How To Claim the Credit

You must file Form 1116 to claim the foreign tax credit unless you meet one of the following exceptions.

Exceptions. If you meet the requirements discussed under Exemption from foreign tax limit, earlier, and choose to be exempt from the foreign tax credit limit, do not file Form 1116. Instead, enter your foreign taxes directly on line 43 of Form 1040.

If you are a shareholder of a controlled foreign corporation and chose to be taxed at corporate rates on the amount you must include in gross income from that corporation, use Form 1118 to claim the credit. See Controlled foreign corporation shareholder under You Must Have Paid or Accrued the Tax, earlier.

Form 1116

You must file a Form 1116 with your U.S. income tax return, Form 1040. You must file a separate Form 1116 for each of the following categories of income for which you claim a foreign tax credit.

  1. Passive income.
  2. High withholding tax interest.
  3. Financial services income.
  4. Shipping income.
  5. Dividends from a DISC or former DISC.
  6. Certain distributions from an FSC or former FSC.
  7. Lump-sum distributions.
  8. Section 901(j) income.
  9. Income re-sourced by treaty.
  10. General limitation income--all other income from sources outside the United States.

A Form 1116 consists of four parts as explained next.

  1. Part I--Taxable Income or Loss From Sources Outside the United States (for Category Checked Above). Enter the gross amounts of your foreign or possession source income in the separate limit category for which you are completing the form. Do not include income you excluded from U.S. gross income. From these, subtract the deductions that are definitely related to the separate limit income, and a ratable share of the deductions not definitely related to that income. If, in a separate limit category, you received income from more than one foreign country or U.S. possession, complete a separate column for each.
  2. Part II--Foreign Taxes Paid or Accrued. This part shows the foreign taxes you paid or accrued on the income in the separate limit category in foreign currency and U.S. dollars. If you paid (or accrued) foreign tax to more than one foreign country or U.S. possession, complete a separate line for each.
  3. Part III--Figuring the Credit. You use this part to figure the foreign tax credit that is allowable.
  4. Part IV--Summary of Credits From Separate Parts III. You use this part on one Form 1116 to summarize the foreign tax credits figured on separate Forms 1116.

Records To Keep

Files: You should keep the following records in case you are later asked to verify the taxes shown on your Form 1116 or Form 1040. You do not have to attach these records to your Form 1040.

  • A receipt for each foreign tax payment.
  • The foreign tax return if you claim a credit for taxes accrued.
  • Any payee statement (such as Form 1099-DIV or Form 1099-INT) showing foreign taxes reported to you.

The receipt or return you keep as proof should be either the original, a duplicate original, a duly certified or authenticated copy, or a sworn copy. If the receipt or return is in a foreign language, you also should have a certified translation of it. Revenue Ruling 67-308 in Cumulative Bulletin 1967-2 discusses in detail the requirements of the certified translation. You can buy the Cumulative Bulletin from the Government Printing Office. Copies of the Cumulative Bulletins are also available in most IRS offices and you are welcome to read them there.

Alternative Minimum Tax

In addition to your regular income tax, you may be liable for the alternative minimum tax. A foreign tax credit may be allowed in figuring this tax. See the instructions for Form 6251, Alternative Minimum Tax--Individuals, for a discussion of the alternative minimum tax foreign tax credit.