Form 1116 and the baskets; allocating Cdn taxes
I have many clients who live in Canada and have no US income. According to this Form, one has to divide their foreign income/taxes into two boxes, the passive box and the general box. As a result of the dividend tax credit in Canada, the taxes on divdend income earned if the taxable income is below $67,000 is nominal. Thus these individuals will always suffer some US taxes on their investment income. Some practitioners have suggested using only one basket. Others have ignored the dividend tax credit and allocated the taxes paid according to the cash received varies sources. Do anyone know how the IRS have been assessing? What have you done?
