Foreign Tax Credit - Special Issues
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 due date for filing the return for the tax year for which you make the claim. You make or change your choice on your tax return (or on an amended return) for the year your choice is to be effective.
The United States is a party to tax treaties that are designed, in part, to prevent double taxation of the same income by the United States and the treaty country. Many treaties do this by allowing you to treat U.S. source income as foreign source income. Certain treaties have special rules you must consider when figuring your foreign tax credit if you are a U.S. citizen residing in the treaty country. These rules generally allow an additional credit for part of the tax imposed by the treaty partner on U.S. source income. It is separate from, and in addition to, your foreign tax credit for foreign taxes paid or accrued on foreign source income. The treaties that provide for this additional credit include those with Australia, Austria, Bangladesh, Canada, Denmark, Finland, France, Germany, Ireland, Israel, Japan, Luxembourg, Mexico, the Netherlands, New Zealand, Portugal, Slovenia, South Africa, Sweden, Switzerland, and the United Kingdom. There is a worksheet at the end of Publication 514, Foreign Tax Credit for Individuals to help you figure the additional credit. But do not use this worksheet to figure the additional credit under the treaties with Australia and New Zealand. Also, do not use this worksheet for income that is in the "Income Re-Sourced By Treaty" category.
You can get more information, and the worksheet to figure the additional credit under the Australia and New Zealand treaties, by writing to:
Internal Revenue Service
Philadelphia, Pa 19255-0725
You can also contact the United States Tax Attaché at the U.S. Embassies in Beijing, Frankfurt, London, and Paris, as appropriate, for assistance.
You may have to report certain information with your return if you claim a foreign tax credit under a treaty provision. For example, if a treaty provision allows you to take a foreign tax credit for a specific tax that is not allowed by the Internal Revenue Code, you must report this information with your return. To report the necessary information, use Form 8833, Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b).
If you do not report this information, you may have to pay a penalty of $1,000.
Tip! You do not have to file Form 8833 if you are claiming the additional foreign tax credit as discussed above.
Alternative Minimum Tax
In addition to your regular income tax, you may be liable for the alternative minimum tax. A foreign tax credit may be allowed in figuring this tax. However, there are restrictions on how much foreign tax credit can be applied to the alternative minimum tax. Refer to the instructions for Form 6251, Alternative Minimum Tax-Individuals, for a discussion of the alternative minimum tax foreign tax credit.
Note: This page contains one or more references to the Internal Revenue Code (IRC), Treasury Regulations, court cases, or other official tax guidance. References to these legal authorities are included for the convenience of those who would like to read the technical reference material. To access the applicable IRC sections, Treasury Regulations, or other official tax guidance, visit the Tax Code, Regulations, and Official Guidance page. To access any Tax Court case opinions issued after September 24, 1995, visit the Opinions Search page of the United States Tax Court.