Virginia Siu <geniasiu[at]deletethisyahoo.com> wrote:

- quote -

He can only claim the foreign tax credit to offset the US
tax on the income earned in the UK. If he had income from
US sources, he must pay the US tax on that income.

In no case can the foreign tax credit be larger than the US
tax on the same income.

So, he probably cannot claim the entire UK tax on his
return. He must use Form 1116 to calculate the amount of
credit allowable. That is why IRS has refigured the tax.

Lanny K. Williams, CPA
Nawarat, Williams & Co., Ltd.
Income Tax Services for Expatriate Americans

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Virginia Siu <genia...[at]deletethisyahoo.com> wrote:

- quote -

Answer to 2: Taxes withheld are not taxes paid. A pay stub
or tax slip does not show the taxes paid, only withheld. Did
he file a UK tax return? What did the UK tax return say he
had to pay?

The likelihood is that your nephew is not obligated to pay
UK taxes so he is not entitled to claim a Foreign Tax Credit
for taxes.

<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ------------------------------------------------------- >

Virginia Siu <geniasiu[at]deletethisyahoo.com> wrote:

- quote -

He can only claim the foreign tax credit to offset the US
tax on the income earned in the UK. If he had income from
US sources, he must pay the US tax on that income.

In no case can the foreign tax credit be larger than the US
tax on the same income.

So, he probably cannot claim the entire UK tax on his
return. He must use Form 1116 to calculate the amount of
credit allowable. That is why IRS has refigured the tax.

Lanny K. Williams, CPA
Nawarat, Williams & Co., Ltd.
Income Tax Services for Expatriate Americans

<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ------------------------------------------------------- >

In 2006, my nephew (a US citizen) worked for a few months in
the UK as an intern. He received an "Inland Revenue" form
from the UK listing his income as 4211.54 pounds and tax of
356.91 pounds. All in all, it works out to an income of
$7762 and $658 tax. He is being claimed as a dependent.

Judging from the IRS pub, he is not eligible for the foreign
exclusion because he was only there for less than 3 months.
He figured that he can claim a foreign tax credit using form
1116.

He filed out the income as J "General Limitation Income".
Since his US tax would have worked out to be $261, the $658
tax credit should have cancel it out. He should pay no tax
and get no refund. Now the IRS is sending a letter
indicating that he has done the taxes incorrectly.

The questions is:
1. Can my nephew apply the UK taxes he paid to the UK to
reduce his taxes in th US?
2. Why does the IRS said that he did the taxes incorrectly?

<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2006) - All rights reserved. > << ------------------------------------------------------- >