This 'error' is generated when the Form 1116 is not required to be included as part of your return in order to claim the foreign tax credit.
For example, if your only foreign income is from dividends reported on Form 1099-DIV and the foreign tax paid was also reported on the Form 1099-DIV. In this case, the foreign tax credit can be claimed without filing the actual Form 1116.
If you are using a desktop version of TurboTax and you look at the Form 1116 in Forms Mode, you can see that next to the error condition being flagged for line 35, there is a note that says DO NOT FILE FORM (SEE HELP). The help message is as follows:
Text field for Line 35:
If there is a description to the left of the amount on line 35 indicating that this form should not be filed, the information you have entered on your return indicates that you are eligible to claim the foreign tax credit WITHOUT attaching Form 1116 to the return. See Rules for Form 1116 and how the program determines whether or not Form 1116 needs to be attached to the return for more information. If the program determines that you are qualified to claim the credit without completing Form 1116, the full amount of current year foreign taxes will flow to Schedule 3, line 48 (limited to the amount of tax remaining). If you want (or NEED) to complete and file Form 1116 anyway, check the box in the Other Information for Your Tax Return section of the federal Information Worksheet. You will then need to complete Form 1116. Note: If you are not required to file Form 1116 but have previously linked your Form 1099-INT and/or 1099-DIV to the Form 1116, you should disregard any calculations on Form 1116 except for the entry on line 35. This is the correct amount of foreign tax you may claim and which will be entered on Form 1040.
If you do not need to or want to include Form 1116 as part of your return, go to the foreign tax section of your return and check the box that you have entered all of your foreign taxes paid by including the information on 1099-DIV, 1099-INT, 1099-OID, or schedule K-1. Then follow the remaining questions to complete the foreign tax credit.
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