Hello,

I have a generalized tax question. I have a client who has a very large amount of unused foreign tax credit that has been getting carried forward. They now work in the USA with their credit first starting to expire in tax year 2016.

They work in a federal government job where they can work in London, for example, if needed to help utilize the credit. What would be the best ways, if any, to utilize this large credit given their circumstances?

Thanks in advance

If they chose to claim a foreign tax credit - any unused carryover amounts may be ONLY used as a credit - they may not convert them into deduction in later years. However, they may not claim a tax credit for taxes paid on any income which has been excluded from US taxation using the foreign earned income exclusion or the foreign housing exclusion. they may choose either to claim a deduction or a credit in the year foreign taxes were paid or incurred if they selected so.
If it would be more beneficial for them to claim a credit or deduction - that should be verified by preparing tax return both ways and compare.
they may go back and amend their past tax returns up to 10 years in this case. they may claim either the foreign tax credit or deduction each year. they can choose to take a credit in one year, and a deduction in the next year. they can even change their choices by amending their tax returns within ten years of the original due date of the tax return.

they can choose whether to take the amount of any qualified foreign taxes paid or accrued during the year as a foreign tax credit or as an itemized deduction on sch A.. However - they may not claim both during the same year. If they claim an itemized deduction in a year for qualified foreign taxes,they can choose instead to claim a foreign tax credit for that year by filing an amended return on Form 1040X within 10 years, if claiming the foreign tax credits results in a refund of income tax to them.




If they cannot claim a credit for the full amount of qualified foreign income taxes they paid or accrued in the year, they are allowed a carryback and/or carryover of the unused foreign income tax. they can carryback for one year or carryover for 10 years the unused foreign tax.

As mentioed above,If they choose to take a credit for qualified foreign taxes, they must take the credit for all of them. they cannot deduct any of them. Conversely, if they choose to deduct qualified foreign taxes, they must deduct all of them. they cannot take a credit for any of them.
If they choose to claim a credit and have a carryover amount - that amount may not be converted to deduction.