IRS Form 1116 (2011): Foreign Tax Credit for Individuals

IRS Form 1116 (2011) is the form individuals, estates, and trusts use to claim the foreign tax credit for foreign income taxes paid or accrued during the 2011 tax year. It offsets U.S. tax on the same income to prevent double taxation.

Late Filers

Taxpayers who never filed a 2011 return can still attach Form 1116 to a late return to claim the foreign tax credit.

Multiple Income Sources

Filers with more than one category of foreign income, such as passive income and general income, must complete a separate Form 1116 for each category.

Itemizing Deductions

Taxpayers may instead deduct foreign income taxes on Schedule A, but most benefit more from using Form 1116 to claim the foreign tax credit.

Claiming 2011 Credits

The form lets eligible taxpayers claim a credit for foreign taxes paid or accrued in 2011, reducing the U.S. tax owed on that income.

IRS Compliance

Attaching Form 1116 to the 2011 return creates an official record of the foreign taxes claimed and supports the credit if the IRS reviews it.

Citizens Abroad / Military

U.S. citizens, resident aliens, and service members living abroad commonly use Form 1116 to claim credit for income taxes paid to a foreign country.

Follow the six steps below to complete your 2011 Form 1116 accurately; the line references below match the 2011 form, and some line numbers differ in other tax years.

1. Gather Your Documents Before Starting

Collect records of all foreign income and the foreign taxes paid or accrued in 2011, including 1099-DIV and 1099-INT statements, K-1s, foreign tax receipts, any prior year Form 1116 showing a carryover, and your completed 2011 Form 1040.

2. Choose the Correct Category of Income

Form 1116 does not use a filing status; instead, you check one income category box at the top of each form. The 2011 form lists passive category income, general category income, section 901(j) income, certain income re-sourced by treaty, and lump-sum distributions. Choosing the wrong category of income misstates your limitation and can trigger IRS questions.

3. Report Foreign Income and Taxes on the Correct Lines

In Part I, report your foreign source gross income on line 1a, subtract the deductions definitely related to it on lines 2 through 6, and carry the net foreign source income to line 7. In Part II, list the foreign taxes paid or accrued for that category, by foreign country, in U.S. dollars.

4. Calculate the Foreign Tax Credit Limitation 

Form 1116 calculates a limitation rather than AGI. In Part III, divide your net foreign source taxable income by your total taxable income, then multiply that ratio by your U.S. tax from line 20, which on the 2011 form comes from Form 1040, line 44 [2011 line number].

5. Apply the Credit-or-Deduction Choice and Carry Over Excess 

Form 1116 has no standard deduction or personal exemption; instead, you choose between crediting or deducting your foreign taxes, and you generally cannot do both. If your foreign taxes paid or accrued exceed the limitation, the excess credit is not lost — you may carry it back one year or carry it forward up to ten years.

6. Claim the Foreign Tax Credit on Your 2011 Return

Total your credits in Part IV and enter the result as your foreign tax credit. On the 2011 form, this amount transfers to Form 1040, line 47 [2011 line number], and you must attach Form 1116 to the return.

Missing W-2s or Tax Records for 2011?

Late filers often no longer have their original 2011 records, such as foreign tax receipts and 1099s. IRS transcripts and your own foreign account records can help you reconstruct the foreign taxes paid or accrued for the return.

IRS Wage & Income Transcript

An IRS wage and income transcript shows the income reported to the IRS under your number for 2011, including 1099-DIV and 1099-INT forms that may list foreign tax withheld.

IRS Account Transcript

An IRS account transcript reflects the payments made, penalties assessed, and adjustments recorded on your 2011 tax account, helping you confirm any balance before you submit the return.

Social Security Administration

The Social Security Administration can provide your 2011 earnings history, which helps verify wages reported under your number when foreign and domestic income records are incomplete.

Contact Prior Employers

Reaching out to a 2011 employer, foreign payer, or financial institution may produce duplicate income statements and records of foreign tax withheld when IRS transcripts are delayed or incomplete.

Do not estimate the amount of foreign taxes paid; use IRS transcripts and foreign tax receipts to match records exactly and reduce follow-up notices.

These are the most frequent errors that cause IRS delays, rejected returns, or a reduced foreign tax credit in 2011.

• Using the wrong tax year form — Submitting any Form 1116 other than the 2011 version causes problems because line numbers and references differ, so confirm the year before you begin.
  
  
• Not filing a separate Form 1116 for each income category — Combining passive income and general income on one form is incorrect, because Form 1116 requires a separate form for each category of income.
  
  
• Checking the wrong income category box — Placing wages in the passive category or dividends in the general category misstates the limitation and commonly prompts the IRS to question the return.
  
  
• Claiming more than the foreign tax credit limitation — Form 1116 caps the credit at the U.S. tax on your foreign income, so claiming foreign taxes above that limit overstates the credit.
  
  
• Claiming credit for taxes on excluded income — If you used the foreign earned income exclusion, you cannot also take a foreign tax credit for the taxes on that same excluded income.
  
  
• Assuming a refund is still available — The 2011 refund window closed in 2015, so even if Form 1116 produces an overpayment, the IRS will not refund it now.
  
  
• Missing or incorrect Social Security numbers — An incorrect or missing Social Security number for the taxpayer or a spouse causes automatic IRS rejection and delays processing until the error is corrected.
  
  
• Unsigned return — An unsigned paper return is invalid, and on a joint return, both spouses must sign before the return and Form 1116 are processed.
  
  
• Missing attachments — Forgetting to attach Form 1116, with any required explanation statement, to the 2011 Form 1040 can cause the IRS to disallow the credit.
  

What is Form 1116 (2011) used for?

IRS Form 1116 (2011) is the form individuals, estates, and trusts use to claim the foreign tax credit for income taxes paid or accrued to a foreign country in 2011. It reduces the U.S. federal income tax on that same income and helps prevent double taxation.

Can I still file a 2011 tax return?

Yes, you can still file a 2011 return with Form 1116 attached, since there is no deadline to file when you owe tax. Filing creates an IRS compliance record. However, the refund window closed in 2015, so any overpayment can no longer be refunded.

How do I qualify for the foreign tax credit on Form 1116?

You generally qualify if you are a U.S. citizen, resident alien, estate, or trust that paid or accrued income taxes to a foreign country on income also taxed by the United States. You must choose the credit instead of deducting the same foreign taxes.

Do I always have to file Form 1116 to claim the foreign tax credit?

No, you don't always have to. For 2011, if all of your foreign taxes were on passive income reported on a 1099 and totaled $300 or less, or $600 if married filing jointly, you could claim the credit directly without filing Form 1116 for that year.

What happens to foreign tax credits I cannot use in 2011?

If your foreign taxes paid or accrued exceed the foreign tax credit limitation for 2011, the excess credit is not lost. You can generally carry it back one year or carry it forward up to ten years to offset U.S. tax in those years.

Should I take the credit or deduct foreign taxes?

You can either claim the foreign tax credit on Form 1116 or deduct foreign income taxes on Schedule A, but not both for the same taxes. The credit usually gives a larger tax benefit because it reduces your U.S. income tax liability dollar for dollar rather than your income.

Do I need a tax professional to file Form 1116 for 2011?

You are not required to use one, but a late prior-year Form 1116 involves the credit limitation, currency conversion, and carryover rules that can be complex depending on your tax situation. Tax professionals can help you calculate the credit accurately and respond to any related IRS notices.