Fixing AMTFTC Simplified Limitation Election Error

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Due to an apparent faulty transfer into TurboTax a year ago from the PDF from another company’s software and my befuddlement in Step-by-Step, TurboTax says that I have elected the “simplified limitation” in calculating the foreign tax credit (FTC) for the AMT and am thusly constrained. The election only occurs in the first year that the AMTFTC is calculated. I have never been subject to the AMT, so the election has never been needed by the IRS. To fix this problem for Step-by-Step this year and following, do I have to start this year’s return over again without importing from last year’s TurboTax? Or is there an easier way? (For clarification, the “simplified limitation” should not be confused with the “adjustment exception.”)

[ReneeM7122]

Yes, something in last year's return is triggering an action in the software. 

The issue could be with Form 1116.  The Simplified Method is triggered when  the Foreign Tax Credit is claimed without Filing form 1116.  There is a penalty for this:  you can't claim a carryover of the credit from prior years.  If TurboTax doesn't see this form, it thinks you "elected" the SM.

When you imported the tax return, either the form isn't present, or something is causing a hiccup. This may not be the problem, so your best option probably is to restart your return.

Please follow these instructions to clear your return and begin again.

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As suggested, I started over completely from scratch with my return. It was more work than I thought. I did not import from last year’s return. I did import 1099-INT and 1099-DIV from a brokerage firm. I manually entered foreign tax credit (FTC) carryovers from prior years as regular FTC, and left AMTFTC empty because all years are zero.

I entered the foreign tax credit income for the RICs in Step-by-Step. Then I got to the page titled “Simplified Limitation Election for AMT” that is incorrect. That page says: “We’ve reported interest, dividends, and K-1 entries from each country. Because you’re subject to the alternative minimum tax (AMT), we need to know how you want to handle your foreign tax credit.” I stopped with Step-by-Step at this point because I am not subject to AMT. Why should I blindly elect now?

There is no AMT Form 6251 in the list of forms currently being used by the program for my return. But I opened 6251 as an additional form to see if something was incorrect. The AMT is zero. The “Simplified Foreign Tax Credit Election Smart Worksheet” has no boxes selected, but that is probably because I stopped Step-by-Step before committing to anything.

The Form 1116 Comp Wks was only missing whether the dividends were Paid or Accrued and the Date. I marked Paid and RIC respectively on the Worksheet. Within the Form 1116 Comp Wks, the “Form 1116, Line 18, Adjustment Exception Smart Worksheet” has the Qualifies for the Exception box selected. This is not the same as simplification.

If the “Subject to AMT” is a program bug, it appears to me that as long as I do not have to file a Form 6251 and AMTFTC, the simplification election is not applicable. My understanding is that the IRS would have to see simplification used on the AMTFTC form to signify that election. So if I skip over the foreign tax credit section of Step-by-Step and go directly to the Forms, this seems to me to be a valid workaround unless the program classifies my action as an error needing correction. Comments?

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Here is a way to get around the program’s problem. I tried a number of tax scenarios where there would be no US tax due, no Alternative Minimum Tax (AMT), but there would be a foreign tax credit (FTC). This rules out taking a foreign tax itemized deduction or taking the $300/$600 election. That assumes the taxpayer does not want to forfeit any use for the foreign tax paid with those other options.

I found that if the taxpayer used Step-by-Step to enter the FTC, the AMTFTC Simplification election question would not appear. But after doing so, if the taxpayer went to Forms View’s, Info Wks and checked the box “file Form 1116 even if you’re not required to,” and returned to Step-by-Step, the AMTFTC Simplification election question appears even though there was no AMT for the return. This is contrary to my impression that Step-by-Step and Forms View always cooperated with each other. And how did the AMT become an issue? This also rules out that the program glitch is from a faulty import, as previously suspected.

Also in the process of producing the Simplification question, the program removes the check mark in Info Wks from “file Form 1116 even if you’re not required to.” That seems unnecessary. Seeing that box checked would give the taxpayer more confidence that the Form 1116 was going to get filed.

The taxpayer does not get asked all the same questions in a return trip through the Step-by-Step Foreign Tax section. The program remembers the answers, but the taxpayer has no access to change some of them. To get access, select taking the Itemized Deduction rather than the Credit. After going through the questions, go back to the start of the Foreign Tax section, and this time the program wonders what the taxpayer is up to. It asks if the taxpayer wants to try the Credit instead of the Itemized Deduction. Yes, he/she does! Formerly hidden questions reappear. This time the AMTFTC Simplification election question is gone. Form 1116 will print with the other pages for filing. Voilà.

If the Simplification election had been made, it should have no bearing on a current year where the AMT is not applicable. But is the election carried from year to year by the program committing an unwitting taxpayer in a year with the AMT to an election made way back when? AMTFTC carryover equals FTC carryover in non-AMT years (that corrects my error in a previous post), but has its own carryover table. Could an unwitting Simplification election be tied to the AMTFTC carryover entry? Hopefully not.

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The Simplification election does carryover from year to year when importing the previous year's TurboTax return information. As stated to me previously, starting a return from scratch in a given year will break the chain, if the Simplification election never truly needed to be made.

[enjrc]

I am having a similar problem. I have not used Turbotax in 20 years. I am using a Premier version of Quicken desktop.  I did not import an old tax return. I filled out everything appropriate in Turbotax. I have a Foreign Tax Credit. I went through the process of step-by-step, answering the questions. However, at the end of that section, I get presented with the “Simplified Limitation Election for AMT” that is incorrect. That page says: “We’ve reported interest, dividends, and K-1 entries from each country. Because you’re subject to the alternative minimum tax (AMT), we need to know how you want to handle your foreign tax credit.” At this point, I also stopped with Step-by-Step. I am nit subject to the AMT. I have never been. Even with this years return, there is an AMT section and I am not subject to it. What can I do to try to keep TurboTax from thinking I am and not handling this section correctly?

[DaveF1006]

To accurately to see how Turbo Tax handled this, we would like to see a diagnostic copy of your return. The information in this file is a sanitized copy meaning there is no personal information, only numbers so that we can troubleshoot in depth, check for calculation issues, and to see how certain items are applied. 

In your case, this will be used to determine how AMT was applied to your return. Here is how to order. 

For Turbo Tax online, go to tax tools>tools>share my file with agent.  When this is selected, you will receive a token number.  Respond back in this thread and tell us what that token number is. 

If you use the desktop version, go to the black stripe at the top of the program>online>send tax file to agent. Once you receive the token number, reply back in this thread and let us know what that token number is.