Clarification please for TT guidance completing foreign tax credit interview

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I've read several times the TT special instructions when multiple categories of foreign income are present.  However, I continue to be unable to enter all the foreign taxes paid via the interview.  This is my situation:  all foreign tax paid is on passive income; all foreign taxes paid are documented on two 1099-DIVs, one from a brokerage account and the other from a different company that deals predominantly with mutual funds.  On the 1099-DIV from the different company, all the foreign tax paid was by a single mutual fund and it is a RIC.  On the 1099-DIV from the brokerage account, there are several holdings that paid foreign income tax.  Some of them are RICs, other portfolio items are enumerated by the name of a county.  I can't figure out how to organize the entries to satisfy the requirements to file electronically.  The single highest dollar amount of foreign tax paid is from the RIC at the mutual fund company.  The second highest would be the sum of the 3 RICs on the brokerage account and then the single country items in the brokerage account's 1099-DIV.  Should my first copy of the 1116 be only for the RIC on the mutual fund company's 1099-DIV or should if be a consolidated reporting of all the RICs from both of the 1099-DIV's and then redo the interview for a second copy of the 1116, addressing the brokerage account listings of the individual companies by name?  In fact, I'm not even sure if each RIC on the brokerage 1099-DIV requires it's own copy of the 1116 or if they can be consolidated on one RIC report.  I saw a very similar inquiry from 2 years ago and the only solution offered was to mail a hard copy return with photocopies of the relevant pages from the 1099s documenting the foreign taxes paid and a cover letter essentially requesting the IRS to finish properly filling out the 1116(s)!!  I don't want to go that route, or now pay a tax preparer when I've already completed 95% of my federal and state returns.  Besides, that won't enable me to do it correctly next year. 

[rogge1722]

You only have one category of income; passive.  It doesn't matter which country is entered first.  Here is the general technique to insert multiple countries.

TT can support only one country per 1099.  Here is a suggested workaround .

This is an example of the preparation to fill out a form 1116 for taxes paid by 3 countries within a 1099-DIV.

They are:

 a: RIC which includes all mutual funds/ETF”s

b: Canada

c: United Kingdom

Three fictitious 1099-DIV’s will be created.  The original 1099-DIV will be used for domestic income only.

Bring up a new blank 1099-DIV.  For convenience name the payer the same as the country it represents. In this case the payer is RIC.  From the broker’s supplemental info, insert into box 1a the ordinary dividends from any and all mutual funds/ETF’s.  In box 1b, insert all qualified dividends form all mutual funds/ETF’s.  In box 7, insert the foreign tax paid from all mutual funds/ETF’s.  That completes the 1st fictitious 1099-DIV.

In your case that includes any and all RIC's from both brokers.

Bring up a 2nd blank 1099-DIV.  Name the payer Canada.  In box 1a, insert all the ordinary dividends from Canada; in box 1b all the qualified dividends from Canada and in box 7 the tax paid to Canada. That completes the 2nd fictitious 1099-DIV.  Again both brokers if the country is contained in both.

Bring up a 3rd blank 1099-DIV.  Name the payer U.K. In box 1a, insert all the ordinary dividends from the U.K.; in box 1b all the qualified dividends from the U.K.  The U.K. does not withhold taxes, but TT must see an amount in box 7 during the interview.  Insert $1.00 into box 7 and subtract $1.00 from box 7 of either of the previous fictitious 1099’s.  That completes the 3rd fictitious 1099-DIV.

On the original 1099-DIV, subtract all the foreign amounts from box 1a so that only the domestic ordinary dividends remain. Subtract all foreign amounts from box 1b so that only the domestic qualified dividends remain. Delete the amount in box 7, the foreign tax paid.  This applies to both 1099's.

If there are more than 3 countries, TT will automatically generate additional F1116 copies as necessary

If there are more than 6 countries, the screen with the header “Report foreign tax paid to XXX” will only

display up to 6 payers. Additional payers are on the following screen.

It might be a good idea to do some preliminary work with a spreadsheet to prevent any errors.

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Thanks for your extremely detailed but for me impossible task.  That's because my Broker's supplemental material doesn't include ANY 1099_DIV data, e.g. boxes 1a and 1b in the supplemental material.  The only information I have is a single, consolidated 1099-DIV for the entire portfolio and a table listing all the securities by name that paid dividends, whether those dividends were U.S. derived, or foreign country (un-named for RICS or named) derived, the dates and amount of each payment, and in the case of the foreign country derived dividends, the date (and amount if any) of foreign taxes paid in conjunction with each dated dividend payment. 

Also, I'm a little confused because your work around didn't address my confusion pertaining to TT's guidance to ensure that the highest dollar value tax paid item is dealt with first.  You said to enter all the RICs from both 1099-DIVs as a single consolidated entry.  However, that comprises 1 RIC associated with one of the 1099- DIVs and 3 RICs associated with the other 1099-DIV.  To clarify, are you suggesting that I create a total of 3 1116 forms, one for all 4 of the RICs, plus one for each of the 2 named country securities that are associated with the same 1099-DIV associated with 3 of the 4 RICs?  If so, since the sum of foreign taxes paid by all 4 of the RICs is a larger dollar amount, then my first 1116 should deal with "RIC"?

Finally, it sounds as though I'm going to have to (1) violate the IRS guidance to strictly transfer the numbers from the 1099 onto the tax return form(s) as they appear on the 1099, and (2) try to find the relevant area in a very long and complicated worksheet for each 1116 because TT says to never enter or edit anything directly on the form 1116 but to do all entry work on the associated worksheet.  I've done the entire remainder of the return strictly using the interview mode.  I'm not a CPA, tax attorney, etc.  and use TT because of it's interview mode.  I don't trust my ability to follow your directions without messing up something and ending up with a boatload of red flags that currently aren't there.  The TT help document, "Special Instructions When Multiple Categories of Foreign Income Are Present" makes it sound to me as though the interview mode should enable the entry of data in my situation and I really only have 1 category of foreign income (passive).

Thanks!

[JulieS · Accepted solution]

When all of your foreign tax is on a 1090-DIV or similar, it isn't very complicated to enter the information in TurboTax. You don't have to enter every single country, you can use Regulated Investment Company (RIC) as your country. 

This is how to report that in TurboTax online:

1. Select Federal on the left, then Deductions & Credits.
2. Scroll down to Estimates and Other Taxes Paid, expand the section.
3. Find Foreign Tax Credit, and click Start to the right.
4. Click Continue, until you get to, Do You Want the Deduction or the Credit? select Take a credit.
5. When you get to, No Other Income or Expenses, select Yes.
6. When you get to, Choose the Income Type, select Passive.
7. On Country Summary, click Add a Country (below the gray bar).
8. Select RIC (Regulated Investment Company) as the source.
9. Continue through the end of the section. 
    

[rogge1722]

In addition to RIC's, how many distinct countries are involved?

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Two named countries.  (I'm tempted to try to satisfy TT by combining them (they are reported on the same brokerage account consolidated 1099-DIV) and designate "various".  If TT accepts it, I'll just deal with the IRS if they complain.  Shouldn't change my entitlement to a full tax credit.) 

None of the answers to date have addressed directly my confusion about how many copies of a 1116 I need to prepare.  To summarize my inputs:

1099-DIV #1 is from a large U.S. mutual fund company.  Each mutual fund in my portfolio with that company has a separate row.  1 mutual fund reported box 7 foreign income tax paid.  That mutual fund is a RIC. and the foreign tax paid is $306.65.

1099-DIV #2 is a single row consolidated brokerage account tax package document combining data from every security in the account.  The only information provided on the 1099-DIV pertaining to foreign taxes paid is a single, consolidated box #7 entry and below the actual 1099 is a table listing each individual security in entire brokerage account and lists by security the date and dollar amount of each domestic and foreign dividend distributed as well as the date and dollar amount of each foreign tax payment by each security.  Five  securities paid foreign taxes.  Those 5 are: (a) 3 U.S. mutual funds (RICs) and the combined foreign tax paid by those 3 RICs is $198.34;  and (b) 2 foreign owned companies, each of those companies categorized by the name of the foreign country where they are located.  The security located in one of those countries paid foreign taxes of $79.87 and the security located in the other country paid $132.98 in foreign taxes.

In summary, the foreign tax paid as reported on 1099-DIV #1 is $306.65 and the sum of all foreign taxes paid as reported on 1099-DIV #2 is $411.19.

Someone please tell me how to properly allocate the foreign tax information for these 6 securities among how many form 1116s, knowing that the dollar amount in copy 1 needs to be the largest.  There are so many permutations and combinations!

[rogge1722]

You have a total of 3 distinct countries.
You will only need 1 form 1116. You can use the example I gave as a guide.

Each country will occupy one column only on form 1116. From the supplemental info, extract all the ordinary and qualified dividends and tax paid for each distinct country. For the date paid, to simplify, you can use the default 12/31/2022. If you go thru and first put all this into a spreadsheet, you can easily transcribe it into TT.

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Follow-up.  I persisted by deleting the messed up 1116 form and its worksheet and tried again, using the steps recommended by Julie S.   I had tried that yesterday but decided to try again.  The dollar numbers  that TT automatically placed in the total foreign income received box was not what I had calculated for the brokerage account's tax package 1099-DIV, so I changed that number to reflect the information on the actual brokerage account 1099-DIV itemized table of dividends received, foreign dividends received, and foreign taxes paid for each security that had foreign income.  In the form view, there were still a few flags and pink highlights that I eliminated, using my best judgement about what to place either in each pink blank space or edit an already existing entry.  All the pink spaces and red flags disappeared.  In the end, TT prepared a tax credit that was a little lower than the sum of the foreign taxes paid (per the Box 7 entries) but I'll let the IRS tell me if they disagree.  If they do, most likely they'll send me a refund for over payment.  Thanks to those who replied! 

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I need to clarify my most recent previous comment.  Although I believe that I satisfied TT, in that my red flags disappeared and I was able to use the interview (step-by-step) interface to enter the data to reflect all the foreign income tax paid as documented on the 2 separate 1099-DIVs, (based on the suggestion offered by Julie S,) I haven't yet attempted to electronically file the return.  My standard for success will be met if the IRS accepts the return for processing.  I usually hold off filing my federal return until I have completed my State return, which I am still doing.  At worst, I can at least print out and mail the Federal return and await my destiny!