Foreign Credit- Not populating

Forum|Forum|6 years ago
April 7, 2020
7 replies
47 views

The taxpayer lives in the US but has foreign income for work he did remotely. He is paid in Euros. I have completed Form 2555 and Form 1116 but neither the income nor the taxes paid are populating on Form 1040. Anyone has any idea what I may be missing. I cannot seem to figure why the Foreign tax that the tax payer paid is not being credited on Form 1116 Line 9. I have reviewed the form several times but the credit still wont populate. Thanks for your help.

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itonewbie

Level 15

If he performed his services in the US, the income is sourced to the US. Getting paid by clients located in a foreign country does not make an income foreign source. If he lives in the US and performs services remotely, US is his tax home. He would not be eligible for foreign earned income exclusion.

What kind of foreign tax did your client incur for working remotely? Did your client set up a foreign entity, conclude contracts using that entity, and bill his clients through that entity? Hope not. If so, there's a lot more your client might have to worry about.

This is not an input question. This is a structural issue and a technical question.

---------------------------------------------------------------------------------Still an AllStar

S

StarlightAuthor

Level 2

Thank you so much Itonewbie for your response. Apparently some of his work involved travelling to Europe while another are done remotely. He is reporting all income he received from Europe.

Two problems at this time. 1. The foreign income is not flowing to Form 1040 and

2. Should'nt he get credit for the income that was taxed by the foreign country if it is subject to US tax?

Unfortunately, I'm not sure what's the serious technical part of this I'm missing. Any clarification would be greatly appreciated.

itonewbie

Level 15

1) Based on the limited facts you provided, your client does not qualify for FEIE. The income should not be reported on F.2555.

2) You did not answer my questions about the structure of his business. This is a pertinent question in relation to FTC. Factors such as where the entity is located and how contracts are concluded are important for international taxation. Income related only to the days he performed services overseas, that portion of the income is foreign source and could be eligible for FTC. However, FTC, inter alia, can only be claim on foreign taxes that are compulsory. For short period of presence, especially in Europe where the US has extensive treaty coverage, it calls into question which are the countries he paid taxes to and whether these are taxes that must be paid (in light of domestic tax law and DTA).

---------------------------------------------------------------------------------Still an AllStar

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