@richardR1 , I took this position because :
(a) US tax treatment of foreign source income and taxes thereon is always based on reciprocity
(b) if there was no such restriction then why would you emphasize and include "double taxation" clause in each and every tax treaty between the USA and the other country . Each and every code section is for a reason ( even if we don't agree with the clause ).
(c) section 901 of Revenue code :
"(c)Similar credit required for certain alien residents
Whenever the President finds that—
(1)
a foreign country, in imposing
income, war profits, and excess profits taxes, does not allow to citizens of the United States residing in such foreign country a credit for any such taxes paid or accrued to the United States or any foreign country, as the case may be, similar to the credit allowed under subsection (b)(3),
(2)
such foreign country, when requested by the United States to do so, has not acted to provide such a similar credit to citizens of the United States residing in such foreign country, and
(3)
it is in the public interest to allow the credit under subsection (b)(3) to citizens or subjects of such foreign country only if it allows such a similar credit to citizens of the United States residing in such foreign country,
the President shall proclaim that, for taxable years beginning while the proclamation remains in effect, the credit under subsection (b)(3) shall be allowed to citizens or subjects of such foreign country only if such foreign country, in imposing
income, war profits, and excess profits taxes, allows to citizens of the United States residing in such foreign country such a similar credit."
So my conclusion stands. At the same time I must admit that I have no idea if the IRS actually checks the form 1116 to determine if the foreign source country is one with a treaty or not. Very few countries do not have a tax treaty with the USA ( one is Brazil ).
Does this help ?
