This is not the issue. Assume taxpayer receives a 40,000 distribution from IRA, no tax withheld by US institution, and 60,000 in foreign wages from foreign employment. If you enter for 60,000 in excluded wages(=0)  and 40,000 in IRA distributions for lets says 20,000 in tax, theoretically, 60000/100000 = 60% x 20,000 in foreign tax would be reduced to zero, leaving 40% x 20,000 = 8,000 of tax available to cover the IRA liability. But PS 1116 reduces all 20,000 in foreign tax to 0. Try it. This seems incorrect to me. What do you think?