Reclaimable foreign taxes withheld

I imagine you do the same thing you do in the US - find a local tax preparer, or prepare your own return, and claim the refund.

Why should the broker do that? It's the responsibility of the trustee. Unless, of course, the broker is the trustee.

Sure. But that isn't the broker's job, and it's not what the broker is being paid for.

A refund of foreign tax? You do whatever the foreign government requires, and they send you a check or make a transfer into your bank account. If there's no evident way to do it, I'd think that it is not reasonably certain that the amount will be refunded.

I occasionally get book royalties from the UK, and the payor withholds UK tax. There is a process to tell them that you are not a UK resident so you can get the tax back, but the fixed cost is high enough that it's not worth it, so I take what I can on form 1116. My position is that since I haven't asked for the tax to be refunded, there's no likelihood at all that they will do so.

For an account of that size, you should be able to find a broker that offers satisfactory customer service. Perhaps you could point that out to your current broker.

Regards, John Levine, snipped-for-privacy@iecc.com, Primary Perpetrator of "The Internet for Dummies", Please consider the environment before reading this e-mail.

The other poster is right, it's the trustee's job to get the reclaimable tax back. Is that the broker or someone else?

R's, John

STOP THE BUS!

Your position that you won't get it back simply because you won't ask for it back, simply because it costs too much, MAY NOT be sufficient to allow you to claim in your tax return. I cannot know for certain without doing the research, and I'm assuming you're not interested in retaining me to do that research, so I'd recommend you talk to your tax advisor.

There is an old court case, Klithermes I think, where Mr. Klithermes claimed a deduction on his tax return for unreimbursed expenses. On audit the IRS determined that he was eligible for reimbursement from the company if had asked for it properly. He failed to ask, so he got nothing. The IRS, and the court, determined that he was NOT entitled to the deduction because he could have been reimbursed had he bothered to ask.

Klithermes is about unreimbursed business expenses and your case is about foreign taxes. BUT the underlying similarity in both is that both you and Klithermes ARE entitled to get your money back if you'd just ask for it. Hence, it MAY BE that you are not entitled to the Form 1116 credit.

Good luck, Gene E. Utterback, EA, RFC, ABA

More specifically, I could file some forms with the UK government, which they would consider and if they agree that I'm entitled not to have the tax deducted, then they might refund it. It's not unlikely, but I don't think it's "reasonably certain" that they'd approve my application.

Anyway, the amount of tax is so small that it's not worth paying anyone to do anything special. I've been claiming it for years. If the IRS changes their mind and disallows it, so be it.

Bonus confusing facts: there is a UK organization called the ALCS that collects statutory royalties on behalf of authors in the UK and other countries. If you're an ALCS member, as I am, they pay your royalties directly, less 20% tax and some administrative fees. If you're not an ALCS member and you live in the US, they forward the money to the Authors' Guild in New York, who convert it to dollars at a not very good rate, take out more fees, and send it out. (I did that until I realized I could join the ALCS and skip the middleman.) Tha Guild told me they distribute ALCS money to several thousand US authors, and I'd be surprised if a lot of them didn't claim the tax on Form 1116. So if I'm not eligible, at least I'm in good company.

R's, John

Not asking for a tax to be refunded does not make it non-refundable.

Make certain you have another broker in mind first....

But by claiming the FTC I think you're violating the language of the statute. You have to fill out that application. If you get audited you might be in trouble.

Of course, the ideal approach is to have the US government deal with getting the money from the UK government.

I haven't done the research either. However my guess is that if it is unreasonably expensive to get the refund, it may not be necessary to do so. Exactly where to draw the line will be the problem. But if he makes a reasonable business decision (rather than a personal decision based on non-financial issues), I'd think it would be ok.

The law doesn't say anything about "non-refundable". It says, as quoted above, "reasonably certain that the amount will be refunded . . .". Do you believe it is reasonably certain that John's UK taxes will be refunded? Will you bet even money that they will be? If you won't even make a bet at even money that an event will occur, you certainly shouldn't claim that the event is reasonably certain.

Seth