Service International Section Philadelphia, PA 19255-0725 Pension, unemployment, and disability fund payments. 104ez form   A foreign tax imposed on an individual to pay for retirement, old-age, death, survivor, unemployment, illness, or disability benefits, or for substantially similar purposes, is not payment for a specific economic benefit if the amount of the tax does not depend on the age, life expectancy, or similar characteristics of that individual. 104ez form    No deduction or credit is allowed, however, for social security taxes paid or accrued to a foreign country with which the United States has a social security agreement. 104ez form For more information about these agreements, see Publication 54. 104ez form Soak-up taxes. 104ez form   A foreign tax is not predominantly an income tax and does not qualify for credit to the extent it is a soak-up tax. 104ez form A tax is a soak-up tax to the extent that liability for it depends on the availability of a credit for it against income tax imposed by another country. 104ez form This rule applies only if and to the extent that the foreign tax would not be imposed if the credit were not available. 104ez form Penalties and interest. 104ez form   Amounts paid to a foreign government to satisfy a liability for interest, fines, penalties, or any similar obligation are not taxes and do not qualify for the credit. 104ez form Taxes not based on income. 104ez form   Foreign taxes based on gross receipts or the number of units produced, rather than on realized net income, do not qualify unless they are imposed in lieu of an income tax, as discussed next. 104ez form Taxes based on assets, such as property taxes, do not qualify for the credit. 104ez form Taxes in Lieu of Income Taxes A tax paid or accrued to a foreign country qualifies for the credit if it is imposed in lieu of an income tax otherwise generally imposed. 104ez form A foreign levy is a tax in lieu of an income tax only if: It is not payment for a specific economic benefit as discussed earlier, and The tax is imposed in place of, and not in addition to, an income tax otherwise generally imposed. 104ez form A tax in lieu of an income tax does not have to be based on realized net income. 104ez form A foreign tax imposed on gross income, gross receipts or sales, or the number of units produced or exported can qualify for the credit. 104ez form In most cases, a soak-up tax (discussed earlier) does not qualify as a tax in lieu of an income tax. 104ez form However, if the foreign country imposes a soak-up tax in lieu of an income tax, the amount that does not qualify for foreign tax credit is the lesser of the following amounts. 104ez form The soak-up tax. 104ez form The foreign tax you paid that is more than the amount you would have paid if you had been subject to the generally imposed income tax. 104ez form Foreign Taxes for Which You Cannot Take a Credit This part discusses the foreign taxes for which you cannot take a credit. 104ez form These are: Taxes on excluded income, Taxes for which you can only take an itemized deduction, Taxes on foreign mineral income, Taxes from international boycott operations, A portion of taxes on combined foreign oil and gas income, Taxes of U. 104ez form S. 104ez form persons controlling foreign corporations and partnerships who fail to file required information returns, and Taxes related to a foreign tax splitting event. 104ez form Taxes on Excluded Income You cannot take a credit for foreign taxes paid or accrued on certain income that is excluded from U. 104ez form S. 104ez form gross income. 104ez form Foreign Earned Income and Housing Exclusions You must reduce your foreign taxes available for the credit by the amount of those taxes paid or accrued on income that is excluded from U. 104ez form S. 104ez form income under the foreign earned income exclusion or the foreign housing exclusion. 104ez form See Publication 54 for more information on the foreign earned income and housing exclusions. 104ez form Wages completely excluded. 104ez form   If your wages are completely excluded, you cannot take a credit for any of the foreign taxes paid or accrued on these wages. 104ez form Wages partly excluded. 104ez form   If only part of your wages is excluded, you cannot take a credit for the foreign income taxes allocable to the excluded part. 104ez form You find the amount allocable to your excluded wages by multiplying the foreign tax paid or accrued on foreign earned income received or accrued during the tax year by a fraction. 104ez form   The numerator of the fraction is your foreign earned income and housing amounts excluded under the foreign earned income and housing exclusions for the tax year minus otherwise deductible expenses definitely related and properly apportioned to that income. 104ez form Deductible expenses do not include the foreign housing deduction. 104ez form   The denominator is your total foreign earned income received or accrued during the tax year minus all deductible expenses allocable to that income (including the foreign housing deduction). 104ez form If the foreign law taxes foreign earned income and some other income (for example, earned income from U. 104ez form S. 104ez form sources or a type of income not subject to U. 104ez form S. 104ez form tax), and the taxes on the other income cannot be segregated, the denominator of the fraction is the total amount of income subject to the foreign tax minus deductible expenses allocable to that income. 104ez form Example. 104ez form You are a U. 104ez form S. 104ez form citizen and a cash basis taxpayer, employed by Company X and living in Country A. 104ez form Your records show the following: Foreign earned income received $125,000 Unreimbursed business travel expenses 20,000 Income tax paid to Country A 30,000 Exclusion of foreign earned  income and housing allowance 97,600     Because you can exclude part of your wages, you cannot claim a credit for part of the foreign taxes. 104ez form To find that part, do the following. 104ez form First, find the amount of business expenses allocable to excluded wages and therefore not deductible. 104ez form To do this, multiply the otherwise deductible expenses by a fraction. 104ez form That fraction is the excluded wages over your foreign earned income. 104ez form   $20,000 × $97,600 $125,000 = $15,616             Next, find the numerator of the fraction by which you will multiply the foreign taxes paid. 104ez form To do this, subtract business expenses allocable to excluded wages ($15,616) from excluded wages ($97,600). 104ez form The result is $81,984. 104ez form Then, find the denominator of the fraction by subtracting all your deductible expenses from all your foreign earned income ($125,000 − $20,000 = $105,000). 104ez form Finally, multiply the foreign tax you paid by the resulting fraction. 104ez form   $30,000 × $81,984  $105,000 = $23,424 The amount of Country A tax you cannot take a credit for is $23,424. 104ez form Taxes on Income From Puerto Rico Exempt From U. 104ez form S. 104ez form Tax If you have income from Puerto Rican sources that is not taxable, you must reduce your foreign taxes paid or accrued by the taxes allocable to the exempt income. 104ez form For information on figuring the reduction, see Publication 570. 104ez form Possession Exclusion If you are a bona fide resident of American Samoa and exclude income from sources in American Samoa, you cannot take a credit for the taxes you pay or accrue on the excluded income. 104ez form For more information on this exclusion, see Publication 570. 104ez form Extraterritorial Income Exclusion You cannot take a credit for taxes you pay on qualifying foreign trade income excluded on Form 8873, Extraterritorial Income Exclusion. 104ez form However, see Internal Revenue Code section 943(d) for an exception for certain withholding taxes. 104ez form Taxes for Which You Can Only Take an Itemized Deduction You cannot claim a foreign tax credit for foreign income taxes paid or accrued under the following circumstances. 104ez form However, you can claim an itemized deduction for these taxes. 104ez form See Choosing To Take Credit or Deduction , earlier. 104ez form Taxes Imposed By Sanctioned Countries (Section 901(j) Income) You cannot claim a foreign tax credit for income taxes paid or accrued to any country if the income giving rise to the tax is for a period (the sanction period) during which: The Secretary of State has designated the country as one that repeatedly provides support for acts of international terrorism, The United States has severed or does not conduct diplomatic relations with the country, or The United States does not recognize the country's government, and that government is not otherwise eligible to purchase defense articles or services under the Arms Export Control Act. 104ez form The following countries meet this description for 2013. 104ez form Income taxes paid or accrued to these countries in 2013 do not qualify for the credit. 104ez form Cuba. 104ez form Iran. 104ez form Libya (but see Note later). 104ez form North Korea. 104ez form Sudan. 104ez form Syria. 104ez form Waiver of denial of the credit. 104ez form   A waiver can be granted to a sanctioned country if the President of the United States determines that granting the waiver is in the national interest of the United States and will expand trade and investment opportunities for U. 104ez form S. 104ez form companies in the sanctioned country. 104ez form The President must report to Congress his intentions to grant the waiver and his reasons for granting the waiver not less than 30 days before the date on which the waiver is granted. 104ez form Note. 104ez form Effective December 10, 2004, the President granted a waiver to Libya. 104ez form Income taxes arising on or after this date qualify for the credit if they meet the other requirements in this publication. 104ez form Limit on credit. 104ez form   In figuring the foreign tax credit limit, discussed later, income from a sanctioned country is a separate category of foreign income unless a Presidential waiver is granted. 104ez form You must fill out a separate Form 1116 for this income. 104ez form This will prevent you from claiming a credit for foreign taxes paid or accrued to the sanctioned country. 104ez form Example. 104ez form You lived and worked in Iran until August, when you were transferred to Italy. 104ez form You paid taxes to each country on the income earned in that country. 104ez form You cannot claim a foreign tax credit for the foreign taxes paid on the income earned in Iran. 104ez form Because the income earned in Iran is a separate category of foreign income, you must fill out a separate Form 1116 for that income. 104ez form You cannot take a credit for taxes paid on the income earned in Iran, but that income is taxable by the United States. 104ez form Figuring the credit when a sanction ends. 104ez form    Table 1 lists the countries for which sanctions have ended or for which a Presidential waiver has been granted. 104ez form For any of these countries, you can claim a foreign tax credit for the taxes paid or accrued to that country on the income for the period that begins after the end of the sanction period or the date the Presidential waiver was granted. 104ez form Example. 104ez form The sanctions against Country X ended on July 31. 104ez form On August 19, you receive a distribution from a mutual fund of Country X income. 104ez form The fund paid Country X income tax for you on the distribution. 104ez form Because the distribution was made after the sanction ended, you may include the foreign tax paid on the distribution to compute your foreign tax credit. 104ez form Amounts for the nonsanctioned period. 104ez form   If a sanction period ends (or a Presidential waiver is granted) during your tax year and you are not able to determine the actual income and taxes for that period, you can allocate amounts to that period based on the number of days in the period that fall in your tax year. 104ez form Multiply the income or taxes for the year by the following fraction to determine the amounts allocable to that period. 104ez form   Number of nonsanctioned days in year  Number of days in year Example. 104ez form You are a calendar year filer and received $20,000 of income from Country X in 2013 on which you paid tax of $4,500. 104ez form Sanctions against Country X ended on July 11, 2013. 104ez form You are unable to determine how much of the income or tax is for the nonsanctioned period. 104ez form Because your tax year starts on January 1, and the Country X sanction ended on July 11, 2013, 173 days of your tax year are in the nonsanctioned period. 104ez form You would compute the income for the nonsanctioned period as follows. 104ez form 173 365 × $20,000 = $9,479             You would figure the tax for the nonsanctioned period as follows. 104ez form 173 365 × $4,500 = $2,133 To figure your foreign tax credit, you would use $9,479 as the income from Country X and $2,133 as the tax. 104ez form Further information. 104ez form   The rules for figuring the foreign tax credit after a country's sanction period ends are more fully explained in Revenue Ruling 92-62, Cumulative Bulletin 1992-2, page 193. 104ez form This Cumulative Bulletin can be found in many libraries and IRS offices. 104ez form Table 1. 104ez form Countries Removed From the Sanction List or Granted Presidential Waiver   Sanction Period Country Starting Date Ending Date Iraq February 1, 1991 June 27, 2004 Libya January 1, 1987 December 9, 2004* *Presidential waiver granted for qualified income taxes arising after December 9, 2004. 104ez form Taxes Imposed on Certain Dividends You cannot claim a foreign tax credit for withholding tax (defined later ) on dividends paid or accrued if either of the following applies to the dividends. 104ez form The dividends are on stock you held for less than 16 days during the 31-day period that begins 15 days before the ex-dividend date (defined later). 104ez form The dividends are for a period or periods totaling more than 366 days on preferred stock you held for less than 46 days during the 91-day period that begins 45 days before the ex-dividend date. 104ez form If the dividend is not for more than 366 days, rule (1) applies to the preferred stock. 104ez form When figuring how long you held the stock, count the day you sold it, but do not count the day you acquired it or any days on which you were protected from risk of loss. 104ez form Regardless of how long you held the stock, you cannot claim the credit to the extent you have an obligation under a short sale or otherwise to make payments related to the dividend for positions in substantially similar or related property. 104ez form Withholding tax. 104ez form   For this purpose, withholding tax includes any tax determined on a gross basis. 104ez form It does not include any tax which is in the nature of a prepayment of a tax imposed on a net basis. 104ez form Ex-dividend date. 104ez form   The ex-dividend date is the first date following the declaration of a dividend on which the purchaser of a stock is not entitled to receive the next dividend payment. 104ez form Example 1. 104ez form You bought common stock from a foreign corporation on November 3. 104ez form You sold the stock on November 19. 104ez form You received a dividend on this stock because you owned it on the ex-dividend date of November 5. 104ez form To claim the credit, you must have held the stock for at least 16 days within the 31-day period that began on October 21 (15 days before the ex-dividend date). 104ez form Because you held the stock for 16 days, from November 4 until November 19, you are entitled to the credit. 104ez form Example 2. 104ez form The facts are the same as in Example 1 except that you sold the stock on November 14. 104ez form You held the stock for only 11 days. 104ez form You are not entitled to the credit. 104ez form Exception. 104ez form   If you are a securities dealer who actively conducts business in a foreign country, you may be able to claim a foreign tax credit for qualified taxes paid on dividends regardless of how long you held the stock or whether you were obligated to make payments for positions in substantially similar or related property. 104ez form See section 901(k)(4) of the Internal Revenue Code for more information. 104ez form Taxes Withheld on Income or Gain (Other Than Dividends) For income or gain (other than dividends) paid or accrued on property, you cannot claim a foreign tax credit for withholding tax (defined later): If you have not held the property for at least 16 days during the 31-day period that begins 15 days before the date on which the right to receive the payment arises, or To the extent you have to make related payments on positions in substantially similar or related property. 104ez form When figuring how long you held the property, count the day you sold it, but do not count the day you acquired it or any days on which you were protected from risk of loss. 104ez form Withholding tax. 104ez form   For this purpose, withholding tax includes any tax determined on a gross basis. 104ez form It does not include any tax which is in the nature of a prepayment of a tax imposed on a net basis. 104ez form Exception for dealers. 104ez form   If you are a dealer in property who actively conducts business in a foreign country, you may be able to claim a foreign tax credit for qualified taxes withheld on income or gain from that property regardless of how long you held it or whether you have to make related payments on positions in substantially similar or related property. 104ez form See section 901(I)(2) of the Internal Revenue Code for more information. 104ez form Covered Asset Acquisition ???You cannot take a credit for the disqualified portion of any foreign tax paid or accrued in connection with a covered asset acquisition. 104ez form A covered asset acquisition includes certain acquisitions that result in a stepped-up basis for U. 104ez form S. 104ez form tax purposes but not for foreign tax purposes. 104ez form For more information, see Internal Revenue Code section 901(m). 104ez form The IRS intends to issue guidance that will explain this provision in greater detail. 104ez form Taxes in Connection With the Purchase or Sale of Oil or Gas You cannot claim a foreign tax credit for taxes paid or accrued to a foreign country in connection with the purchase or sale of oil or gas extracted in that country if you do not have an economic interest in the oil or gas, and the purchase price or sales price is different from the fair market value of the oil or gas at the time of purchase or sale. 104ez form Taxes on Foreign Mineral Income You must reduce any taxes paid or accrued to a foreign country or possession on mineral income from that country or possession if you were allowed a deduction for percentage depletion for any part of the mineral income. 104ez form For details, see Regulations section 1. 104ez form 901-3. 104ez form Taxes From International Boycott Operations If you participate in or cooperate with an international boycott during the tax year, your foreign taxes resulting from boycott activities will reduce the total taxes available for credit. 104ez form See the instructions for line 12 in the Form 1116 instructions to figure this reduction. 104ez form In most cases, this rule does not apply to employees with wages who are working and living in boycotting countries, or to retirees with pensions who are living in these countries. 104ez form List of boycotting countries. 104ez form   A list of the countries which may require participation in or cooperation with an international boycott is published by the Department of the Treasury. 104ez form As of November 2013, the following countries are listed. 104ez form Iraq. 104ez form Kuwait. 104ez form Lebanon. 104ez form Libya. 104ez form Qatar. 104ez form Saudi Arabia. 104ez form Syria. 104ez form United Arab Emirates. 104ez form Yemen. 104ez form    For information concerning changes to the list, write to: Internal Revenue Service International Section Philadelphia, PA 19255-0725 Determinations of whether the boycott rule applies. 104ez form   You may request a determination from the Internal Revenue Service as to whether a particular operation constitutes participation in or cooperation with an international boycott. 104ez form The procedures for obtaining a determination from the Service are outlined in Revenue Procedure 77-9 in Cumulative Bulletin 1977-1. 104ez form Cumulative Bulletins are available in most IRS offices and you are welcome to read them there. 104ez form Public inspection. 104ez form   A determination and any related background file is open to public inspection. 104ez form However, your identity and certain other information will remain confidential. 104ez form Reporting requirements. 104ez form   You must file a report with the IRS if you or any of the following persons have operations in or related to a boycotting country or with the government, a company, or a national of a boycotting country. 104ez form A foreign corporation in which you own 10% or more of the voting power of all voting stock but only if you own the stock of the foreign corporation directly or through foreign entities. 104ez form A partnership in which you are a partner. 104ez form A trust you are treated as owning. 104ez form Form 5713 required. 104ez form   If you have to file a report, you must use Form 5713, International Boycott Report, and attach all supporting schedules. 104ez form See the Instructions for Form 5713 for information on when and where to file the form. 104ez form Penalty for failure to file. 104ez form   If you willfully fail to make a report, in addition to other penalties, you may be fined $25,000 or imprisoned for no more than one year, or both. 104ez form Taxes on Combined Foreign Oil and Gas Income You must reduce your foreign taxes by a portion of any foreign taxes imposed on combined foreign oil and gas income. 104ez form The amount of the reduction is the amount by which your foreign oil and gas taxes exceed the amount of your combined foreign oil and gas income multiplied by a fraction equal to your pre-credit U. 104ez form S. 104ez form tax liability (Form 1040, line 44) divided by your worldwide taxable income. 104ez form You may be entitled to carry over to other years taxes reduced under this rule. 104ez form See Internal Revenue Code section 907(f). 104ez form Combined foreign oil and gas income means the sum of foreign oil related income and foreign oil and gas extraction income. 104ez form Foreign oil and gas taxes are the sum of foreign oil and gas extraction taxes and foreign oil related taxes. 104ez form Taxes of U. 104ez form S. 104ez form Persons Controlling Foreign Corporations and Partnerships If you had control of a foreign corporation or a foreign partnership for the annual accounting period of that corporation or partnership that ended with or within your tax year, you may have to file an annual information return. 104ez form If you do not file the required information return, you may have to reduce the foreign taxes that may be used for the foreign tax credit. 104ez form See Penalty for not filing Form 5471 or Form 8865 , later. 104ez form U. 104ez form S. 104ez form persons controlling foreign corporations. 104ez form   If you are a U. 104ez form S. 104ez form citizen or resident who had control of a foreign corporation for an uninterrupted period of at least 30 days during the annual accounting period of that corporation, you may have to file an annual information return on Form 5471, Information Return of U. 104ez form S. 104ez form Persons With Respect To Certain Foreign Corporations. 104ez form Under this rule, you generally had control of a foreign corporation if at any time during your tax year you owned: Stock possessing more than 50% of the total combined voting power of all classes of stock entitled to vote, or More than 50% of the total value of shares of all classes of stock of the foreign corporation. 104ez form U. 104ez form S. 104ez form persons controlling foreign partnerships. 104ez form   If you are a U. 104ez form S. 104ez form citizen or resident who had control of a foreign partnership at any time during the partnership's tax year, you may have to file