Demystifying IRS Form 1116- Calculating Foreign Tax Credits
By Anthony Diosdi An individual claiming a foreign tax credit must attach Internal Revenue Service (“IRS”) Form 1116, Foreign Tax Credit to his or her tax return. See Treas. Reg. Section 1.905-2(a)(1). This article will go line-by-line through the Form 1116. This article is based on the instructions provided by the Internal Revenue Service (“IRS”) for the Form 1116. The Form 1116 is designed to calculate foreign tax credits for individual taxpayers. Before any taxpayer attempts to complete the Form 1116, he or she should understand some basic rules regarding claiming foreign tax credits. First, U.S. taxpayers are generally subject to U.S. tax on their worldwide income, but may be provided a tax credit for foreign income taxes paid or accrued. The main purpose of the foreign tax credit is…