Publication 514 - Foreign Tax Credit for Individuals

Publication 514

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You can get help with unresolved tax issues, order free publications and forms, ask tax questions, and get information from the IRS in several ways. By selecting the method that is best for you, you will have quick and easy access to tax help.

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The Taxpayer Advocate Service (TAS) is an independent organization within the IRS. We help taxpayers who are experiencing economic harm, such as not being able to provide necessities like housing, transportation, or food; taxpayers who are seeking help in resolving tax problems with the IRS; and those who believe that an IRS system or procedure is not working as it should. Here are seven things every taxpayer should know about TAS:

The Taxpayer Advocate Service is your voice at the IRS.
Our service is free, confidential, and tailored to meet your needs.
You may be eligible for our help if you have tried to resolve your tax problem through normal IRS channels and have gotten nowhere, or you believe an IRS procedure just isn't working as it should.
We help taxpayers whose problems are causing financial difficulty or significant cost, including the cost of professional representation. This includes businesses as well as individuals.
Our employees know the IRS and how to navigate it. If you qualify for our help, we'll assign your case to an advocate who will listen to your problem, help you understand what needs to be done to resolve it, and stay with you every step of the way until your problem is resolved.
We have at least one local taxpayer advocate in every state, the District of Columbia, and Puerto Rico. You can call your local advocate, whose number is in your phone book, in Pub. 1546, Taxpayer Advocate Service—Your Voice at the IRS, and on our website at www.irs.gov/advocate. You can also call our toll-free line at 1-877-777-4778 or TTY/TDD 1-800-829-4059. If you live outside of the United States, you can call the Taxpayer Advocate at (787) 622-8940 in English or (787) 622-8930 in Spanish. You can contact the Taxpayer Advocate at:

Internal Revenue Service
Taxpayer Advocate
P.O. Box 193479
San Juan, PR 00919-3479
You can learn about your rights and responsibilities as a taxpayer by visiting our online tax toolkit at www.taxtoolkit.irs.gov. You can get updates on hot tax topics by visiting our YouTube channel www.youtube.com/tasnta and our Facebook page at www.facebook.com/YourVoiceAtIRS, or by following our tweets at www.twitter.com/YourVoiceAtIRS.

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The Low Income Taxpayer Clinic program serves individuals who have a problem with the IRS and whose income is below a certain level. LITCs are independent from the IRS. Most LITCs can provide representation before the IRS or in court on audits, tax collection disputes, and other issues for free or a small fee. If an individual's native language is not English, some clinics can provide multilingual information about taxpayer rights and responsibilities. For more information, see Publication 4134, Low Income Taxpayer Clinic List. This publication is available at IRS.gov, by calling 1-800-TAX-FORM (1-800-829-3676), or at your local IRS office.

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Publication 910, IRS Guide to Free Tax Services, is your guide to IRS services and resources. Learn about free tax information from the IRS, including publications, services, and education and assistance programs. The publication also has an index of over 100 TeleTax topics (recorded tax information) you can listen to on the telephone. The majority of the information and services listed in this publication are available to you free of charge. If there is a fee associated with a resource or service, it is listed in the publication.

Accessible versions of IRS published products are available on request in a variety of alternative formats for people with disabilities.

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Free help in preparing your return is available nationwide from IRS-trained volunteers. The Volunteer Income Tax Assistance (VITA) program is designed to help low-income taxpayers and the Tax Counseling for the Elderly (TCE) program is designed to assist taxpayers age 60 and older with their tax returns. Many VITA sites offer free electronic filing and all volunteers will let you know about credits and deductions you may be entitled to claim. To find the nearest VITA or TCE site, call 1-800-829-1040.

As part of the TCE program, AARP offers the Tax-Aide counseling program. To find the nearest AARP Tax-Aide site, call 1-888-227-7669 or visit AARP's website at
www.aarp.org/money/taxaide.

For more information on these programs, go to IRS.gov and enter keyword "VITA" in the upper right-hand corner.

Internet. You can access the IRS website at IRS.gov 24 hours a day, 7 days a week to:

E-file your return. Find out about commercial tax preparation and e-file services available free to eligible taxpayers.
Check the status of your 2010 refund. Go to IRS.gov and click on Where's My Refund. Wait at least 72 hours after the IRS acknowledges receipt of your e-filed return, or 3 to 4 weeks after mailing a paper return. If you filed Form 8379 with your return, wait 14 weeks (11 weeks if you filed electronically). Have your 2010 tax return available so you can provide your social security number, your filing status, and the exact whole dollar amount of your refund.
Download forms, including talking tax forms, instructions, and publications.
Order IRS products online.
Research your tax questions online.
Search publications online by topic or keyword.
Use the online Internal Revenue Code, Regulations, or other official guidance.
View Internal Revenue Bulletins (IRBs) published in the last few years.
Figure your withholding allowances using the withholding calculator online at www.irs.gov/individuals.
Determine if Form 6251 must be filed by using our Alternative Minimum Tax (AMT) Assistant.
Sign up to receive local and national tax news by email.
Get information on starting and operating a small business.

Phone. Many services are available by phone.

Ordering forms, instructions, and publications. Call 1-800-TAX FORM (1-800-829-3676) to order current-year forms, instructions, and publications, and prior-year forms and instructions. You should receive your order within 10 days.
Asking tax questions. Call the IRS with your tax questions at 1-800-829-1040.
Solving problems. You can get face-to-face help solving tax problems every business day in IRS Taxpayer Assistance Centers. An employee can explain IRS letters, request adjustments to your account, or help you set up a payment plan. Call your local Taxpayer Assistance Center for an appointment. To find the number, go to www.irs.gov/localcontacts or look in the phone book under United States Government, Internal Revenue Service.
TTY/TDD equipment. If you have access to TTY/TDD equipment, call 1-800-829-4059 to ask tax questions or to order forms and publications.
TeleTax topics. Call 1-800-829-4477 to listen to pre-recorded messages covering various tax topics.
Refund information. To check the status of your 2010 refund, call 1-800-829-1954 or 1-800-829-4477 (automated refund information 24 hours a day, 7 days a week). Wait at least 72 hours after the IRS acknowledges receipt of your e-filed return, or 3 to 4 weeks after mailing a paper return. If you filed Form 8379 with your return, wait 14 weeks (11 weeks if you filed electronically). Have your 2010 tax return available so you can provide your social security number, your filing status, and the exact whole dollar amount of your refund. If you check the status of your refund and are not given the date it will be issued, please wait until the next week before checking back.
Other refund information. To check the status of a prior year refund or amended return refund, call 1-800-829-1040.

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Evaluating the quality of our telephone services. To ensure IRS representatives give accurate, courteous, and professional answers, we use several methods to evaluate the quality of our telephone services. One method is for a second IRS representative to listen in on or record random telephone calls. Another is to ask some callers to complete a short survey at the end of the call.

If you are outside the United States, taxpayer assistance is available at the following U.S Embassies or consulate.

Beijing, China	(86)	(10)	8531-3870
Frankfurt, Germany	(49)	(69)	7535-3834
London, England	(44)	(20)	7894-0476
Paris, France	(33)	(1)	4312-2555

Please contact the office for times when assistance will be available. If you cannot get to one of these offices, taxpayer assistance is available at (267) 941-1000 (not a toll free call).

If you are in a U.S. territory (American Samoa, Guam, Northern Mariana Islands, Puerto Rico, and U.S. Virgin Islands) and have a tax question, you can call 1-800-829-1040.

Walk-in. Many products and services are available on a walk-in basis.

Products. You can walk in to many post offices, libraries, and IRS offices to pick up certain forms, instructions, and publications. Some IRS offices, libraries, grocery stores, copy centers, city and county government offices, credit unions, and office supply stores have a collection of products available to print from a CD or photocopy from reproducible proofs. Also, some IRS offices and libraries have the Internal Revenue Code, regulations, Internal Revenue Bulletins, and Cumulative Bulletins available for research purposes.
Services. You can walk in to your local Taxpayer Assistance Center every business day for personal, face-to-face tax help. An employee can explain IRS letters, request adjustments to your tax account, or help you set up a payment plan. If you need to resolve a tax problem, have questions about how the tax law applies to your individual tax return, or you are more comfortable talking with someone in person, visit your local Taxpayer Assistance Center where you can spread out your records and talk with an IRS representative face-to-face. No appointment is necessary—just walk in. If you prefer, you can call your local Center and leave a message requesting an appointment to resolve a tax account issue. A representative will call you back within 2 business days to schedule an in-person appointment at your convenience. If you have an ongoing, complex tax account problem or a special need, such as a disability, an appointment can be requested. All other issues will be handled without an appointment. To find the number of your local office, go to
www.irs.gov/localcontacts or look in the phone book under United States Government, Internal Revenue Service.

If you are outside the United States during the filing period (January to mid-June), you can get the necessary federal tax forms and publications from most U.S. Embassies and consulates.

Also, during filing season, the IRS conducts an overseas taxpayer assistance program. To find out if IRS personnel will be in your area, contact the consular office at the nearest U.S. Embassy.

Mail. You can send your order for forms, instructions, and publications to the address below. You should receive a response within 10 days after your request is received.

If you are outside the United States, you can get tax assistance by writing to the address below.

Internal Revenue Service
International Section
Philadelphia, PA 19255-0725

DVD for tax products. You can order Publication 1796, IRS Tax Products DVD, and obtain:

Current-year forms, instructions, and publications.
Prior-year forms, instructions, and publications.
Tax Map: an electronic research tool and finding aid.
Tax law frequently asked questions.
Tax Topics from the IRS telephone response system.
Internal Revenue Code—Title 26 of the U.S. Code.
Fill-in, print, and save features for most tax forms.
Internal Revenue Bulletins.
Toll-free and email technical support.
Two releases during the year.
– The first release will ship the beginning of January 2011.
– The final release will ship the beginning of March 2011.

Purchase the DVD from National Technical Information Service (NTIS) at www.irs.gov/cdorders for $30 (no handling fee) or call 1-877-233-6767 toll free to buy the DVD for $30 (plus a $6 handling fee).

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Worksheet. Additional Foreign Tax Credit on U.S. income*

I. U.S. tax on U.S. source income
	(U.S. source rules)
		1.	Dividends
		2.	Interest
		3.	Royalties
		4.	Capital gain
		5.	a.	Gross earned income
			b.	Allocable employee business expenses
			c.	Net compensation. Subtract line 5b from line 5a
		6.	a.	Gross rent, real property
			b.	Direct expenses
			c.	Net rent. Subtract line 6b from line 6a
		7.	Other
		8.	Add lines 1-5a, 6a and 7 in column A and lines 1-4, 5c, 6c and 7 in column B
		9.	Enter tax from Form 1040 (see instructions)
		10.	Enter adjusted gross income (AGI) from line 37, Form 1040
		11.	Divide line 9 by line 10. Enter the result as a decimal. This is the average tax rate on your AGI.
		12.	Multiply line 11 by line 8 (column B). This is your estimated U.S. tax on your U.S. source income.
II. Tax at source allowable under treaty
	A.	Items fully taxable by U.S.
		13.	a.	Identify
			b.	Multiply line 13a by line 11
	B.	Items partly taxable by U.S.
		14.	a.	Identify
			b.	Treaty rate
			c.	Allowable tax at source (Multiply line 14a by line 14b)
		15.	a.	Identify
			b.	Treaty rate
			c.	Allowable tax at source (Multiply line 15a by line 15b)
		16.	Total (Add lines 13b, 14c, and 15c)
	C.	Identify each item of U.S. source income from Col. A, Step I, on which the U.S. may not, under treaty, tax residents of the other country who are not U.S. citizens


III. Additional credit
		17.	Residence country tax on U.S. source income before foreign tax credit
		18.	Foreign tax credit allowed by residence country for U.S. income tax paid
		19.	Maximum credit. Subtract the greater of line 16 or line 18 from line 12.
		20.	a.	Enter the amount from line 17
			b.	Enter the greater of line 16 or line 18
			c.	Subtract line 20b from line 20a
		21.	Additional credit. Enter the smaller of line 19 or line 20c. Add this amount to line 12 of Part III and line 29 of Part IV Form 1116.

* See the discussion on Tax Treaties for information on when you should use this worksheet.

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Worksheet Instructions.Additional Foreign Tax Credit on U.S. Income

Note. Complete a separate worksheet for each separate limit income category.

STEP I
Figure the estimated tax on U.S. source income in the separate limit income category using U.S. rules for determining the source of income.
	Lines 1-7 Enter the gross amount for each type of income in Column A, and the net amount in Column B.
	Line 9 Enter the amount from Form 1040, line 44.

STEP II
Determine the amount of tax that the United States is allowed to collect at source under the treaty on income in the separate limit income category of residents of the other country who are not U.S. citizens. (Generally, this amount should be claimed, to the extent allowable, as a foreign tax credit on your foreign tax return.)
	PART A Income in the separate limit income category fully taxable by the United States. This generally includes income from a U.S. trade or business and gains from dispositions of U.S. real property. Identify the type and amount on line 13a.
	PART B Income in the separate limit income category for which treaty limits U.S. tax at source. This may include dividends, interest, royalties, and certain pensions.
	Lines 14-15 Identify each type and amount of income. Use the specified treaty rate. (See Publication 901, U.S. Tax Treaties.)
	PART C Identify the items in the separate limit income category not taxable at source by the United States under the treaty.

STEP III
Figure the amount of the additional credit for foreign taxes paid or accrued on U.S. source income. The additional credit is limited to the difference between the estimated U.S. tax (Step I) and the greater of the allowable U.S. tax at source (Step II) or the foreign tax credit allowed by the residence country (line 18).
	Line 17 Enter the amount of the residence country tax on your U.S. source income before reduction for foreign tax credits. If possible, use the fraction of the pre-credit residence country tax which U.S. source taxable income bears to total taxable income. Otherwise, report that fraction of the pre-credit foreign tax which gross U.S. income bears to total gross income for foreign tax purposes.
	Line 21 This amount may be claimed as a foreign tax credit on Form 1116. First, add this amount to the reduction in foreign taxes on line 12, Part III, and complete Form 1116 according to the instructions. Add this amount as an additional credit to line 29, Part IV, of Form 1116 as well and report that total on your Form 1040. File this worksheet with your Form 1040 as an attachment to Form 1116.

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How To Get Tax Help(p34)

Contacting your Taxpayer Advocate.(p34)

Free tax services.(p34)

Free help with your return.(p34)

Worksheet. Additional Foreign Tax Credit on U.S. income*

Worksheet Instructions.Additional Foreign Tax Credit on U.S. Income