[vijoshi]

Hello I am having trouble filling out form 1116.

For Jan 07 through Dec 2007 I have US income. During the same year for Jan 2007 through March 2007 - I have paid taxes ($1634) in India on the income earned in the US for these 3 months (Gross Income $17495) . US taxes were also deducted atr source in the US.

Also, I had no Indian income for the above 3 months. When filling 1116, if the "Gross Income in foreign country" is ZERO (which is true in my case) - and if I mention $1634 as foreign taxes paid - it shows that I am eligible for a foreign tax credit of $1634.

But for LINE 16, if the value for net foreign source taxable income is ZERO, it says that I cannot have a foreign tax credit.

So how do I claim the credit if my FOREIGN SOURCE INCOME was ZERO, but foreign taxes were paid? Please advise... does FORM 1116 needs to be filled out differently?

vijay

[IntlTax]

Because you performed the services in the U.S. you did not have foreign source income and the foreign tax credit limitation is zero. This means that you cannot claim any foreign tax credits. It is unclear why you paid Indian taxes if the services were performed here in the U.S.

[vijoshi]

IntlTax: The Indian taxes were paid to account for my World Income ( I was a resident Indian for 2006-07 in the Indian tax year). I am a resident alien in the US for 2007, but was a Indian citizen for 2006-07 in India (Indian tax calendar ends on 31st March). Reading IRS publication 514 on foreign tax credit. I think by using an aditional worksheet for FOREIGN TAX on US income, could the credit be taken? This is to account for the double taxation treaty between India and US.

[MukatA]

vijoshi:
You can not claim any foreign tax credit. Why should IRS be responsible for your mistake?

If you had income in a foreign country and you paid taxes in the foreign country and you are reporting the foreign income on your U.S. tax return, then you get foreign tax credit.

In your case you have income in the U.S. which is taxable in the U.S.
You reported this U.S. income on your India tax return and paid taxes based on that return. While based on tax treaty you were not required to pay the full taxes. On your India tax return, you needed to claim credit for taxes paid in the U.S.

See if you can find someone to redo your India tax return.

[IntlTax]

Vijoshi, you bring up a good point. It is possible that the treaty may apply to prevent the double taxation. I have not reviewed the treaty in this regard. However, I still believe it is likely that you did not owe the Indian taxes if the services were performed in the U.S. while you lived in the U.S. Where you were PAID shouldn't matter. Of course, this is really an Indian tax question and I do not know Indian tax law.

[optjjm]

Because you performed the services in the U.S. you did not have foreign source income and the foreign tax credit limitation is zero. This means that you cannot claim any foreign tax credits. It is unclear why you paid Indian taxes if the services were performed here in the U.S.

I believe you need to file form 1040NR and claim a refund.

[MukatA]

Optijjm:
How do we claim a refund by filing 1040NR? Please explain.