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Tax Forms For Students

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Tax Forms For Students

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

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