Foreign Tax Credit Redetermination

Cadman · Post by **Cadman** » Wed Apr 08, 2009 6:26 am

In 2009 I paid 10% withholding tax to the CRA on interest income received in 2006 and 2007. The CDN financial institution had neglected to withhold tax and had sent us a T5 instead of an NR4 in 2006/2007. On our US return for 2006 and 2007 we included the interest income on 1099-INT but did not report any foreign tax.

To correct this problem, do I claim a foreign tax credit in 2009 (the year the taxes were paid) or do I need to amend 2006 and 2007 returns?

Thanks.

nelsona · Post by **nelsona** » Wed Apr 08, 2009 7:03 am

Amend the returns. I presume you meant to say you included the interest on your Schedule B. There would be no 1099-INT issued by the Cdn bank.

nelsona · Post by **nelsona** » Wed Apr 08, 2009 7:18 am

You could, if you wish, use the foreign tax paid on a 1116 in 2009, but you run into (a) needing to have sufficient passive Cdn income in 2009 to use any of the credit, let alone all of it, which won't happen.

Splitting it into the years you actually accrued the tax stands a better chance of using it up.

Do you get what I'm saying?

Cadman · Post by **Cadman** » Wed Apr 08, 2009 7:26 am

Yes, the interest was included on Schedule B.

I did not realize that I had a choice as to when to claim the FTC on 1116, but I do have a better chance of using most of the credit if I go back to 2006 & 2007.

Thanks.

nelsona · Post by **nelsona** » Wed Apr 08, 2009 7:32 am

The nice thing about using the 1116 is that any tax you don't use will be carried foward.

In 2008, as you know, you had no tax owed in Canada, but that income is still foreign. Thus you can still use 1116, report the passive foreign income, and use your reserve (built up in 2006 and 2007) against 2008's tax.

So, when you amend 2006 and 2007, you'll immeduiately be able to do a 1116 for 2008.

Cadman · Post by **Cadman** » Wed Apr 08, 2009 7:41 am

I understand. I have already filed for 2008, but I have a couple of related questions.

Do I need to amend 2008 if there is no change to the FTC but there is a change in the amount of carryover from 2007?

How far back can I amend 1116?

Thanks.

nelsona · Post by **nelsona** » Wed Apr 08, 2009 9:12 am

Although your actual credit may not change, you are changing the carryforward, which you reported at line 10. (You didn't whether you had filed a passive 1116 in 2008).

Anytime you submit an 1116 in a category, you should redetermine any carryforward/carryback, and that should be accurate.

Cadman · Post by **Cadman** » Wed Apr 08, 2009 9:30 am

Thanks nelsona.

Is there any limit to how far back I can amend FTC's on 1116?

nelsona · Post by **nelsona** » Wed Apr 08, 2009 9:36 am

you can certainly go back as far as you need to in the situation your described.

Cadman · Post by **Cadman** » Wed Apr 22, 2009 6:48 am

As discussed earlier in this thread, I am in the process of amending Form 1116 for 2006 & 2007 to report additional foreign tax (CDN) that was incurred in 2006 & 2007, but not paid until 2009. Form 1116 was originally filed for both years with foreign tax amounts (CDN) identified as "paid". On the amended returns, do I report the revised foreign tax amounts as "paid" or as "accrued"?

Thanks,

nelsona · Post by **nelsona** » Wed Apr 22, 2009 7:06 am

Paid means actually paid in the tazx year in question, so accrued would be the correct method.

In general, it is best practice to use accrued, as this is unaffected by refunds. and meshes better with the Cdn foreign tax system, which is always accrual method.

Cadman · Post by **Cadman** » Wed Apr 22, 2009 7:32 am

By using accrued method on the amended return, I end up with 2 copies of 1116, original foreign tax reported as paid on 1st copy and the additonal tax I'm now reporting as accrued on the 2nd copy. Do I submit both 1116s with the amended return?

Thanks,

nelsona · Post by **nelsona** » Wed Apr 22, 2009 10:36 am

You shouldn't. Sounds more like a software issue. You should only have ONE 1116 per income category per year. while you may be amending your 1040, you are really sending in a new 1116. Simply meke sure that the new one has all the foreign income and that the tax was accrued, for each type of income.