Blocked dividend income in Russia

[zorlat]

I have a dividend income that is blocked in Russia due to sanctions. I also need to file IRS Form 8938 in TutboTax, which offers the following check-box: "This account did not have income, deductions, or credits associated with it in 2024." If I want to defer taxes due to blocked income, how should I answer this question?

[DaveF1006 · Accepted solution]

While the income is blocked you must file an information return with your tax returns using another Form 1040 labeled “Report of Deferrable Foreign Income, pursuant to Rev. Rul 74-351.”  You must declare on the information return that you will include the deferrable income in your taxable income in the year it becomes unblocked and finally that you must also state that you waive any right to claim that the deferrable income was includible in your income for any earlier year. 

Please read the following Link provided below and read the sections labeled Blocked income. As an FYI, make a copy of your 1040 generated in your return and then written on a separate statement is where you would report the information required. Be sure you write on top of the 1040 "Report of Deferrable Foreign Income, pursuant to Rev. Rul 74-351". 

You will need to print and mail your return, including the second 1040 as well as the written statement.

Publication 54

[zorlat]

Thank you DaveF1006!

Is it allowed to claim Foreign Tax Credit on received dividends if that income is claimed as blocked and deferred?

[DaveF1006 · Accepted solution]

Blocked dividend income, such as dividends restricted in Russia due to sanctions, presents unique challenges for claiming the Foreign Tax Credit (FTC). Generally, the IRS allows taxpayers to defer reporting blocked income until it becomes unblocked and accessible. However, during the deferral period, you cannot claim the FTC for taxes paid on that income.

Once the income is unblocked and included in your taxable income, you may then claim the FTC for any foreign taxes paid, provided all other requirements are met. It's important to follow IRS guidelines, such as filing an information return and declaring the deferral under Rev. Rul. 74-351. This ensures compliance and allows you to claim the credit when the income becomes taxable.

Publication 54

[zorlat]

Thank you for your answers!
If I decide to defer taxes on blocked foreign dividends and claim FTC after the dividends get unblocked, should I check the box "This account did not have income, deductions, or credits associated with it in 2024." in the Form 8938 for 2024?
Thank you for your help!

[DaveF1006]

Yes. If you have room, you may indicate it is blocked income as well.  If there isn't enough space, keep your documentation handy just in case ‌the IRS requires more additional information about your blocked income at a later time.