Form 1116

[MAC18]

I have foreign source dividend income and foreign taxes paid on this income included on a 1099.  As a result, I am filing form 1116.  I also have foreign passive source income reported to me on form k-3 (included with my k-1).  This income includes dividend income and other income.  However, no foreign taxes were paid on this k1/k-3 income.  Do I still include this foreign source income from my k-1/k3 on line 1a of form 1116?  Or does line 1a of form 1116 only include foreign source income where foreign taxes were withheld and paid?

[Mike9241]

it depends on the category. since your FTC comes from dividends which are passive the k-3 income would only benefit you if, I)  you don't utilize the entire FTC from dividends and 2) it's also of the passive category,

[MAC18]

I am limited on using the full tax credit.  Does that mean I can add the income from the k-3 to line 1a of Form 1116 even though I did not pay any foreign tax on that income.  The income from the k3 is all passive and comes from dividends, interest, and Other Income (QEF from form 8621).  Clearly, the more income I am able to put on line 1a of form 1116, the less I will be limited in using my foreign tax credit.

[MAC18 · Accepted solution]

I found my answer on page 17 of the IRS instructions for form 1116.  The instructions say "You must include income even if it isn't taxable by that foreign country."  So that is pretty clear.  All foreign source income goes to line 1a of Form 1116 whether taxes were paid on it or not.