Have Tax Questions? Ask a Tax Expert for Answers ASAP
Sorry for the atrocious formatting, ... (Wanted to give you the Black's law dictionary definition of accrue directly from the source.... Lets try this: (next, I'll address your questions one at a time:
1. Would that be legal to file US taxes and get the US tax refund based on the foreign country tax liability before filing taxes in that country?
From IRS guidelines at http://www.irs.gov/Individuals/International-Taxpayers/What-Foreign-Taxes-Qualify-For-The-Foreign-Tax-Credit%3F
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)
Note that number 2 says paid or ACCRUED the tax.
2. Does IRS require any proof that taxes in a foreign country were actually filed with a local tax authority and it is not just a form that has been filled out?
They will not require proof in terms of what's filed with your tax filing.
You figure your foreign tax credit and the foreign tax credit limit on Form 1116, Foreign Tax Credit Note that on form 1116 you are not directed to attach filings tot ehother country.
They WILL require proof upon an audit.
3. Do I have to disclose to my third party tax service provider in the US that I have not filed in Russia yet when I give them Russian tax forms as an indication of my foreign tax liabiltiy?
I would tell them that you have calculated the numbers and know what tax has accrued and that your purpose is to use the refund to pay the taxes. This will be an opportunity to support your conention that accural and payent are not the same
4. Foreign Tax Credit IRS publication mentions that it should be calculated based on a foreign tax "paid or accrued", what is legal definition of "accrued"?
accrue (<<schwa>>-kroo), vb. (15c) 1. To come into existence as an enforceable claim or right; to arise <the plaintiff's cause of action for silicosis did not accrue until the plaintiff knew or had reason to know of the disease>. [Cases: Action 61; Limitation of Actions 43–64.]
“The term ‘accrue’ in the context of a cause of action means to arrive, to commence, to come into existence, or to become a present enforceable demand or right. The time of accrual of a cause of action is a question of fact.” 2 XXXXX XXXXX Schwing, California Affirmative Defenses § 25:3, at 17–18 (2d ed. 1996).
ould it qualify as "accrued" before it's paid and even filed? 5. It also says that a "tax must be imposed on me" Would it qualify as imposed before it's paid and even filed?
As you see from the legal definition, it means that there is a claim to the tax expenses, by the Russian government.
Here's an academic, accounting, definition of accrued expenses:
Expenses (such as wages, salaries, and utility charges) which are incurred but for which no payment is made during an accounting period. They are shown in the balance sheet as a current (short term) liability. Also called accrued liabilities.Read more: http://www.businessdictionary.com/definition/accrued-expenses.html#ixzz2dqvoCVO9
Not sure whether my follow-up made it out to you, sorry.
To test your answer let's assume this worst case scenario, my US tax return with Russian taxes claimed is audited and Russian taxes are still neither paid nor filed. From your answer it can be concluded that the only proof IRS will request at that point is that Russian taxes are still accrued and they will not request proof for those taxes being paid or filed. It's like they do not care if they have been paid or filed as long as I still owe them.
If you’d like to work with me again on any new questions, say “For Lane only …” at the beginning of your question.
Thanks again !