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Amending 2010 Tax Return

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Amending 2010 Tax Return

Amending 2010 tax return 4. Amending 2010 tax return   Student Loan Interest Deduction Table of Contents Introduction Student Loan Interest DefinedQualified Student Loan Qualified Education Expenses Include As Interest Do Not Include As Interest When Must Interest Be Paid Can You Claim the DeductionNo Double Benefit Allowed Figuring the DeductionEffect of the Amount of Your Income on the Amount of Your Deduction Which Worksheet To Use Claiming the Deduction Introduction Generally, personal interest you pay, other than certain mortgage interest, is not deductible on your tax return. Amending 2010 tax return However, if your modified adjusted gross income (MAGI) is less than $75,000 ($155,000 if filing a joint return) there is a special deduction allowed for paying interest on a student loan (also known as an education loan) used for higher education. Amending 2010 tax return For most taxpayers, MAGI is the adjusted gross income as figured on their federal income tax return before subtracting any deduction for student loan interest. Amending 2010 tax return This deduction can reduce the amount of your income subject to tax by up to $2,500 in 2013. Amending 2010 tax return The student loan interest deduction is taken as an adjustment to income. Amending 2010 tax return This means you can claim this deduction even if you do not itemize deductions on Schedule A (Form 1040). Amending 2010 tax return This chapter explains: What type of loan interest you can deduct, Whether you can claim the deduction, What expenses you must have paid with the student loan, Who is an eligible student, How to figure the deduction, and How to claim the deduction. Amending 2010 tax return Table 4-1. Amending 2010 tax return Student Loan Interest Deduction at a Glance This table summarizes the features of the student loan interest deduction. Amending 2010 tax return Do not rely on this table alone. Amending 2010 tax return Refer to the text for complete details. Amending 2010 tax return Feature   Description Maximum benefit   You can reduce your income subject to tax by up to $2,500. Amending 2010 tax return Loan qualifications   Your student loan: •must have been taken out solely to pay qualified education expenses, and •cannot be from a related person or made under a qualified employer plan. Amending 2010 tax return Student qualifications   The student must be: •you, your spouse, or your dependent, and  •enrolled at least half-time in a degree program. Amending 2010 tax return Time limit on deduction   You can deduct interest paid during the remaining period of your student loan. Amending 2010 tax return Limit on modified adjusted gross income (MAGI)   $155,000 if married filing a joint return; $75,000 if single, head of household, or qualifying widow(er). Amending 2010 tax return Student Loan Interest Defined Student loan interest is interest you paid during the year on a qualified student loan. Amending 2010 tax return It includes both required and voluntary interest payments. Amending 2010 tax return Qualified Student Loan This is a loan you took out solely to pay qualified education expenses (defined later) that were: For you, your spouse, or a person who was your dependent when you took out the loan, Paid or incurred within a reasonable period of time before or after you took out the loan, and For education provided during an academic period for an eligible student. Amending 2010 tax return Loans from the following sources are not qualified student loans. Amending 2010 tax return A related person. Amending 2010 tax return A qualified employer plan. Amending 2010 tax return Your dependent. Amending 2010 tax return   Generally, your dependent is someone who is either a: Qualifying child, or Qualifying relative. Amending 2010 tax return You can find more information about dependents in Publication 501. Amending 2010 tax return Exceptions. Amending 2010 tax return   For purposes of the student loan interest deduction, there are the following exceptions to the general rules for dependents. Amending 2010 tax return An individual can be your dependent even if you are the dependent of another taxpayer. Amending 2010 tax return An individual can be your dependent even if the individual files a joint return with a spouse. Amending 2010 tax return An individual can be your dependent even if the individual had gross income for the year that was equal to or more than the exemption amount for the year ($3,900 for 2013). Amending 2010 tax return Reasonable period of time. Amending 2010 tax return   Qualified education expenses are treated as paid or incurred within a reasonable period of time before or after you take out the loan if they are paid with the proceeds of student loans that are part of a federal postsecondary education loan program. Amending 2010 tax return   Even if not paid with the proceeds of that type of loan, the expenses are treated as paid or incurred within a reasonable period of time if both of the following requirements are met. Amending 2010 tax return The expenses relate to a specific academic period, and The loan proceeds are disbursed within a period that begins 90 days before the start of that academic period and ends 90 days after the end of that academic period. Amending 2010 tax return   If neither of the above situations applies, the reasonable period of time usually is determined based on all the relevant facts and circumstances. Amending 2010 tax return Academic period. Amending 2010 tax return   An academic period includes a semester, trimester, quarter, or other period of study (such as a summer school session) as reasonably determined by an educational institution. Amending 2010 tax return In the case of an educational institution that uses credit hours or clock hours and does not have academic terms, each payment period can be treated as an academic period. Amending 2010 tax return Eligible student. Amending 2010 tax return   This is a student who was enrolled at least half-time in a program leading to a degree, certificate, or other recognized educational credential. Amending 2010 tax return Enrolled at least half-time. Amending 2010 tax return   A student was enrolled at least half-time if the student was taking at least half the normal full-time work load for his or her course of study. Amending 2010 tax return   The standard for what is half of the normal full-time work load is determined by each eligible educational institution. Amending 2010 tax return However, the standard may not be lower than any of those established by the U. Amending 2010 tax return S. Amending 2010 tax return Department of Education under the Higher Education Act of 1965. Amending 2010 tax return Related person. Amending 2010 tax return   You cannot deduct interest on a loan you get from a related person. Amending 2010 tax return Related persons include: Your spouse, Your brothers and sisters, Your half brothers and half sisters, Your ancestors (parents, grandparents, etc. Amending 2010 tax return ), Your lineal descendants (children, grandchildren, etc. Amending 2010 tax return ), and Certain corporations, partnerships, trusts, and exempt organizations. Amending 2010 tax return Qualified employer plan. Amending 2010 tax return   You cannot deduct interest on a loan made under a qualified employer plan or under a contract purchased under such a plan. Amending 2010 tax return Qualified Education Expenses For purposes of the student loan interest deduction, these expenses are the total costs of attending an eligible educational institution, including graduate school. Amending 2010 tax return They include amounts paid for the following items. Amending 2010 tax return Tuition and fees. Amending 2010 tax return Room and board. Amending 2010 tax return Books, supplies, and equipment. Amending 2010 tax return Other necessary expenses (such as transportation). Amending 2010 tax return The cost of room and board qualifies only to the extent that it is not more than the greater of: The allowance for room and board, as determined by the eligible educational institution, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student, or The actual amount charged if the student is residing in housing owned or operated by the eligible educational institution. Amending 2010 tax return Eligible educational institution. Amending 2010 tax return   An eligible educational institution is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U. Amending 2010 tax return S. Amending 2010 tax return Department of Education. Amending 2010 tax return It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. Amending 2010 tax return   Certain educational institutions located outside the United States also participate in the U. Amending 2010 tax return S. Amending 2010 tax return Department of Education's Federal Student Aid (FSA) programs. Amending 2010 tax return   For purposes of the student loan interest deduction, an eligible educational institution also includes an institution conducting an internship or residency program leading to a degree or certificate from an institution of higher education, a hospital, or a health care facility that offers postgraduate training. Amending 2010 tax return   An educational institution must meet the above criteria only during the academic period(s) for which the student loan was incurred. Amending 2010 tax return The deductibility of interest on the loan is not affected by the institution's subsequent loss of eligibility. Amending 2010 tax return    The educational institution should be able to tell you if it is an eligible educational institution. Amending 2010 tax return Adjustments to Qualified Education Expenses You must reduce your qualified education expenses by the total amount paid for them with the following tax-free items. Amending 2010 tax return Employer-provided educational assistance. Amending 2010 tax return See chapter 11, Employer-Provided Educational Assistance . Amending 2010 tax return Tax-free distribution of earnings from a Coverdell education savings account (ESA). Amending 2010 tax return See Tax-Free Distributions in chapter 7, Coverdell Education Savings Account. Amending 2010 tax return Tax-free distribution of earnings from a qualified tuition program (QTP). Amending 2010 tax return See Figuring the Taxable Portion of a Distribution in chapter 8, Qualified Tuition Program. Amending 2010 tax return U. Amending 2010 tax return S. Amending 2010 tax return savings bond interest that you exclude from income because it is used to pay qualified education expenses. Amending 2010 tax return See chapter 10, Education Savings Bond Program . Amending 2010 tax return The tax-free part of scholarships and fellowships. Amending 2010 tax return See Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. Amending 2010 tax return Veterans' educational assistance. Amending 2010 tax return See Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. Amending 2010 tax return Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. Amending 2010 tax return Include As Interest In addition to simple interest on the loan, if all other requirements are met, the items discussed below can be student loan interest. Amending 2010 tax return Loan origination fee. Amending 2010 tax return   In general, this is a one-time fee charged by the lender when a loan is made. Amending 2010 tax return To be deductible as interest, a loan origination fee must be for the use of money rather than for property or services (such as commitment fees or processing costs) provided by the lender. Amending 2010 tax return A loan origination fee treated as interest accrues over the term of the loan. Amending 2010 tax return   Loan origination fees were not required to be reported on Form 1098-E, Student Loan Interest Statement, for loans made before September 1, 2004. Amending 2010 tax return If loan origination fees are not included in the amount reported on your Form 1098-E, you can use any reasonable method to allocate the loan origination fees over the term of the loan. Amending 2010 tax return The method shown in the example below allocates equal portions of the loan origination fee to each payment required under the terms of the loan. Amending 2010 tax return A method that results in the double deduction of the same portion of a loan origination fee would not be reasonable. Amending 2010 tax return Example. Amending 2010 tax return In August 2004, Bill took out a student loan for $16,000 to pay the tuition for his senior year of college. Amending 2010 tax return The lender charged a 3% loan origination fee ($480) that was withheld from the funds Bill received. Amending 2010 tax return Bill began making payments on his student loan in 2013. Amending 2010 tax return Because the loan origination fee was not included in his 2013 Form 1098-E, Bill can use any reasonable method to allocate that fee over the term of the loan. Amending 2010 tax return Bill's loan is payable in 120 equal monthly payments. Amending 2010 tax return He allocates the $480 fee equally over the total number of payments ($480 ÷ 120 months = $4 per month). Amending 2010 tax return Bill made 7 payments in 2013, so he paid $28 ($4 × 7) of interest attributable to the loan origination fee. Amending 2010 tax return To determine his student loan interest deduction, he will add the $28 to the amount of other interest reported to him on Form 1098-E. Amending 2010 tax return Capitalized interest. Amending 2010 tax return   This is unpaid interest on a student loan that is added by the lender to the outstanding principal balance of the loan. Amending 2010 tax return Capitalized interest is treated as interest for tax purposes and is deductible as payments of principal are made on the loan. Amending 2010 tax return No deduction for capitalized interest is allowed in a year in which no loan payments were made. Amending 2010 tax return Interest on revolving lines of credit. Amending 2010 tax return   This interest, which includes interest on credit card debt, is student loan interest if the borrower uses the line of credit (credit card) only to pay qualified education expenses. Amending 2010 tax return See Qualified Education Expenses , earlier. Amending 2010 tax return Interest on refinanced student loans. Amending 2010 tax return   This includes interest on both: Consolidated loans—loans used to refinance more than one student loan of the same borrower, and Collapsed loans—two or more loans of the same borrower that are treated by both the lender and the borrower as one loan. Amending 2010 tax return    If you refinance a qualified student loan for more than your original loan and you use the additional amount for any purpose other than qualified education expenses, you cannot deduct any interest paid on the refinanced loan. Amending 2010 tax return Voluntary interest payments. Amending 2010 tax return   These are payments made on a qualified student loan during a period when interest payments are not required, such as when the borrower has been granted a deferment or the loan has not yet entered repayment status. Amending 2010 tax return Example. Amending 2010 tax return The payments on Roger's student loan were scheduled to begin in June 2012, 6 months after he graduated from college. Amending 2010 tax return He began making payments as required. Amending 2010 tax return In September 2013, Roger enrolled in graduate school on a full-time basis. Amending 2010 tax return He applied for and was granted deferment of his loan payments while in graduate school. Amending 2010 tax return Wanting to pay down his student loan as much as possible, he made loan payments in October and November 2013. Amending 2010 tax return Even though these were voluntary (not required) payments, Roger can deduct the interest paid in October and November. Amending 2010 tax return Allocating Payments Between Interest and Principal The allocation of payments between interest and principal for tax purposes might not be the same as the allocation shown on the Form 1098-E or other statement you receive from the lender or loan servicer. Amending 2010 tax return To make the allocation for tax purposes, a payment generally applies first to stated interest that remains unpaid as of the date the payment is due, second to any loan origination fees allocable to the payment, third to any capitalized interest that remains unpaid as of the date the payment is due, and fourth to the outstanding principal. Amending 2010 tax return Example. Amending 2010 tax return In August 2012, Peg took out a $10,000 student loan to pay the tuition for her senior year of college. Amending 2010 tax return The lender charged a 3% loan origination fee ($300) that was withheld from the funds Peg received. Amending 2010 tax return The interest (5% simple) on this loan accrued while she completed her senior year and for 6 months after she graduated. Amending 2010 tax return At the end of that period, the lender determined the amount to be repaid by capitalizing all accrued but unpaid interest ($625 interest accrued from August 2012 through October 2013) and adding it to the outstanding principal balance of the loan. Amending 2010 tax return The loan is payable over 60 months, with a payment of $200. Amending 2010 tax return 51 due on the first of each month, beginning November 2013. Amending 2010 tax return Peg did not receive a Form 1098-E for 2013 from her lender because the amount of interest she paid did not require the lender to issue an information return. Amending 2010 tax return However, she did receive an account statement from the lender that showed the following 2013 payments on her outstanding loan of $10,625 ($10,000 principal + $625 accrued but unpaid interest). Amending 2010 tax return Payment Date   Payment   Stated Interest   Principal November 2013   $200. Amending 2010 tax return 51   $44. Amending 2010 tax return 27   $156. Amending 2010 tax return 24 December 2013   $200. Amending 2010 tax return 51   $43. Amending 2010 tax return 62   $156. Amending 2010 tax return 89 Totals   $401. Amending 2010 tax return 02   $87. Amending 2010 tax return 89   $313. Amending 2010 tax return 13 To determine the amount of interest that could be deducted on the loan for 2013, Peg starts with the total amount of stated interest she paid, $87. Amending 2010 tax return 89. Amending 2010 tax return Next, she allocates the loan origination fee over the term of the loan ($300 ÷ 60 months = $5 per month). Amending 2010 tax return A total of $10 ($5 of each of the two principal payments) should be treated as interest for tax purposes. Amending 2010 tax return Peg then applies the unpaid capitalized interest ($625) to the two principal payments in the order in which they were made, and determines that the remaining amount of principal of both payments is treated as interest for tax purposes. Amending 2010 tax return Assuming that Peg qualifies to take the student loan interest deduction, she can deduct $401. Amending 2010 tax return 02 ($87. Amending 2010 tax return 89 + $10 + $303. Amending 2010 tax return 13). Amending 2010 tax return For 2014, Peg will continue to allocate $5 of the loan origination fee to the principal portion of each monthly payment she makes and treat that amount as interest for tax purposes. Amending 2010 tax return She also will apply the remaining amount of capitalized interest ($625 − $303. Amending 2010 tax return 13 = $321. Amending 2010 tax return 87) to the principal payments in the order in which they are made until the balance is zero, and treat those amounts as interest for tax purposes. Amending 2010 tax return Do Not Include As Interest You cannot claim a student loan interest deduction for any of the following items. Amending 2010 tax return Interest you paid on a loan if, under the terms of the loan, you are not legally obligated to make interest payments. Amending 2010 tax return Loan origination fees that are payments for property or services provided by the lender, such as commitment fees or processing costs. Amending 2010 tax return Interest you paid on a loan to the extent payments were made through your participation in the National Health Service Corps Loan Repayment Program (the “NHSC Loan Repayment Program”) or certain other loan repayment assistance programs. Amending 2010 tax return For more information, see Student Loan Repayment Assistance in chapter 5, Student Loan Cancellations and Repayment Assistance. Amending 2010 tax return When Must Interest Be Paid You can deduct all interest you paid during the year on your student loan, including voluntary payments, until the loan is paid off. Amending 2010 tax return Can You Claim the Deduction Generally, you can claim the deduction if all of the following requirements are met. Amending 2010 tax return Your filing status is any filing status except married filing separately. Amending 2010 tax return No one else is claiming an exemption for you on his or her tax return. Amending 2010 tax return You are legally obligated to pay interest on a qualified student loan. Amending 2010 tax return You paid interest on a qualified student loan. Amending 2010 tax return Claiming an exemption for you. Amending 2010 tax return   Another taxpayer is claiming an exemption for you if he or she lists your name and other required information on his or her Form 1040 (or Form 1040A), line 6c, or Form 1040NR, line 7c. Amending 2010 tax return Example 1. Amending 2010 tax return During 2013, Josh paid $600 interest on his qualified student loan. Amending 2010 tax return Only he is legally obligated to make the payments. Amending 2010 tax return No one claimed an exemption for Josh for 2013. Amending 2010 tax return Assuming all other requirements are met, Josh can deduct the $600 of interest he paid on his 2013 Form 1040 or 1040A. Amending 2010 tax return Example 2. Amending 2010 tax return During 2013, Jo paid $1,100 interest on her qualified student loan. Amending 2010 tax return Only she is legally obligated to make the payments. Amending 2010 tax return Jo's parents claimed an exemption for her on their 2013 tax return. Amending 2010 tax return In this case, neither Jo nor her parents may deduct the student loan interest Jo paid in 2013. Amending 2010 tax return Interest paid by others. Amending 2010 tax return   If you are the person legally obligated to make interest payments and someone else makes a payment of interest on your behalf, you are treated as receiving the payments from the other person and, in turn, paying the interest. Amending 2010 tax return Example 1. Amending 2010 tax return Darla obtained a qualified student loan to attend college. Amending 2010 tax return After Darla's graduation from college, she worked as an intern for a nonprofit organization. Amending 2010 tax return As part of the internship program, the nonprofit organization made an interest payment on behalf of Darla. Amending 2010 tax return This payment was treated as additional compensation and reported in box 1 of her Form W-2. Amending 2010 tax return Assuming all other qualifications are met, Darla can deduct this payment of interest on her tax return. Amending 2010 tax return Example 2. Amending 2010 tax return Ethan obtained a qualified student loan to attend college. Amending 2010 tax return After graduating from college, the first monthly payment on his loan was due in December. Amending 2010 tax return As a gift, Ethan's mother made this payment for him. Amending 2010 tax return No one is claiming a dependency exemption for Ethan on his or her tax return. Amending 2010 tax return Assuming all other qualifications are met, Ethan can deduct this payment of interest on his tax return. Amending 2010 tax return No Double Benefit Allowed You cannot deduct as interest on a student loan any amount that is an allowable deduction under any other provision of the tax law (for example, as home mortgage interest). Amending 2010 tax return Figuring the Deduction Your student loan interest deduction for 2013 is generally the smaller of: $2,500, or The interest you paid in 2013. Amending 2010 tax return However, the amount determined above may be gradually reduced (phased out) or eliminated based on your filing status and MAGI as explained below. Amending 2010 tax return You can use Worksheet 4-1. Amending 2010 tax return Student Loan Interest Deduction Worksheet (at the end of this chapter) to figure both your MAGI and your deduction. Amending 2010 tax return Form 1098-E. Amending 2010 tax return   To help you figure your student loan interest deduction, you should receive Form 1098-E. Amending 2010 tax return Generally, an institution (such as a bank or governmental agency) that received interest payments of $600 or more during 2013 on one or more qualified student loans must send Form 1098-E (or acceptable substitute) to each borrower by January 31, 2014. Amending 2010 tax return   For qualified student loans taken out before September 1, 2004, the institution is required to include on Form 1098-E only payments of stated interest. Amending 2010 tax return Other interest payments, such as certain loan origination fees and capitalized interest, may not appear on the form you receive. Amending 2010 tax return However, if you pay qualifying interest that is not included on Form 1098-E, you can also deduct those amounts. Amending 2010 tax return See Allocating Payments Between Interest and Principal , earlier. Amending 2010 tax return    The lender may ask for a completed Form W-9S, or similar statement to obtain the borrower's name, address, and taxpayer identification number. Amending 2010 tax return The form may also be used by the borrower to certify that the student loan was incurred solely to pay for qualified education expenses. Amending 2010 tax return Effect of the Amount of Your Income on the Amount of Your Deduction The amount of your student loan interest deduction is phased out (gradually reduced) if your MAGI is between $60,000 and $75,000 ($125,000 and $155,000 if you file a joint return). Amending 2010 tax return You cannot take a student loan interest deduction if your MAGI is $75,000 or more ($155,000 or more if you file a joint return). Amending 2010 tax return Modified adjusted gross income (MAGI). Amending 2010 tax return   For most taxpayers, MAGI is adjusted gross income (AGI) as figured on their federal income tax return before subtracting any deduction for student loan interest. Amending 2010 tax return However, as discussed below, there may be other modifications. Amending 2010 tax return Table 4-2 shows how the amount of your MAGI can affect your student loan interest deduction. Amending 2010 tax return Table 4-2. Amending 2010 tax return Effect of MAGI on Student Loan Interest Deduction IF your filing status is. Amending 2010 tax return . Amending 2010 tax return . Amending 2010 tax return AND your MAGI is. Amending 2010 tax return . Amending 2010 tax return . Amending 2010 tax return THEN your student loan interest deduction is. Amending 2010 tax return . Amending 2010 tax return . Amending 2010 tax return single,  head of household, or qualifying widow(er) not more than $60,000 not affected by the phaseout. Amending 2010 tax return more than $60,000  but less than $75,000 reduced because of the phaseout. Amending 2010 tax return $75,000 or more eliminated by the phaseout. Amending 2010 tax return married filing joint return not more than $125,000 not affected by the phaseout. Amending 2010 tax return more than $125,000 but less than $155,000 reduced because of the phaseout. Amending 2010 tax return $155,000 or more eliminated by the phaseout. Amending 2010 tax return MAGI when using Form 1040A. Amending 2010 tax return   If you file Form 1040A, your MAGI is the AGI on line 22 of that form figured without taking into account any amount on line 18 (student loan interest deduction) and line 19 (tuition and fees deduction). Amending 2010 tax return MAGI when using Form 1040. Amending 2010 tax return   If you file Form 1040, your MAGI is the AGI on line 38 of that form figured without taking into account any amount on line 33 (student loan interest deduction), line 34 (tuition and fees deduction), or line 35 (domestic production activities deduction), and modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, and Exclusion of income by bona fide residents of Puerto Rico. Amending 2010 tax return MAGI when using Form 1040NR. Amending 2010 tax return   If you file Form 1040NR, your MAGI is the AGI on line 36 of that form figured without taking into account any amount on line 33 (student loan interest deduction) and line 34 (domestic production activities deduction). Amending 2010 tax return MAGI when using Form 1040NR-EZ. Amending 2010 tax return   If you file Form 1040NR-EZ, your MAGI is the AGI on line 10 of that form figured without taking into account any amount on line 9 (student loan interest deduction). Amending 2010 tax return Phaseout. Amending 2010 tax return   If your MAGI is within the range of incomes where the credit must be reduced, you must figure your reduced deduction. Amending 2010 tax return To figure the phaseout, multiply your interest deduction (before the phaseout) by a fraction. Amending 2010 tax return The numerator is your MAGI minus $60,000 ($125,000 in the case of a joint return). Amending 2010 tax return The denominator is $15,000 ($30,000 in the case of a joint return). Amending 2010 tax return Subtract the result from your deduction (before the phaseout) to give you the amount you can deduct. Amending 2010 tax return Example 1. Amending 2010 tax return During 2013 you paid $800 interest on a qualified student loan. Amending 2010 tax return Your 2013 MAGI is $145,000 and you are filing a joint return. Amending 2010 tax return You must reduce your deduction by $533, figured as follows. Amending 2010 tax return   $800 × $145,000 − $125,000  $30,000 = $533   Your reduced student loan interest deduction is $267 ($800 − $533). Amending 2010 tax return Example 2. Amending 2010 tax return The facts are the same as in Example 1 except that you paid $2,750 interest. Amending 2010 tax return Your maximum deduction for 2013 is $2,500. Amending 2010 tax return You must reduce your maximum deduction by $1,667, figured as follows. Amending 2010 tax return   $2,500 × $145,000 − $125,000  $30,000 = $1,667   In this example, your reduced student loan interest deduction is $833 ($2,500 − $1,667). Amending 2010 tax return Which Worksheet To Use Generally, you figure the deduction using the Student Loan Interest Deduction Worksheet in the instructions for Form 1040, Form 1040A, or Form 1040NR. Amending 2010 tax return However, if you are filing Form 2555, Foreign Earned Income, Form 2555-EZ, Foreign Earned Income Exclusion, or Form 4563, Exclusion of Income for Bona Fide Residents of American Samoa, or you are excluding income from sources within Puerto Rico, you must complete Worksheet 4-1. Amending 2010 tax return Student Loan Interest Deduction Worksheet at the end of this chapter. Amending 2010 tax return Claiming the Deduction The student loan interest deduction is an adjustment to income. Amending 2010 tax return To claim the deduction, enter the allowable amount on line 33 (Form 1040), line 18 (Form 1040A), line 33 (Form 1040NR), or line 9 (Form 1040NR-EZ). Amending 2010 tax return Worksheet 4-1. Amending 2010 tax return Student Loan Interest Deduction Worksheet Use this worksheet instead of the worksheet in the Form 1040 instructions if you are filing Form 2555, 2555-EZ, or 4563, or you are excluding income from sources within Puerto Rico. Amending 2010 tax return Before using this worksheet, you must complete Form 1040, lines 7 through 32, plus any amount to be entered on the dotted line next to line 36. Amending 2010 tax return 1. Amending 2010 tax return Enter the total interest you paid in 2013 on qualified student loans. Amending 2010 tax return Do not enter  more than $2,500 1. Amending 2010 tax return   2. Amending 2010 tax return Enter the amount from Form 1040, line 22 2. Amending 2010 tax return       3. Amending 2010 tax return Enter the total of the amounts from Form 1040,  lines 23 through 32 3. Amending 2010 tax return           4. Amending 2010 tax return Enter the total of any amounts entered on the dotted line next to Form 1040, line 36 4. Amending 2010 tax return           5. Amending 2010 tax return Add lines 3 and 4 5. Amending 2010 tax return       6. Amending 2010 tax return Subtract line 5 from line 2 6. Amending 2010 tax return       7. Amending 2010 tax return Enter any foreign earned income exclusion and/or housing  exclusion (Form 2555, line 45, or Form 2555-EZ, line 18) 7. Amending 2010 tax return       8. Amending 2010 tax return Enter any foreign housing deduction (Form 2555, line 50) 8. Amending 2010 tax return       9. Amending 2010 tax return Enter the amount of income from Puerto Rico you are excluding 9. Amending 2010 tax return       10. Amending 2010 tax return Enter the amount of income from American Samoa  you are excluding (Form 4563, line 15) 10. Amending 2010 tax return       11. Amending 2010 tax return Add lines 6 through 10. Amending 2010 tax return This is your modified adjusted gross income 11. Amending 2010 tax return   12. Amending 2010 tax return Enter the amount shown below for your filing status 12. Amending 2010 tax return     •Single, head of household, or qualifying widow(er)—$60,000       •Married filing jointly—$125,000     13. Amending 2010 tax return Is the amount on line 11 more than the amount on line 12?       □ No. Amending 2010 tax return Skip lines 13 and 14, enter -0- on line 15, and go to line 16. Amending 2010 tax return       □ Yes. Amending 2010 tax return Subtract line 12 from line 11 13. Amending 2010 tax return   14. Amending 2010 tax return Divide line 13 by $15,000 ($30,000 if married filing jointly). Amending 2010 tax return Enter the result as a decimal  (rounded to at least three places). Amending 2010 tax return If the result is 1. Amending 2010 tax return 000 or more, enter 1. Amending 2010 tax return 000 14. Amending 2010 tax return . Amending 2010 tax return 15. Amending 2010 tax return Multiply line 1 by line 14 15. Amending 2010 tax return   16. Amending 2010 tax return Student loan interest deduction. Amending 2010 tax return Subtract line 15 from line 1. Amending 2010 tax return Enter the result here  and on Form 1040, line 33. Amending 2010 tax return Do not include this amount in figuring any other  deduction on your return (such as on Schedule A, C, E, etc. Amending 2010 tax return ) 16. Amending 2010 tax return   Prev  Up  Next   Home   More Online Publications
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Understanding IRS Guidance - A Brief Primer

For anyone not familiar with the inner workings of tax administration, the array of IRS guidance may seem, well, a little puzzling at first glance. To take a little of the mystery away, here's a brief look at seven of the most common forms of guidance.

In its role in administering the tax laws enacted by the Congress, the IRS must take the specifics of these laws and translate them into detailed regulations, rules and procedures. The Office of Chief Counsel fills this crucial role by producing several different kinds of documents and publications that provide guidance to taxpayers, firms and charitable groups.

Regulation

A regulation is issued by the Internal Revenue Service and Treasury Department to provide guidance for new legislation or to address issues that arise with respect to existing Internal Revenue Code sections. Regulations interpret and give directions on complying with the law. Regulations are published in the Federal Register. Generally, regulations are first published in proposed form in a Notice of Proposed Rulemaking (NPRM). After public input is fully considered through written comments and even a public hearing, a final regulation or a temporary regulation is published as a Treasury Decision (TD), again, in the Federal Register.

Revenue Ruling

A revenue ruling is an official interpretation by the IRS of the Internal Revenue Code, related statutes, tax treaties and regulations. It is the conclusion of the IRS on how the law is applied to a specific set of facts. Revenue rulings are published in the Internal Revenue Bulletin for the information of and guidance to taxpayers, IRS personnel and tax professionals. For example, a revenue ruling may hold that taxpayers can deduct certain automobile expenses.

Revenue Procedure

A revenue procedure is an official statement of a procedure that affects the rights or duties of taxpayers or other members of the public under the Internal Revenue Code, related statutes, tax treaties and regulations and that should be a matter of public knowledge. It is also published in the Internal Revenue Bulletin. While a revenue ruling generally states an IRS position, a revenue procedure provides return filing or other instructions concerning an IRS position. For example, a revenue procedure might specify how those entitled to deduct certain automobile expenses should compute them by applying a certain mileage rate in lieu of calculating actual operating expenses.

Private Letter Ruling

A private letter ruling, or PLR, is a written statement issued to a taxpayer that interprets and applies tax laws to the taxpayer's specific set of facts. A PLR is issued to establish with certainty the federal tax consequences of a particular transaction before the transaction is consummated or before the taxpayer's return is filed. A PLR is issued in response to a written request submitted by a taxpayer and is binding on the IRS if the taxpayer fully and accurately described the proposed transaction in the request and carries out the transaction as described. A PLR may not be relied on as precedent by other taxpayers or IRS personnel. PLRs are generally made public after all information has been removed that could identify the taxpayer to whom it was issued.

Technical Advice Memorandum

A technical advice memorandum, or TAM, is guidance furnished by the Office of Chief Counsel upon the request of an IRS director or an area director, appeals, in response to technical or procedural questions that develop during a proceeding. A request for a TAM generally stems from an examination of a taxpayer's return, a consideration of a taxpayer's claim for a refund or credit, or any other matter involving a specific taxpayer under the jurisdiction of the territory manager or the area director, appeals. Technical Advice Memoranda are issued only on closed transactions and provide the interpretation of proper application of tax laws, tax treaties, regulations, revenue rulings or other precedents. The advice rendered represents a final determination of the position of the IRS, but only with respect to the specific issue in the specific case in which the advice is issued. Technical Advice Memoranda are generally made public after all information has been removed that could identify the taxpayer whose circumstances triggered a specific memorandum.

Notice

A notice is a public pronouncement that may contain guidance that involves substantive interpretations of the Internal Revenue Code or other provisions of the law. For example, notices can be used to relate what regulations will say in situations where the regulations may not be published in the immediate future.
 

Announcement

An announcement is a public pronouncement that has only immediate or short-term value. For example, announcements can be used to summarize the law or regulations without making any substantive interpretation; to state what regulations will say when they are certain to be published in the immediate future; or to notify taxpayers of the existence of an approaching deadline.

Page Last Reviewed or Updated: 12-Feb-2014

The Amending 2010 Tax Return

Amending 2010 tax return 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. Amending 2010 tax return S. Amending 2010 tax return 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. Amending 2010 tax return S. Amending 2010 tax return 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. Amending 2010 tax return S. Amending 2010 tax return 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. Amending 2010 tax return Employee business expenses. Amending 2010 tax return 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. Amending 2010 tax return You can change your choice for each year's taxes. Amending 2010 tax return To choose the foreign tax credit, in most cases you must complete Form 1116 and attach it to your U. Amending 2010 tax return S. Amending 2010 tax return tax return. Amending 2010 tax return However, you may qualify for the exception that allows you to claim the foreign tax credit without using Form 1116. Amending 2010 tax return See How To Figure the Credit , later. Amending 2010 tax return To choose to claim the taxes as an itemized deduction, use Schedule A (Form 1040), Itemized Deductions. Amending 2010 tax return Figure your tax both ways—claiming the credit and claiming the deduction. Amending 2010 tax return Then fill out your return the way that benefits you more. Amending 2010 tax return See Why Choose the Credit, later. Amending 2010 tax return 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. Amending 2010 tax return If you choose to take a credit for qualified foreign taxes, you must take the credit for all of them. Amending 2010 tax return You cannot deduct any of them. Amending 2010 tax return Conversely, if you choose to deduct qualified foreign taxes, you must deduct all of them. Amending 2010 tax return You cannot take a credit for any of them. Amending 2010 tax return See What Foreign Taxes Qualify for the Credit , later, for the meaning of qualified foreign taxes. Amending 2010 tax return There are exceptions to this general rule, which are described next. Amending 2010 tax return Exceptions for foreign taxes not allowed as a credit. Amending 2010 tax return   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. Amending 2010 tax return Covered asset acquisitions include certain acquisitions that result in a stepped-up basis for U. Amending 2010 tax return S. Amending 2010 tax return tax purposes. Amending 2010 tax return For more information, see Internal Revenue Code section 901(m). Amending 2010 tax return The IRS intends to issue guidance that will explain this provision in greater detail. Amending 2010 tax return   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. Amending 2010 tax return Foreign taxes that are not income taxes. Amending 2010 tax return   In most cases, only foreign income taxes qualify for the foreign tax credit. Amending 2010 tax return Other taxes, such as foreign real and personal property taxes, do not qualify. Amending 2010 tax return But you may be able to deduct these other taxes even if you claim the foreign tax credit for foreign income taxes. Amending 2010 tax return   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. Amending 2010 tax return However, you can deduct foreign real property taxes that are not trade or business expenses as an itemized deduction on Schedule A (Form 1040). Amending 2010 tax return Carrybacks and carryovers. Amending 2010 tax return   There is a limit on the credit you can claim in a tax year. Amending 2010 tax return 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. Amending 2010 tax return If you deduct qualified foreign taxes in a tax year, you cannot use a carryback or carryover in that year. Amending 2010 tax return That is because you cannot take both a deduction and a credit for qualified foreign taxes in the same tax year. Amending 2010 tax return   For more information on the limit, see How To Figure the Credit , later. Amending 2010 tax return For more information on carrybacks and carryovers, see Carryback and Carryover , later. Amending 2010 tax return 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. Amending 2010 tax return You make or change your choice on your tax return (or on an amended return) for the year your choice is to be effective. Amending 2010 tax return Example. Amending 2010 tax return You paid foreign taxes for the last 13 years and chose to deduct them on your U. Amending 2010 tax return S. Amending 2010 tax return income tax returns. Amending 2010 tax return You were timely in both filing your returns and paying your U. Amending 2010 tax return S. Amending 2010 tax return tax liability. Amending 2010 tax return 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. Amending 2010 tax return Because the regular due date of your 2002 return was April 15, 2003, this choice is timely (within 10 years). Amending 2010 tax return Because there is a limit on the credit for your 2002 foreign tax, you have unused 2002 foreign taxes. Amending 2010 tax return Ordinarily, you first carry back unused foreign taxes arising in 2002 to, and claim them as a credit in, the 2 preceding tax years. Amending 2010 tax return 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. Amending 2010 tax return 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. Amending 2010 tax return 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. Amending 2010 tax return 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. Amending 2010 tax return 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. Amending 2010 tax return See Foreign Earned Income and Housing Exclusions under Foreign Taxes for Which You Cannot Take a Credit, later. Amending 2010 tax return 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. Amending 2010 tax return In most cases, if the foreign tax rate is higher than the U. Amending 2010 tax return S. Amending 2010 tax return rate, there will be no U. Amending 2010 tax return S. Amending 2010 tax return tax on the foreign income. Amending 2010 tax return If the foreign tax rate is lower than the U. Amending 2010 tax return S. Amending 2010 tax return rate, U. Amending 2010 tax return S. Amending 2010 tax return tax on the foreign income will be limited to the difference between the rates. Amending 2010 tax return The foreign tax credit can only reduce U. Amending 2010 tax return S. Amending 2010 tax return taxes on foreign source income; it cannot reduce U. Amending 2010 tax return S. Amending 2010 tax return taxes on U. Amending 2010 tax return S. Amending 2010 tax return source income. Amending 2010 tax return 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. Amending 2010 tax return This is because: A credit reduces your actual U. Amending 2010 tax return S. Amending 2010 tax return 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. Amending 2010 tax return 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. Amending 2010 tax return (See Limit on credit under How To Figure the Credit, later. Amending 2010 tax return ) Example 1. Amending 2010 tax return For 2013, you and your spouse have adjusted gross income of $80,300, including $20,000 of dividend income from foreign sources. Amending 2010 tax return None of the dividends are qualified dividends. Amending 2010 tax return You file a joint return and can claim two $3,900 exemptions. Amending 2010 tax return You had to pay $2,000 in foreign income taxes on the dividend income. Amending 2010 tax return If you take the foreign taxes as an itemized deduction, your total itemized deductions are $15,000. Amending 2010 tax return Your taxable income then is $57,500 and your tax is $7,736. Amending 2010 tax return If you take the credit instead, your itemized deductions are only $13,000. Amending 2010 tax return Your taxable income then is $59,500 and your tax before the credit is $8,036. Amending 2010 tax return After the credit, however, your tax is only $6,036. Amending 2010 tax return Therefore, your tax is $1,700 lower ($7,736 − $6,036) by taking the credit. Amending 2010 tax return Example 2. Amending 2010 tax return In 2013, you receive investment income of $5,000 from a foreign country, which imposes a tax of $1,500 on that income. Amending 2010 tax return You report on your U. Amending 2010 tax return S. Amending 2010 tax return return this income as well as $56,000 of U. Amending 2010 tax return S. Amending 2010 tax return source wages and an allowable $49,000 partnership loss from a U. Amending 2010 tax return S. Amending 2010 tax return partnership. Amending 2010 tax return Your share of the partnership's gross income is $25,000 and your share of its expenses is $74,000. Amending 2010 tax return You are single, entitled to one $3,900 exemption, and have other itemized deductions of $6,850. Amending 2010 tax return If you deduct the foreign tax on your U. Amending 2010 tax return S. Amending 2010 tax return 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. Amending 2010 tax return 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. Amending 2010 tax return You can take a credit of only $113 because of limits discussed later. Amending 2010 tax return Your tax after the credit is $13 ($126 − $113), which is $13 more than if you deduct the foreign tax. Amending 2010 tax return If you choose the credit, you will have unused foreign taxes of $1,387 ($1,500 − $113). Amending 2010 tax return 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. Amending 2010 tax return 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. Amending 2010 tax return “Tax year” refers to the tax year for which your U. Amending 2010 tax return S. Amending 2010 tax return return is filed, not the tax year for which your foreign return is filed. Amending 2010 tax return Accrual method of accounting. Amending 2010 tax return   If you use an accrual method of accounting, you can claim the credit only in the year in which you accrue the tax. Amending 2010 tax return 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. Amending 2010 tax return   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. Amending 2010 tax return Generally, this occurs on the last day of the tax year for which your foreign return is filed. Amending 2010 tax return Contesting your foreign tax liability. Amending 2010 tax return   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. Amending 2010 tax return 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. Amending 2010 tax return Once your liability is determined, the foreign tax credit is allowable for the year to which the foreign tax relates. Amending 2010 tax return 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 . Amending 2010 tax return You may have to post a bond. Amending 2010 tax return   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. Amending 2010 tax return   The IRS can request this bond at any time without regard to the Time Limit on Tax Assessment discussed later under Carryback and Carryover. Amending 2010 tax return Cash method of accounting. Amending 2010 tax return   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. Amending 2010 tax return 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. Amending 2010 tax return Choosing to take credit in the year taxes accrue. Amending 2010 tax return   Even if you use the cash method of accounting, you can choose to take a credit for foreign taxes in the year they accrue. Amending 2010 tax return You make the choice by checking the box in Part II of Form 1116. Amending 2010 tax return 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. Amending 2010 tax return   In addition, the choice to take the credit when foreign taxes accrue applies to all foreign taxes qualifying for the credit. Amending 2010 tax return You cannot take a credit for some foreign taxes when paid and take a credit for others when accrued. Amending 2010 tax return   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. Amending 2010 tax return Credit based on taxes paid in earlier year. Amending 2010 tax return   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. Amending 2010 tax return Example. Amending 2010 tax return Last year you took the credit based on taxes paid. Amending 2010 tax return This year you chose to take the credit based on taxes accrued. Amending 2010 tax return During the year you paid foreign income taxes owed for last year. Amending 2010 tax return You also accrued foreign income taxes for this year that you did not pay by the end of the year. Amending 2010 tax return 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. Amending 2010 tax return Foreign Currency and Exchange Rates U. Amending 2010 tax return S. Amending 2010 tax return income tax is imposed on income expressed in U. Amending 2010 tax return S. Amending 2010 tax return dollars, while in most cases the foreign tax is imposed on income expressed in foreign currency. Amending 2010 tax return Therefore, fluctuations in the value of the foreign currency relative to the U. Amending 2010 tax return S. Amending 2010 tax return dollar may affect the foreign tax credit. Amending 2010 tax return Translating foreign currency into U. Amending 2010 tax return S. Amending 2010 tax return dollars. Amending 2010 tax return   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. Amending 2010 tax return S. Amending 2010 tax return dollars. Amending 2010 tax return How and when you do this depends on your functional currency. Amending 2010 tax return In most cases, your functional currency is the U. Amending 2010 tax return S. Amending 2010 tax return dollar unless you are required to use the currency of a foreign country. Amending 2010 tax return   You must make all federal income tax determinations in your functional currency. Amending 2010 tax return The U. Amending 2010 tax return S. Amending 2010 tax return dollar is the functional currency for all taxpayers except some qualified business units. Amending 2010 tax return A qualified business unit is a separate and clearly identified unit of a trade or business that maintains separate books and records. Amending 2010 tax return Unless you are self-employed, your functional currency is the U. Amending 2010 tax return S. Amending 2010 tax return dollar. Amending 2010 tax return   Even if you are self-employed and have a qualified business unit, your functional currency is the U. Amending 2010 tax return S. Amending 2010 tax return dollar if any of the following apply. Amending 2010 tax return You conduct the business primarily in dollars. Amending 2010 tax return The principal place of business is located in the United States. Amending 2010 tax return You choose to or are required to use the dollar as your functional currency. Amending 2010 tax return 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. Amending 2010 tax return   If your functional currency is the U. Amending 2010 tax return S. Amending 2010 tax return dollar, you must immediately translate into dollars all items of income, expense, etc. Amending 2010 tax return , that you receive, pay, or accrue in a foreign currency and that will affect computation of your income tax. Amending 2010 tax return If there is more than one exchange rate, use the one that most properly reflects your income. Amending 2010 tax return In most cases, you can get exchange rates from banks and U. Amending 2010 tax return S. Amending 2010 tax return Embassies. Amending 2010 tax return   If your functional currency is not the U. Amending 2010 tax return S. Amending 2010 tax return dollar, make all income tax determinations in your functional currency. Amending 2010 tax return At the end of the year, translate the results, such as income or loss, into U. Amending 2010 tax return S. Amending 2010 tax return dollars to report on your income tax return. Amending 2010 tax return    For more information, write to: Internal Revenue Service International Section Philadelphia, PA 19255-0725 Rate of exchange for foreign taxes paid. Amending 2010 tax return   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. Amending 2010 tax return If your tax was withheld in foreign currency, use the rate of exchange in effect for the date on which the tax was withheld. Amending 2010 tax return 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. Amending 2010 tax return   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). Amending 2010 tax return Exception. Amending 2010 tax return   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. Amending 2010 tax return This rule applies to accrued taxes relating to tax years beginning after 1997 and only under the following conditions. Amending 2010 tax return The foreign taxes are paid on or after the first day of the tax year to which they relate. Amending 2010 tax return The foreign taxes are paid not later than 2 years after the close of the tax year to which they relate. Amending 2010 tax return The foreign tax liability is not denominated in an inflationary currency (defined in the Form 1116 instructions). Amending 2010 tax return (This condition applies to taxes paid or accrued in tax years beginning after November 6, 2007. Amending 2010 tax return )   For all other foreign taxes, you should use the exchange rate in effect on the date you paid them. Amending 2010 tax return Election to use exchange rate on date paid. Amending 2010 tax return   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. Amending 2010 tax return If any of the accrued taxes are unpaid, you must translate them into U. Amending 2010 tax return S. Amending 2010 tax return dollars using the exchange rate on the last day of the U. Amending 2010 tax return S. Amending 2010 tax return tax year to which those taxes relate. Amending 2010 tax return 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. Amending 2010 tax return S. Amending 2010 tax return dollar functional currency. Amending 2010 tax return 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. Amending 2010 tax return The election is available for tax years beginning after 2004. Amending 2010 tax return 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. Amending 2010 tax return Make the election by attaching a statement to the applicable tax return. Amending 2010 tax return 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. Amending 2010 tax return S. Amending 2010 tax return dollar functional currency. Amending 2010 tax return Foreign Tax Redetermination A foreign tax redetermination is any change in your foreign tax liability that may affect your U. Amending 2010 tax return S. Amending 2010 tax return foreign tax credit claimed. Amending 2010 tax return 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. Amending 2010 tax return If a foreign tax redetermination occurs, a redetermination of your U. Amending 2010 tax return S. Amending 2010 tax return tax liability is required if any of the following conditions apply. Amending 2010 tax return The accrued taxes when paid differ from the amounts claimed as a credit. Amending 2010 tax return 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. Amending 2010 tax return If this applies to you, you must reduce the credit previously claimed by the amount of the unpaid taxes. Amending 2010 tax return You will not be allowed a credit for the unpaid taxes until you pay them. Amending 2010 tax return When you pay the accrued taxes, a new foreign tax redetermination occurs and you must translate the taxes into U. Amending 2010 tax return S. Amending 2010 tax return dollars using the exchange rate as of the date they were paid. Amending 2010 tax return The foreign tax credit is allowed for the year to which the foreign tax relates. Amending 2010 tax return See Rate of exchange for foreign taxes paid , earlier, under Foreign Currency and Exchange Rates. Amending 2010 tax return The foreign taxes you paid are refunded in whole or in part. Amending 2010 tax return 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. Amending 2010 tax return 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. Amending 2010 tax return S. Amending 2010 tax return tax year. Amending 2010 tax return In this case, you must adjust your U. Amending 2010 tax return S. Amending 2010 tax return tax in the tax year in which the accrued foreign taxes are paid. Amending 2010 tax return 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. Amending 2010 tax return S. Amending 2010 tax return tax liability for each tax year affected by the redetermination. Amending 2010 tax return In most cases, you must file Form 1040X, Amended U. Amending 2010 tax return S. Amending 2010 tax return Individual Income Tax Return, with a revised Form 1116 and a statement that contains information sufficient for the IRS to redetermine your U. Amending 2010 tax return S. Amending 2010 tax return tax liability for the year or years affected. Amending 2010 tax return See Contents of statement , later. Amending 2010 tax return 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. Amending 2010 tax return There are other exceptions to this requirement. Amending 2010 tax return They are discussed later under Due date of notification to IRS . Amending 2010 tax return Contents of statement. Amending 2010 tax return   The statement must include all of the following. Amending 2010 tax return Your name, address, and taxpayer identification number. Amending 2010 tax return The tax year or years that are affected by the foreign tax redetermination. Amending 2010 tax return The date or dates the foreign taxes were accrued, if applicable. Amending 2010 tax return The date or dates the foreign taxes were paid. Amending 2010 tax return The amount of foreign taxes paid or accrued on each date (in foreign currency) and the exchange rate used to translate each amount. Amending 2010 tax return 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. Amending 2010 tax return   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. Amending 2010 tax return   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). Amending 2010 tax return Due date of notification to IRS. Amending 2010 tax return   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. Amending 2010 tax return There is no limit on the time the IRS has to redetermine and assess the correct U. Amending 2010 tax return S. Amending 2010 tax return tax due. Amending 2010 tax return 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. Amending 2010 tax return S. Amending 2010 tax return taxes. Amending 2010 tax return See Time Limit on Refund Claims , later. Amending 2010 tax return   Exceptions to this due date are explained in the next two paragraphs. Amending 2010 tax return Multiple redeterminations of U. Amending 2010 tax return S. Amending 2010 tax return tax liability for same tax year. Amending 2010 tax return   Where more than one foreign tax redetermination requires a redetermination of U. Amending 2010 tax return S. Amending 2010 tax return 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. Amending 2010 tax return 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. Amending 2010 tax return However, foreign tax redeterminations with respect to the tax year for which a redetermination of U. Amending 2010 tax return S. Amending 2010 tax return tax liability is required may occur after the due date for providing that notification. Amending 2010 tax return In this situation, you may have to file more than one Form 1040X for that tax year. Amending 2010 tax return Additional U. Amending 2010 tax return S. Amending 2010 tax return tax due eliminated by foreign tax credit carryback or carryover. Amending 2010 tax return   If a foreign tax redetermination requires a redetermination of U. Amending 2010 tax return S. Amending 2010 tax return tax liability that would otherwise result in an additional amount of U. Amending 2010 tax return S. Amending 2010 tax return 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. Amending 2010 tax return 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. Amending 2010 tax return You must file the statement by the due date (with extensions) of that return. Amending 2010 tax return 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. Amending 2010 tax return S. Amending 2010 tax return tax liability is required). Amending 2010 tax return Failure-to-notify penalty. Amending 2010 tax return   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. Amending 2010 tax return   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. Amending 2010 tax return S. Amending 2010 tax return tax. Amending 2010 tax return This penalty cannot be more than 25% of the tax due. Amending 2010 tax return Foreign tax refund. Amending 2010 tax return   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. Amending 2010 tax return S. Amending 2010 tax return tax for the time before the date of the refund. Amending 2010 tax return   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. Amending 2010 tax return 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. Amending 2010 tax return Interest also is owed from the time you receive a refund until you pay the additional tax due. Amending 2010 tax return Foreign tax imposed on foreign refund. Amending 2010 tax return   If your foreign tax refund is taxed by the foreign country, you cannot take a separate credit or deduction for this additional foreign tax. Amending 2010 tax return 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. Amending 2010 tax return Example. Amending 2010 tax return 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. Amending 2010 tax return When you refigure your credit for 2011, you must reduce the $3,000 you paid by $400. Amending 2010 tax return Time Limit on Refund Claims You have 10 years to file a claim for refund of U. Amending 2010 tax return S. Amending 2010 tax return tax if you find that you paid or accrued a larger foreign tax than you claimed a credit for. Amending 2010 tax return 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. Amending 2010 tax return You have 10 years to file your claim regardless of whether you claim the credit for taxes paid or taxes accrued. Amending 2010 tax return 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). Amending 2010 tax return The special 10-year period also applies to making or changing your choice to claim a deduction or credit for foreign taxes. Amending 2010 tax return See Making or Changing Your Choice discussed earlier under Choosing To Take Credit or Deduction. Amending 2010 tax return Who Can Take the Credit? U. Amending 2010 tax return S. Amending 2010 tax return citizens, resident aliens, and nonresident aliens who paid foreign income tax and are subject to U. Amending 2010 tax return S. Amending 2010 tax return tax on foreign source income may be able to take a foreign tax credit. Amending 2010 tax return U. Amending 2010 tax return S. Amending 2010 tax return Citizens If you are a U. Amending 2010 tax return S. Amending 2010 tax return citizen, you are taxed by the United States on your worldwide income wherever you live. Amending 2010 tax return You are normally entitled to take a credit for foreign taxes you pay or accrue. Amending 2010 tax return 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. Amending 2010 tax return S. Amending 2010 tax return citizens. Amending 2010 tax return If you are a bona fide resident of Puerto Rico for the entire tax year, you also come under the same rules. Amending 2010 tax return 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. Amending 2010 tax return For information on alien status, see Publication 519. Amending 2010 tax return Nonresident Aliens If you are a nonresident alien, you cannot take the credit in most cases. Amending 2010 tax return 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. Amending 2010 tax return S. Amending 2010 tax return possession on income from foreign sources that is effectively connected with a trade or business in the United States. Amending 2010 tax return But if you must pay tax to a foreign country or U. Amending 2010 tax return S. Amending 2010 tax return possession on income from U. Amending 2010 tax return S. Amending 2010 tax return sources only because you are a citizen or a resident of that country or U. Amending 2010 tax return S. Amending 2010 tax return possession, do not use that tax in figuring the amount of your credit. Amending 2010 tax return For information on alien status and effectively connected income, see Publication 519. Amending 2010 tax return 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. Amending 2010 tax return The tax must be imposed on you. Amending 2010 tax return You must have paid or accrued the tax. Amending 2010 tax return The tax must be the legal and actual foreign tax liability. Amending 2010 tax return The tax must be an income tax (or a tax in lieu of an income tax). Amending 2010 tax return Certain foreign taxes do not qualify for the credit even if the four tests are met. Amending 2010 tax return See Foreign Taxes for Which You Cannot Take a Credit, later. Amending 2010 tax return 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. Amending 2010 tax return S. Amending 2010 tax return possession. Amending 2010 tax return For example, a tax that is deducted from your wages is considered to be imposed on you. Amending 2010 tax return You cannot shift the right to claim the credit by contract or other means. Amending 2010 tax return Foreign country. Amending 2010 tax return   A foreign country includes any foreign state and its political subdivisions. Amending 2010 tax return Income, war profits, and excess profits taxes paid or accrued to a foreign city or province qualify for the foreign tax credit. Amending 2010 tax return U. Amending 2010 tax return S. Amending 2010 tax return possessions. Amending 2010 tax return   For foreign tax credit purposes, all qualified taxes paid to U. Amending 2010 tax return S. Amending 2010 tax return possessions are considered foreign taxes. Amending 2010 tax return For this purpose, U. Amending 2010 tax return S. Amending 2010 tax return possessions include Puerto Rico and American Samoa. Amending 2010 tax return   When the term “foreign country” is used in this publication, it includes U. Amending 2010 tax return S. Amending 2010 tax return possessions unless otherwise stated. Amending 2010 tax return 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. Amending 2010 tax return S. Amending 2010 tax return possession. Amending 2010 tax return 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. Amending 2010 tax return Joint return. Amending 2010 tax return   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. Amending 2010 tax return Combined income. Amending 2010 tax return   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. Amending 2010 tax return 901-2(f)(3)(iii). Amending 2010 tax return 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. Amending 2010 tax return   These rules apply to foreign taxes paid or accrued in tax years beginning after February 14, 2012. Amending 2010 tax return 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. Amending 2010 tax return For more details, see paragraphs (f) and (h) of Regulations section 1. Amending 2010 tax return 901-2. Amending 2010 tax return For similar rules applicable to prior tax years, see Regulations section 1. Amending 2010 tax return 901-2 (revised as of April 1, 2011). Amending 2010 tax return Example. Amending 2010 tax return You and your spouse reside in Country X, which imposes income tax on your combined incomes. Amending 2010 tax return Both of you use the “u” as your functional currency. Amending 2010 tax return Country X apportions tax based on income. Amending 2010 tax return You had income of 30,000u and your spouse had income of 20,000u. Amending 2010 tax return Your filing status on your U. Amending 2010 tax return S. Amending 2010 tax return income tax return is married filing separately. Amending 2010 tax return You can claim only 60% (30,000u/50,000u) of the foreign taxes imposed on your income on your U. Amending 2010 tax return S income tax return. Amending 2010 tax return Your spouse can claim only 40% (20,000u/50,000u). Amending 2010 tax return Partner or S corporation shareholder. Amending 2010 tax return   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. Amending 2010 tax return These amounts will be shown on the Schedule K-1 you receive from the partnership or S corporation. Amending 2010 tax return 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. Amending 2010 tax return Beneficiary. Amending 2010 tax return   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. Amending 2010 tax return This amount will be shown on the Schedule K-1 you receive from the estate or trust. Amending 2010 tax return However, you must show that the tax was imposed on income of the estate and not on income received by the decedent. Amending 2010 tax return Mutual fund shareholder. Amending 2010 tax return   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. Amending 2010 tax return 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. Amending 2010 tax return If you do not receive this information, you will need to contact the fund. Amending 2010 tax return Controlled foreign corporation shareholder. Amending 2010 tax return   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. Amending 2010 tax return If you make this election, you must claim the credit by filing Form 1118, Foreign Tax Credit—Corporations. Amending 2010 tax return Controlled foreign corporation. Amending 2010 tax return   A controlled foreign corporation is a foreign corporation in which U. Amending 2010 tax return S. Amending 2010 tax return shareholders own more than 50% of the voting power or value of the stock. Amending 2010 tax return You are considered a U. Amending 2010 tax return S. Amending 2010 tax return shareholder if you own, directly or indirectly, 10% or more of the total voting power of all classes of the foreign corporation's stock. Amending 2010 tax return See Internal Revenue Code sections 951(b) and 958(b) for more information. Amending 2010 tax return 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. Amending 2010 tax return Only the legal and actual foreign tax liability that you paid or accrued during the year qualifies for the credit. Amending 2010 tax return Foreign tax refund. Amending 2010 tax return   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. Amending 2010 tax return   For example, the United States has tax treaties with many countries allowing U. Amending 2010 tax return S. Amending 2010 tax return citizens and residents reductions in the rates of tax of those foreign countries. Amending 2010 tax return However, some treaty countries require U. Amending 2010 tax return S. Amending 2010 tax return 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. Amending 2010 tax return 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. Amending 2010 tax return Subsidy received. Amending 2010 tax return   Tax payments a foreign country returns to you in the form of a subsidy do not qualify for the foreign tax credit. Amending 2010 tax return 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. Amending 2010 tax return 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. Amending 2010 tax return   The term “subsidy” includes any type of benefit. Amending 2010 tax return Some ways of providing a subsidy are refunds, credits, deductions, payments, or discharges of obligations. Amending 2010 tax return Shareholder receiving refund for corporate tax in integrated system. Amending 2010 tax return   Under some foreign tax laws and treaties, a shareholder is considered to have paid part of the tax that is imposed on the corporation. Amending 2010 tax return You may be able to claim a refund of these taxes from the foreign government. Amending 2010 tax return You must include the refund (including any amount withheld) in your income in the year received. Amending 2010 tax return Any tax withheld from the refund is a qualified foreign tax. Amending 2010 tax return Example. Amending 2010 tax return You are a shareholder of a French corporation. Amending 2010 tax return You receive a $100 refund of the tax paid to France by the corporation on the earnings distributed to you as a dividend. Amending 2010 tax return The French government imposes a 15% withholding tax ($15) on the refund you received. Amending 2010 tax return You receive a check for $85. Amending 2010 tax return You include $100 in your income. Amending 2010 tax return The $15 of tax withheld is a qualified foreign tax. Amending 2010 tax return 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. Amending 2010 tax return Foreign taxes on wages, dividends, interest, and royalties qualify for the credit in most cases. Amending 2010 tax return 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. Amending 2010 tax return See Taxes in Lieu of Income Taxes , later. Amending 2010 tax return 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. Amending 2010 tax return A foreign levy is an income tax only if it meets both of the following requirements. Amending 2010 tax return It is a tax; that is, you have to pay it and you get no specific economic benefit (discussed below) from paying it. Amending 2010 tax return The predominant character of the tax is that of an income tax in the U. Amending 2010 tax return S. Amending 2010 tax return sense. Amending 2010 tax return A foreign levy may meet these requirements even if the foreign tax law differs from U. Amending 2010 tax return S. Amending 2010 tax return tax law. Amending 2010 tax return The foreign law may include in income items that U. Amending 2010 tax return S. Amending 2010 tax return law does not include, or it may allow certain exclusions or deductions that U. Amending 2010 tax return S. Amending 2010 tax return law does not allow. Amending 2010 tax return Specific economic benefit. Amending 2010 tax return   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. Amending 2010 tax return   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. Amending 2010 tax return   However, see the exception discussed later under Pension, unemployment, and disability fund payments . Amending 2010 tax return Economic benefits. Amending 2010 tax return   Economic benefits include the following. Amending 2010 tax return Goods. Amending 2010 tax return Services. Amending 2010 tax return Fees or other payments. Amending 2010 tax return Rights to use, acquire, or extract resources, patents, or other property the foreign country owns or controls. Amending 2010 tax return Discharges of contractual obligations. Amending 2010 tax return   In most cases, the right or privilege merely to engage in business is not an economic benefit. Amending 2010 tax return Dual-capacity taxpayers. Amending 2010 tax return   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. Amending 2010 tax return ” 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. Amending 2010 tax return    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. Amending 2010 tax return   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. Amending 2010 tax return    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. Amending 2010 tax return For more information about these agreements, see Publication 54. Amending 2010 tax return Soak-up taxes. Amending 2010 tax return   A foreign tax is not predominantly an income tax and does not qualify for credit to the extent it is a soak-up tax. Amending 2010 tax return 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. Amending 2010 tax return This rule applies only if and to the extent that the foreign tax would not be imposed if the credit were not available. Amending 2010 tax return Penalties and interest. Amending 2010 tax return   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. Amending 2010 tax return Taxes not based on income. Amending 2010 tax return   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. Amending 2010 tax return Taxes based on assets, such as property taxes, do not qualify for the credit. Amending 2010 tax return 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. Amending 2010 tax return 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. Amending 2010 tax return A tax in lieu of an income tax does not have to be based on realized net income. Amending 2010 tax return A foreign tax imposed on gross income, gross receipts or sales, or the number of units produced or exported can qualify for the credit. Amending 2010 tax return In most cases, a soak-up tax (discussed earlier) does not qualify as a tax in lieu of an income tax. Amending 2010 tax return 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. Amending 2010 tax return The soak-up tax. Amending 2010 tax return 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. Amending 2010 tax return Foreign Taxes for Which You Cannot Take a Credit This part discusses the foreign taxes for which you cannot take a credit. Amending 2010 tax return 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. Amending 2010 tax return S. Amending 2010 tax return persons controlling foreign corporations and partnerships who fail to file required information returns, and Taxes related to a foreign tax splitting event. Amending 2010 tax return Taxes on Excluded Income You cannot take a credit for foreign taxes paid or accrued on certain income that is excluded from U. Amending 2010 tax return S. Amending 2010 tax return gross income. Amending 2010 tax return 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. Amending 2010 tax return S. Amending 2010 tax return income under the foreign earned income exclusion or the foreign housing exclusion. Amending 2010 tax return See Publication 54 for more information on the foreign earned income and housing exclusions. Amending 2010 tax return Wages completely excluded. Amending 2010 tax return   If your wages are completely excluded, you cannot take a credit for any of the foreign taxes paid or accrued on these wages. Amending 2010 tax return Wages partly excluded. Amending 2010 tax return   If only part of your wages is excluded, you cannot take a credit for the foreign income taxes allocable to the excluded part. Amending 2010 tax return 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. Amending 2010 tax return   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. Amending 2010 tax return Deductible expenses do not include the foreign housing deduction. Amending 2010 tax return   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). Amending 2010 tax return If the foreign law taxes foreign earned income and some other income (for example, earned income from U. Amending 2010 tax return S. Amending 2010 tax return sources or a type of income not subject to U. Amending 2010 tax return S. Amending 2010 tax return 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. Amending 2010 tax return Example. Amending 2010 tax return You are a U. Amending 2010 tax return S. Amending 2010 tax return citizen and a cash basis taxpayer, employed by Company X and living in Country A. Amending 2010 tax return 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. Amending 2010 tax return To find that part, do the following. Amending 2010 tax return First, find the amount of business expenses allocable to excluded wages and therefore not deductible. Amending 2010 tax return To do this, multiply the otherwise deductible expenses by a fraction. Amending 2010 tax return That fraction is the excluded wages over your foreign earned income. Amending 2010 tax return   $20,000 × $97,600 $125,000 = $15,616             Next, find the numerator of the fraction by which you will multiply the foreign taxes paid. Amending 2010 tax return To do this, subtract business expenses allocable to excluded wages ($15,616) from excluded wages ($97,600). Amending 2010 tax return The result is $81,984. Amending 2010 tax return 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). Amending 2010 tax return Finally, multiply the foreign tax you paid by the resulting fraction. Amending 2010 tax return   $30,000 × $81,984  $105,000 = $23,424 The amount of Country A tax you cannot take a credit for is $23,424. Amending 2010 tax return Taxes on Income From Puerto Rico Exempt From U. Amending 2010 tax return S. Amending 2010 tax return 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. Amending 2010 tax return For information on figuring the reduction, see Publication 570. Amending 2010 tax return 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. Amending 2010 tax return For more information on this exclusion, see Publication 570. Amending 2010 tax return Extraterritorial Income Exclusion You cannot take a credit for taxes you pay on qualifying foreign trade income excluded on Form 8873, Extraterritorial Income Exclusion. Amending 2010 tax return However, see Internal Revenue Code section 943(d) for an exception for certain withholding taxes. Amending 2010 tax return 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. Amending 2010 tax return However, you can claim an itemized deduction for these taxes. Amending 2010 tax return See Choosing To Take Credit or Deduction , earlier. Amending 2010 tax return 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. Amending 2010 tax return The following countries meet this description for 2013. Amending 2010 tax return Income taxes paid or accrued to these countries in 2013 do not qualify for the credit. Amending 2010 tax return Cuba. Amending 2010 tax return Iran. Amending 2010 tax return Libya (but see Note later). Amending 2010 tax return North Korea. Amending 2010 tax return Sudan. Amending 2010 tax return Syria. Amending 2010 tax return Waiver of denial of the credit. Amending 2010 tax return   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. Amending 2010 tax return S. Amending 2010 tax return companies in the sanctioned country. Amending 2010 tax return 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. Amending 2010 tax return Note. Amending 2010 tax return Effective December 10, 2004, the President granted a waiver to Libya. Amending 2010 tax return Income taxes arising on or after this date qualify for the credit if they meet the other requirements in this publication. Amending 2010 tax return Limit on credit. Amending 2010 tax return   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. Amending 2010 tax return You must fill out a separate Form 1116 for this income. Amending 2010 tax return This will prevent you from claiming a credit for foreign taxes paid or accrued to the sanctioned country. Amending 2010 tax return Example. Amending 2010 tax return You lived and worked in Iran until August, when you were transferred to Italy. Amending 2010 tax return You paid taxes to each country on the income earned in that country. Amending 2010 tax return You cannot claim a foreign tax credit for the foreign taxes paid on the income earned in Iran. Amending 2010 tax return Because the income earned in Iran is a separate category of foreign income, you must fill out a separate Form 1116 for that income. Amending 2010 tax return You cannot take a credit for taxes paid on the income earned in Iran, but that income is taxable by the United States. Amending 2010 tax return Figuring the credit when a sanction ends. Amending 2010 tax return    Table 1 lists the countries for which sanctions have ended or for which a Presidential waiver has been granted. Amending 2010 tax return 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. Amending 2010 tax return Example. Amending 2010 tax return The sanctions against Country X ended on July 31. Amending 2010 tax return On August 19, you receive a distribution from a mutual fund of Country X income. Amending 2010 tax return The fund paid Country X income tax for you on the distribution. Amending 2010 tax return 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. Amending 2010 tax return Amounts for the nonsanctioned period. Amending 2010 tax return   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. Amending 2010 tax return Multiply the income or taxes for the year by the following fraction to determine the amounts allocable to that period. Amending 2010 tax return   Number of nonsanctioned days in year  Number of days in year Example. Amending 2010 tax return 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. Amending 2010 tax return Sanctions against Country X ended on July 11, 2013. Amending 2010 tax return You are unable to determine how much of the income or tax is for the nonsanctioned period. Amending 2010 tax return 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. Amending 2010 tax return You would compute the income for the nonsanctioned period as follows. Amending 2010 tax return 173 365 × $20,000 = $9,479             You would figure the tax for the nonsanctioned period as follows. Amending 2010 tax return 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. Amending 2010 tax return Further information. Amending 2010 tax return   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. Amending 2010 tax return This Cumulative Bulletin can be found in many libraries and IRS offices. Amending 2010 tax return Table 1. Amending 2010 tax return 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. Amending 2010 tax return 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. Amending 2010 tax return 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). Amending 2010 tax return 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. Amending 2010 tax return If the dividend is not for more than 366 days, rule (1) applies to the preferred stock. Amending 2010 tax return 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. Amending 2010 tax return 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. Amending 2010 tax return Withholding tax. Amending 2010 tax return   For this purpose, withholding tax includes any tax determined on a gross basis. Amending 2010 tax return It does not include any tax which is in the nature of a prepayment of a tax imposed on a net basis. Amending 2010 tax return Ex-dividend date. Amending 2010 tax return   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. Amending 2010 tax return Example 1. Amending 2010 tax return You bought common stock from a foreign corporation on November 3. Amending 2010 tax return You sold the stock on November 19. Amending 2010 tax return You received a dividend on this stock because you owned it on the ex-dividend date of November 5. Amending 2010 tax return 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). Amending 2010 tax return Because you held the stock for 16 days, from November 4 until November 19, you are entitled to the credit. Amending 2010 tax return Example 2. Amending 2010 tax return The facts are the same as in Example 1 except that you sold the stock on November 14. Amending 2010 tax return You held the stock for only 11 days. Amending 2010 tax return You are not entitled to the credit. Amending 2010 tax return Exception. Amending 2010 tax return   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. Amending 2010 tax return See section 901(k)(4) of the Internal Revenue Code for more information. Amending 2010 tax return 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. Amending 2010 tax return 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. Amending 2010 tax return Withholding tax. Amending 2010 tax return   For this purpose, withholding tax includes any tax determined on a gross basis. Amending 2010 tax return It does not include any tax which is in the nature of a prepayment of a tax imposed on a net basis. Amending 2010 tax return Exception for dealers. Amending 2010 tax return   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. Amending 2010 tax return See section 901(I)(2) of the Internal Revenue Code for more information. Amending 2010 tax return 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. Amending 2010 tax return A covered asset acquisition includes certain acquisitions that result in a stepped-up basis for U. Amending 2010 tax return S. Amending 2010 tax return tax purposes but not for foreign tax purposes. Amending 2010 tax return For more information, see Internal Revenue Code section 901(m). Amending 2010 tax return The IRS intends to issue guidance that will explain this provision in greater detail. Amending 2010 tax return 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. Amending 2010 tax return 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. Amending 2010 tax return For details, see Regulations section 1. Amending 2010 tax return 901-3. Amending 2010 tax return 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. Amending 2010 tax return See the instructions for line 12 in the Form 1116 instructions to figure this reduction. Amending 2010 tax return 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. Amending 2010 tax return List of boycotting countries. Amending 2010 tax return   A list of the countries which may require participation in or cooperation with an international boycott is published by the Department of the Treasury. Amending 2010 tax return As of November 2013, the following countries are listed. Amending 2010 tax return Iraq. Amending 2010 tax return Kuwait. Amending 2010 tax return Lebanon. Amending 2010 tax return Libya. Amending 2010 tax return Qatar. Amending 2010 tax return Saudi Arabia. Amending 2010 tax return Syria. Amending 2010 tax return United Arab Emirates. Amending 2010 tax return Yemen. Amending 2010 tax return    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. Amending 2010 tax return   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. Amending 2010 tax return The procedures for obtaining a determination from the Service are outlined in Revenue Procedure 77-9 in Cumulative Bulletin 1977-1. Amending 2010 tax return Cumulative Bulletins are available in most IRS offices and you are welcome to read them there. Amending 2010 tax return Public inspection. Amending 2010 tax return   A determination and any related background file is open to public inspection. Amending 2010 tax return However, your identity and certain other information will remain confidential. Amending 2010 tax return Reporting requirements. Amending 2010 tax return   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. Amending 2010 tax return 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. Amending 2010 tax return A partnership in which you are a partner. Amending 2010 tax return A trust you are treated as owning. Amending 2010 tax return Form 5713 required. Amending 2010 tax return   If you have to file a report, you must use Form 5713, International Boycott Report, and attach all supporting schedules. Amending 2010 tax return See the Instructions for Form 5713 for information on when and where to file the form. Amending 2010 tax return Penalty for failure to file. Amending 2010 tax return   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. Amending 2010 tax return 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. Amending 2010 tax return 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. Amending 2010 tax return S. Amending 2010 tax return tax liability (Form 1040, line 44) divided by your worldwide taxable income. Amending 2010 tax return You may be entitled to carry over to other years taxes reduced under this rule. Amending 2010 tax return See Internal Revenue Code section 907(f). Amending 2010 tax return Combined foreign oil and gas income means the sum of foreign oil related income and foreign oil and gas extraction income. Amending 2010 tax return Foreign oil and gas taxes are the sum of foreign oil and gas extraction taxes and foreign oil related taxes. Amending 2010 tax return Taxes of U. Amending 2010 tax return S. Amending 2010 tax return 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. Amending 2010 tax return 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. Amending 2010 tax return See Penalty for not filing Form 5471 or Form 8865 , later. Amending 2010 tax return U. Amending 2010 tax return S. Amending 2010 tax return persons controlling foreign corporations. Amending 2010 tax return   If you are a U. Amending 2010 tax return S. Amending 2010 tax return 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. Amending 2010 tax return S. Amending 2010 tax return Persons With Respect To Certain Foreign Corporations. Amending 2010 tax return 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. Amending 2010 tax return U. Amending 2010 tax return S. Amending 2010 tax return persons controlling foreign partnerships. Amending 2010 tax return   If you are a U. Amending 2010 tax return S. Amending 2010 tax return citizen or resident who had control of a foreign partnership at any time during the partnership's tax year, you may have to file