Filing Your Taxes Online is Fast, Easy and Secure.
Start now and receive your tax refund in as little as 7 days.

1. Get Answers

Your online questions are customized to your unique tax situation.

2. Maximize your Refund

Find tax credits for everything from school tuition to buying a hybri

3. E-File for FREE

E-file free with direct deposit to get your refund in as few as 7 days.

Filing your taxes with paper mail can be difficult and it could take weeks for your refund to arrive. IRS e-file is easy, fast and secure. There is no paperwork going to the IRS so tax refunds can be processed in as little as 7 days with direct deposit. As you prepare your taxes online, you can see your tax refund in real time.

FREE audit support and representation from an enrolled agent – NEW and only from H&R Block

1041ez

1040 Tax Forms For 2011Amended Tax FormIrs 1040ez OnlineWww HrblockFile Federal And State Taxes FreeFiling 2010 Taxes LateFile 2009 Taxes OnlineFree State Filing OnlyFree H And R Block Online1040 Ez Form OnlineForm 1040ezHow Can I Amend My 2012 Tax ReturnFile Amended Tax Return 2010How To Do State Taxes For Free2013 State Tax Forms1040x Amended FormFiling Back TaxesIncome Tax Form 10402011 Taxes File2011 Tax Returns1040ez Free FileFree 2011 Tax FilingAmend Tax ReturnFiling 1040nrHow To Fill Out Amended Tax Form1040x Fillable FormIrs File Taxes OnlineFree Tax Preparation For Military1040ez Filing OnlineFiling 1040nr OnlineWww Irs Gov EitcIrs 1040 Form2014 Form 1040ezIrs Form 1040ez Instructions2011 Tax Forms Ez104ezTax Forms EzForm 1040x InstructionsHow To Amend 2012 Federal Tax ReturnHow To Amend My 2010 Tax Return

1041ez

1041ez Index Symbols $10,000, pagos en efectivo en exceso de, Introducción A Asistencia (see Ayuda con los impuestos) Ayuda (see Ayuda con los impuestos) Ayuda con los impuestos, Cómo Obtener Ayuda con los Impuestos D Defensor del Contribuyente, Servicio del Defensor del Contribuyente. 1041ez F Formulario, ¿Quién tiene que presentar el Formulario 8300-SP? 8300-SP, ¿Quién tiene que presentar el Formulario 8300-SP? I Información adicional (see Ayuda con los impuestos) Informe de pagos en efectivo en exceso de $10,000, Introducción P Publicaciones (see Ayuda con los impuestos) Q Qué Hay de Nuevo, Qué Hay de Nuevo S Servicios gratuitos para los impuestos, Servicios gratuitos para los impuestos. 1041ez T Transacciones en efectivo en exceso de $10,000, Introducción Prev  Up     Home   More Online Publications
Print - Click this link to Print this page

Why is CI Involved in Identity Theft?

IRS Criminal Investigation (CI) detects and investigates tax fraud and other financial fraud, including fraud related to identity theft. Identity theft is most likely to occur in our Questionable Refund Program (QRP) area where individual identities are stolen with the intent to file false returns claiming tax refunds. Additional areas involving identity theft include employment tax cases, abusive return preparer schemes, and narcotics and money laundering investigations.

CI has four Scheme Development Centers (SDCs) across the country whose primary mission is detecting refund fraud. These SDCs have uncovered numerous identity theft related schemes. These schemes are forwarded to one of CI’s 26 field offices for criminal investigation and/or to our civil counterparts to resolve victim accounts. After CI completes the initial evidence gathering of our investigations, we recommend prosecution of refund fraud, to include identity theft, when appropriate, to United States Attorney’s Offices nationwide.  Specifically, we recommend Title 18 U.S.C. §1028, which is commonly referred to as the Identity Fraud Statute, when the evidence supports it.  Per IRS policy (Internal Revenue Manual section 9.5.3.3.11.1), the identity fraud statute is not intended to be a stand-alone violation, but rather used as a companion charge when it enhances the overall substantive tax, money laundering, and/or conspiracy charges.  As a result, CI generally pairs Title 18 U.S.C. §1028 with other substantive tax or tax-related charges.

In addition to detecting and investigating identity theft-related refund fraud, Criminal Investigation participates in the Department of Justice’s Identity Theft Interagency Working Group. Our field offices also participate with other federal, state and local law enforcement agencies on joint investigative efforts involving identity theft.

Statistical Data - Identity Theft Schemes
Enforcement statistics on investigations initiated, prosecutions recommended, indictments, sentenced investigations, and months to serve in prison.

Examples of Identity Theft Schemes
Examples have been written from public record documents filed in the district courts where the case was prosecuted.

Enforcement Actions Taken on Identity Theft Investigations - During the month of January 2013, Criminal Investigation took a number of enforcement actions against individuals involved in Identity Theft crimes

Identity Theft - Be alert to possible identity theft issues.

 


Criminal Enforcement Home Page

 

Page Last Reviewed or Updated: 30-Oct-2013

The 1041ez

1041ez 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. 1041ez S. 1041ez 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. 1041ez S. 1041ez 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. 1041ez S. 1041ez 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. 1041ez Employee business expenses. 1041ez 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. 1041ez You can change your choice for each year's taxes. 1041ez To choose the foreign tax credit, in most cases you must complete Form 1116 and attach it to your U. 1041ez S. 1041ez tax return. 1041ez However, you may qualify for the exception that allows you to claim the foreign tax credit without using Form 1116. 1041ez See How To Figure the Credit , later. 1041ez To choose to claim the taxes as an itemized deduction, use Schedule A (Form 1040), Itemized Deductions. 1041ez Figure your tax both ways—claiming the credit and claiming the deduction. 1041ez Then fill out your return the way that benefits you more. 1041ez See Why Choose the Credit, later. 1041ez 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. 1041ez If you choose to take a credit for qualified foreign taxes, you must take the credit for all of them. 1041ez You cannot deduct any of them. 1041ez Conversely, if you choose to deduct qualified foreign taxes, you must deduct all of them. 1041ez You cannot take a credit for any of them. 1041ez See What Foreign Taxes Qualify for the Credit , later, for the meaning of qualified foreign taxes. 1041ez There are exceptions to this general rule, which are described next. 1041ez Exceptions for foreign taxes not allowed as a credit. 1041ez   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. 1041ez Covered asset acquisitions include certain acquisitions that result in a stepped-up basis for U. 1041ez S. 1041ez tax purposes. 1041ez For more information, see Internal Revenue Code section 901(m). 1041ez The IRS intends to issue guidance that will explain this provision in greater detail. 1041ez   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. 1041ez Foreign taxes that are not income taxes. 1041ez   In most cases, only foreign income taxes qualify for the foreign tax credit. 1041ez Other taxes, such as foreign real and personal property taxes, do not qualify. 1041ez But you may be able to deduct these other taxes even if you claim the foreign tax credit for foreign income taxes. 1041ez   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. 1041ez However, you can deduct foreign real property taxes that are not trade or business expenses as an itemized deduction on Schedule A (Form 1040). 1041ez Carrybacks and carryovers. 1041ez   There is a limit on the credit you can claim in a tax year. 1041ez 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. 1041ez If you deduct qualified foreign taxes in a tax year, you cannot use a carryback or carryover in that year. 1041ez That is because you cannot take both a deduction and a credit for qualified foreign taxes in the same tax year. 1041ez   For more information on the limit, see How To Figure the Credit , later. 1041ez For more information on carrybacks and carryovers, see Carryback and Carryover , later. 1041ez 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. 1041ez You make or change your choice on your tax return (or on an amended return) for the year your choice is to be effective. 1041ez Example. 1041ez You paid foreign taxes for the last 13 years and chose to deduct them on your U. 1041ez S. 1041ez income tax returns. 1041ez You were timely in both filing your returns and paying your U. 1041ez S. 1041ez tax liability. 1041ez 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. 1041ez Because the regular due date of your 2002 return was April 15, 2003, this choice is timely (within 10 years). 1041ez Because there is a limit on the credit for your 2002 foreign tax, you have unused 2002 foreign taxes. 1041ez Ordinarily, you first carry back unused foreign taxes arising in 2002 to, and claim them as a credit in, the 2 preceding tax years. 1041ez 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. 1041ez 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. 1041ez 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. 1041ez 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. 1041ez 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. 1041ez See Foreign Earned Income and Housing Exclusions under Foreign Taxes for Which You Cannot Take a Credit, later. 1041ez 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. 1041ez In most cases, if the foreign tax rate is higher than the U. 1041ez S. 1041ez rate, there will be no U. 1041ez S. 1041ez tax on the foreign income. 1041ez If the foreign tax rate is lower than the U. 1041ez S. 1041ez rate, U. 1041ez S. 1041ez tax on the foreign income will be limited to the difference between the rates. 1041ez The foreign tax credit can only reduce U. 1041ez S. 1041ez taxes on foreign source income; it cannot reduce U. 1041ez S. 1041ez taxes on U. 1041ez S. 1041ez source income. 1041ez 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. 1041ez This is because: A credit reduces your actual U. 1041ez S. 1041ez 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. 1041ez 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. 1041ez (See Limit on credit under How To Figure the Credit, later. 1041ez ) Example 1. 1041ez For 2013, you and your spouse have adjusted gross income of $80,300, including $20,000 of dividend income from foreign sources. 1041ez None of the dividends are qualified dividends. 1041ez You file a joint return and can claim two $3,900 exemptions. 1041ez You had to pay $2,000 in foreign income taxes on the dividend income. 1041ez If you take the foreign taxes as an itemized deduction, your total itemized deductions are $15,000. 1041ez Your taxable income then is $57,500 and your tax is $7,736. 1041ez If you take the credit instead, your itemized deductions are only $13,000. 1041ez Your taxable income then is $59,500 and your tax before the credit is $8,036. 1041ez After the credit, however, your tax is only $6,036. 1041ez Therefore, your tax is $1,700 lower ($7,736 − $6,036) by taking the credit. 1041ez Example 2. 1041ez In 2013, you receive investment income of $5,000 from a foreign country, which imposes a tax of $1,500 on that income. 1041ez You report on your U. 1041ez S. 1041ez return this income as well as $56,000 of U. 1041ez S. 1041ez source wages and an allowable $49,000 partnership loss from a U. 1041ez S. 1041ez partnership. 1041ez Your share of the partnership's gross income is $25,000 and your share of its expenses is $74,000. 1041ez You are single, entitled to one $3,900 exemption, and have other itemized deductions of $6,850. 1041ez If you deduct the foreign tax on your U. 1041ez S. 1041ez 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. 1041ez 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. 1041ez You can take a credit of only $113 because of limits discussed later. 1041ez Your tax after the credit is $13 ($126 − $113), which is $13 more than if you deduct the foreign tax. 1041ez If you choose the credit, you will have unused foreign taxes of $1,387 ($1,500 − $113). 1041ez 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. 1041ez 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. 1041ez “Tax year” refers to the tax year for which your U. 1041ez S. 1041ez return is filed, not the tax year for which your foreign return is filed. 1041ez Accrual method of accounting. 1041ez   If you use an accrual method of accounting, you can claim the credit only in the year in which you accrue the tax. 1041ez 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. 1041ez   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. 1041ez Generally, this occurs on the last day of the tax year for which your foreign return is filed. 1041ez Contesting your foreign tax liability. 1041ez   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. 1041ez 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. 1041ez Once your liability is determined, the foreign tax credit is allowable for the year to which the foreign tax relates. 1041ez 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 . 1041ez You may have to post a bond. 1041ez   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. 1041ez   The IRS can request this bond at any time without regard to the Time Limit on Tax Assessment discussed later under Carryback and Carryover. 1041ez Cash method of accounting. 1041ez   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. 1041ez 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. 1041ez Choosing to take credit in the year taxes accrue. 1041ez   Even if you use the cash method of accounting, you can choose to take a credit for foreign taxes in the year they accrue. 1041ez You make the choice by checking the box in Part II of Form 1116. 1041ez 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. 1041ez   In addition, the choice to take the credit when foreign taxes accrue applies to all foreign taxes qualifying for the credit. 1041ez You cannot take a credit for some foreign taxes when paid and take a credit for others when accrued. 1041ez   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. 1041ez Credit based on taxes paid in earlier year. 1041ez   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. 1041ez Example. 1041ez Last year you took the credit based on taxes paid. 1041ez This year you chose to take the credit based on taxes accrued. 1041ez During the year you paid foreign income taxes owed for last year. 1041ez You also accrued foreign income taxes for this year that you did not pay by the end of the year. 1041ez 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. 1041ez Foreign Currency and Exchange Rates U. 1041ez S. 1041ez income tax is imposed on income expressed in U. 1041ez S. 1041ez dollars, while in most cases the foreign tax is imposed on income expressed in foreign currency. 1041ez Therefore, fluctuations in the value of the foreign currency relative to the U. 1041ez S. 1041ez dollar may affect the foreign tax credit. 1041ez Translating foreign currency into U. 1041ez S. 1041ez dollars. 1041ez   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. 1041ez S. 1041ez dollars. 1041ez How and when you do this depends on your functional currency. 1041ez In most cases, your functional currency is the U. 1041ez S. 1041ez dollar unless you are required to use the currency of a foreign country. 1041ez   You must make all federal income tax determinations in your functional currency. 1041ez The U. 1041ez S. 1041ez dollar is the functional currency for all taxpayers except some qualified business units. 1041ez A qualified business unit is a separate and clearly identified unit of a trade or business that maintains separate books and records. 1041ez Unless you are self-employed, your functional currency is the U. 1041ez S. 1041ez dollar. 1041ez   Even if you are self-employed and have a qualified business unit, your functional currency is the U. 1041ez S. 1041ez dollar if any of the following apply. 1041ez You conduct the business primarily in dollars. 1041ez The principal place of business is located in the United States. 1041ez You choose to or are required to use the dollar as your functional currency. 1041ez 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. 1041ez   If your functional currency is the U. 1041ez S. 1041ez dollar, you must immediately translate into dollars all items of income, expense, etc. 1041ez , that you receive, pay, or accrue in a foreign currency and that will affect computation of your income tax. 1041ez If there is more than one exchange rate, use the one that most properly reflects your income. 1041ez In most cases, you can get exchange rates from banks and U. 1041ez S. 1041ez Embassies. 1041ez   If your functional currency is not the U. 1041ez S. 1041ez dollar, make all income tax determinations in your functional currency. 1041ez At the end of the year, translate the results, such as income or loss, into U. 1041ez S. 1041ez dollars to report on your income tax return. 1041ez    For more information, write to: Internal Revenue Service International Section Philadelphia, PA 19255-0725 Rate of exchange for foreign taxes paid. 1041ez   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. 1041ez If your tax was withheld in foreign currency, use the rate of exchange in effect for the date on which the tax was withheld. 1041ez 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. 1041ez   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). 1041ez Exception. 1041ez   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. 1041ez This rule applies to accrued taxes relating to tax years beginning after 1997 and only under the following conditions. 1041ez The foreign taxes are paid on or after the first day of the tax year to which they relate. 1041ez The foreign taxes are paid not later than 2 years after the close of the tax year to which they relate. 1041ez The foreign tax liability is not denominated in an inflationary currency (defined in the Form 1116 instructions). 1041ez (This condition applies to taxes paid or accrued in tax years beginning after November 6, 2007. 1041ez )   For all other foreign taxes, you should use the exchange rate in effect on the date you paid them. 1041ez Election to use exchange rate on date paid. 1041ez   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. 1041ez If any of the accrued taxes are unpaid, you must translate them into U. 1041ez S. 1041ez dollars using the exchange rate on the last day of the U. 1041ez S. 1041ez tax year to which those taxes relate. 1041ez 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. 1041ez S. 1041ez dollar functional currency. 1041ez 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. 1041ez The election is available for tax years beginning after 2004. 1041ez 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. 1041ez Make the election by attaching a statement to the applicable tax return. 1041ez 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. 1041ez S. 1041ez dollar functional currency. 1041ez Foreign Tax Redetermination A foreign tax redetermination is any change in your foreign tax liability that may affect your U. 1041ez S. 1041ez foreign tax credit claimed. 1041ez 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. 1041ez If a foreign tax redetermination occurs, a redetermination of your U. 1041ez S. 1041ez tax liability is required if any of the following conditions apply. 1041ez The accrued taxes when paid differ from the amounts claimed as a credit. 1041ez 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. 1041ez If this applies to you, you must reduce the credit previously claimed by the amount of the unpaid taxes. 1041ez You will not be allowed a credit for the unpaid taxes until you pay them. 1041ez When you pay the accrued taxes, a new foreign tax redetermination occurs and you must translate the taxes into U. 1041ez S. 1041ez dollars using the exchange rate as of the date they were paid. 1041ez The foreign tax credit is allowed for the year to which the foreign tax relates. 1041ez See Rate of exchange for foreign taxes paid , earlier, under Foreign Currency and Exchange Rates. 1041ez The foreign taxes you paid are refunded in whole or in part. 1041ez 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. 1041ez 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. 1041ez S. 1041ez tax year. 1041ez In this case, you must adjust your U. 1041ez S. 1041ez tax in the tax year in which the accrued foreign taxes are paid. 1041ez 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. 1041ez S. 1041ez tax liability for each tax year affected by the redetermination. 1041ez In most cases, you must file Form 1040X, Amended U. 1041ez S. 1041ez Individual Income Tax Return, with a revised Form 1116 and a statement that contains information sufficient for the IRS to redetermine your U. 1041ez S. 1041ez tax liability for the year or years affected. 1041ez See Contents of statement , later. 1041ez 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. 1041ez There are other exceptions to this requirement. 1041ez They are discussed later under Due date of notification to IRS . 1041ez Contents of statement. 1041ez   The statement must include all of the following. 1041ez Your name, address, and taxpayer identification number. 1041ez The tax year or years that are affected by the foreign tax redetermination. 1041ez The date or dates the foreign taxes were accrued, if applicable. 1041ez The date or dates the foreign taxes were paid. 1041ez The amount of foreign taxes paid or accrued on each date (in foreign currency) and the exchange rate used to translate each amount. 1041ez 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. 1041ez   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. 1041ez   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). 1041ez Due date of notification to IRS. 1041ez   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. 1041ez There is no limit on the time the IRS has to redetermine and assess the correct U. 1041ez S. 1041ez tax due. 1041ez 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. 1041ez S. 1041ez taxes. 1041ez See Time Limit on Refund Claims , later. 1041ez   Exceptions to this due date are explained in the next two paragraphs. 1041ez Multiple redeterminations of U. 1041ez S. 1041ez tax liability for same tax year. 1041ez   Where more than one foreign tax redetermination requires a redetermination of U. 1041ez S. 1041ez 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. 1041ez 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. 1041ez However, foreign tax redeterminations with respect to the tax year for which a redetermination of U. 1041ez S. 1041ez tax liability is required may occur after the due date for providing that notification. 1041ez In this situation, you may have to file more than one Form 1040X for that tax year. 1041ez Additional U. 1041ez S. 1041ez tax due eliminated by foreign tax credit carryback or carryover. 1041ez   If a foreign tax redetermination requires a redetermination of U. 1041ez S. 1041ez tax liability that would otherwise result in an additional amount of U. 1041ez S. 1041ez 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. 1041ez 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. 1041ez You must file the statement by the due date (with extensions) of that return. 1041ez 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. 1041ez S. 1041ez tax liability is required). 1041ez Failure-to-notify penalty. 1041ez   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. 1041ez   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. 1041ez S. 1041ez tax. 1041ez This penalty cannot be more than 25% of the tax due. 1041ez Foreign tax refund. 1041ez   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. 1041ez S. 1041ez tax for the time before the date of the refund. 1041ez   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. 1041ez 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. 1041ez Interest also is owed from the time you receive a refund until you pay the additional tax due. 1041ez Foreign tax imposed on foreign refund. 1041ez   If your foreign tax refund is taxed by the foreign country, you cannot take a separate credit or deduction for this additional foreign tax. 1041ez 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. 1041ez Example. 1041ez 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. 1041ez When you refigure your credit for 2011, you must reduce the $3,000 you paid by $400. 1041ez Time Limit on Refund Claims You have 10 years to file a claim for refund of U. 1041ez S. 1041ez tax if you find that you paid or accrued a larger foreign tax than you claimed a credit for. 1041ez 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. 1041ez You have 10 years to file your claim regardless of whether you claim the credit for taxes paid or taxes accrued. 1041ez 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). 1041ez The special 10-year period also applies to making or changing your choice to claim a deduction or credit for foreign taxes. 1041ez See Making or Changing Your Choice discussed earlier under Choosing To Take Credit or Deduction. 1041ez Who Can Take the Credit? U. 1041ez S. 1041ez citizens, resident aliens, and nonresident aliens who paid foreign income tax and are subject to U. 1041ez S. 1041ez tax on foreign source income may be able to take a foreign tax credit. 1041ez U. 1041ez S. 1041ez Citizens If you are a U. 1041ez S. 1041ez citizen, you are taxed by the United States on your worldwide income wherever you live. 1041ez You are normally entitled to take a credit for foreign taxes you pay or accrue. 1041ez 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. 1041ez S. 1041ez citizens. 1041ez If you are a bona fide resident of Puerto Rico for the entire tax year, you also come under the same rules. 1041ez 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. 1041ez For information on alien status, see Publication 519. 1041ez Nonresident Aliens If you are a nonresident alien, you cannot take the credit in most cases. 1041ez 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. 1041ez S. 1041ez possession on income from foreign sources that is effectively connected with a trade or business in the United States. 1041ez But if you must pay tax to a foreign country or U. 1041ez S. 1041ez possession on income from U. 1041ez S. 1041ez sources only because you are a citizen or a resident of that country or U. 1041ez S. 1041ez possession, do not use that tax in figuring the amount of your credit. 1041ez For information on alien status and effectively connected income, see Publication 519. 1041ez 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. 1041ez The tax must be imposed on you. 1041ez You must have paid or accrued the tax. 1041ez The tax must be the legal and actual foreign tax liability. 1041ez The tax must be an income tax (or a tax in lieu of an income tax). 1041ez Certain foreign taxes do not qualify for the credit even if the four tests are met. 1041ez See Foreign Taxes for Which You Cannot Take a Credit, later. 1041ez 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. 1041ez S. 1041ez possession. 1041ez For example, a tax that is deducted from your wages is considered to be imposed on you. 1041ez You cannot shift the right to claim the credit by contract or other means. 1041ez Foreign country. 1041ez   A foreign country includes any foreign state and its political subdivisions. 1041ez Income, war profits, and excess profits taxes paid or accrued to a foreign city or province qualify for the foreign tax credit. 1041ez U. 1041ez S. 1041ez possessions. 1041ez   For foreign tax credit purposes, all qualified taxes paid to U. 1041ez S. 1041ez possessions are considered foreign taxes. 1041ez For this purpose, U. 1041ez S. 1041ez possessions include Puerto Rico and American Samoa. 1041ez   When the term “foreign country” is used in this publication, it includes U. 1041ez S. 1041ez possessions unless otherwise stated. 1041ez 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. 1041ez S. 1041ez possession. 1041ez 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. 1041ez Joint return. 1041ez   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. 1041ez Combined income. 1041ez   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. 1041ez 901-2(f)(3)(iii). 1041ez 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. 1041ez   These rules apply to foreign taxes paid or accrued in tax years beginning after February 14, 2012. 1041ez 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. 1041ez For more details, see paragraphs (f) and (h) of Regulations section 1. 1041ez 901-2. 1041ez For similar rules applicable to prior tax years, see Regulations section 1. 1041ez 901-2 (revised as of April 1, 2011). 1041ez Example. 1041ez You and your spouse reside in Country X, which imposes income tax on your combined incomes. 1041ez Both of you use the “u” as your functional currency. 1041ez Country X apportions tax based on income. 1041ez You had income of 30,000u and your spouse had income of 20,000u. 1041ez Your filing status on your U. 1041ez S. 1041ez income tax return is married filing separately. 1041ez You can claim only 60% (30,000u/50,000u) of the foreign taxes imposed on your income on your U. 1041ez S income tax return. 1041ez Your spouse can claim only 40% (20,000u/50,000u). 1041ez Partner or S corporation shareholder. 1041ez   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. 1041ez These amounts will be shown on the Schedule K-1 you receive from the partnership or S corporation. 1041ez 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. 1041ez Beneficiary. 1041ez   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. 1041ez This amount will be shown on the Schedule K-1 you receive from the estate or trust. 1041ez However, you must show that the tax was imposed on income of the estate and not on income received by the decedent. 1041ez Mutual fund shareholder. 1041ez   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. 1041ez 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. 1041ez If you do not receive this information, you will need to contact the fund. 1041ez Controlled foreign corporation shareholder. 1041ez   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. 1041ez If you make this election, you must claim the credit by filing Form 1118, Foreign Tax Credit—Corporations. 1041ez Controlled foreign corporation. 1041ez   A controlled foreign corporation is a foreign corporation in which U. 1041ez S. 1041ez shareholders own more than 50% of the voting power or value of the stock. 1041ez You are considered a U. 1041ez S. 1041ez shareholder if you own, directly or indirectly, 10% or more of the total voting power of all classes of the foreign corporation's stock. 1041ez See Internal Revenue Code sections 951(b) and 958(b) for more information. 1041ez 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. 1041ez Only the legal and actual foreign tax liability that you paid or accrued during the year qualifies for the credit. 1041ez Foreign tax refund. 1041ez   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. 1041ez   For example, the United States has tax treaties with many countries allowing U. 1041ez S. 1041ez citizens and residents reductions in the rates of tax of those foreign countries. 1041ez However, some treaty countries require U. 1041ez S. 1041ez 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. 1041ez 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. 1041ez Subsidy received. 1041ez   Tax payments a foreign country returns to you in the form of a subsidy do not qualify for the foreign tax credit. 1041ez 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. 1041ez 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. 1041ez   The term “subsidy” includes any type of benefit. 1041ez Some ways of providing a subsidy are refunds, credits, deductions, payments, or discharges of obligations. 1041ez Shareholder receiving refund for corporate tax in integrated system. 1041ez   Under some foreign tax laws and treaties, a shareholder is considered to have paid part of the tax that is imposed on the corporation. 1041ez You may be able to claim a refund of these taxes from the foreign government. 1041ez You must include the refund (including any amount withheld) in your income in the year received. 1041ez Any tax withheld from the refund is a qualified foreign tax. 1041ez Example. 1041ez You are a shareholder of a French corporation. 1041ez You receive a $100 refund of the tax paid to France by the corporation on the earnings distributed to you as a dividend. 1041ez The French government imposes a 15% withholding tax ($15) on the refund you received. 1041ez You receive a check for $85. 1041ez You include $100 in your income. 1041ez The $15 of tax withheld is a qualified foreign tax. 1041ez 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. 1041ez Foreign taxes on wages, dividends, interest, and royalties qualify for the credit in most cases. 1041ez 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. 1041ez See Taxes in Lieu of Income Taxes , later. 1041ez 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. 1041ez A foreign levy is an income tax only if it meets both of the following requirements. 1041ez It is a tax; that is, you have to pay it and you get no specific economic benefit (discussed below) from paying it. 1041ez The predominant character of the tax is that of an income tax in the U. 1041ez S. 1041ez sense. 1041ez A foreign levy may meet these requirements even if the foreign tax law differs from U. 1041ez S. 1041ez tax law. 1041ez The foreign law may include in income items that U. 1041ez S. 1041ez law does not include, or it may allow certain exclusions or deductions that U. 1041ez S. 1041ez law does not allow. 1041ez Specific economic benefit. 1041ez   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. 1041ez   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. 1041ez   However, see the exception discussed later under Pension, unemployment, and disability fund payments . 1041ez Economic benefits. 1041ez   Economic benefits include the following. 1041ez Goods. 1041ez Services. 1041ez Fees or other payments. 1041ez Rights to use, acquire, or extract resources, patents, or other property the foreign country owns or controls. 1041ez Discharges of contractual obligations. 1041ez   In most cases, the right or privilege merely to engage in business is not an economic benefit. 1041ez Dual-capacity taxpayers. 1041ez   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. 1041ez ” 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. 1041ez    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. 1041ez   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. 1041ez    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. 1041ez For more information about these agreements, see Publication 54. 1041ez Soak-up taxes. 1041ez   A foreign tax is not predominantly an income tax and does not qualify for credit to the extent it is a soak-up tax. 1041ez 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. 1041ez This rule applies only if and to the extent that the foreign tax would not be imposed if the credit were not available. 1041ez Penalties and interest. 1041ez   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. 1041ez Taxes not based on income. 1041ez   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. 1041ez Taxes based on assets, such as property taxes, do not qualify for the credit. 1041ez 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. 1041ez 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. 1041ez A tax in lieu of an income tax does not have to be based on realized net income. 1041ez A foreign tax imposed on gross income, gross receipts or sales, or the number of units produced or exported can qualify for the credit. 1041ez In most cases, a soak-up tax (discussed earlier) does not qualify as a tax in lieu of an income tax. 1041ez 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. 1041ez The soak-up tax. 1041ez 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. 1041ez Foreign Taxes for Which You Cannot Take a Credit This part discusses the foreign taxes for which you cannot take a credit. 1041ez 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. 1041ez S. 1041ez persons controlling foreign corporations and partnerships who fail to file required information returns, and Taxes related to a foreign tax splitting event. 1041ez Taxes on Excluded Income You cannot take a credit for foreign taxes paid or accrued on certain income that is excluded from U. 1041ez S. 1041ez gross income. 1041ez 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. 1041ez S. 1041ez income under the foreign earned income exclusion or the foreign housing exclusion. 1041ez See Publication 54 for more information on the foreign earned income and housing exclusions. 1041ez Wages completely excluded. 1041ez   If your wages are completely excluded, you cannot take a credit for any of the foreign taxes paid or accrued on these wages. 1041ez Wages partly excluded. 1041ez   If only part of your wages is excluded, you cannot take a credit for the foreign income taxes allocable to the excluded part. 1041ez 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. 1041ez   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. 1041ez Deductible expenses do not include the foreign housing deduction. 1041ez   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). 1041ez If the foreign law taxes foreign earned income and some other income (for example, earned income from U. 1041ez S. 1041ez sources or a type of income not subject to U. 1041ez S. 1041ez 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. 1041ez Example. 1041ez You are a U. 1041ez S. 1041ez citizen and a cash basis taxpayer, employed by Company X and living in Country A. 1041ez 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. 1041ez To find that part, do the following. 1041ez First, find the amount of business expenses allocable to excluded wages and therefore not deductible. 1041ez To do this, multiply the otherwise deductible expenses by a fraction. 1041ez That fraction is the excluded wages over your foreign earned income. 1041ez   $20,000 × $97,600 $125,000 = $15,616             Next, find the numerator of the fraction by which you will multiply the foreign taxes paid. 1041ez To do this, subtract business expenses allocable to excluded wages ($15,616) from excluded wages ($97,600). 1041ez The result is $81,984. 1041ez 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). 1041ez Finally, multiply the foreign tax you paid by the resulting fraction. 1041ez   $30,000 × $81,984  $105,000 = $23,424 The amount of Country A tax you cannot take a credit for is $23,424. 1041ez Taxes on Income From Puerto Rico Exempt From U. 1041ez S. 1041ez 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. 1041ez For information on figuring the reduction, see Publication 570. 1041ez 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. 1041ez For more information on this exclusion, see Publication 570. 1041ez Extraterritorial Income Exclusion You cannot take a credit for taxes you pay on qualifying foreign trade income excluded on Form 8873, Extraterritorial Income Exclusion. 1041ez However, see Internal Revenue Code section 943(d) for an exception for certain withholding taxes. 1041ez 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. 1041ez However, you can claim an itemized deduction for these taxes. 1041ez See Choosing To Take Credit or Deduction , earlier. 1041ez 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. 1041ez The following countries meet this description for 2013. 1041ez Income taxes paid or accrued to these countries in 2013 do not qualify for the credit. 1041ez Cuba. 1041ez Iran. 1041ez Libya (but see Note later). 1041ez North Korea. 1041ez Sudan. 1041ez Syria. 1041ez Waiver of denial of the credit. 1041ez   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. 1041ez S. 1041ez companies in the sanctioned country. 1041ez 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. 1041ez Note. 1041ez Effective December 10, 2004, the President granted a waiver to Libya. 1041ez Income taxes arising on or after this date qualify for the credit if they meet the other requirements in this publication. 1041ez Limit on credit. 1041ez   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. 1041ez You must fill out a separate Form 1116 for this income. 1041ez This will prevent you from claiming a credit for foreign taxes paid or accrued to the sanctioned country. 1041ez Example. 1041ez You lived and worked in Iran until August, when you were transferred to Italy. 1041ez You paid taxes to each country on the income earned in that country. 1041ez You cannot claim a foreign tax credit for the foreign taxes paid on the income earned in Iran. 1041ez Because the income earned in Iran is a separate category of foreign income, you must fill out a separate Form 1116 for that income. 1041ez You cannot take a credit for taxes paid on the income earned in Iran, but that income is taxable by the United States. 1041ez Figuring the credit when a sanction ends. 1041ez    Table 1 lists the countries for which sanctions have ended or for which a Presidential waiver has been granted. 1041ez 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. 1041ez Example. 1041ez The sanctions against Country X ended on July 31. 1041ez On August 19, you receive a distribution from a mutual fund of Country X income. 1041ez The fund paid Country X income tax for you on the distribution. 1041ez 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. 1041ez Amounts for the nonsanctioned period. 1041ez   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. 1041ez Multiply the income or taxes for the year by the following fraction to determine the amounts allocable to that period. 1041ez   Number of nonsanctioned days in year  Number of days in year Example. 1041ez 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. 1041ez Sanctions against Country X ended on July 11, 2013. 1041ez You are unable to determine how much of the income or tax is for the nonsanctioned period. 1041ez 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. 1041ez You would compute the income for the nonsanctioned period as follows. 1041ez 173 365 × $20,000 = $9,479             You would figure the tax for the nonsanctioned period as follows. 1041ez 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. 1041ez Further information. 1041ez   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. 1041ez This Cumulative Bulletin can be found in many libraries and IRS offices. 1041ez Table 1. 1041ez 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. 1041ez 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. 1041ez 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). 1041ez 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. 1041ez If the dividend is not for more than 366 days, rule (1) applies to the preferred stock. 1041ez 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. 1041ez 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. 1041ez Withholding tax. 1041ez   For this purpose, withholding tax includes any tax determined on a gross basis. 1041ez It does not include any tax which is in the nature of a prepayment of a tax imposed on a net basis. 1041ez Ex-dividend date. 1041ez   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. 1041ez Example 1. 1041ez You bought common stock from a foreign corporation on November 3. 1041ez You sold the stock on November 19. 1041ez You received a dividend on this stock because you owned it on the ex-dividend date of November 5. 1041ez 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). 1041ez Because you held the stock for 16 days, from November 4 until November 19, you are entitled to the credit. 1041ez Example 2. 1041ez The facts are the same as in Example 1 except that you sold the stock on November 14. 1041ez You held the stock for only 11 days. 1041ez You are not entitled to the credit. 1041ez Exception. 1041ez   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. 1041ez See section 901(k)(4) of the Internal Revenue Code for more information. 1041ez 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. 1041ez 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. 1041ez Withholding tax. 1041ez   For this purpose, withholding tax includes any tax determined on a gross basis. 1041ez It does not include any tax which is in the nature of a prepayment of a tax imposed on a net basis. 1041ez Exception for dealers. 1041ez   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. 1041ez See section 901(I)(2) of the Internal Revenue Code for more information. 1041ez 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. 1041ez A covered asset acquisition includes certain acquisitions that result in a stepped-up basis for U. 1041ez S. 1041ez tax purposes but not for foreign tax purposes. 1041ez For more information, see Internal Revenue Code section 901(m). 1041ez The IRS intends to issue guidance that will explain this provision in greater detail. 1041ez 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. 1041ez 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. 1041ez For details, see Regulations section 1. 1041ez 901-3. 1041ez 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. 1041ez See the instructions for line 12 in the Form 1116 instructions to figure this reduction. 1041ez 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. 1041ez List of boycotting countries. 1041ez   A list of the countries which may require participation in or cooperation with an international boycott is published by the Department of the Treasury. 1041ez As of November 2013, the following countries are listed. 1041ez Iraq. 1041ez Kuwait. 1041ez Lebanon. 1041ez Libya. 1041ez Qatar. 1041ez Saudi Arabia. 1041ez Syria. 1041ez United Arab Emirates. 1041ez Yemen. 1041ez    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. 1041ez   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. 1041ez The procedures for obtaining a determination from the Service are outlined in Revenue Procedure 77-9 in Cumulative Bulletin 1977-1. 1041ez Cumulative Bulletins are available in most IRS offices and you are welcome to read them there. 1041ez Public inspection. 1041ez   A determination and any related background file is open to public inspection. 1041ez However, your identity and certain other information will remain confidential. 1041ez Reporting requirements. 1041ez   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. 1041ez 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. 1041ez A partnership in which you are a partner. 1041ez A trust you are treated as owning. 1041ez Form 5713 required. 1041ez   If you have to file a report, you must use Form 5713, International Boycott Report, and attach all supporting schedules. 1041ez See the Instructions for Form 5713 for information on when and where to file the form. 1041ez Penalty for failure to file. 1041ez   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. 1041ez 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. 1041ez 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. 1041ez S. 1041ez tax liability (Form 1040, line 44) divided by your worldwide taxable income. 1041ez You may be entitled to carry over to other years taxes reduced under this rule. 1041ez See Internal Revenue Code section 907(f). 1041ez Combined foreign oil and gas income means the sum of foreign oil related income and foreign oil and gas extraction income. 1041ez Foreign oil and gas taxes are the sum of foreign oil and gas extraction taxes and foreign oil related taxes. 1041ez Taxes of U. 1041ez S. 1041ez 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. 1041ez 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. 1041ez See Penalty for not filing Form 5471 or Form 8865 , later. 1041ez U. 1041ez S. 1041ez persons controlling foreign corporations. 1041ez   If you are a U. 1041ez S. 1041ez 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. 1041ez S. 1041ez Persons With Respect To Certain Foreign Corporations. 1041ez 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. 1041ez U. 1041ez S. 1041ez persons controlling foreign partnerships. 1041ez   If you are a U. 1041ez S. 1041ez citizen or resident who had control of a foreign partnership at any time during the partnership's tax year, you may have to file