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Lev
Lev, Tax Advisor
Category: Tax
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Experience:  Taxes, Immigration, Labor Relations
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I have a expat client in India who took his foreign tax credit

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I have a expat client in India who took his foreign tax credit on his 2011 return using the tax accrued method. He now wants to use the tax paid method for 2012. I understand that the election to use the tax accrued method is irrevocable and must be used in all future years. However, if we amend his 2011 return to use the tax paid method, can we then use that method going forward?
Submitted: 1 year ago.
Category: Tax
Expert:  Lev replied 1 year ago.

LEV :

Hi and welcome to Just Answer!
Even if you use the cash method of accounting, you can choose to take a credit for foreign taxes in the year they accrue. You make the choice by checking the box in Part II of Form 1116. Once you make that choice, you must follow it in all later years and take a credit for foreign taxes in the year they accrue.
As you noted - the election is irrevocable and may not be revoked simply by amending previous tax returns. That is possible - but only with the written consent of the IRS. Generally - the taxpayer should apply for the PLR to get such consent.

Customer:

Thanks. As a follow up, can you explain what a PLR is and how we would apply should we decide to do so?

LEV :

PLR - Private Letter Ruling is a written statement issued to a taxpayer that interprets and applies tax laws to the taxpayer’s represented set of facts. A PLR is issued in response to a written request submitted by a taxpayer.


Revenue Procedure 2011-1 sets forth the issues on which taxpayers may request PLRs and the circumstances under which the IRS does not issue PLRs. It also provides instructions on what documents and information are to be provided as well as on procedural requirements.

LEV :

The procedures and user fees for obtaining a letter ruling are published annually in the first revenue procedure of each calendar year. The current procedures are in Revenue Procedure 2013-1 which can be found in Internal Revenue Bulletin 2013-1.


A request for a letter ruling including the applicable user fee should be sent to: Internal Revenue Service Attn.: CC PA:LPD:DRU P.O. Box 7604 Ben Franklin Station Washington, DC 20044

Customer:

Excellent. Thank you.

LEV :

Please be aware that might be complicated procedure and could take long time with no guarantee of positive results.

Customer:

Good to know. Thanks again.

Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22737
Experience: Taxes, Immigration, Labor Relations
Lev and 5 other Tax Specialists are ready to help you
Customer: replied 1 year ago.

Lev, is there any specific pub or section you can point me to that tells us that we cannot simply file an amended return in order to revoke the foreign taxes accrued election?

Expert:  Lev replied 1 year ago.
IRS publication 514 - www.irs.gov/pub/irs-pdf/p514.pd
See page 3
Choosing to take credit in the year taxes accrue. Even if you use the cash method of accounting, you can choose to take a credit for foreign taxes in the year they accrue. You make the choice by checking the box in Part II of Form 1116. Once you make that choice, you must follow it in all later years and take a credit for foreign taxes in the year they accrue.
As we see the IRS simply not allows to change the choice after it made.
See page 4 - A foreign tax redetermination is any change in your foreign tax liability that may affect your U.S. foreign tax credit claimed.
You are required to notify the IRS about a foreign tax credit redetermination that affects your U.S. tax liability for each tax year affected by the redetermination. In most cases, you must file Form 1040X, Amended U.S. Individual Income Tax Return, with a revised Form 1116 and a statement that contains information sufficient for the IRS to redetermine your U.S. tax liability for the year or years affected.
If a foreign tax redetermination occurs, a redetermination of your U.S. tax liability is required if any of the following conditions apply.
As we see - the change of the choice is not listed among these conditions.
So far - there is NO established procedure to change of the choice by filing an amended tax return.
Customer: replied 1 year ago.

you're the best. thanks.

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