Thank you for this, PK. I appreciate the time you put into my problem.
Since my original post last night (April 10), I’ve done some further research regarding the TurboTax.intuit.com article > Claiming the Foreign Tax Credit with Form 1116 > Foreign Tax Credit Without Form 1116. I was interpreting their three bullet point exceptions as each being an independent exception for the need to file form 1116. However, after consulting the IRS.gov instructions for filling out form 1116, the instructions make it clear that all of the three bullet point exceptions are required in order to qualify for being exempt from filing form 1116.
I think that the TurboTax article is somewhat ambiguous and confusing, the way it presents filing for the foreign tax credit without form 1116. The article talks about a qualifying definition in the first sentence, but then goes down to say “for example,” followed by the three bullet points, making me think that each bullet point was a qualifying definition. Perhaps I am the outlier to how most people would interpret the way TurboTax presented the section Foreign Tax Credit Without Form 1116.
My misunderstanding of the actual qualifications needed to claim the foreign tax credit without filing form 1116 made me think that TurboTax’s refusal to grant me a foreign tax credit in excess of $600 (in my case $610) was a glitch in the program. I was wrong and TurboTax will properly file with or without form 1116 based on the inputted foreign tax paid.
PK, to your tax simulation, I have no doubt that TurboTax performed as it should. What I would be interested in, were you to do another simulation (for married filing jointly), where the foreign tax credit is, let us say $700, whether Turbo Tax would grant the full $600 foreign tax credit or some lower amount based on the criteria you used for foreign dividends.
I have concluded that it is just one of the perversities of the tax code that you can get a full $600 foreign tax credit, no questions asked, if this is the amount you enter on line 7 of form 1099-DIV TurboTax worksheet. However, if you were to enter on line 7 an amount greater than $600 (let’s say $650), it is my belief that TurboTax will calculate a substantially smaller foreign tax credit than the “safe harbor” amount of $600 (based on the criteria for foreign dividend amount and country or entity paid entered), creating a carryover of the difference to the following year. This seems fundamentally unfair to foreign taxpayers such as myself.
PK, you seem very knowledgeable about taxes and tax laws, and I am not questioning your assertion that a $600 safe harbor provision exists. The only way that you could utilize this maneuver in TurboTax would be to enter $600 on line 7 of the TurboTax worksheet instead of the actual greater amount. I find it odd that TurboTax does not give filers who have a de minimis amount of foreign taxes paid over $600 the suggestion to not enter the actual amount but only the $600 amount to avoid filing form 1116. I would certainly have done so had TurboTax suggested that as a viable option to avoid the rigamarole of filing form 1116.
Any further thoughts?
Many thanks.
