Foreign Tax Carryover - Greater Amount Utilized than Amount Incurred

[Anonymous]

Hi all,

In 2020, TurboTax calculated a larger foreign tax credit ($91) for me than the amount of foreign taxes I incurred that year ($65) due to a positive carryover from previous years. However, unbeknownst to be, on the "Foreign Tax Computation Worksheet" for Form 1116, this was not reflected. Instead, on the worksheet, the amount utilized that year was set to match the amount incurred that year, even though on Form 1040 Schedule 3 Line 1 it showed the larger utilized amount ($91).

This became apparent to me now that I am preparing my 2021 taxes, as I got the warning - "Incoming C/O Utilized should not reduce the foreign taxes below 0" - shown in the below screenshot as part of the Smart Check. To make this warning go away, it appears I just need to set the amount utilized equal to the amount incurred that year. However, since that is incorrect (i.e., I actually utilized a larger amount), this will create an incorrect carryover total. In other words, TurboTax will think I am carrying over more money than I actually am. Can anybody speak to this (e.g., @SteamTrain and @AliciaP1)?

Thanks!

[victor29]

I've had the same issue, after contacting Turbotax support they instructed me to do as follows:

1. go back to the page in which I filed out the amounts of foreign tax utilized in each year

2. for each year in which the "utilized" value is higher than the "foreign tax" value, I should instead set utilized to be the same as the foreign tax, and the difference should be included in the "utilized" from a previous year (I assume it's better to add to the earliest year, so you get to retain the carryovers for longer).

In your case, that would mean setting 2020 "utilized" to 65, and adding the difference (91 - 65 = 26) to the Utilized column from a previous year (e.g. if 2011 utilized was 100 and foreign tax paid was 200, change the utilized to 126).

I hope that helps.

[rogge1722]

I suggest bringing up form 1116 for TY2020 for inspection.

One line 9 is the current tax paid for TY2020. That amount appears on the carryover sheet under "Foreign
Taxes". It shows $65. Since you used all of it , then the amount utilized is $65 and results would be zero in the carryover column.

Since you had a credit for $91, where did the extra $26 come from? It came from your TY2019 carryover. You can think of a carryover as a "reserve" that can be used if the current year  tax paid is less than your limit. It had to be at least $26 and would show up on form 1116 on line 10. If the carryover was $26 and you used $26, then the carryover for TY2019 would be zero, but it is blank.

[Anonymous]

@victor29 

Thanks for sharing! That said, rather than allocating the "excess" amount, I wonder if it wouldn't just be better to ignore the Smart Check warning and file the return as is. Any idea whether TT allows this? If not, I'll try it and report back.

@rogge1722 

"where did the extra $26 come from? It came from your TY2019 carryover. "

Technically, yes. But as you can see in my screenshot, in TY2018 and TY2019 I did not incur any foreign taxes, so really the extra $26 came from TY2017 which is the last time I incurred foreign taxes. As it relates to TY2018 and TY2019, my understanding is that blanks = zeros.

[victor29]

@Anonymous 

As far as I know it will not allow you to e-file without fixing the check, but it might be possible to file by mail.

[rogge1722]

The carryover from TY2017 should have appeared in form 1116 line 10 for TY2020 even though there was no foreign tax activity for 2018 and 2019. 

[Anonymous]

@rogge1722  - that's correct. The carryover from TY2017 appeared on Form 1116 Line 10 in TY2020.

[Sky Mile]

I have the same problem here: and for the first time - this has never flagged in prior years, just this year. The turbotax error messages are calling out the negative entries. Any advice on what should be changed? for clarity, I had taxes in 2015 and small amounts of utilization since. The correct carryover amounts are appearing in my Form 1116, but now getting this error message

Should I change the "adjustments" section? Or something else?

[MarilynG1]

Yes, it looks like the Carryover Amount for 2016 should not be -3,561, but rather 59,756.  Are you able to change the amount in Forms mode? 

The 59,759 carryover to 2021 is correct.

[antx2022]

Did you find the solution ?

I am also in same boat and seeing the negative carryover . Please help.

[melkmelk]

I came across the exact same issue like @Sky Mile  pointed out.

The situation is that I have some foreign tax credit initially occurred in 2019 (as a one off), and expected to carry over to 2020 and 2021, because I have constant foreign incomes.

- In 2019, foreign taxes paid is 14,929, utilized foreign tax credit is 5,370, carryover is 9,559

- In 2020, no new foreign tax paid (because payed as one off on 2019), but just utilized another 2,222 foreign tax credit from the carryover from 2019, and carry over for the next year is -2,222.

- In 2021, supposedly the carryover to 2021 is 9,559 + (-2,222)=7337  

The above all seems all make sense, however, TT returns error message "Incoming C/O utilized should not reduce the foreign taxes below 0".

@MarilynG1 , thank you for your advice to "Sky Mile"'s question 2 weeks ago, however, although you mentioned is making sense, however for the TT UI, it only allows us to input as the below fields. I think with the below UI, seems we are not able to input any ideal inputs to make it makes sense like you advised, right? (Because if i manually adjusted carryover for 2020 as 7,337, that would imply there is some new foreign tax occurred on 2020 as 9,559 (=7,337+2,222), but actually that's not the case.)

Your further advice is much appreciated, thanks a lot!

[antx2022]

I am in 100% same situation.

I have figured out a way to get past error but i think that may not be right with respect to income tax filing .

if you just add 7337 in 2019 under foreign taxes column and nothing else in utilized column and keep complete 2020 row blank, you will get correct calculation and also will get past the error, but i think this is not right way to file tax as it breaks the chaining and eliminates history .

[melkmelk]

@antx2022 :
Thank you, and yes the way you shared would make the eventual number looks right and bypass the errors, but agree with you that this compromised way would break the chaining and eliminates history, and that's not what we want.

Hope any TurborTax employees or expert users could kindly help with this, only 6 days left for the tax return deadline, thanks so much!

[antx2022]

How about we use the approach to eliminate error and then we can fill the form in desired format ? Will it work

Also, are you sure the way you have filled the form which you attached above is the format which IRS wants ?

If yes, then we can manually fill the form and mail it out.

This could be last resort .

Please suggest what you think of this approach.

Thanks

[melkmelk]

@antx2022 

I think I might find a solution, so in my case, I should input like this:

So all the tax occurred in 2019, since all the used ones are from that year, thus no matter I used in 2019 or 2020, all should be inputed as "used" under 2019, rather than input as used separately in 2019 and 2020.

Thus in 2019, my used one should be 7,592 (5,370 used in 2019 + 2,222 used in 2020).

Hope this helps and please feel free to share if you have different opinions.

By this way, seems every form all makes sense then.