Thanks for a thoughtful response, and also for the reference to code section 904. I agree that it would "feel" better if item #1 equals the sum of item #2 and item #3 in my example. But if I take your suggestion (look at the trust's 1041 line 9 (total income) and apply my beneficiary's %), item #1 still would not equal the sum of item #2 and item #3. What WOULD work, at least from an arithmetic standpoint, would be to use the amount on line 3e of the trust's Form 1116 (gross income from all sources) and apply my beneficiary's % for the amount in item #1.
Now here's where it gets confusing. Section 904 refers to the taxpayer's "taxable income." It seems to me that the beneficiary's "taxable income" from this Schedule K-1 would be the amount shown in Box 14, Code E. After all, the trust is distributing net income (DNI) to the beneficiaries and deducting the DNI from its income; the beneficiaries add the DNI to their income. pay taxes on the net income distributed.
So, to make the sums work out, rather than the hybrid approach I started with, I can either 1) say the beneficiary's "entire taxable income" is the Box 14, Code E amount and the beneficiary's foreign source taxable income is the trust's gross foreign source taxable income times the beneficiary's general allocation percentage; or 2) say the beneficiary's "entire taxable income" is the trust's gross income from all sources from the trust's Form 1116, line 3e, times the beneficiary's general allocation percentage and the beneficiary's foreign source taxable income is the trust's gross foreign source taxable income times the beneficiary's general allocation percentage (in which case both the trust and the beneficiary would have the same ratio of foreign source taxable income to entire taxable income, which also "feels right," despite some dissonance with the DNI point outlined above). In both cases, the U.S. source income would be the difference between the other two numbers. I guess I'll try them both and see if there's a difference in the foreign tax credit on the beneficiary's return. The numbers are such that the difference between these approaches is likely immaterial, although I suppose it's possible that Turbotax might flag an error of some sort.
I suppose I should note that all of the "foreign source income" and "foreign taxes paid" on the beneficiary's Schedule K-1 are from a single mutual fund (RIC) investment and that the trust distributed all of its DNI. The beneficiary paid foreign taxes on some personal investments that also will figure into the calculation.
I'd appreciate any additional insights you might have.
