@Juancar , having gone over my replies on your situatiuon , I just want to clarify the following:
(a) if there is no foreign tax credit/deduction angle , then ignore my last para in my most recent reply.
(b) what I was trying to get at is that the concept of "constructive receipt" is applicable for US taxes . That is to say , if your CD agreement with the bank says that "interest would be deposited X times a year", then even though the actual available monies are not available to you ( without penalty ), it is your on the banks books. Thus you need to recognize this as income . There could be cases ( for example a six month CD ) where the Financial institution says that interest will be "credited " to your account ONLY at the end of the CD agreement period ( often called TERM ) , then there is no "constructive receipt" till the end of the contract.
This constructive receipt persists even when the CD contract spans over the end of the year -- Say October of one year to March of the next year. In such a case , if the interest credition is every quarter, then you recognize the interest earned in Dec of one year for that year's return and the March interest credition in the following year return.
BWT, why isn't the interest earning no taxed in the source country ? Or is that the source country does no have a tax treaty with US ?
Does this make sense or am I confusing you more ?
