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Dividends on Stock Received in a Foreign Country

My son works overseas for a foreign affiliate of a US company. As part of his compensation he gets stock in the US company and sells it immediately (or the next day or two). As luck would have it, there was a dividend payable to holders of the stock on a day he owned it. Now who gets first dibs on taxes on the dividend? The foreign government already took withholding taxes. Should he pay taxes on his US return and make an adjustment for this on his foreign return, or should he pay taxes in the foreign country and make an adjustment for this on his US return?

Reply to
Larry Israel
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In my opinion, the dividend income is taxable by the United States and should be reported on your son's tax return. He can receive a U.S. tax credit or deduction for foreign taxes paid on income taxed by the U.S.

Reply to
Bill Brown

First, one should look at any tax treaty that may exist. Typically, the country where the person is a resident will tax the dividend and the US will tax the dividend (assuming the person is subject to the 15% capital gain rate). E.g., the treaty with Israel allows both countries to tax the dividend from a US corporation and allows the US citizen a tax credit on the US return to avoid double taxation. As your son has more than interest or dividends from a foreign source, he would have to complete Form 1116 to obtain the FTC. He could elect to itemize deductions and deduct the foreign taxes paid rather than compute a credit.

Reply to
Alan

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