Rate of exchange for foreign taxes. If you claim the credit for foreign taxes on an accrual basis, you must generally use the average exchange rate for the tax
year to which taxes
relate. However in tax years beginning in 2005 and later years, you can elect to use the exchange rate in effect on the date
the taxes are paid if the
foreign tax liability is denominated in a nonfunctional currency. See Foreign Currency and Exchange Rates.
Source of compensation for labor or personal services. In tax years beginning after July 13, 2005, new rules apply in determining the source of compensation for labor or personal
services performed as
an employee. If you file your tax returns on a calendar year basis, the new rules apply to your returns for 2006 and later
years.
Under the new rules, compensation (other than fringe benefits) is sourced on a time basis. Fringe benefits (such as housing
and education are
sourced on a geographical basis. For more information, see Regulations section 1.861-4.
Change of address. If your address changes from the address shown on your last return, use Form 8822, Change of Address, to notify the Internal
Revenue Service.
Photographs of missing children. The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Photographs of
missing children
selected by the Center may appear in this publication on pages that would otherwise be blank. You can help bring these children
home by looking at the
photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child.
If you paid or accrued foreign taxes to a foreign country on foreign source income and are subject to U.S. tax on the same
income, you may be able
to take either a credit or an itemized deduction for those taxes. Taken as a deduction, foreign income taxes reduce your U.S.
taxable income. Taken as
a credit, foreign income taxes reduce your U.S. tax liability.
In most cases, it is to your advantage to take foreign income taxes as a tax credit. The major scope of this publication is
the foreign tax credit.
The publication discusses:
-
How to choose to take the credit or the deduction,
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Who can take the credit,
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What foreign taxes qualify for the credit,
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How to figure the credit, and
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How to carry over unused foreign taxes to other tax years.
Unless you choose not to be subject to the foreign tax credit limit, you claim the credit by filing Form 1116 with your U.S.
income tax return. Two
examples with filled-in Forms 1116 are provided at the end of this publication.
Comments and suggestions.
We welcome your comments about this publication and your suggestions for future editions.
You can write to us at the following address:
Internal Revenue Service
Individual Forms and Publications Branch
SE:W:CAR:MP:T:I
1111 Constitution Ave. NW, IR-6406
Washington, DC 20224
We respond to many letters by telephone. Therefore, it would be helpful if you would include your daytime phone number,
including the area code, in
your correspondence.
You can email us at
*[email protected]. (The asterisk must be included in the
address.) Please put “
Publications Comment” on the subject line. Although we cannot respond individually to each email, we do appreciate your
feedback and will consider your comments as we revise our tax products.
Tax questions.
If you have a tax question, visit
www.irs.gov or call 1-800-829-1040. We cannot answer tax questions at either
of the addresses listed above.
Ordering forms and publications.
Visit
www.irs.gov/formspubs to download forms and publications, call 1-800-829-3676, or write to the National Distribution Center at the
address shown under
How To Get Tax Help in the back of this publication.
