Claim pail 'Quellensteuer' on tax return?

Quellensteuer is "tax withheld at the source." But the US-German tax treaty provides that capital gains are taxed only by the country of residence, except when real or business personal property is sold. Thus, I believe that you need to seek recovery from the German authorities, and none of it would be allowable as a foreign tax credit under US law.

resident of the US and sold a bunch of investments

There's a little problem though. He has to pay US tax on the amount now and so has to come up with the money. It will be at least a month before the German government issues the refund. So during this period he is essentially double-taxed.

resident of the US and sold a bunch of investments

Though, if he had started the refund process as soon as he noticed the withholding, he might actually have the cash in hand by now.

permanent resident of the US and sold a bunch of investments

A similar thing happens when one is owed a refund at the federal level and must pay at the state level, or vice-versa. So, what's the problem?

Only saying that it's just a problem for the person who has to come up with the money. It's their responsibility to come up with the money, but I'm just observing that this may be a hard for some when the amount is large. Of course, as Tom says, careful tax planning beforehand would have alleviated or eliminated the problem.

In the usual case of paying taxes to federal and state, one can adjust one's withholding and estimated payments so that they always owe a small amount to both entities (10% of the tax due usually). But in our example, there was a foreign country which people are not as familiar with. In addition, there was mandatory backup withholding. Imagine that you had mandatory backup withholding on profits when you sold a stock from a brokerage account in CA while you live in another state like NY. That would certainly complicate your tax planning.

Additionally, what would be nice is a feature where if you have a refund on state and owe on federal, then for payment to federal you say collect $123 from my state refund and here's the remaining $456. Or if you owe $250 to CA, you can say collect $100 from my federal refund, $75 from my NY return, and here's the remaining $75. And this could be extended to countries too!

resident of the US and sold a bunch of investments

Does that mean that I would not be able to deduct this on my US tax return, but instead need to go and get money back from germany? In that case, would I still need to mention anything on my US taxes about the investment?

Actually, another thing about selling my investments: The investment value when sold was actually below the initial investment, so in principle I didn't have gains, but nevertheless the 30% were deducted from the whole investment value...

Yes, you cannot deduct the taxes from your US tax return, and you have to get the money back from Germany.

You do have to mention it. On Schedule D, report the price you bought it at (using the currency exchange rate on the day you bought it, although for my own account I often use the year average as there are many trades in a year), and report the price you sold it at. Don't forget commissions (they add to your purchase price and subtract from your sales price) and various re-organization fees, if any, on the stock.

Are you saying that the investment lost value in euros? There might still be a gain in US dollars because of exchange rates.

In case you have a loss, you're lucky. You don't owe anything to the US, and might even be able to deduct 3k of the loss from your AGI.

And remember, you were supposed to be filing form tdf 90-22.1 available at

every year thatyour foreign accounts are worth over 10k. The form is due June 30every year. Anyone know what the penalties for failing to fill outthis form are?

BTW, the form changed in 2009 (it looks a little different but still mostly the same information).

Can't he take a credit for tax paid now, and then recognize income when the refund comes?

Oh Boy! I wish I had a loss so I could deduct it. (Wait a minute - I do have losses. Why don't I feel lucky?)

In the event there was a gain, maybe he could tax a foreign tax credit, eliminating the 15% long term capital gains tax due to the US, and then when he gets the money from Germany he could file an amended return no longer claiming the foreign tax credit, and paying the tax due. But interest would be due on the tax due. Plus, if the IRS questions him before or after he gets the refund from Germany, then there could be explaining and penalties. From what I hear about the IRS, they're kind of rigid, and they'll say when you signed the tax return you believed it to be correct, but you knew it wasn't, so penalties are due. Maybe the best thing here is to just file an extension to pay interest at a lower rate.