Foreign income is usually treated as a "lump" with no distinction between source, assuming that they are all the same type of income ( say wages, self-employment etc. ). Of the unexcluded income, eligible for foreign tax credit, the most correct accounting method would be to allocate the tax based on some criteria such as amount or effort spent etc. But nothing stops a taxpayer from choosing to allocate the tax in a manner that is best for the tax payer -- just do it consistently year after year. for example if you had 140k in income and 30k total foreign tax, foreign exclusion ( say ) for the year being 90K, the easiest way to allocate would be to apply the 30K to the total 140K and therefore the foreign tax eligible for credit would be 0.2143 ( over all foreign tax rate ) times 50K ( unexcluded income ) = 10K, the other 20 K having been allocated to the excluded income. Suggest you work out some similar methodology and stick to it. If IRS challanges it, they will question the method and that it unfairly benefited you-- it is not so easy to prove that and may not be worth the turmoil
