Topic Summary

This topic described the following:

• To qualify for the foreign tax credit, taxpayers must have foreign or Puerto Rico source income that is liable for taxes in both that foreign country and the U.S.
• Cash basis and accrual basis are the two accounting methods used when computing the foreign tax credit:
  • Cash basis taxpayers report income when it is received and expenses when they are paid
  • Accrual basis taxpayers compute income when they earn it and deductions when they are incurred
• Cash basis taxpayers may choose to take the foreign tax credit for their Puerto Rico taxes in the year those taxes were paid or accrued