Form 1116 - HTKO/negative number - TT stuck on "Any foreign source qualified dividends or long term capital gains?" - BUG?

[dxf]

I am trying to fill in form 1116. I have foreign tax credit which fits HTKO definition. Following IRS instructions, I fill in 1 form 1116 general income with country HTKO and gross income. Then I fill in another form 1116 passive income with 2 countries defined: The actual country income tax was paid and another HTKO with gross income as a negative value.

Following TT interview, all is well up to the Country Summary so I hit Done. The next screen asks me "Any foreign source qualified dividends or long term capital gains". I am supposed to indicate whether part of the income is from qualified dividends and the only button available then is Continue. Regardless of the entries for foreign qualified dividends, the Continue button does nothing and I can't get passed it to go to the next screen. I am stuck.

I tried many variations, tweaking the form directly, entering forms in a different order but the only way I can get passed it is by using a positive number for the passive income HTKO entry (which increases my tax return amount and is incorrect).

Per IRS instructions:

High-taxed income.

 On your Form 1116 for passive category income, passive income that is treated as another category of income because it is high taxed should be included on line 1a in the column for the country entered on line i. Also, enter the high-taxed income in the "HTKO" column on line 1a as a negative number. On your Form 1116 for the other category of income, the high-taxed income should be entered as a positive number on line 1a in the "HTKO" column.

Help? TT bug?

[rogge1722 · Accepted solution]

The reason that screen is locked up is because the negative entry in the htko column is influencing it.  I suggest the following technique.  Assuming the general category is copy1,  delete the passive category f1116.  Go to the foreign tax interview and complete the interview for the country only.  It will be the same as any interview with the addition of a negative entry for the screen asking for the HTKO amount.  Do not include a 2nd country named HTKO  during this interview.  When you are completely done and have exited the interview, go to FORMS mode.  The HTKO will be done manually.  Bring up the f1116 worksheet.  Put the pointer for the country and from the dropdown box, select HTKO.  Then on 1a, next to the positive entry in column A, insert the same amount as a negative.  TT will fill in some more data below.  Bring up the f1116 itself.  You should see lines 2 thru 5 vacant and the entry in line 6 is  the same as in column A, only negative.  Also line 14 should be zero as the HTKO on line 13 offset the amount in line 9. 

[dxf]

Hi, thanks a lot for such a quick reply on a Sunday!

Your proposed workaround is working. However, once I have manually entered the HTKO column, I can't go through the interview again (I am using estimated values until I receive the exact foreign tax amount, I'll have to adjust everything directly on the forms). Combined with the other challenges regarding entering each form 1116 in sorted order from higher amount to lower amount knowing that I also have a small foreign credit from a 1099 DIV, it makes the overall process quite convoluted. Could you suggest an enhancement of the f1116 handling for next year's TT release? I am expecting to go through the same every year and would love to see it a little easier. I also noticed that the Error checking mechanism was pretty weak for form 1116.

Regarding your specific instructions:

You should see lines 2 thru 5 vacant >>> Confirmed.

and the entry in line 6 is  the same as in column A, only negative. >>>  I think that's how it should be but not what I see in TT. I have expenses in line 2 and line 3g filled out for the country. But my line 6 has different amounts (in absolute value) between country and HTKO columns. My HTKO line 6 is the same as my country line 3g only negative. However per IRS:

Add all deductions that are definitely related or apportioned to passive income that is treated as another category of income because it is high taxed and enter the total amount of those deductions on line 6 in the HTKO column. Enter the amount as a negative number on your Form 1116 for passive category income. Enter the amount as a positive number on your Form 1116 for the other category of income.

>>> My interpretation is that my HTKO line 6 should be my country line 3g + line 2 amount, only negative (basically as you mentioned, same absolute values). Looks like TT's interpretation is line 3g only based on what I see. What do you think?

Also line 14 should be zero as the HTKO on line 13 offset the amount in line 9. >>> Confirmed. I do have some RIC/1099 DIV that show up on line 14 but it would be zero if I didn't.

[rogge1722]

With regard to the issue of re-visiting the interview with the negative value causing screen lockup, I suggest going to Forms Mode and changing the negative entry in 1a to a positive as a temporary expedient.  After the interview is completed, then change the sign back to a negative.

With regard to the entry in line 6 of the HTKO column, further testing shows that it is using line 3g only.  Even putting entries into lines 2, 4a, 4b, and 5, TT added them in line 6 of the country column but ignored them in line 6 of the HTKO column. My guess is that TT interpreted the phrase “all deductions that are definitely related OR apportioned to passive income” as meaning using line 2 OR line 3.  As line 3 will have at least the standard deduction, I guess TT decided to use line 3 as an option. If you think it is incorrect, there is the override option which will require filing a paper return.

[dxf]

Good advice, I'll make the HTKO positive with a flag as a self reminder to change it back later.

My guess is that TT interpreted the phrase “all deductions that are definitely related OR apportioned to passive income” as meaning using line 2 OR line 3.  >>> Since it is consistent between the HTKO general income category and HTKO passive income category, I realized the final tax amount number doesn't change regardless of the interpretation. So I'll trust TT calcs and submit electronically. After all, TT calcs are guaranteed so I should be covered.

Thanks a lot for your help! I was going to give up and go to a CPA without your help.

[Rare contributor]

I am afraid I have encountered another TT bug. That is, with copy 2 of form 1116, which is for General Income in my case, if I try to print/save it to PDF, page 2 (the one that contains Part III and Part IV), does NOT get printed/saved !

Have you tried it and experienced the same behavior ?

I am concerned that this important information won't then get transmitted to the IRS when e-filing. On other hand (do I feel lucky ? 😀), I hope the format used for transmission to the IRS is different and will send ALL the information, and that the bug only exists in the conversion to PDF.

Interestingly that problem does not exist for the Copy 1, which in my case is the one for Passive Income.

I would be interested in your feedback, to see if it is something that only affects me, or is shared by others.

[rogge1722]

If Copy 2 is the same category of income as Copy 1, only the 1st page of Copy 2 is displayed.  If you make sure that Copy 1 is passive income and Copy 2 is general  category, if for some reason  TT is locked up, you might try toggling Copy 2's category of income several times to see if that works.

[Rare contributor]

Not sure I am toggling category of income in the right manner.

For my part, in the Copy 2 computation worksheet, I have checked a different category (it was originally as General Income, so should be right, as Copy 1 was Passive Income), saved the return and did a Print/Print prview. This different times, checking different income categories.

Well everytime no success, that is only page 1 (Part I and II) is displayed.

[rogge1722]

About the only thing I can suggest is delete Copy 2, then re-visit the Foreign tax credit interview and redo it over again. 

[VickiN]

Thanks rogge1722 for these instructions. I have been following them but I got stuck at this step

"Put the pointer for the country and from the dropdown box, select HTKO.  Then on 1a, next to the positive entry in column A, insert the same amount as a negative"

I am not sure where to enter the negative number.   Should it be in line 1a, column B? 

Thanks for your help.

[rogge1722]

Yes, the amount would be inserted in line 1a of column B as a negative amount.  If column C is vacant, then the amount in the "Total" column on the right side for 1a is zero.

[VickiN]

I did as you instructed. The end result was that I got a foreign tax credit of zero. Is that an expected result? That would mean that on top of the 40% tax I already paid to a foreign country, I would pay an additional amount equal to the US income tax on the capital gains since they are now classified as general income.

[rogge1722]

That is correct.  On the f1116 for the “passive category income”, the tax credit is zero.  It is on the “general category income” f1116 where you will get a tax credit.  Also if you intend to e-file, the general category must be “copy 1” and the passive category must be “copy 2”.  That is due to the fact that the 1st copy must state the greater tax paid.  If you file by paper, it doesn’t matter which category of income is the 1st copy.