Switch COPY 1 and COPY 2 of Form 1116

[carlos3]

If one is claiming a foreign tax credit and has multiple categories of foreign income, then one must fill in a separate Form 1116 for each category. Part IV of Form 1116 (the part that sums all credits) is only filled in on one of the forms. TT completes Part IV on COPY 1 of the form. I made the mistake of ordering my Form 1116s with COPY 1 (re-sourced) listing the largest tax paid, and COPY 2 (passive) listing the next largest tax paid. (I only have two categories of foreign income.) Normally this would not have been a mistake, since one usually receives a larger credit for the income category with the larger tax. Upon re-reading the IRS's Form 1116 instructions, I note on page 23 that the copies should be ordered with Part IV being completed on the one with the largest credit (i.e., what is listed on the forms' line 24). So here is my problem: Is there a way for me to reverse COPY 1 and COPY 2 of my 1116 forms in TurboTax, or do I need to re-enter everything? An observation: I noticed that deleting the copies erases my entire history of carryovers when I try to create new copies of Form 1116, so that does not seem to be a reasonable option. (Maybe the best option is just to edit the two copies such that the information is reversed.)

[rogge1722]

From TT's guidance:

Due to complexities in how the foreign tax credit is computed it is possible in some situations that the income with the most taxes may not be the income that generates the largest foreign tax credit. If following these instructions still results in an error during Smart Check related to Form 1116, Line 24, then that is what occurred. You'll need to revisit the Foreign Tax Credit interview and delete the first copy of the form. Complete the interview, and then start again and re-add the information from the copy you deleted. This will re-order the forms. Visit Smart Check again to see if the correct copy is now first (i.e. the error has gone away). Repeat this process until the form with the largest credit has moved to the beginning.

[carlos3]

Thanks for your thoughtful response, rogge1722. Actually, TT's Smart Check is not where I obtain an error. It's when I try to e-file the return and the IRS responds with the rather cryptic message, "Pleae review the "ForeignTaxesPaidOrAccruedDT" on Form "1116" in the section "ForeignTaxCreditSource"." Note that I get the same error message even after deleting and reentering the 1116s in the correct order. I've gone over everything carefully, and at no point have had any error messages from Smart Check. So it looks as if I'll need to submit my 2020 taxes by snail-mail this year. What do you think?

[rogge1722]

That error has been posted numerous times in this forum and no one can explain how or why it occurred.  This is the first  time I've ever seen it.  I suspect that there is a problem with the e-filing system and probably TT is aware of it.  I would suggest waiting for awhile and check the postings from time to time to see if the error has been fixed.

[carlos3]

So the error originates with TT and not with the IRS?

[rogge1722]

At this time, I have no idea where or what is causing that error.

[carlos3 · Accepted solution]

For completeness, let me provide a solution to my initial question: At this time there is no way for TT to automatically switch COPY 1 and COPY 2 of Form 1116. In my Deluxe version of TT 2020, I tried following rogge1722's instructions but discovered that when COPY 1 is deleted, COPY 2 does not automatically become COPY 1. Fortunately, this can be easily changed by manually changing COPY 2 to COPY 1 at the top of each form. (Moreover, the change also nicely makes parallel alterations in any AMT copies.) At this point, you can create a new COPY 2 by re-entering the information step-by-step that was on the deleted former-COPY 1. But be warned: Be sure to first write down any carryover information stored in TT, since deleting the 1116s deletes this information as well.

This brings me to a suggestion for TT's developers:

Consider what currently happens when one does not delete COPY 1, but goes to the forms and simply renames COPY 1 to COPY 2 and COPY 2 to COPY 1: All the information in both copies is retained, yet this renaming does not automatically shift the Part IV information in the Form 1116s from the new COPY 2 to the new COPY 1. Wouldn't it make sense to have TT automatically put the Form 1116s' Part IV information in COPY 1, remove it from all other copies, and have Smart Check verify that the tax return has no more than one COPY 1 (plus that COPY 1's line 24 is the largest line 24 among all the Form 1116s)? Just a thought.