The Taxation of US Citizens and Resident Aliens Abroad.ppt by zhaonedx

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									The Taxation of U.S. Citizens
 and Resident Aliens Abroad
      International Training
          Tax Year 2007
              Instructors
Jewel Vanderhoef
600 Dr. MLK, Jr. Place, Room 622
Louisville, KY 40202
Cell: (502) 572-2158
        Resident Aliens Abroad
• Resident Aliens Abroad are almost always Lawful
  Permanent Residents (Green Card Holders) because
  a resident alien by virtue of the Substantial Presence
  Test will cease to be a resident alien after he leaves
  the USA.
• A Lawful Permanent Resident (LPR) who stays
  outside the USA for more than 1 year is susceptible to
  having his LPR status revoked. However, USCIS will
  usually not begin the revocation process until the LPR
  attempts to re-enter the USA after more than a 1-year
  absence.
       Resident Aliens Abroad
• The IRS will continue to treat all LPR’s as
  resident aliens until one of the following has
  occurred:
   – The alien has voluntarily abandoned his LPR status
     and has turned in his Green Card;
   – USCIS has administratively revoked the alien’s LPR
     status; or
   – A federal court has judicially revoked the alien’s LPR
     status.
             Gross Income
• U.S. citizens and resident aliens are
  required to report their gross income on a
  U.S. tax return from all sources worldwide,
  no matter in which country they live.
• For this reason, it is not unusual that U.S.
  citizens and resident aliens encounter
  situations involving double, triple, or
  quadruple taxation by 2 or more countries.
  Relief from Multiple Taxation
Because of potential exposure to multiple
  taxation by various countries, U.S. citizens
  and resident aliens may find relief from
  multiple taxation by means of:
• The Foreign Earned Income Exclusion
• The Foreign Tax Credit
• Tax Treaty Provisions
            Filing Requirements
If you are a U.S. citizen or resident alien living or traveling
    outside the United States, you generally are required to
    file U.S. income tax returns, estate tax returns, and gift
    tax returns and pay estimated tax in the same way as
    those residing in the United States. Your income, filing
    status, and age generally determine whether you must
    file a return. Generally, you must file a return if your
    gross income from worldwide sources is at least the
    amount shown for your filing status in the Filing
    Requirements table in Chapter 1 of Publication 54 Tax
    Guide for U.S. Citizens and Resident Aliens Abroad.
            Filing Requirements
• Where To File
• If any of the following situations apply to you, file your return with
  the:
•
  Internal Revenue Service Center
  Austin, TX 73301-0215

•   You claim the foreign earned income exclusion.
•   You claim the foreign housing exclusion or deduction.
•   You use an APO or FPO address.
•   You live in a foreign country.
           Filing Requirements
• When To File and Pay
• If you file on the calendar year basis, the due date for
  filing your return is April 15 of the following year. If you
  file on a fiscal year basis (a year ending on the last day
  of any month except December), the due date is 3
  months and 15 days after the close of your fiscal year. In
  general, the tax shown on your return should be paid by
  the due date of the return, without regard to any
  extension of time for filing the return.
           Filing Requirements
Extensions
• Automatic 2-month extension. You are allowed an
  automatic 2-month extension to file your return and
  pay any federal income tax that is due if you are a
  U.S. citizen or resident, and on the regular due date
  of your return:
   – You are living outside of the United States and Puerto
     Rico and your main place of business or post of duty is
     outside the United States and Puerto Rico, or
   – You are in military or naval service on duty outside the
     United States and Puerto Rico.
          Filing Requirements
• Automatic 6-month extension. If you are not
  able to file your return by the due date, you
  generally can get an automatic 6-month
  extension of time to file (but not of time to pay).
  To get this automatic extension, you must file
  Form 4868. Or, you can file Form 4868
  electronically by using your personal computer,
  or through a tax professional. For more
  information about filing electronically, see the
  form instructions.
         Filing Requirements
Extension of time to meet tests
• You can get an extension of more than 6
  months to file your tax return if you need
  the time to meet either the bona fide
  residence test or the physical presence
  test to qualify for either the foreign earned
  income exclusion or the foreign housing
  exclusion or deduction.
         Filing Requirements
You should request an extension if all three of the
  following apply:
• You are a U.S. citizen or resident.
• You expect to meet either the bona fide
  residence test or the physical presence test, but
  not until after your tax return is due.
• Your tax home is in a foreign country (or
  countries) throughout your period of bona fide
  residence or physical presence, whichever
  applies.
          Filing Requirements
How to get an extension.
• obtain an extension, you should file Form 2350
  with the Internal Revenue Service Center,
  Austin, TX, 73301-0215
• You must file Form 2350 by the due date for
  filing your return. Generally, if both your tax
  home and your abode are outside the United
  States and Puerto Rico on the regular due date
  of your return and you file on a calendar year
  basis, the due date for filing your return is June
  15.
         Filing Requirements
Election to File Joint Return
• If, at the end of your tax year, you are married
  and one spouse is a U.S. citizen or a resident
  alien and the other is a nonresident alien, you
  can choose to treat the nonresident as a U.S.
  resident. This includes situations in which one of
  you is a nonresident alien at the beginning of the
  tax year, but a resident alien at the end of the
  year, and the other is a nonresident alien at the
  end of the year.
        Filing Requirements
If you make this choice, the following two
   rules apply:
• You and your spouse are treated, for
   income tax purposes, as residents for all
   tax years that the choice is in effect
• You must file a joint income tax return for
   the year you make the choice
           Filing Requirements
Treaty Benefits:
• Generally, neither you nor your spouse can claim tax
  treaty benefits as a resident of a foreign country for a tax
  year for which the choice is in effect and you are both
  taxed on worldwide income. However, the exception to
  the saving clause of a particular tax treaty might allow a
  resident alien to claim a tax treaty benefit on certain
  specified income. You must file a joint income tax return
  for the year you make the choice, but you and your
  spouse can file joint or separate returns in later years.
            Filing Requirements
How To Make The Choice
• Attach a statement, signed by both spouses, to your joint
  return for the first tax year for which the choice applies. It
  should contain the following:
   – A declaration that one spouse was a nonresident alien and the
     other spouse a U.S. citizen or resident alien on the last day of
     your tax year, and that you choose to be treated as US residents
     for the entire tax year, and
   – The name, address, and social security number (or individual
     taxpayer identification number) of each spouse. (If one spouse
     died, include the name and address of the person making the
     choice for the deceased spouse.)
        Filing Requirements
TIN for Spouse:
• If your spouse is a nonresident alien and
  you file a joint or separate return, your
  spouse must have either a Social Security
  Number (SSN) or an Individual Taxpayer
  Identification Number (ITIN).
         Filing Requirements
It may be advantageous to choose to treat
   your nonresident alien spouse as a U.S.
   resident and file a joint income tax return.
   Once you make the choice, however, you
   must report the worldwide income of both
   yourself and your spouse.
        Filing Requirements
Head of Household
• If you are a U.S. citizen married to a
  nonresident alien you may qualify to use
  the head of household tax rates.
• Although your nonresident alien spouse
  cannot qualify you as a head of
  household, you can qualify if another
  individual qualifies you for that status.
            Foreign Currency
Foreign Currency
• You must express the amounts you report on
  your US tax return in US dollars. If you receive
  all or part of your income or pay some or all of
  your expenses in foreign currency, you must
  translate the foreign currency into US dollars.
  Information about currency conversion can be
  found at: www.irs.gov
                Gross Income
Gross Income
• This includes all income you receive in the form of
  money, goods, property, and services that is not exempt
  from tax. In determining whether you must file a return,
  you must consider as gross income any income that you
  exclude as foreign earned income or as a foreign
  housing amount. If you are self-employed, your gross
  income includes the amount on line 7 of Schedule C
  (Form 1040), Profit or Loss from Business, or line 1 of
  Schedule C-EZ (Form 1040), Net Profit from Business.
          Foreign Bank Accounts
Report of Foreign Bank and Financial Accounts (Form TD F 90-
  22.1)
• Form TD F 90-22.1 must be filed if you had any financial interest in,
  or signature or other authority over, a bank, securities, or other
  financial account in a foreign country. You do not have to file the
  report if the assets are with a U.S. military banking facility operated
  by a U.S. financial institution or if the combined assets in the
  account's) are $10,000 or less during the entire year.
• You must file this form by June 30 each year with the Department of
  the Treasury at the address shown on the form. Form TD F 90-22.1
  is not a tax return, so do not attach it to your Form 1040.
• In addition, you may be liable for filing Form 3520 or Form 3520-A if
  you made contributions to or received income from a foreign trust or
  received a gift from a foreign person.
 Foreign Earned Income Exclusion
• Also known as the ―911 Exclusion‖
• The foreign earned income exclusion, the foreign
  housing exclusion, and the foreign housing deduction
  are based on foreign earned income. For this purpose,
  foreign earned income is income you receive for services
  you perform in a foreign country during a period your tax
  home is in a foreign country and during which you meet
  either the bona fide residence test or the physical
  presence test.
 Foreign Earned Income Exclusion
• Examples of Foreign Earned Income
  – Salaries and Wages
  – Non-Employee Compensation
  – Commissions
  – Bonuses
  – Professional Fees
  – Tips
 Foreign Earned Income Exclusion
Earned income includes amounts paid to you as
  allowances or reimbursements for the following items:
• Cost of living
• Overseas differential
• Family
• Education
• Home leave
• Quarters
• Moving
 Foreign Earned Income Exclusion
Amounts Not Included In Foreign Earned Income
• The previously excluded value of meals and lodging furnished for
  the convenience of your employer
• Pension or annuity payments including social security benefits
• Pay you receive as an employee of the U.S. Government
• Amounts included in your income because of your employer's
  contributions to a nonexempt employee trust or to a nonqualified
  annuity contract
• Recaptured unallowable moving expenses
• Payments received after the end of the tax year following the tax
  year in which you performed the services that earned the income
 Foreign Earned Income Exclusion
Reimbursement of Moving Expenses
Earned income may include reimbursement of moving expenses. You
  must include as earned income:

• Any reimbursements of, or payments for, nondeductible moving
  expenses
• Reimbursements that are more than your deductible expenses and
  that you do not return to your employer
• Any reimbursements made (or treated as made) under a
  nonaccountable plan , even if they are for deductible expenses (A
  nonaccountable plan is any plan that does not meet the rules for an
  accountable plan described in Chapter 5 of Publication 15, (Circular
  E), Employer's Tax Guide), and
• Any reimbursement of moving expenses you deducted in an earlier
  year
 Foreign Earned Income Exclusion
Source of Earned Income
• The source of your earned income is the place where
  you perform the services for which you received the
  income. Foreign earned income is income you receive
  for performing personal services in a foreign country;
  however, income from self-employment may be subject
  to SELF-EMPLOYMENT & MEDICARE TAX. Where or
  how you are paid has no effect on the source of the
  income. For example, income you receive for work done
  in France is income from a foreign source even if the
  income is paid directly to your bank account in the
  United States and your employer is located in New York
  City.
 Foreign Earned Income Exclusion
If you are a U.S. citizen or a resident alien of
   the United States and you live abroad, you
   are taxed on your worldwide income.
   However, you may qualify to exclude from
   income up to $85,700 of your foreign
   earnings. In addition, you can exclude or
   deduct certain foreign housing amounts.
 Foreign Earned Income Exclusion
Requirements:
To claim the foreign earned income exclusion, the foreign housing
   exclusion, or the foreign housing deduction, you must have foreign
   earned income, your tax home must be in a foreign country, and you
   must be one of the following:
• A U.S. citizen who is a bona fide resident of a foreign country or
   countries for an uninterrupted period that includes an entire tax year
• A U.S. resident alien who is a citizen or national of a country with
   which the United States has an income tax treaty in effect and who
   is a bona fide resident of a foreign country or countries for an
   uninterrupted period that includes an entire tax year, or
• A U.S. citizen or a U.S. resident alien who is physically present in a
   foreign country or countries for at least 330 full days during any
   period of 12 consecutive months
 Foreign Earned Income Exclusion
Foreign Country

• The term "foreign country" does not include U.S. possessions such
  as Puerto Rico, Guam, the Commonwealth of the Northern Mariana
  Islands, the U.S. Virgin Islands, or American Samoa. For purposes
  of the foreign earned income exclusion, the foreign housing
  exclusion, and the foreign housing deduction, the terms "foreign,"
  "abroad," and "overseas" refer to areas outside the United States,
  American Samoa, Guam, the Commonwealth of the Northern
  Mariana Islands, Puerto Rico, the U.S. Virgin Islands, and the
  Antarctic region. The term "foreign country" does not include ships
  and aircraft traveling in or above international waters. Nor does it
  include offshore installations which are located outside the territorial
  waters of any individual nation.
 Foreign Earned Income Exclusion
Tax Home In Foreign Country
• To qualify for the foreign earned income
  exclusion, the foreign housing exclusion, or the
  foreign housing deduction, your tax home must
  be in a foreign country throughout your period of
  bona fide residence or physical presence
  abroad.
• The Rules about determining one’s tax home
  are found in Rev.Rul. 93-86.
 Foreign Earned Income Exclusion
Bona Fide Residence Test
• You meet the bona fide residence test
  if you are a bona fide resident of a
  foreign country or countries for an
  uninterrupted period that includes an
  entire tax year.
 Foreign Earned Income Exclusion
Statement To Foreign Authorities
• You are not considered a bona fide resident of a
  foreign country if you make a statement to the
  authorities of that country that you are not a
  resident of that country and the authorities hold
  that you are not subject to their income tax laws
  as a resident. If you have made such a
  statement and the authorities have not made a
  final decision on your status, you are not
  considered to be a bona fide resident of that
  foreign country.
 Foreign Earned Income Exclusion
Uninterrupted Period Including Entire Tax Year
• To qualify for bona fide residence, you must reside in a foreign
  country for an uninterrupted period that includes an entire tax year.
  An entire tax year is from January 1 through December 31 for
  taxpayers who file their income tax returns on a calendar year basis.
  During the period of bona fide residence in a foreign country, you
  can leave the country for brief or temporary trips back to the United
  States or elsewhere for vacation or business.
• To keep your status as a bona fide resident of a foreign country, you
  must have a clear intention of returning from such trips, without
  unreasonable delay, to your foreign residence or to a new bona fide
  residence in another foreign country.
 Foreign Earned Income Exclusion
Physical Presence Test
• You meet the physical presence test if you are
  physically present in a foreign country or countries 330
  full days during a period of 12 consecutive months. The
  330 qualifying days do not have to be consecutive. The
  physical presence test applies to both U.S. citizens and
  resident aliens.
• The physical presence test is based only on how long
  you stay in a foreign country or countries. This test does
  not depend on the kind of residence you establish, your
  intentions about returning, or the nature and purpose of
  your stay abroad.
 Foreign Earned Income Exclusion
330 Full Days
• Generally, to meet the physical presence test,
  you must be physically present in a foreign
  country or countries for at least 330 full days
  during the 12-month period. You can count days
  you spent abroad for any reason. You do not
  have to be in a foreign country only for
  employment purposes. You can be on vacation
  time.
 Foreign Earned Income Exclusion
How To Figure The 12-month Period
There are four rules you should know when figuring the 12-month
  period:

• Your 12-month period can begin with any day of the month. It ends
  the day before the same calendar day, 12 months later
• Your 12-month period must be made up of consecutive months. Any
  12-month period can be used if the 330 days in a foreign country fall
  within that period
• You do not have to begin your 12-month period with your first full
  day in a foreign country or to end it with the day you leave. You can
  choose the 12-month period that gives you the greatest exclusion
• In determining whether the 12-month period falls within a longer stay
  in the foreign country, 12-month periods can overlap one another.
 Foreign Earned Income Exclusion
Exceptions to the Bona Fide Residence and the
  Physical Presence Tests:
• U.S. Travel Restrictions
  – If you are present in a foreign country in violation of
    U.S. law, you will not be treated as a bona fide
    resident of a foreign country or as physically present
    in a foreign country while you are in violation of the
    law. Income that you earn from sources within such a
    country for services performed during a period of
    violation does not qualify as foreign earned income.
    Your housing expenses within that country (or outside
    that country for housing your spouse or dependents)
    while you are in violation of the law cannot be
    included in figuring your foreign housing amount.
 Foreign Earned Income Exclusion
The countries to which travel restrictions apply and the
  effective dates of the restrictions are as follows:
• Cuba - January 1, 1987 through the present (Still in
  effect)
• Iraq - August 2, 1990 through July 29, 2004
• Libya - August 2, 1990 through September 20, 2004
• More information on these restrictions may be found
  in Notice 2003-52 and Revenue Ruling 2005-3. These
  rulings may be updated from time to time & Publication
  54.
 Foreign Earned Income Exclusion
Individuals whose activities in Iraq and Libya
  are or were permitted by a specific or
  general license issued by the Treasury
  Department’s Office of Foreign Assets
  Control (OFAC) were not in violation of
  U.S. law. Accordingly, the restriction did
  not apply to such individuals with respect
  to the activities permitted by the license.
  Refer to Notice 2003-52.
 Foreign Earned Income Exclusion
Choosing The Foreign Earned Income Exclusion
• The foreign earned income exclusion is voluntary. You
  can separately choose the foreign earned income
  exclusion and the foreign housing exclusion by
  completing the appropriate parts of Form 2555. Your
  initial choice of the exclusions on Form 2555 or Form
  2555-EZ generally must be made with:

   – a timely filed return (including any extensions),
   – a return amending a timely filed return, or
   – a late-filed return filed within 1 year from the original due date of
     the return (determined without regard to any extensions).
 Foreign Earned Income Exclusion
Foreign Tax Credit
• Once you choose to exclude either foreign
  earned income or foreign housing costs,
  you cannot take a foreign tax credit for
  taxes on income you can exclude. If you
  do take the credit, one or both of the
  choices may be considered revoked.
 Foreign Earned Income Exclusion
Which Form to File
• Form 2555 and Form 2555-EZForm 2555 can be used to claim the
  foreign earned income exclusion. It must be used to claim the
  foreign housing exclusion or deduction. In some circumstances you
  can use Form 2555-EZ to claim the foreign earned income
  exclusion. You must attach Form 2555 to your Form 1040 or 1040X
  if you claim the foreign housing exclusion or the foreign housing
  deduction.
• If you cannot use Form 2555-EZ, you must attach Form 2555 if you
  claim the foreign earned income exclusion. Form 2555 shows how
  you qualify for the bona fide residence test or physical presence
  test, how much of your earned income is excluded, and how to
  figure the amount of your allowable housing exclusion or deduction.
  Do not submit Form 2555 or Form 2555-EZ by itself. See the
  instructions for the forms if you are not sure about the information
  requested.
    Foreign Earned Income Exclusion
Form 2555-EZ is a form that has fewer lines than Form
  2555. You can use this form if all seven of the following
  apply:

•   You are a U.S. citizen or a resident alien
•   Your total foreign earned income for the year is $85,700 or less
•   You have earned wages/salaries in a foreign country
•   You are filing a calendar year return that covers a 12-month period
•   You did not have any self-employment income for the year
•   You did not have any business or moving expenses for the year
•   You are not claiming the foreign housing exclusion or deduction
 Foreign Earned Income Exclusion
Foreign Housing Exclusion or Deduction
• In addition to the foreign earned income exclusion, you
  can also claim an exclusion or a deduction from gross
  income for your housing amount if your tax home is in a
  foreign country and you qualify under either the bona
  fide residence test or the physical presence test.

• Please consult Publication 54 for the details about
  claiming the Foreign Housing Exclusion or Deduction.
             Foreign Tax Credit
If you
• paid or accrued foreign income taxes
• to a foreign country or foreign tax jurisdiction
• on foreign source income, and
• are subject to U.S. tax on the same income
you may be able to take either a credit or an itemized
    deduction for those taxes. Taken as a deduction, foreign
    income taxes reduce your U.S. taxable income. Taken
    as a credit, foreign income taxes reduce your U.S. tax
    liability. In most cases, it is to your advantage to take
    foreign income taxes as a tax credit.
           Foreign Tax Credit
Once you choose to claim either:
• the foreign earned income exclusion or
• The foreign housing exclusion or deduction
you cannot take a foreign tax credit for taxes on
  income you can exclude. If you do take the
  credit, one or both of the choices may be
  considered revoked.
           Foreign Tax Credit
Generally, the following four tests must be met for
   any foreign tax to qualify for the credit:
• The tax must be imposed on you
• You must have paid or accrued the tax
• The tax must be the legal and actual foreign
   tax liability
• The tax must be an income tax (or a tax in lieu
   of an income tax)
          Foreign Tax Credit
Foreign Country
• A foreign country includes any foreign
  state and its political subdivisions. Income,
  war profits, and excess profits taxes paid
  or accrued to a foreign city or province
  qualify for the foreign tax credit.
         Foreign Tax Credit
U.S. Possessions
• For foreign tax credit purposes, all
  qualified taxes paid to U.S. possessions
  (such as Puerto Rico, Guam, The
  Commonwealth of the Northern Mariana
  Islands, the U.S. Virgin Islands, and
  American Samoa) are considered foreign
  taxes.
          Foreign Tax Credit
Joint Return
• If you file a joint return, you can claim the
  credit based on the total of any foreign
  income tax paid or accrued by you and
  your spouse.
           Foreign Tax Credit
Tax Must Be the Legal and Actual Foreign Tax
  Liability
• The amount of foreign tax that qualifies is not
  necessarily the amount of tax withheld by the
  foreign country. Only the legal and actual foreign
  tax liability that you paid or accrued during the
  year qualifies for the credit. The amount of the
  deductible foreign tax must be reduced by any
  refunds of foreign tax made by the government
  of the foreign country or the U.S. possession.
           Foreign Tax Credit
Tax Must Be an Income Tax
• Generally, only income, war profits, and excess
  profits taxes (income taxes) qualify for the
  foreign tax credit. Foreign taxes on wages,
  dividends, interest, and royalties generally
  qualify for the credit. Furthermore, foreign taxes
  on income can qualify even though they are not
  imposed under an income tax law if the tax is in
  lieu of an income, war profits, or excess profits
  tax. See Publication 514 for Taxes in Lieu of
  Income Taxes.
          Foreign Tax Credit
Income Tax
Simply because the levy is called an income tax by
   the foreign taxing authority does not make it an
   income tax for this purpose. A foreign levy is
   an income tax only if it meets both of the
   following tests:
• It is a tax; that is, you have to pay it and you
   get no specific economic benefit from paying it
• The predominant character of the tax is that of
   an income tax in the U.S. sense
          Foreign Tax Credit
Figuring the Credit
• You can claim a foreign tax credit only for
  foreign taxes on income, war profits, or excess
  profits, or taxes in lieu of those taxes. In
  addition, there is a limit on the amount of the
  credit that you can claim. You figure this limit
  and your credit on Form 1116. Your credit is the
  amount of foreign tax you paid or accrued or, if
  smaller, the limit.
         Foreign Tax Credit
Carryback or Carryover
• If you have foreign taxes available for
  credit but you cannot use them because of
  the limit, you may be able to carry them
  back to the 2 previous tax years and
  forward to the next 10 tax years. Refer to
  Carryback and Carryover in Publication
  514, Foreign Tax Credit for Individuals.
         Foreign Tax Credit
Treaty Considerations
• Certain tax treaties have special rules that
  you must consider when figuring your
  foreign tax credit. Refer to ―Tax Treaties‖
  in Publication 514.
                Foreign Tax Credit
Exemption From Foreign Tax Credit Limit
You will not be subject to this limit and will be able to claim the credit
      without using Form 1116 if the following requirements are met:
•     Your only foreign source gross income for the tax year is passive
      income. Passive income is defined in Publication 514 and Form
      1116 Instruction.
•     Your qualified foreign taxes for the tax year are not more than
      $300 ($600 if filing a joint return)
•     All of your gross foreign income and the foreign taxes are
      reported to you on a payee statement (such as a Form 1099-DIV
      or 1099-INT)
•     You elect this procedure for the tax year
If you make this election, you cannot carry back or carry over any
      unused foreign tax to or from this tax year.
           Foreign Tax Credit
Foreign Tax Credit - Choosing To Take Credit or
  Deduction
• You can choose each tax year to take the amount of
  any qualified foreign taxes paid or accrued during
  the year as a foreign tax credit or as an itemized
  deduction. You can change your choice for each
  year's taxes.
• To choose the foreign tax credit, you generally must
  complete Form 1116, Foreign Tax Credit (Individual,
  Estate, Trust, or Nonresident Alien Individual) and
  attach it to your U.S. tax return. Refer to How To
  Figure the Credit . To choose to claim the taxes as
  an itemized deduction, use Schedule A (Form 1040),
  Itemized Deductions.
           Foreign Tax Credit
Choice Applies to All Qualified Foreign Taxes
• As a general rule, you must choose to take
  either a credit or a deduction for all qualified
  foreign taxes.
• If you choose to take a credit for qualified foreign
  taxes, you must take the credit for all of them.
  You cannot deduct any of them. Conversely, if
  you choose to deduct qualified foreign taxes,
  you must deduct all of them. You cannot take a
  credit for any of them.
             Foreign Tax Credit
Foreign Currency
• You must express the amounts you report on your U.S.
  tax return in U.S. dollars. If you receive all or part of your
  income or pay some or all of your expenses in foreign
  currency, you must translate the foreign currency into
  U.S. dollars. For information about converting to U.S.
  dollars from foreign currencies refer to Foreign Currency
  and Currency Exchange Rates on irs.gov.
• However on Part II of Form 1116, you must enter the
  amount of foreign taxes, in both the foreign currency
  denomination(s) and as converted into U.S. dollars. See
  Form 1116 Instructions for more information.
Foreign Tax Credit—Special Issues
Tax Treaties
• The United States is a party to tax treaties that
  are designed, in part, to prevent double taxation
  of the same income by the United States and the
  treaty country. Many treaties do this by allowing
  you to treat U.S. source income as foreign
  source income. Certain treaties have special
  rules you must consider when figuring your
  foreign tax credit if you are a U.S. citizen
  residing in the treaty country.
Foreign Tax Credit—Special Issues
Alternative Minimum Tax
• In addition to your regular income tax, you may
  be liable for the alternative minimum tax. A
  foreign tax credit may be allowed in figuring this
  tax. However, there are restrictions on how
  much foreign tax credit can be applied to the
  alternative minimum tax. Refer to the
  instructions for Form 6251, Alternative Minimum
  Tax-Individuals, for a discussion of the
  alternative minimum tax foreign tax credit.
                Review
• U.S. citizens and resident aliens abroad
  must report their worldwide income
• Up to $85,700 of foreign earned income
  may be excluded from U.S. gross income
• Double taxation by the USA and a foreign
  country may be avoided or mitigated by
  the Foreign Tax Credit, Foreign Tax
  Deduction, or a Tax Treaty Provision.
          More Information
• Publication 54 Tax Guide for U.S. Citizens
  and Resident Aliens Abroad
• Forms 2555/2555-EZ and Instructions
• Form 1116 and Instructions
• Publication 514 Foreign Tax Credit for
  Individuals

								
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