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1040ez Tax Instructions

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1040ez Tax Instructions

1040ez tax instructions 6. 1040ez tax instructions   How To Get Tax Help Table of Contents Whether it's help with a tax issue, preparing your tax return or a need for a free publication or form, get the help you need the way you want it: online, use a smart phone, call or walk in to an IRS office or volunteer site near you. 1040ez tax instructions Free help with your return. 1040ez tax instructions   You can get free help preparing your return nationwide from IRS-certified volunteers. 1040ez tax instructions The Volunteer Income Tax Assistance (VITA) program helps low-to-moderate income, elderly, people with disabilities, and limited English proficient taxpayers. 1040ez tax instructions The Tax Counseling for the Elderly (TCE) program helps taxpayers age 60 and older with their tax returns. 1040ez tax instructions 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. 1040ez tax instructions In addition, some VITA and TCE sites provide taxpayers the opportunity to prepare their own return with help from an IRS-certified volunteer. 1040ez tax instructions To find the nearest VITA or TCE site, you can use the VITA Locator Tool on IRS. 1040ez tax instructions gov, download the IRS2Go app, or call 1-800-906-9887. 1040ez tax instructions   As part of the TCE program, AARP offers the Tax-Aide counseling program. 1040ez tax instructions To find the nearest AARP Tax-Aide site, visit AARP's website at www. 1040ez tax instructions aarp. 1040ez tax instructions org/money/taxaide or call 1-888-227-7669. 1040ez tax instructions For more information on these programs, go to IRS. 1040ez tax instructions gov and enter “VITA” in the search box. 1040ez tax instructions   For more information on these programs, go to IRS. 1040ez tax instructions gov and enter “VITA” in the search box. 1040ez tax instructions Internet. 1040ez tax instructions    IRS. 1040ez tax instructions gov and IRS2Go are ready when you are —24 hours a day, 7 days a week. 1040ez tax instructions Download the free IRS2Go app from the iTunes app store or from Google Play. 1040ez tax instructions Use it to check your refund status, order transcripts of your tax returns or tax account, watch the IRS YouTube channel, get IRS news as soon as it's released to the public, 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. 1040ez tax instructions Check the status of your 2013 refund with the Where's My Refund? application on IRS. 1040ez tax instructions gov or download the IRS2Go app and select the Refund Status option. 1040ez tax instructions The IRS issues more than 9 out of 10 refunds in less than 21 days. 1040ez tax instructions Using these applications, you can start checking on the status of your return within 24 hours after we receive your e-filed return or 4 weeks after you mail a paper return. 1040ez tax instructions You will also be given a personalized refund date as soon as the IRS processes your tax return and approves your refund. 1040ez tax instructions The IRS updates Where's My Refund? every 24 hours, usually overnight, so you only need to check once a day. 1040ez tax instructions Use the Interactive Tax Assistant (ITA) to research your tax questions. 1040ez tax instructions No need to wait on the phone or stand in line. 1040ez tax instructions The ITA is available 24 hours a day, 7 days a week, and provides you with a variety of tax information related to general filing topics, deductions, credits, and income. 1040ez tax instructions When you reach the response screen, you can print the entire interview and the final response for your records. 1040ez tax instructions New subject areas are added on a regular basis. 1040ez tax instructions  Answers not provided through ITA may be found in Tax Trails, one of the Tax Topics on IRS. 1040ez tax instructions gov which contain general individual and business tax information or by searching the IRS Tax Map, which includes an international subject index. 1040ez tax instructions You can use the IRS Tax Map, to search publications and instructions by topic or keyword. 1040ez tax instructions The IRS Tax Map integrates forms and publications into one research tool and provides single-point access to tax law information by subject. 1040ez tax instructions When the user searches the IRS Tax Map, they will be provided with links to related content in existing IRS publications, forms and instructions, questions and answers, and Tax Topics. 1040ez tax instructions Coming this filing season, you can immediately view and print for free all 5 types of individual federal tax transcripts (tax returns, tax account, record of account, wage and income statement, and certification of non-filing) using Get Transcript. 1040ez tax instructions You can also ask the IRS to mail a return or an account transcript to you. 1040ez tax instructions Only the mail option is available by choosing the Tax Records option on the IRS2Go app by selecting Mail Transcript on IRS. 1040ez tax instructions gov or by calling 1-800-908-9946. 1040ez tax instructions Tax return and tax account transcripts are generally available for the current year and the past three years. 1040ez tax instructions Determine if you are eligible for the EITC and estimate the amount of the credit with the Earned Income Tax Credit (EITC) Assistant. 1040ez tax instructions Visit Understanding Your IRS Notice or Letter to get answers to questions about a notice or letter you received from the IRS. 1040ez tax instructions If you received the First Time Homebuyer Credit, you can use the First Time Homebuyer Credit Account Look-up tool for information on your repayments and account balance. 1040ez tax instructions Check the status of your amended return using Where's My Amended Return? Go to IRS. 1040ez tax instructions gov and enter Where's My Amended Return? in the search box. 1040ez tax instructions You can generally expect your amended return to be processed up to 12 weeks from the date we receive it. 1040ez tax instructions It can take up to 3 weeks from the date you mailed it to show up in our system. 1040ez tax instructions Make a payment using one of several safe and convenient electronic payment options available on IRS. 1040ez tax instructions gov. 1040ez tax instructions Select the Payment tab on the front page of IRS. 1040ez tax instructions gov for more information. 1040ez tax instructions Determine if you are eligible and apply for an online payment agreement, if you owe more tax than you can pay today. 1040ez tax instructions Figure your income tax withholding with the IRS Withholding Calculator on IRS. 1040ez tax instructions gov. 1040ez tax instructions Use it if you've had too much or too little withheld, your personal situation has changed, you're starting a new job or you just want to see if you're having the right amount withheld. 1040ez tax instructions Determine if you might be subject to the Alternative Minimum Tax by using the Alternative Minimum Tax Assistant on IRS. 1040ez tax instructions gov. 1040ez tax instructions Request an Electronic Filing PIN by going to IRS. 1040ez tax instructions gov and entering Electronic Filing PIN in the search box. 1040ez tax instructions Download forms, instructions and publications, including accessible versions for people with disabilities. 1040ez tax instructions Locate the nearest Taxpayer Assistance Center (TAC) using the Office Locator tool on IRS. 1040ez tax instructions gov, or choose the Contact Us option on the IRS2Go app and search Local Offices. 1040ez tax instructions An employee can answer questions about your tax account or help you set up a payment plan. 1040ez tax instructions Before you visit, check the Office Locator on IRS. 1040ez tax instructions gov, or Local Offices under Contact Us on IRS2Go to confirm the address, phone number, days and hours of operation, and the services provided. 1040ez tax instructions If you have a special need, such as a disability, you can request an appointment. 1040ez tax instructions Call the local number listed in the Office Locator, or look in the phone book under United States Government, Internal Revenue Service. 1040ez tax instructions Apply for an Employer Identification Number (EIN). 1040ez tax instructions Go to IRS. 1040ez tax instructions gov and enter Apply for an EIN in the search box. 1040ez tax instructions Read the Internal Revenue Code, regulations, or other official guidance. 1040ez tax instructions Read Internal Revenue Bulletins. 1040ez tax instructions Sign up to receive local and national tax news and more by email. 1040ez tax instructions Just click on “subscriptions” above the search box on IRS. 1040ez tax instructions gov and choose from a variety of options. 1040ez tax instructions Phone. 1040ez tax instructions    You can call the IRS, or you can carry it in your pocket with the IRS2Go app on your smart phone or tablet. 1040ez tax instructions Download the free IRS2Go app from the iTunes app store or from Google Play. 1040ez tax instructions Call to locate the nearest volunteer help site, 1-800-906-9887 or you can use the VITA Locator Tool on IRS. 1040ez tax instructions gov, or download the IRS2Go app. 1040ez tax instructions Low-to-moderate income, elderly, people with disabilities, and limited English proficient taxpayers can get free help with their tax return from the nationwide Volunteer Income Tax Assistance (VITA) program. 1040ez tax instructions The Tax Counseling for the Elderly (TCE) program helps taxpayers age 60 and older with their tax returns. 1040ez tax instructions Most VITA and TCE sites offer free electronic filing. 1040ez tax instructions Some VITA and TCE sites provide IRS-certified volunteers who can help prepare your tax return. 1040ez tax instructions Through the TCE program, AARP offers the Tax-Aide counseling program; call 1-888-227-7669 to find the nearest Tax-Aide location. 1040ez tax instructions Call the automated Where's My Refund? information hotline to check the status of your 2013 refund 24 hours a day, 7 days a week at 1-800-829-1954. 1040ez tax instructions If you e-file, you can start checking on the status of your return within 24 hours after the IRS receives your tax return or 4 weeks after you've mailed a paper return. 1040ez tax instructions The IRS issues more than 9 out of 10 refunds in less than 21 days. 1040ez tax instructions Where's My Refund? will give you a personalized refund date as soon as the IRS processes your tax return and approves your refund. 1040ez tax instructions Before you call this automated hotline, have your 2013 tax return handy so you can enter your social security number, your filing status, and the exact whole dollar amount of your refund. 1040ez tax instructions The IRS updates Where's My Refund? every 24 hours, usually overnight, so you only need to check once a day. 1040ez tax instructions Note, the above information is for our automated hotline. 1040ez tax instructions Our live phone and walk-in assistors can research the status of your refund only if it's been 21 days or more since you filed electronically or more than 6 weeks since you mailed your paper return. 1040ez tax instructions Call the Amended Return Hotline, 1-866-464-2050, to check the status of your amended return. 1040ez tax instructions You can generally expect your amended return to be processed up to 12 weeks from the date we receive it. 1040ez tax instructions It can take up to 3 weeks from the date you mailed it to show up in our system. 1040ez tax instructions Call 1-800-TAX-FORM (1-800-829-3676) to order current-year forms, instructions, publications, and prior-year forms and instructions (limited to 5 years). 1040ez tax instructions You should receive your order within 10 business days. 1040ez tax instructions Call TeleTax, 1-800-829-4477, to listen to pre-recorded messages covering general and business tax information. 1040ez tax instructions If, between January and April 15, you still have questions about the Form 1040, 1040A, or 1040EZ (like filing requirements, dependents, credits, Schedule D, pensions and IRAs or self-employment taxes), call 1-800-829-1040. 1040ez tax instructions Call using TTY/TDD equipment, 1-800-829-4059 to ask tax questions or order forms and publications. 1040ez tax instructions The TTY/TDD telephone number is for people who are deaf, hard of hearing, or have a speech disability. 1040ez tax instructions These individuals can also contact the IRS through relay services such as the Federal Relay Service. 1040ez tax instructions Walk-in. 1040ez tax instructions   You can find a selection of forms, publications and services — in-person. 1040ez tax instructions Products. 1040ez tax instructions You can walk in to some post offices, libraries, and IRS offices to pick up certain forms, instructions, and publications. 1040ez tax instructions Some IRS offices, libraries, and city and county government offices have a collection of products available to photocopy from reproducible proofs. 1040ez tax instructions Services. 1040ez tax instructions You can walk in to your local TAC for face-to-face tax help. 1040ez tax instructions An employee can answer questions about your tax account or help you set up a payment plan. 1040ez tax instructions Before visiting, use the Office Locator tool on IRS. 1040ez tax instructions gov, or choose the Contact Us option on the IRS2Go app and search Local Offices for days and hours of operation, and services provided. 1040ez tax instructions Mail. 1040ez tax instructions   You can send your order for forms, instructions, and publications to the address below. 1040ez tax instructions You should receive a response within 10 business days after your request is received. 1040ez tax instructions Internal Revenue Service 1201 N. 1040ez tax instructions Mitsubishi Motorway Bloomington, IL 61705-6613    The Taxpayer Advocate Service Is Here to Help You. 1040ez tax instructions The Taxpayer Advocate Service (TAS) is your voice at the IRS. 1040ez tax instructions Our job is to ensure that every taxpayer is treated fairly and that you know and understand your rights. 1040ez tax instructions   What can TAS do for you? We can offer you free help with IRS problems that you can't resolve on your own. 1040ez tax instructions 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. 1040ez tax instructions You face (or your business is facing) an immediate threat of adverse action. 1040ez tax instructions You've tried repeatedly to contact the IRS but no one has responded, or the IRS hasn't responded by the date promised. 1040ez tax instructions   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. 1040ez tax instructions Here's why we can help: TAS is an independent organization within the IRS. 1040ez tax instructions Our advocates know how to work with the IRS. 1040ez tax instructions Our services are free and tailored to meet your needs. 1040ez tax instructions We have offices in every state, the District of Columbia, and Puerto Rico. 1040ez tax instructions   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 Taxpayer Advocate, or call us toll-free at 1-877-777-4778. 1040ez tax instructions   How else does TAS help taxpayers?  TAS also works to resolve large-scale, systemic problems that affect many taxpayers. 1040ez tax instructions If you know of one of these broad issues, please report it to us through our Systemic Advocacy Management System. 1040ez tax instructions Low Income Taxpayer Clinics   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. 1040ez tax instructions Some clinics can provide information about taxpayer rights and responsibilities in different languages for individuals who speak English as a second language. 1040ez tax instructions Visit Taxpayer Advocate or see IRS Publication 4134, Low Income Taxpayer Clinic List. 1040ez tax instructions Prev  Up  Next   Home   More Online Publications

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Criminal Enforcement

Tax Fraud Alerts
"If it sounds too good to be true, it probably is!" Seek expert advice before you subscribe to any scheme that offers instant wealth or exemption from your obligation as a United States Citizen to pay taxes. Buying into a tax evasion scheme can be very costly. To arrive at the 'Tax Fraud Alerts' page quickly, use the Keyword 'Fraud' from www.irs.gov

Criminal Investigation (CI) At-a-Glance
Criminal Investigation (CI) serves the American public by investigating potential criminal violations of the Internal Revenue Code and related financial crimes in a manner that fosters confidence in the tax system and compliance with the law.

What Criminal Investigation Does
Some people bend the tax law -- others break it. Criminal Investigation's job is to pursue the lawbreakers.

Criminal Investigation Statistical Data
Enforcement statistics show trends in areas of fraud. This data assists Criminal Investigation in determining where to focus our resources.

IRS Criminal Investigation Press Releases - Calendar Year 2014
Here you will find links to IRS Criminal Investigation press releases issued by the IRS Special Agents in Charge

How to Make an Offshore Voluntary Disclosure
Taxpayers wanting to report undisclosed income or assets should come in through the IRS Voluntary Disclosure Program.

Criminal Investigation Special Agent Careers
A Career In Action! As an IRS Criminal Investigation (CI) Special Agent, you will pull together your accounting and law enforcement skills. CI special agents are duly sworn law enforcement officers who investigate complex financial crimes associated with tax evasion, money laundering, narcotics, public corruption, and much more. Are You Ready For The Challenge?

Information for Retired IRS Criminal Investigation Special Agents
Information for retired IRS Criminal Investigation special agents to apply to "Retired Law Special Agent" credentials under the Law Enforcement Officers Safety Act of 2004.

Page Last Reviewed or Updated: 28-Mar-2014

The 1040ez Tax Instructions

1040ez tax instructions 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. 1040ez tax instructions S. 1040ez tax instructions 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. 1040ez tax instructions S. 1040ez tax instructions 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. 1040ez tax instructions S. 1040ez tax instructions 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. 1040ez tax instructions Employee business expenses. 1040ez tax instructions 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. 1040ez tax instructions You can change your choice for each year's taxes. 1040ez tax instructions To choose the foreign tax credit, in most cases you must complete Form 1116 and attach it to your U. 1040ez tax instructions S. 1040ez tax instructions tax return. 1040ez tax instructions However, you may qualify for the exception that allows you to claim the foreign tax credit without using Form 1116. 1040ez tax instructions See How To Figure the Credit , later. 1040ez tax instructions To choose to claim the taxes as an itemized deduction, use Schedule A (Form 1040), Itemized Deductions. 1040ez tax instructions Figure your tax both ways—claiming the credit and claiming the deduction. 1040ez tax instructions Then fill out your return the way that benefits you more. 1040ez tax instructions See Why Choose the Credit, later. 1040ez tax instructions 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. 1040ez tax instructions If you choose to take a credit for qualified foreign taxes, you must take the credit for all of them. 1040ez tax instructions You cannot deduct any of them. 1040ez tax instructions Conversely, if you choose to deduct qualified foreign taxes, you must deduct all of them. 1040ez tax instructions You cannot take a credit for any of them. 1040ez tax instructions See What Foreign Taxes Qualify for the Credit , later, for the meaning of qualified foreign taxes. 1040ez tax instructions There are exceptions to this general rule, which are described next. 1040ez tax instructions Exceptions for foreign taxes not allowed as a credit. 1040ez tax instructions   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. 1040ez tax instructions Covered asset acquisitions include certain acquisitions that result in a stepped-up basis for U. 1040ez tax instructions S. 1040ez tax instructions tax purposes. 1040ez tax instructions For more information, see Internal Revenue Code section 901(m). 1040ez tax instructions The IRS intends to issue guidance that will explain this provision in greater detail. 1040ez tax instructions   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. 1040ez tax instructions Foreign taxes that are not income taxes. 1040ez tax instructions   In most cases, only foreign income taxes qualify for the foreign tax credit. 1040ez tax instructions Other taxes, such as foreign real and personal property taxes, do not qualify. 1040ez tax instructions But you may be able to deduct these other taxes even if you claim the foreign tax credit for foreign income taxes. 1040ez tax instructions   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. 1040ez tax instructions However, you can deduct foreign real property taxes that are not trade or business expenses as an itemized deduction on Schedule A (Form 1040). 1040ez tax instructions Carrybacks and carryovers. 1040ez tax instructions   There is a limit on the credit you can claim in a tax year. 1040ez tax instructions 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. 1040ez tax instructions If you deduct qualified foreign taxes in a tax year, you cannot use a carryback or carryover in that year. 1040ez tax instructions That is because you cannot take both a deduction and a credit for qualified foreign taxes in the same tax year. 1040ez tax instructions   For more information on the limit, see How To Figure the Credit , later. 1040ez tax instructions For more information on carrybacks and carryovers, see Carryback and Carryover , later. 1040ez tax instructions 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. 1040ez tax instructions You make or change your choice on your tax return (or on an amended return) for the year your choice is to be effective. 1040ez tax instructions Example. 1040ez tax instructions You paid foreign taxes for the last 13 years and chose to deduct them on your U. 1040ez tax instructions S. 1040ez tax instructions income tax returns. 1040ez tax instructions You were timely in both filing your returns and paying your U. 1040ez tax instructions S. 1040ez tax instructions tax liability. 1040ez tax instructions 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. 1040ez tax instructions Because the regular due date of your 2002 return was April 15, 2003, this choice is timely (within 10 years). 1040ez tax instructions Because there is a limit on the credit for your 2002 foreign tax, you have unused 2002 foreign taxes. 1040ez tax instructions Ordinarily, you first carry back unused foreign taxes arising in 2002 to, and claim them as a credit in, the 2 preceding tax years. 1040ez tax instructions 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. 1040ez tax instructions 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. 1040ez tax instructions 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. 1040ez tax instructions 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. 1040ez tax instructions 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. 1040ez tax instructions See Foreign Earned Income and Housing Exclusions under Foreign Taxes for Which You Cannot Take a Credit, later. 1040ez tax instructions 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. 1040ez tax instructions In most cases, if the foreign tax rate is higher than the U. 1040ez tax instructions S. 1040ez tax instructions rate, there will be no U. 1040ez tax instructions S. 1040ez tax instructions tax on the foreign income. 1040ez tax instructions If the foreign tax rate is lower than the U. 1040ez tax instructions S. 1040ez tax instructions rate, U. 1040ez tax instructions S. 1040ez tax instructions tax on the foreign income will be limited to the difference between the rates. 1040ez tax instructions The foreign tax credit can only reduce U. 1040ez tax instructions S. 1040ez tax instructions taxes on foreign source income; it cannot reduce U. 1040ez tax instructions S. 1040ez tax instructions taxes on U. 1040ez tax instructions S. 1040ez tax instructions source income. 1040ez tax instructions 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. 1040ez tax instructions This is because: A credit reduces your actual U. 1040ez tax instructions S. 1040ez tax instructions 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. 1040ez tax instructions 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. 1040ez tax instructions (See Limit on credit under How To Figure the Credit, later. 1040ez tax instructions ) Example 1. 1040ez tax instructions For 2013, you and your spouse have adjusted gross income of $80,300, including $20,000 of dividend income from foreign sources. 1040ez tax instructions None of the dividends are qualified dividends. 1040ez tax instructions You file a joint return and can claim two $3,900 exemptions. 1040ez tax instructions You had to pay $2,000 in foreign income taxes on the dividend income. 1040ez tax instructions If you take the foreign taxes as an itemized deduction, your total itemized deductions are $15,000. 1040ez tax instructions Your taxable income then is $57,500 and your tax is $7,736. 1040ez tax instructions If you take the credit instead, your itemized deductions are only $13,000. 1040ez tax instructions Your taxable income then is $59,500 and your tax before the credit is $8,036. 1040ez tax instructions After the credit, however, your tax is only $6,036. 1040ez tax instructions Therefore, your tax is $1,700 lower ($7,736 − $6,036) by taking the credit. 1040ez tax instructions Example 2. 1040ez tax instructions In 2013, you receive investment income of $5,000 from a foreign country, which imposes a tax of $1,500 on that income. 1040ez tax instructions You report on your U. 1040ez tax instructions S. 1040ez tax instructions return this income as well as $56,000 of U. 1040ez tax instructions S. 1040ez tax instructions source wages and an allowable $49,000 partnership loss from a U. 1040ez tax instructions S. 1040ez tax instructions partnership. 1040ez tax instructions Your share of the partnership's gross income is $25,000 and your share of its expenses is $74,000. 1040ez tax instructions You are single, entitled to one $3,900 exemption, and have other itemized deductions of $6,850. 1040ez tax instructions If you deduct the foreign tax on your U. 1040ez tax instructions S. 1040ez tax instructions 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. 1040ez tax instructions 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. 1040ez tax instructions You can take a credit of only $113 because of limits discussed later. 1040ez tax instructions Your tax after the credit is $13 ($126 − $113), which is $13 more than if you deduct the foreign tax. 1040ez tax instructions If you choose the credit, you will have unused foreign taxes of $1,387 ($1,500 − $113). 1040ez tax instructions 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. 1040ez tax instructions 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. 1040ez tax instructions “Tax year” refers to the tax year for which your U. 1040ez tax instructions S. 1040ez tax instructions return is filed, not the tax year for which your foreign return is filed. 1040ez tax instructions Accrual method of accounting. 1040ez tax instructions   If you use an accrual method of accounting, you can claim the credit only in the year in which you accrue the tax. 1040ez tax instructions 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. 1040ez tax instructions   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. 1040ez tax instructions Generally, this occurs on the last day of the tax year for which your foreign return is filed. 1040ez tax instructions Contesting your foreign tax liability. 1040ez tax instructions   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. 1040ez tax instructions 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. 1040ez tax instructions Once your liability is determined, the foreign tax credit is allowable for the year to which the foreign tax relates. 1040ez tax instructions 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 . 1040ez tax instructions You may have to post a bond. 1040ez tax instructions   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. 1040ez tax instructions   The IRS can request this bond at any time without regard to the Time Limit on Tax Assessment discussed later under Carryback and Carryover. 1040ez tax instructions Cash method of accounting. 1040ez tax instructions   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. 1040ez tax instructions 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. 1040ez tax instructions Choosing to take credit in the year taxes accrue. 1040ez tax instructions   Even if you use the cash method of accounting, you can choose to take a credit for foreign taxes in the year they accrue. 1040ez tax instructions You make the choice by checking the box in Part II of Form 1116. 1040ez tax instructions 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. 1040ez tax instructions   In addition, the choice to take the credit when foreign taxes accrue applies to all foreign taxes qualifying for the credit. 1040ez tax instructions You cannot take a credit for some foreign taxes when paid and take a credit for others when accrued. 1040ez tax instructions   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. 1040ez tax instructions Credit based on taxes paid in earlier year. 1040ez tax instructions   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. 1040ez tax instructions Example. 1040ez tax instructions Last year you took the credit based on taxes paid. 1040ez tax instructions This year you chose to take the credit based on taxes accrued. 1040ez tax instructions During the year you paid foreign income taxes owed for last year. 1040ez tax instructions You also accrued foreign income taxes for this year that you did not pay by the end of the year. 1040ez tax instructions 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. 1040ez tax instructions Foreign Currency and Exchange Rates U. 1040ez tax instructions S. 1040ez tax instructions income tax is imposed on income expressed in U. 1040ez tax instructions S. 1040ez tax instructions dollars, while in most cases the foreign tax is imposed on income expressed in foreign currency. 1040ez tax instructions Therefore, fluctuations in the value of the foreign currency relative to the U. 1040ez tax instructions S. 1040ez tax instructions dollar may affect the foreign tax credit. 1040ez tax instructions Translating foreign currency into U. 1040ez tax instructions S. 1040ez tax instructions dollars. 1040ez tax instructions   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. 1040ez tax instructions S. 1040ez tax instructions dollars. 1040ez tax instructions How and when you do this depends on your functional currency. 1040ez tax instructions In most cases, your functional currency is the U. 1040ez tax instructions S. 1040ez tax instructions dollar unless you are required to use the currency of a foreign country. 1040ez tax instructions   You must make all federal income tax determinations in your functional currency. 1040ez tax instructions The U. 1040ez tax instructions S. 1040ez tax instructions dollar is the functional currency for all taxpayers except some qualified business units. 1040ez tax instructions A qualified business unit is a separate and clearly identified unit of a trade or business that maintains separate books and records. 1040ez tax instructions Unless you are self-employed, your functional currency is the U. 1040ez tax instructions S. 1040ez tax instructions dollar. 1040ez tax instructions   Even if you are self-employed and have a qualified business unit, your functional currency is the U. 1040ez tax instructions S. 1040ez tax instructions dollar if any of the following apply. 1040ez tax instructions You conduct the business primarily in dollars. 1040ez tax instructions The principal place of business is located in the United States. 1040ez tax instructions You choose to or are required to use the dollar as your functional currency. 1040ez tax instructions 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. 1040ez tax instructions   If your functional currency is the U. 1040ez tax instructions S. 1040ez tax instructions dollar, you must immediately translate into dollars all items of income, expense, etc. 1040ez tax instructions , that you receive, pay, or accrue in a foreign currency and that will affect computation of your income tax. 1040ez tax instructions If there is more than one exchange rate, use the one that most properly reflects your income. 1040ez tax instructions In most cases, you can get exchange rates from banks and U. 1040ez tax instructions S. 1040ez tax instructions Embassies. 1040ez tax instructions   If your functional currency is not the U. 1040ez tax instructions S. 1040ez tax instructions dollar, make all income tax determinations in your functional currency. 1040ez tax instructions At the end of the year, translate the results, such as income or loss, into U. 1040ez tax instructions S. 1040ez tax instructions dollars to report on your income tax return. 1040ez tax instructions    For more information, write to: Internal Revenue Service International Section Philadelphia, PA 19255-0725 Rate of exchange for foreign taxes paid. 1040ez tax instructions   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. 1040ez tax instructions If your tax was withheld in foreign currency, use the rate of exchange in effect for the date on which the tax was withheld. 1040ez tax instructions 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. 1040ez tax instructions   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). 1040ez tax instructions Exception. 1040ez tax instructions   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. 1040ez tax instructions This rule applies to accrued taxes relating to tax years beginning after 1997 and only under the following conditions. 1040ez tax instructions The foreign taxes are paid on or after the first day of the tax year to which they relate. 1040ez tax instructions The foreign taxes are paid not later than 2 years after the close of the tax year to which they relate. 1040ez tax instructions The foreign tax liability is not denominated in an inflationary currency (defined in the Form 1116 instructions). 1040ez tax instructions (This condition applies to taxes paid or accrued in tax years beginning after November 6, 2007. 1040ez tax instructions )   For all other foreign taxes, you should use the exchange rate in effect on the date you paid them. 1040ez tax instructions Election to use exchange rate on date paid. 1040ez tax instructions   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. 1040ez tax instructions If any of the accrued taxes are unpaid, you must translate them into U. 1040ez tax instructions S. 1040ez tax instructions dollars using the exchange rate on the last day of the U. 1040ez tax instructions S. 1040ez tax instructions tax year to which those taxes relate. 1040ez tax instructions 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. 1040ez tax instructions S. 1040ez tax instructions dollar functional currency. 1040ez tax instructions 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. 1040ez tax instructions The election is available for tax years beginning after 2004. 1040ez tax instructions 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. 1040ez tax instructions Make the election by attaching a statement to the applicable tax return. 1040ez tax instructions 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. 1040ez tax instructions S. 1040ez tax instructions dollar functional currency. 1040ez tax instructions Foreign Tax Redetermination A foreign tax redetermination is any change in your foreign tax liability that may affect your U. 1040ez tax instructions S. 1040ez tax instructions foreign tax credit claimed. 1040ez tax instructions 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. 1040ez tax instructions If a foreign tax redetermination occurs, a redetermination of your U. 1040ez tax instructions S. 1040ez tax instructions tax liability is required if any of the following conditions apply. 1040ez tax instructions The accrued taxes when paid differ from the amounts claimed as a credit. 1040ez tax instructions 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. 1040ez tax instructions If this applies to you, you must reduce the credit previously claimed by the amount of the unpaid taxes. 1040ez tax instructions You will not be allowed a credit for the unpaid taxes until you pay them. 1040ez tax instructions When you pay the accrued taxes, a new foreign tax redetermination occurs and you must translate the taxes into U. 1040ez tax instructions S. 1040ez tax instructions dollars using the exchange rate as of the date they were paid. 1040ez tax instructions The foreign tax credit is allowed for the year to which the foreign tax relates. 1040ez tax instructions See Rate of exchange for foreign taxes paid , earlier, under Foreign Currency and Exchange Rates. 1040ez tax instructions The foreign taxes you paid are refunded in whole or in part. 1040ez tax instructions 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. 1040ez tax instructions 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. 1040ez tax instructions S. 1040ez tax instructions tax year. 1040ez tax instructions In this case, you must adjust your U. 1040ez tax instructions S. 1040ez tax instructions tax in the tax year in which the accrued foreign taxes are paid. 1040ez tax instructions 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. 1040ez tax instructions S. 1040ez tax instructions tax liability for each tax year affected by the redetermination. 1040ez tax instructions In most cases, you must file Form 1040X, Amended U. 1040ez tax instructions S. 1040ez tax instructions Individual Income Tax Return, with a revised Form 1116 and a statement that contains information sufficient for the IRS to redetermine your U. 1040ez tax instructions S. 1040ez tax instructions tax liability for the year or years affected. 1040ez tax instructions See Contents of statement , later. 1040ez tax instructions 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. 1040ez tax instructions There are other exceptions to this requirement. 1040ez tax instructions They are discussed later under Due date of notification to IRS . 1040ez tax instructions Contents of statement. 1040ez tax instructions   The statement must include all of the following. 1040ez tax instructions Your name, address, and taxpayer identification number. 1040ez tax instructions The tax year or years that are affected by the foreign tax redetermination. 1040ez tax instructions The date or dates the foreign taxes were accrued, if applicable. 1040ez tax instructions The date or dates the foreign taxes were paid. 1040ez tax instructions The amount of foreign taxes paid or accrued on each date (in foreign currency) and the exchange rate used to translate each amount. 1040ez tax instructions 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. 1040ez tax instructions   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. 1040ez tax instructions   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). 1040ez tax instructions Due date of notification to IRS. 1040ez tax instructions   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. 1040ez tax instructions There is no limit on the time the IRS has to redetermine and assess the correct U. 1040ez tax instructions S. 1040ez tax instructions tax due. 1040ez tax instructions 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. 1040ez tax instructions S. 1040ez tax instructions taxes. 1040ez tax instructions See Time Limit on Refund Claims , later. 1040ez tax instructions   Exceptions to this due date are explained in the next two paragraphs. 1040ez tax instructions Multiple redeterminations of U. 1040ez tax instructions S. 1040ez tax instructions tax liability for same tax year. 1040ez tax instructions   Where more than one foreign tax redetermination requires a redetermination of U. 1040ez tax instructions S. 1040ez tax instructions 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. 1040ez tax instructions 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. 1040ez tax instructions However, foreign tax redeterminations with respect to the tax year for which a redetermination of U. 1040ez tax instructions S. 1040ez tax instructions tax liability is required may occur after the due date for providing that notification. 1040ez tax instructions In this situation, you may have to file more than one Form 1040X for that tax year. 1040ez tax instructions Additional U. 1040ez tax instructions S. 1040ez tax instructions tax due eliminated by foreign tax credit carryback or carryover. 1040ez tax instructions   If a foreign tax redetermination requires a redetermination of U. 1040ez tax instructions S. 1040ez tax instructions tax liability that would otherwise result in an additional amount of U. 1040ez tax instructions S. 1040ez tax instructions 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. 1040ez tax instructions 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. 1040ez tax instructions You must file the statement by the due date (with extensions) of that return. 1040ez tax instructions 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. 1040ez tax instructions S. 1040ez tax instructions tax liability is required). 1040ez tax instructions Failure-to-notify penalty. 1040ez tax instructions   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. 1040ez tax instructions   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. 1040ez tax instructions S. 1040ez tax instructions tax. 1040ez tax instructions This penalty cannot be more than 25% of the tax due. 1040ez tax instructions Foreign tax refund. 1040ez tax instructions   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. 1040ez tax instructions S. 1040ez tax instructions tax for the time before the date of the refund. 1040ez tax instructions   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. 1040ez tax instructions 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. 1040ez tax instructions Interest also is owed from the time you receive a refund until you pay the additional tax due. 1040ez tax instructions Foreign tax imposed on foreign refund. 1040ez tax instructions   If your foreign tax refund is taxed by the foreign country, you cannot take a separate credit or deduction for this additional foreign tax. 1040ez tax instructions 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. 1040ez tax instructions Example. 1040ez tax instructions 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. 1040ez tax instructions When you refigure your credit for 2011, you must reduce the $3,000 you paid by $400. 1040ez tax instructions Time Limit on Refund Claims You have 10 years to file a claim for refund of U. 1040ez tax instructions S. 1040ez tax instructions tax if you find that you paid or accrued a larger foreign tax than you claimed a credit for. 1040ez tax instructions 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. 1040ez tax instructions You have 10 years to file your claim regardless of whether you claim the credit for taxes paid or taxes accrued. 1040ez tax instructions 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). 1040ez tax instructions The special 10-year period also applies to making or changing your choice to claim a deduction or credit for foreign taxes. 1040ez tax instructions See Making or Changing Your Choice discussed earlier under Choosing To Take Credit or Deduction. 1040ez tax instructions Who Can Take the Credit? U. 1040ez tax instructions S. 1040ez tax instructions citizens, resident aliens, and nonresident aliens who paid foreign income tax and are subject to U. 1040ez tax instructions S. 1040ez tax instructions tax on foreign source income may be able to take a foreign tax credit. 1040ez tax instructions U. 1040ez tax instructions S. 1040ez tax instructions Citizens If you are a U. 1040ez tax instructions S. 1040ez tax instructions citizen, you are taxed by the United States on your worldwide income wherever you live. 1040ez tax instructions You are normally entitled to take a credit for foreign taxes you pay or accrue. 1040ez tax instructions 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. 1040ez tax instructions S. 1040ez tax instructions citizens. 1040ez tax instructions If you are a bona fide resident of Puerto Rico for the entire tax year, you also come under the same rules. 1040ez tax instructions 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. 1040ez tax instructions For information on alien status, see Publication 519. 1040ez tax instructions Nonresident Aliens If you are a nonresident alien, you cannot take the credit in most cases. 1040ez tax instructions 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. 1040ez tax instructions S. 1040ez tax instructions possession on income from foreign sources that is effectively connected with a trade or business in the United States. 1040ez tax instructions But if you must pay tax to a foreign country or U. 1040ez tax instructions S. 1040ez tax instructions possession on income from U. 1040ez tax instructions S. 1040ez tax instructions sources only because you are a citizen or a resident of that country or U. 1040ez tax instructions S. 1040ez tax instructions possession, do not use that tax in figuring the amount of your credit. 1040ez tax instructions For information on alien status and effectively connected income, see Publication 519. 1040ez tax instructions 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. 1040ez tax instructions The tax must be imposed on you. 1040ez tax instructions You must have paid or accrued the tax. 1040ez tax instructions The tax must be the legal and actual foreign tax liability. 1040ez tax instructions The tax must be an income tax (or a tax in lieu of an income tax). 1040ez tax instructions Certain foreign taxes do not qualify for the credit even if the four tests are met. 1040ez tax instructions See Foreign Taxes for Which You Cannot Take a Credit, later. 1040ez tax instructions 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. 1040ez tax instructions S. 1040ez tax instructions possession. 1040ez tax instructions For example, a tax that is deducted from your wages is considered to be imposed on you. 1040ez tax instructions You cannot shift the right to claim the credit by contract or other means. 1040ez tax instructions Foreign country. 1040ez tax instructions   A foreign country includes any foreign state and its political subdivisions. 1040ez tax instructions Income, war profits, and excess profits taxes paid or accrued to a foreign city or province qualify for the foreign tax credit. 1040ez tax instructions U. 1040ez tax instructions S. 1040ez tax instructions possessions. 1040ez tax instructions   For foreign tax credit purposes, all qualified taxes paid to U. 1040ez tax instructions S. 1040ez tax instructions possessions are considered foreign taxes. 1040ez tax instructions For this purpose, U. 1040ez tax instructions S. 1040ez tax instructions possessions include Puerto Rico and American Samoa. 1040ez tax instructions   When the term “foreign country” is used in this publication, it includes U. 1040ez tax instructions S. 1040ez tax instructions possessions unless otherwise stated. 1040ez tax instructions 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. 1040ez tax instructions S. 1040ez tax instructions possession. 1040ez tax instructions 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. 1040ez tax instructions Joint return. 1040ez tax instructions   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. 1040ez tax instructions Combined income. 1040ez tax instructions   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. 1040ez tax instructions 901-2(f)(3)(iii). 1040ez tax instructions 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. 1040ez tax instructions   These rules apply to foreign taxes paid or accrued in tax years beginning after February 14, 2012. 1040ez tax instructions 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. 1040ez tax instructions For more details, see paragraphs (f) and (h) of Regulations section 1. 1040ez tax instructions 901-2. 1040ez tax instructions For similar rules applicable to prior tax years, see Regulations section 1. 1040ez tax instructions 901-2 (revised as of April 1, 2011). 1040ez tax instructions Example. 1040ez tax instructions You and your spouse reside in Country X, which imposes income tax on your combined incomes. 1040ez tax instructions Both of you use the “u” as your functional currency. 1040ez tax instructions Country X apportions tax based on income. 1040ez tax instructions You had income of 30,000u and your spouse had income of 20,000u. 1040ez tax instructions Your filing status on your U. 1040ez tax instructions S. 1040ez tax instructions income tax return is married filing separately. 1040ez tax instructions You can claim only 60% (30,000u/50,000u) of the foreign taxes imposed on your income on your U. 1040ez tax instructions S income tax return. 1040ez tax instructions Your spouse can claim only 40% (20,000u/50,000u). 1040ez tax instructions Partner or S corporation shareholder. 1040ez tax instructions   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. 1040ez tax instructions These amounts will be shown on the Schedule K-1 you receive from the partnership or S corporation. 1040ez tax instructions 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. 1040ez tax instructions Beneficiary. 1040ez tax instructions   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. 1040ez tax instructions This amount will be shown on the Schedule K-1 you receive from the estate or trust. 1040ez tax instructions However, you must show that the tax was imposed on income of the estate and not on income received by the decedent. 1040ez tax instructions Mutual fund shareholder. 1040ez tax instructions   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. 1040ez tax instructions 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. 1040ez tax instructions If you do not receive this information, you will need to contact the fund. 1040ez tax instructions Controlled foreign corporation shareholder. 1040ez tax instructions   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. 1040ez tax instructions If you make this election, you must claim the credit by filing Form 1118, Foreign Tax Credit—Corporations. 1040ez tax instructions Controlled foreign corporation. 1040ez tax instructions   A controlled foreign corporation is a foreign corporation in which U. 1040ez tax instructions S. 1040ez tax instructions shareholders own more than 50% of the voting power or value of the stock. 1040ez tax instructions You are considered a U. 1040ez tax instructions S. 1040ez tax instructions shareholder if you own, directly or indirectly, 10% or more of the total voting power of all classes of the foreign corporation's stock. 1040ez tax instructions See Internal Revenue Code sections 951(b) and 958(b) for more information. 1040ez tax instructions 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. 1040ez tax instructions Only the legal and actual foreign tax liability that you paid or accrued during the year qualifies for the credit. 1040ez tax instructions Foreign tax refund. 1040ez tax instructions   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. 1040ez tax instructions   For example, the United States has tax treaties with many countries allowing U. 1040ez tax instructions S. 1040ez tax instructions citizens and residents reductions in the rates of tax of those foreign countries. 1040ez tax instructions However, some treaty countries require U. 1040ez tax instructions S. 1040ez tax instructions 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. 1040ez tax instructions 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. 1040ez tax instructions Subsidy received. 1040ez tax instructions   Tax payments a foreign country returns to you in the form of a subsidy do not qualify for the foreign tax credit. 1040ez tax instructions 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. 1040ez tax instructions 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. 1040ez tax instructions   The term “subsidy” includes any type of benefit. 1040ez tax instructions Some ways of providing a subsidy are refunds, credits, deductions, payments, or discharges of obligations. 1040ez tax instructions Shareholder receiving refund for corporate tax in integrated system. 1040ez tax instructions   Under some foreign tax laws and treaties, a shareholder is considered to have paid part of the tax that is imposed on the corporation. 1040ez tax instructions You may be able to claim a refund of these taxes from the foreign government. 1040ez tax instructions You must include the refund (including any amount withheld) in your income in the year received. 1040ez tax instructions Any tax withheld from the refund is a qualified foreign tax. 1040ez tax instructions Example. 1040ez tax instructions You are a shareholder of a French corporation. 1040ez tax instructions You receive a $100 refund of the tax paid to France by the corporation on the earnings distributed to you as a dividend. 1040ez tax instructions The French government imposes a 15% withholding tax ($15) on the refund you received. 1040ez tax instructions You receive a check for $85. 1040ez tax instructions You include $100 in your income. 1040ez tax instructions The $15 of tax withheld is a qualified foreign tax. 1040ez tax instructions 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. 1040ez tax instructions Foreign taxes on wages, dividends, interest, and royalties qualify for the credit in most cases. 1040ez tax instructions 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. 1040ez tax instructions See Taxes in Lieu of Income Taxes , later. 1040ez tax instructions 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. 1040ez tax instructions A foreign levy is an income tax only if it meets both of the following requirements. 1040ez tax instructions It is a tax; that is, you have to pay it and you get no specific economic benefit (discussed below) from paying it. 1040ez tax instructions The predominant character of the tax is that of an income tax in the U. 1040ez tax instructions S. 1040ez tax instructions sense. 1040ez tax instructions A foreign levy may meet these requirements even if the foreign tax law differs from U. 1040ez tax instructions S. 1040ez tax instructions tax law. 1040ez tax instructions The foreign law may include in income items that U. 1040ez tax instructions S. 1040ez tax instructions law does not include, or it may allow certain exclusions or deductions that U. 1040ez tax instructions S. 1040ez tax instructions law does not allow. 1040ez tax instructions Specific economic benefit. 1040ez tax instructions   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. 1040ez tax instructions   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. 1040ez tax instructions   However, see the exception discussed later under Pension, unemployment, and disability fund payments . 1040ez tax instructions Economic benefits. 1040ez tax instructions   Economic benefits include the following. 1040ez tax instructions Goods. 1040ez tax instructions Services. 1040ez tax instructions Fees or other payments. 1040ez tax instructions Rights to use, acquire, or extract resources, patents, or other property the foreign country owns or controls. 1040ez tax instructions Discharges of contractual obligations. 1040ez tax instructions   In most cases, the right or privilege merely to engage in business is not an economic benefit. 1040ez tax instructions Dual-capacity taxpayers. 1040ez tax instructions   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. 1040ez tax instructions ” 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. 1040ez tax instructions    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. 1040ez tax instructions   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. 1040ez tax instructions    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. 1040ez tax instructions For more information about these agreements, see Publication 54. 1040ez tax instructions Soak-up taxes. 1040ez tax instructions   A foreign tax is not predominantly an income tax and does not qualify for credit to the extent it is a soak-up tax. 1040ez tax instructions 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. 1040ez tax instructions This rule applies only if and to the extent that the foreign tax would not be imposed if the credit were not available. 1040ez tax instructions Penalties and interest. 1040ez tax instructions   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. 1040ez tax instructions Taxes not based on income. 1040ez tax instructions   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. 1040ez tax instructions Taxes based on assets, such as property taxes, do not qualify for the credit. 1040ez tax instructions 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. 1040ez tax instructions 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. 1040ez tax instructions A tax in lieu of an income tax does not have to be based on realized net income. 1040ez tax instructions A foreign tax imposed on gross income, gross receipts or sales, or the number of units produced or exported can qualify for the credit. 1040ez tax instructions In most cases, a soak-up tax (discussed earlier) does not qualify as a tax in lieu of an income tax. 1040ez tax instructions 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. 1040ez tax instructions The soak-up tax. 1040ez tax instructions 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. 1040ez tax instructions Foreign Taxes for Which You Cannot Take a Credit This part discusses the foreign taxes for which you cannot take a credit. 1040ez tax instructions 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. 1040ez tax instructions S. 1040ez tax instructions persons controlling foreign corporations and partnerships who fail to file required information returns, and Taxes related to a foreign tax splitting event. 1040ez tax instructions Taxes on Excluded Income You cannot take a credit for foreign taxes paid or accrued on certain income that is excluded from U. 1040ez tax instructions S. 1040ez tax instructions gross income. 1040ez tax instructions 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. 1040ez tax instructions S. 1040ez tax instructions income under the foreign earned income exclusion or the foreign housing exclusion. 1040ez tax instructions See Publication 54 for more information on the foreign earned income and housing exclusions. 1040ez tax instructions Wages completely excluded. 1040ez tax instructions   If your wages are completely excluded, you cannot take a credit for any of the foreign taxes paid or accrued on these wages. 1040ez tax instructions Wages partly excluded. 1040ez tax instructions   If only part of your wages is excluded, you cannot take a credit for the foreign income taxes allocable to the excluded part. 1040ez tax instructions 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. 1040ez tax instructions   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. 1040ez tax instructions Deductible expenses do not include the foreign housing deduction. 1040ez tax instructions   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). 1040ez tax instructions If the foreign law taxes foreign earned income and some other income (for example, earned income from U. 1040ez tax instructions S. 1040ez tax instructions sources or a type of income not subject to U. 1040ez tax instructions S. 1040ez tax instructions 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. 1040ez tax instructions Example. 1040ez tax instructions You are a U. 1040ez tax instructions S. 1040ez tax instructions citizen and a cash basis taxpayer, employed by Company X and living in Country A. 1040ez tax instructions 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. 1040ez tax instructions To find that part, do the following. 1040ez tax instructions First, find the amount of business expenses allocable to excluded wages and therefore not deductible. 1040ez tax instructions To do this, multiply the otherwise deductible expenses by a fraction. 1040ez tax instructions That fraction is the excluded wages over your foreign earned income. 1040ez tax instructions   $20,000 × $97,600 $125,000 = $15,616             Next, find the numerator of the fraction by which you will multiply the foreign taxes paid. 1040ez tax instructions To do this, subtract business expenses allocable to excluded wages ($15,616) from excluded wages ($97,600). 1040ez tax instructions The result is $81,984. 1040ez tax instructions 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). 1040ez tax instructions Finally, multiply the foreign tax you paid by the resulting fraction. 1040ez tax instructions   $30,000 × $81,984  $105,000 = $23,424 The amount of Country A tax you cannot take a credit for is $23,424. 1040ez tax instructions Taxes on Income From Puerto Rico Exempt From U. 1040ez tax instructions S. 1040ez tax instructions 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. 1040ez tax instructions For information on figuring the reduction, see Publication 570. 1040ez tax instructions 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. 1040ez tax instructions For more information on this exclusion, see Publication 570. 1040ez tax instructions Extraterritorial Income Exclusion You cannot take a credit for taxes you pay on qualifying foreign trade income excluded on Form 8873, Extraterritorial Income Exclusion. 1040ez tax instructions However, see Internal Revenue Code section 943(d) for an exception for certain withholding taxes. 1040ez tax instructions 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. 1040ez tax instructions However, you can claim an itemized deduction for these taxes. 1040ez tax instructions See Choosing To Take Credit or Deduction , earlier. 1040ez tax instructions 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. 1040ez tax instructions The following countries meet this description for 2013. 1040ez tax instructions Income taxes paid or accrued to these countries in 2013 do not qualify for the credit. 1040ez tax instructions Cuba. 1040ez tax instructions Iran. 1040ez tax instructions Libya (but see Note later). 1040ez tax instructions North Korea. 1040ez tax instructions Sudan. 1040ez tax instructions Syria. 1040ez tax instructions Waiver of denial of the credit. 1040ez tax instructions   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. 1040ez tax instructions S. 1040ez tax instructions companies in the sanctioned country. 1040ez tax instructions 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. 1040ez tax instructions Note. 1040ez tax instructions Effective December 10, 2004, the President granted a waiver to Libya. 1040ez tax instructions Income taxes arising on or after this date qualify for the credit if they meet the other requirements in this publication. 1040ez tax instructions Limit on credit. 1040ez tax instructions   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. 1040ez tax instructions You must fill out a separate Form 1116 for this income. 1040ez tax instructions This will prevent you from claiming a credit for foreign taxes paid or accrued to the sanctioned country. 1040ez tax instructions Example. 1040ez tax instructions You lived and worked in Iran until August, when you were transferred to Italy. 1040ez tax instructions You paid taxes to each country on the income earned in that country. 1040ez tax instructions You cannot claim a foreign tax credit for the foreign taxes paid on the income earned in Iran. 1040ez tax instructions Because the income earned in Iran is a separate category of foreign income, you must fill out a separate Form 1116 for that income. 1040ez tax instructions You cannot take a credit for taxes paid on the income earned in Iran, but that income is taxable by the United States. 1040ez tax instructions Figuring the credit when a sanction ends. 1040ez tax instructions    Table 1 lists the countries for which sanctions have ended or for which a Presidential waiver has been granted. 1040ez tax instructions 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. 1040ez tax instructions Example. 1040ez tax instructions The sanctions against Country X ended on July 31. 1040ez tax instructions On August 19, you receive a distribution from a mutual fund of Country X income. 1040ez tax instructions The fund paid Country X income tax for you on the distribution. 1040ez tax instructions 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. 1040ez tax instructions Amounts for the nonsanctioned period. 1040ez tax instructions   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. 1040ez tax instructions Multiply the income or taxes for the year by the following fraction to determine the amounts allocable to that period. 1040ez tax instructions   Number of nonsanctioned days in year  Number of days in year Example. 1040ez tax instructions 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. 1040ez tax instructions Sanctions against Country X ended on July 11, 2013. 1040ez tax instructions You are unable to determine how much of the income or tax is for the nonsanctioned period. 1040ez tax instructions 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. 1040ez tax instructions You would compute the income for the nonsanctioned period as follows. 1040ez tax instructions 173 365 × $20,000 = $9,479             You would figure the tax for the nonsanctioned period as follows. 1040ez tax instructions 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. 1040ez tax instructions Further information. 1040ez tax instructions   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. 1040ez tax instructions This Cumulative Bulletin can be found in many libraries and IRS offices. 1040ez tax instructions Table 1. 1040ez tax instructions 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. 1040ez tax instructions 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. 1040ez tax instructions 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). 1040ez tax instructions 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. 1040ez tax instructions If the dividend is not for more than 366 days, rule (1) applies to the preferred stock. 1040ez tax instructions 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. 1040ez tax instructions 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. 1040ez tax instructions Withholding tax. 1040ez tax instructions   For this purpose, withholding tax includes any tax determined on a gross basis. 1040ez tax instructions It does not include any tax which is in the nature of a prepayment of a tax imposed on a net basis. 1040ez tax instructions Ex-dividend date. 1040ez tax instructions   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. 1040ez tax instructions Example 1. 1040ez tax instructions You bought common stock from a foreign corporation on November 3. 1040ez tax instructions You sold the stock on November 19. 1040ez tax instructions You received a dividend on this stock because you owned it on the ex-dividend date of November 5. 1040ez tax instructions 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). 1040ez tax instructions Because you held the stock for 16 days, from November 4 until November 19, you are entitled to the credit. 1040ez tax instructions Example 2. 1040ez tax instructions The facts are the same as in Example 1 except that you sold the stock on November 14. 1040ez tax instructions You held the stock for only 11 days. 1040ez tax instructions You are not entitled to the credit. 1040ez tax instructions Exception. 1040ez tax instructions   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. 1040ez tax instructions See section 901(k)(4) of the Internal Revenue Code for more information. 1040ez tax instructions 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. 1040ez tax instructions 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. 1040ez tax instructions Withholding tax. 1040ez tax instructions   For this purpose, withholding tax includes any tax determined on a gross basis. 1040ez tax instructions It does not include any tax which is in the nature of a prepayment of a tax imposed on a net basis. 1040ez tax instructions Exception for dealers. 1040ez tax instructions   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. 1040ez tax instructions See section 901(I)(2) of the Internal Revenue Code for more information. 1040ez tax instructions 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. 1040ez tax instructions A covered asset acquisition includes certain acquisitions that result in a stepped-up basis for U. 1040ez tax instructions S. 1040ez tax instructions tax purposes but not for foreign tax purposes. 1040ez tax instructions For more information, see Internal Revenue Code section 901(m). 1040ez tax instructions The IRS intends to issue guidance that will explain this provision in greater detail. 1040ez tax instructions 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. 1040ez tax instructions 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. 1040ez tax instructions For details, see Regulations section 1. 1040ez tax instructions 901-3. 1040ez tax instructions 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. 1040ez tax instructions See the instructions for line 12 in the Form 1116 instructions to figure this reduction. 1040ez tax instructions 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. 1040ez tax instructions List of boycotting countries. 1040ez tax instructions   A list of the countries which may require participation in or cooperation with an international boycott is published by the Department of the Treasury. 1040ez tax instructions As of November 2013, the following countries are listed. 1040ez tax instructions Iraq. 1040ez tax instructions Kuwait. 1040ez tax instructions Lebanon. 1040ez tax instructions Libya. 1040ez tax instructions Qatar. 1040ez tax instructions Saudi Arabia. 1040ez tax instructions Syria. 1040ez tax instructions United Arab Emirates. 1040ez tax instructions Yemen. 1040ez tax instructions    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. 1040ez tax instructions   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. 1040ez tax instructions The procedures for obtaining a determination from the Service are outlined in Revenue Procedure 77-9 in Cumulative Bulletin 1977-1. 1040ez tax instructions Cumulative Bulletins are available in most IRS offices and you are welcome to read them there. 1040ez tax instructions Public inspection. 1040ez tax instructions   A determination and any related background file is open to public inspection. 1040ez tax instructions However, your identity and certain other information will remain confidential. 1040ez tax instructions Reporting requirements. 1040ez tax instructions   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. 1040ez tax instructions 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. 1040ez tax instructions A partnership in which you are a partner. 1040ez tax instructions A trust you are treated as owning. 1040ez tax instructions Form 5713 required. 1040ez tax instructions   If you have to file a report, you must use Form 5713, International Boycott Report, and attach all supporting schedules. 1040ez tax instructions See the Instructions for Form 5713 for information on when and where to file the form. 1040ez tax instructions Penalty for failure to file. 1040ez tax instructions   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. 1040ez tax instructions 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. 1040ez tax instructions 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. 1040ez tax instructions S. 1040ez tax instructions tax liability (Form 1040, line 44) divided by your worldwide taxable income. 1040ez tax instructions You may be entitled to carry over to other years taxes reduced under this rule. 1040ez tax instructions See Internal Revenue Code section 907(f). 1040ez tax instructions Combined foreign oil and gas income means the sum of foreign oil related income and foreign oil and gas extraction income. 1040ez tax instructions Foreign oil and gas taxes are the sum of foreign oil and gas extraction taxes and foreign oil related taxes. 1040ez tax instructions Taxes of U. 1040ez tax instructions S. 1040ez tax instructions 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. 1040ez tax instructions 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. 1040ez tax instructions See Penalty for not filing Form 5471 or Form 8865 , later. 1040ez tax instructions U. 1040ez tax instructions S. 1040ez tax instructions persons controlling foreign corporations. 1040ez tax instructions   If you are a U. 1040ez tax instructions S. 1040ez tax instructions 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. 1040ez tax instructions S. 1040ez tax instructions Persons With Respect To Certain Foreign Corporations. 1040ez tax instructions 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. 1040ez tax instructions U. 1040ez tax instructions S. 1040ez tax instructions persons controlling foreign partnerships. 1040ez tax instructions   If you are a U. 1040ez tax instructions S. 1040ez tax instructions citizen or resident who had control of a foreign partnership at any time during the partnership's tax year, you may have to file