This article will help you enter foreign tax credit carryforwards from prior year returns, generate Form 1116 Schedule B, and resolve critical diagnostic ref. #56669.
About diagnostic reference 56669
Starting in tax year 2021, the IRS introduced a new form 1116 Schedule B to report foreign tax credit carryovers. Since this form isn't part of the e-file schema yet, you must attach it as a PDF in order to e-file returns that claim a carryover.
Lacerte can automatically generate and attach a PDF of this and other required forms when you e-file. To verify you have this setting activated:
- Press Crtl + O on your keyboard, or click the Settings menu at the top of your program, and select Options.
- At the top of the user options window, select the Setup tab.
- In the Program Options section, locate the item labeled Auto Generate and Attach PDFs to EFiles.
- Verify this item is set to Yes. Click OK to save your settings and close the window.
If you don’t have auto-attachments enabled, an informational diagnostic will generate to remind you to attach the form manually. See here for help attaching a PDF.
To enter foreign tax credit carryovers:
Go to Screen 35, Foreign Tax Credit (1116). This screen has the following three sections:
- Screen 35.1, Foreign Tax Credit (1116)
- Screen 35.2, Foreign Tax Credit Carryovers - Regular Tax (1116)
- Screen 35.3, Foreign Tax Credit Carryovers - AMT Tax (1116)
An entry in Screen 35.1 for Name of foreign country and Category of income (Ctrl+T) must be entered to generate the Form 1116.
Carryover information is entered in Screens 35.2 or 35.3, depending on if the figures are subject to Regular or AMT taxes. Each of these two screens is divided into sections according to Type of Income.
Each section has several rows for prior years, starting with the most recent prior year:
- Foreign Taxes Paid
- Foreign Taxes Disallowed
- Foreign Taxes Claimed
- Foreign Tax Carryover
Entries must be made in each of the four columns for each applicable year in order for Lacerte to properly calculate the applicable Foreign Tax Carryover amount.
If there was only one prior year in which the Foreign Taxes carried over, then the amount entered in Foreign Tax Carryover for that year will be the primary figure used in calculating the Form 1116, showing on page 2, line 10. Otherwise, all applicable years and columns must have entries.