Publication 514 - Introductory Material
This is archived information that pertains only to the 2006 Tax Year. If you
are looking for information for the current tax year, go to the Tax Prep Help Area.
Source of compensation for labor or personal services. New rules apply in determining the source of compensation for labor or personal services performed as an employee. 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 Determining the Source of Compensation for Labor or Personal Services.
Income categories eliminated. For tax years beginning after 2006, the following categories of income will be eliminated for purposes of computing the foreign
tax credit limit.
Income that previously fell in these categories will fall in either the passive income category or the general limitation
income category.
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High withholding tax interest.
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Financial services income.
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Shipping income.
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Dividends from a domestic international sales corporation (DISC) or former DISC.
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Certain distributions from a foreign sales corporation (FSC) or former FSC.
High withholding tax interest and shipping income will fall in the passive income category or general limitation income category
depending on the
circumstances. Financial services income will fall in the general limitation income category if you are predominantly engaged
in the active conduct of
a banking, insurance, financing or similar business. Dividends from a DISC or former DISC, and certain distributions from
a FSC or former FSC will
fall in the passive income category.
Recharacterization of overall domestic loss. If you have an overall domestic loss for any tax year beginning after 2006, you must recharacterize a portion of your U.S.
source taxable income in
succeeding years as foreign source taxable income for purposes of the foreign tax credit.
In a tax year you choose to claim the foreign tax credit, the overall domestic loss is the domestic loss for that tax year
to the extent it offsets
foreign source taxable income for that tax year or for any preceding tax year (in which you chose to claim the foreign tax
credit) because of a
carryback. If you do not choose to claim the foreign tax credit for a tax year, the overall domestic loss is the domestic
loss for that tax year to
the extent it offsets foreign source taxable income for any preceding tax year (in which you chose to claim the foreign tax
credit) because of a
carryback.
For more information, see Internal Revenue Code section 904(g).
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:
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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.
Ordering forms and publications.
Visit
www.irs.gov/formspubs to download forms and publications, call 1-800-829-3676, or write to the address below and receive a response
within 10 business days after your request is received.
National Distribution Center
P.O. Box 8903
Bloomington, IL 61702-8903
Tax questions.
If you have a tax question, visit
www.irs.gov or call 1-800-829-1040. We cannot answer tax questions sent to
either of the above addresses.
Useful Items - You may want to see:
Publication
-
54
Tax Guide for U.S. Citizens and Resident Aliens Abroad
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519
U.S. Tax Guide for Aliens
-
570
Tax Guide for Individuals With Income From U.S. Possessions
See How To Get Tax Help near the end of this publication for information about getting these publications and this form.