If a single person with foreign taxes paid on dividends equals $310, are you allowed to disregard $10 and claim $300 on Line 48 of the 1040 or are you forced to use Form 1116 because the amount exceeds $300 or just use Schedule A?
If the answer is to use Form 1116, how are you folks handling the myriad of countries where the foreign taxes were paid? These are taxes paid on mutual fund distributions with lots of line item entries on the consolidated 1099.
If it's a mutual fund, I use RIC for the country and just total the various entries together. I figure the IRS is just as confused about this as I am.
Ira Smilovitz
The IRS instructions for Form 1116, Part I, Line g actually tell you to do what Ira Smilovitz said. This is on page 15 of the instructions.
"TIP" "You do not need to report income passed through from a mutual fund or other regulated investment company (RIC) on a country-by-country basis. Total all income, in the applicable category, passed through from the mutual fund or other RIC and enter the total in a single column in Part I. Enter 'RIC' on line g [name of the country]. Total all foreign taxes passed through and enter the total on a single line in Part II for the applicable category."
Bob Sandler
I am going to assume that you and IRA answered the way you did, because the answer to my first question was "No, you can't disregard the fact that the amount of foreign taxes paid exceeded the Line 48 threshold of $300." All my research tells me that once you go over the $300/$600 threshold you have to use the 1116 if you want the credit.
The reason I asked was for a friend of a friend that was trying to avoid having to pay someone to prepare the 1116 if it wasn't necessary.
That's why I answered the way I did.
Ira Smilovitz
I have no cite to support it, but I frequently did as you suggest and simply claimed not more than $300 directly on the 1040 without Form 1116. And/or sometimes I put it on Schedule A.
Never had this come up in an audit so I can't say how the IRS might react to it. But, if audited, I would probably cite the "Cohan Rule" and that I had made a "reasonable estimate" under the circumstances...that is, where coming up with a more precise answer on Form 1116 would be relatively cost prohibited.
MTW
They were. A couple years ago, I had to do Form 1116 because the taxes exceeded $300 by $3. The form was so complicated, I started writing a diary of what didn't make sense to me and sent it along with my income tax submission. The next year, the form instructions had been simplied enormously but still has problems. The next time have to fill it out, I'll probaby do the same thing.
The annoying thing is that the tax credit when the form is used is about $300 less than the standard limit but I've never figured out why.
/BAH
Having looked at the code the wording for the exception is:
(B) the amount of the creditable foreign taxes paid or accrued by the individual during the taxable year does not exceed $300 ($600 in the case of a joint return), and
If it had said "up to $300" then maybe you could use Line 48. But the wording is clear that the exception is only available if you stay under the limit.
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