Form 1116 -- Foreign Tax Credit Comp Wks: Adj Basis Fgn Assets

[Fred_Fandango]

Another maddening frustration with Turbotax that persists year after year. If you have several mutual funds that pay foreign taxes, you'll want to take advantage of the tax credit. The amounts can easily rise above the safe harbor. If it does, Turbotax will complete Form 1116s. These are very complicated and the software doesn't collect all the data needed during the interview. You'll get errors and you won't know what to enter for the values requested. For example, you'll need to enter the Adj Basis Fgn Assets. Your mutual fund company won't provide this value. Presumably this is the total value of your investment in the mutual funds that paid the taxes. Where do you get this information? Value at what time? What adjustments do you make? Why does Turbotax release broken software year after year? I suppose it is because it has a monopoly and no incentive to fix its product. Federal Trade Commission and Department of Justice: Are you listening? Intuit is a monopolist that is harming the public.

[pk · Accepted solution]

@Fred_Fandango   I don't  know  what to say other than 

(a)  TurboTax Foreign Tax Credit form 1116  worksheet pretty much follows the instructions  for form 1116 published by the IRS.

(b)  The frustration that  users feel  in trying to find  items/figures  that TurboTax asks for  are really from the  instructions  themselves.  The root cause , IMHO ,  are statutes  themselves are really not  taxpayer friendly.   And not  to the advantage of the common taxpayer.

(c)  The statutes themselves  section 901 through 906 and specifically section 904, begrudgingly  provides and limits the credit  to  ONLY a maximum  of what US would have  taxed the same  income.  This credit is ONLY applicable  for countries with whom US has tax treaties in effect and with double taxation clause in  effect..

(d) another complication is  that it tries to allow adjustment for cases  where the treaty also calls for a tax rate  of no more than xx%, thus needing adjustment of  the gross foreign income.

(e) On your particular issue of  " adjusted basis" of foreign assets   ( or foreign  source income ),  :

        1.   For most assets ( when you are selling ) basis  does not need adjustment.  However, if the  tax treaty calls for  a fixed rate of taxation then  adjustment is the way to achieve this  effect.  IRS instructions call this adjustment factor.  TubroTax just applies this based on your entry.

         2.  For  Mutual fund  dividends  / interest etc. , generally there is no need for adjustments , except for cases  ( very few ) where the  treat calls for  fixed rate of taxation.

          3.  Note that most Mutual funds  call out the  foreign taxes paid ( your share of the taxes ) but do not directly tell you  your share of the foreign source income -- you have to  get this from the  broker or from the back pages  of the consolidated broker report -- what percentage of  income was from foreign source country.  It is complicated.

 Thus   while I sympathize with you about the complexities of filling out the form 1116 / worksheet for form 1116,  I cannot subscribe to the contention the software is  " broken " for  this particular issue   and only on windows version of the product  ( I am not familiar with the screens  & questions  for the  on-line product ) .  I also agree that some of the wording on the windows product could have been better designed  to reduce  confusion.

That is my personal view.

Is there more I can do for you?

[Fred_Fandango]

The software is broken because it doesn't ask what is required to complete the form during the step-by-step process, so that an error is generated. The error is flagged but the software does not provide instructions on how to fix the error. It is very confusing and the Turbotax customer is left with making up a solution. This must be a common problem affecting many Turbotax customer. There are many mutual funds that report foreign taxes paid and for nearly everyone the best way to deal with this is to take a tax credit which requires Form 1116 if the total amount paid in foreign taxes is $300 for a single filer ($600 for married couples filing jointly).

[pk]

@Fred_Fandango  If between my explanations above, the instructions  for the form 1116 ( IRS), reading of statutes I referred to, and TurboTax help  files does not help, I don't know how to  provide more help on this.  At the same time I do recognize  that filling out this form is not easy -- one just has to keep in mind what the purpose of the form is.

 As you are perhaps aware that we are all volunteers here , helping users -- there is NIL financial or other connection to Intuit / TurboTax or similar products.   The opinions expressed / implied are my own based on my own knowledge & experience.

Is there more I can do for you /

[Fred_Fandango]

Thank you for donating your time to help hapless Turbotax users to navigate the broken Turbotax software. It is outrageous that a monopolistic company that lobbies against the IRS providing free software to complete the impossible job of filing taxes takes advantage of the kindness of people such as yourself. Why don't paid Intuit employees monitor these forums, provide accurate and complete answers, and then report back to Intuit programmers to fix the broken software? The fact of the matter is that filing taxes is too complicated to do without software. The federal government should provide the software necessary so that taxpayers can do their own filing accurately. Intuit lobbies to maintain their monopolistic position in the market.