Case Study 1: Nonqualifying Taxes

Robb Kendall and his wife are U.S. citizens who reside in France. Their Form 1040, Schedule B, Interest and Ordinary Dividends, lists the following:

$2,000 interest income, Lee County National Bank (U.S.)
$600 interest income, Banque National de Paris (French)

They paid income taxes on both amounts to both countries. On their U.S. tax return, they can compute a foreign tax credit to offset the taxes they owe to the U.S. on the interest received from the French bank. They would need to check with the French taxing authorities to determine if they can claim a similar tax credit on their French tax return to offset the taxes paid to the U.S. on the interest income earned in the U.S.

Click here for an explanation.

The foreign tax credit was created to help taxpayers avoid double taxation. The Kendalls qualify for the FTC because they met these four tests:

The tax must be imposed on the taxpayer
The taxpayer must have paid or accrued the tax
The tax must be a legal and actual foreign tax liability, and
The tax must be an income tax

Foreign Tax Credit Workout

Qualifying Requirements

Case Study 1: Nonqualifying Taxes