@margz , I have gone back and refreshed my memory on this :
(a) Looked at the instructions for form 1116 ---- 3a is from Schedule-A except for interest expense deduction and 3b is all other deductions that are not definitely connected to the foreign source income, This kind of lines up with your post regarding itemized deduction allocation.
(b) looked at the internal document / instructions from TubroTax regarding populating the boxes on form 1116. Here they are taking all the itemized deduction and distributing these to lines 3a and 3b. kind of in line with the specifics of IRS instruction for form 1116.
(c) Gambling loss ( limited by winnings) is entered on line 16 and therefore flows on to form 1116 , line a or line b. IRS suggests in its instruction to include all other "not definitely related to foreign income source expenses " such as alimony which is an adjustment to Gross income ands on Schedule-1.
(d) The question here is what is the form 1116 trying to do --- it is trying to collect all the foreign income and all the world income to get a ratio of Foreign Source income to World income. Then since all the deduction/ adjustments that are not connected to any source ( i.e. like standard deduction or itemized deductions and adjustments) be allocated ratably to Foreign Source and US source income. What you are achieving out of this is to be able to allocate the tax burden to foreign source income and to US sourced income.
Thus my position is that the gambling loss ( line 16 of the Itemized deduction ) can be allocated to either 3a or 3b -- the end result is the same. In a perfect world it should be on line 3a but either one achieves the same result -- the allocation of all deductions and adjustments equitably between the Foreign Source and US sourced incomes.
I rest my case
Is there more I can do for you .
