The Foreign Tax Credit and Resident Immigrants

By:  Coleman Jackson, Attorney, CPA
July 03, 2015

Resident immigrants of the United States of America can claim the foreign tax credit for eligible foreign taxes paid.

Resident immigrants of the United States of America can claim the foreign tax credit for eligible foreign taxes paid or accrued to any foreign country or U.S. possession during the tax period pursuant to 26 U.S.C.S. § 901(b)(1).  Internal Revenue Code §901(b)(1) states that any income, war profits, and excess profits taxes paid overseas are creditable against U.S. income taxes.  The U.S. Treasury and U.S. Supreme Court has interpreted §901(b)(1) to mean that a foreign tax is creditable if its principal nature is that of an income tax.  Non-resident immigrants are not eligible to claim a foreign tax credit, but for, a very limited number of circumstances.

The general rule stated above as far as resident immigrants’ eligibility to claim the foreign tax credit is not limited to resident immigrants; U.S. citizens and domestic corporations could also be eligible to claim the foreign tax credit if they paid overseas taxes to a foreign country.

There are several exceptions and international tax issues those eligible immigrants, or U.S. citizens or domestic corporations must be concerned with when evaluating whether they are eligible for the foreign tax credit under §901(b)(1) of the Internal Revenue Code:

  1. Certain categories of taxes are not eligible for foreign tax credit treatment;
  2. Taxes paid to certain countries are not eligible to the foreign tax credit;
  3. A tax for which only an itemized deduction is allowed is not eligible for the foreign tax credit;
  4.  Determining creditable and deductible payments that firmly fits within the U.S. meaning of income taxes paid to a foreign country can be a very complex international tax matter. 

This blog is written by the Immigration & Tax Law Firm of Coleman Jackson, P.C.  It is for informational and educational purposes and does not create an attorney-client relationship between this law firm and the reader.  If you have questions about your particular situation regarding federal or state taxation or immigration matters, you should consult with independent legal counsel with respect your individual situation or circumstances.

Coleman Jackson, PC
Immigration & Tax Law Firm
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Suite 443
Dallas, Texas 75206
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