foreign tax credit laws are complex.
Below are some quick summaries of the more complex areas of the law long with links to web pages on IRS.GOV with additional helpful resources.
If a taxpayer receives foreign sourced qualified dividends and/or capital gains (including long-term capital gains, unrecaptured section 1250 gain, and/or section 1231 gains) that are taxed in the U.S. at a reduced tax rate, the taxpayer must adjust the foreign source income that is reported on Form 1116, line 1a. Otherwise, the allowable foreign tax credit may be significantly overstated which can trigger a substantial underpayment penalty.
Interest expense must be apportioned between U.S. and foreign source income using an asset method. See Publication 514 for more information on the asset methods.
Other Compliance Issues
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