Help With Form 1116 (Foreign Tax Credit)

I have two offshore bank accounts that earn passive category income.

One bank account is a regular interest-earning checking account and the foreign bank takes 35% as withholding tax from the interest earned at the end of each year.

The other account is more or less the equivalent of a Rollover IRA here in the USA and therefore the foreign bank does not deduct any withholding tax from the interest earned.

Question: On Part I, line 1a, column A, of Form 1116 do I include the gross income from both accounts or just the one with the 35% withholding tax?

The way I see it, I should be reporting only the gross income from the account subject to the 35% withholding tax. It is the only one taxed by the offshore bank and the only one that will allow me to take a foreign tax credit on Form 1040.

What's your opinion?

Reply to
tb
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In my opinion, both have to be reported -- unless the one where they withold no tax qualifies for some treaty exemption, like if it is recognized as an IRA and the IRS allows you to have it be tax-free until you take the money out. If it does not qualify, then you have to pay US tax on interest from both accounts, and getting a foreign tax credit for tax paid. And don't forget, you have to pay state tax on the interest too, with no deduction or credit. If you can file a foreign tax return to claim a refund of the withholding, then I believe you can't take a foreign tax credit, and form

1116 is not required.
Reply to
removeps-groups

A few more things. Don't forget about: (1) The two questions about foreign accoutns at the bottom of Schedule B, (2) TDF form filed with Treasury Department, (3) A new IRS form 8938 to be filed with your tax return. I'm still trying to understand (3) as it is new.

Reply to
removeps-groups

Thanks for your help!

Reply to
tb

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