Foreign Tax Credit Carryforward

cnytax · Post by **cnytax** » Thu Dec 10, 2015 12:20 pm

I am a U.S. resident (Greencard) who receives dividends from Canadian corporations. As is normal, 15% is withheld as foreign tax.

When filing my US taxes in 2012, I forgot to report some of the foreign taxes I paid on Form 1116. However, my 2012 income was such that even had I included the foreign taxes paid on my 2012 return, it would not have made any overall difference, i.e the foreign tax credit would have remained unused. Same thing for 2013 and 2014 if I had carried it forward.

But this year my income is going to be substantially higher and it would be nice to have that foreign tax credit to use on my 2015 return. I understand that foreign tax credits can be carried forward 10 years.

I intend to amend my 2012 return to include those foreign taxes paid. I'm assuming that I have to amend my 2013 and 2014 returns as well to show the carryforward of those foreign tax credits? Or can I get away with just amending 2012?

Thx

nelsona · Post by **nelsona** » Thu Dec 10, 2015 1:23 pm

You only need to file 1116 in the year you carry forward. however, in years that you file 1116, you should ALSO submit the carryforward schedule.

SO, you need to amend 2012. But you would also need to amend 2013 and 2014 if you had taxeds from those years to carry forward.
Why would you not want to amend 2013 and 14 if the same situation occurred. Don't you have carryforward from those 2 years, too?

nelsona · Post by **nelsona** » Thu Dec 10, 2015 1:25 pm

By the way, if these stocks are being held by a US broker, you should be able to use them as a credit without filing 1116 (ie. and thus no restrictions on use), if they are reported on a US slip.

cnytax · Post by **cnytax** » Thu Dec 10, 2015 3:17 pm

I've amended 2012 and then used the "new" carryforward from 2012 as "input"
into 2013. Then generated an amended 2013 using the new carryforward from 2012.

Then generated an amended 2014 using the new carryover from 2013.

My income was low enough that the foreign tax credits were not used up in 2012, 2013 and 2014. But anticipate that they WILL be useful for 2015 as my taxes will be high this year. Otherwise I wouldn't bother.

My concern is confusing the IRS by submitting 3 amended returns at once. Am planning on submitting 1040X, Form 1116, and any carryforward worksheet that TurboTax generates for all 3 years.

Thanks.

cnytax · Post by **cnytax** » Thu Dec 10, 2015 3:22 pm

I recall reading somewhere that the IRS wants amendments for multiple years to be filed seperately. Just hope that they manage to link everything up.

nelsona · Post by **nelsona** » Thu Dec 10, 2015 3:54 pm

I think that you might be misunderstanding how FTC carryforward works

Realize that carry forwards from previous years cannot be used unless the credits from a subsequent year are used up in THAT year.
So in your case, the carryforward you had in 2012 should be the same in each year.
You will have a carryforwrd form each year, that will remain untouched until you have a year where your allowed credit is greater than the tax you paid.

So, if you had a $100 carry forward in 2012, its still there, intact. Same for 2013, and 2014

That is why I was questioning why you would treat 2012 different than the other years.

I think, from what you wrote, if you had $100 carry forwdrd in 2012, and paid $60 in Cdn tax in 2013, you have a $160 foreign tax 'basket' to draw from. on the 2013 1116 form. Is that what you are doing?

That is not correct. You don't get to use the $100 from 2012 unless you need MORE that $60 in 2013, and so on.

In reality, when you have a carryforwrd, you have 10 years in which to have a single year where you paid less foreign tax than you needed to, so that you can use that tax.

nelsona · Post by **nelsona** » Thu Dec 10, 2015 3:59 pm

That is why I mention trying to get the credit every year WITHOUT having to file 1116, if these dividends are held (like they should) by a US broker.

cnytax · Post by **cnytax** » Sun Dec 13, 2015 4:58 pm

That's my understanding as well. I just phrased it badly.