Claiming a foreign tax credit without filing a 1116?

I have a 30% interest in an escrow account that was set up for environmental remediation on a building. I used to own 30% of the building and the escrow account was part of the sale agreement.
If the account earns more on investments than it spends on remediation I have to pay income taxes on 30% of the profit. After remediation is complete I get 30% of what remains.
This year it showed a loss, but had $300 in foreign taxes; so I should get a $90 foreign tax credit. (I have no other foreign taxes on my own). Had it shown a profit I would have included the dividends and shown the $90 foreign tax, but since it didn't, I can't.
Do I have to file a 1116? (I hate 1116, which is why I have no foreign taxes...)
Any alternatives?
Reply to
Troubled
If your foreign income is all passive and the foreign tax is no more than $300 ($600 if MFJ) you probably don't have to file Form 1116.
See pub 514, page 11 and page 25
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Reply to
John Levine
It is all passive and is only $90. Do I just enter it on line 49, despite the fact that it doesn't show up on a 1099int or 1099div? If that is okay, then I am on board. Thanks.
Reply to
Troubled
I am going to guess based on all your posts to this newsgroup over some months, that you are a tax student or law student looking for help. Part of the learning process is doing the legal research and not just asking some professionals what they think.
If I am wrong... please accept my apology.
Reply to
Alan
In that case I would suggest you read Pub. 514 rather than depending on opinions of random people on usenet.
It's not that long, you can read the whole thing in 20 minutes.
Reply to
John Levine
It might as well be in Greek. I haven't the faintest idea what it says.
I entered the $90 on my 1040. H&RBlock refused to file without a 1116. I created a 1116 and it would only give me $22 credit. I don't know why, but I guess that is the way it is.
I appreciate everyone's help.
Reply to
Frustrated
created a 1116 and it would only give me $22 credit. I don't know why, but I guess that is the way it is.
I just discovered that having any foriegn tax credit requires Form 6251, AMT, to be filed. It shouldn't have changed the amount but it is new software since it wasn't required last year.
/BAH
Reply to
jmfbahciv
That's news to me. I've e-filed dozens of returns this year with foreign tax credit, no 1116, and not one was rejected for not having Form 6251 attached.
Ira Smilovitz
Reply to
ira smilovitz
credit, no 1116, and not one was rejected for not having Form 6251 attached.
Line 45, 1040 2015 instructions, page 45.
The way I read the instructions require an AMT form to be filled out. A foreign tax credit is listed in the exception section which says to fill in Form 6251 instead of using the worksheet. There is no instruction which states that "no AMT tax == no form submitted". There used to be but not this year.
/BAH
Reply to
jmfbahciv
Tax form instructions aren't "law". All I know is that as a professional tax preparer, I haven't had any e-file returns rejected yet for a missing 6251 when I reported foreign tax directly on Form 1040, line 48.
Ira Smilovitz
Reply to
ira smilovitz
You are misinterpreting the instructions for the 1040. It does not tell you to file the 6251. It tells you if you are not sure whether you owe AMT, use the worksheet unless you have FTC. If you have FTC, then you can't use the worksheet for the calculation. You enter the amount directly on the 6251. This has nothing to do with filing the 6251. It only gets filed if there is AMT. If you know you are not subject to AMT, then there is no requirement to make the calculation.
Reply to
Alan
yeah, until the IRS tells you to submit a form 6251, which you then fill out showing zero AMT, and you then file per the IRS letter to show them you didn't have to fill out the 6251 in the first place.
Reply to
taxed and spent
The only time I have ever received a notice from the IRS requesting a 6251 when there was no AMT was when I had a client with a massive NOL and the IRS wanted AMT calculations for all of the carryover years. Since the AMT NOL was consumed at a different rate than the ordinary NOL, I could see their point.
Ira Smilovitz
Reply to
ira smilovitz

In my experience, it happened for no particular reason. I know a lot of tax prepares (or their software) fill one out and include it as a matter of routine, even though the AMT is zero.
Reply to
taxed and spent
I don't even know how (that's not to say it isn't possible) to force the software I've used (Taxwise & Taxslayer) to include a greyed out form in the e-file, such as the 6251, when it is not required.
Reply to
Alan

Most, if not all, professional tax software have override capabilities to force the inclusion/exclusion of certain forms.
Ira Smilovitz
Reply to
ira smilovitz
preparer, I haven't had any e-file returns rejected yet for a missing 6251 when I reported foreign tax directly on Form 1040, line 48.
I believe you. The way the instructions are written for us people, who do taxes by hand, implies that Form6251 has to be submitted. There is no "stop, you don't owe AMT" in the instructions this year. The instructions have me entering a value (even though it's zero) on line 45, Form 1040. I suspect that will be corrected next year.
This has happened before and the instructions were "corrected" so that a Form 6251 didn't need to be included.
/BAH
Reply to
jmfbahciv

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