Does anyone know whether a HTKO investment is labeled that way on 1099-DIV

[Austin_Cat]

First year preparing client's return. Last year's CPA has "HTKO" on the form 1116 and an amount. Moved from passive into general income on the foreign tax credit. This year the client's dividend payments do not indicate HTKO anywhere, just some 'RIC,'but same foreign investments as last year. I've asked the client for last year's statement, but does anyone have experience with this? If it's as simple as the 1099 saying 'htko' then I get it, but I'm wondering why in 3 years of tax prep I've never seen that. Any help greatly appreciated.

[BobKamman]

Have To Kiss Off this client.  Oh, wait, maybe this

What Does HTKO Mean? HTKO stands for High Tax Kick Out. It is a provision of the tax code that applies when the effective tax rate for foreign source income allocated to the passive category exceeds the greatest United States tax rate.

I've never seen it either, but it probably relates to the question someone asked a couple days ago, about why the 1116 wasn't allowing all of the foreign tax paid.  She was convinced it was a software error.  But no, if the other country is charging a 30% rate on dividends that are taxed here at only 12%, if at all, then you don't get all the credit.  Unless you can use the $300/$600 de minimis exception, which I wonder how many people do.  How much are we talking about here, anyway?  

[sjrcpa]

The 1099 will not say that.  

It's pretty much as Bob said.

But if the foreign tax is small enough, always elect to not use the 1116. Much simpler.

[Austin_Cat]

Thanks. It's a $total credit of $31. I am trained as a CPA though, and almost there, and I want to be nothing but consistent with her PY return/CPA's thoughts. Unless it was reported incorrectly but I don't think it was. There was a carryforward as well. In my eyes I have a duty to report this correctly no matter the amount. Any other thoughts? I really appreciate this. I got back her last year's statement and it's the same two RICs reported as HTKOs. Last year's return teports as passive income first on 1116, then moves out of passive and into general income category (I understand why), then Schedule Bs for AMT and for non-AMT. 

[BobKamman]

I'm not trained as a CPA, maybe there's a course in how to jack up the fee by doing unnecessary work.  Enter the $31 directly on Schedule 3, forget about the $10 carryover (I'm guessing, maybe it's $15). 

Did you ask your client why they came to you this year?  "He seemed to be charging us a lot of money for doing a simple return, and didn't advise us on how selling a couple small investments might lower the fee."  (Again, just guessing.)  

[Austin_Cat]

Thanks. At my prior year firm, we saw this often coming from people who used, for example, H&R block. Foreign tax credits are not generally understood well. If in the future the client needs to use those carryovers, I believe doing it the way you suggest obliterates them. That said, if you guys want to know how I can share. Not about fees for me and most other CPAs I've met. You know CPAs are obligated to do their best to report accurately. 

[BobKamman]

I didn't know that if there are two ways to complete a return, one resulting in a $31 credit and the other taking a lot more time to claim a $28 credit and create a carryover that might require additional work for many years, CPAs are required to close their eyes to common sense.  

[sjrcpa]

I wouldn't even have spent the time to ask about $31. Claim it. Move on. Forget about the carryover.