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Visitor III

Does TurboTax overstate Foreign Tax Credit?

The situation:  I'm a US Citizen, Married Filing Jointly. I have a 1099-DIV for dividends from a Swiss stock where a few hundred dollars of tax was withheld by Switzerland.  TurboTax has concluded that I do not have to file a Form 1116, which I agree with based on the IRS General Instructions for Form 1116 .

 

The problem (I think): TurboTax is taking the entirety of the foreign withheld tax and populating line 48 of the 1040 form as the foreign tax credit.  The IRS, however, limits the amount of allowable foreign tax credit.  The instructions for form 1116 indicate that a portion of the tax may not be eligible as a foreign tax credit and the first example of "Foreign Taxes Not Eligible for a Credit" is:

 

Taxes paid to a foreign country that you don't legally owe, including amounts eligible for refund by the foreign country. If you don't exercise your available remedies to reduce the amount of foreign tax to what you legally owe, a credit for the excess amount isn't allowed. The amount of tax actually withheld by a foreign country isn't necessarily 100% creditable. See Regulations section 1.901-2(e)(2)(i).

 

In the case of Switzerland, a portion of the taxes are eligible for Refund.  TurboTax is not appearing to take this into account, and is calling the entire amount creditable.

 

The question:  I imagine that I could simply override TurboTax and what it is putting into line 48, but is there some way that TurboTax itself can be instructed to compute this and put the correct amount on line 48?