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Category: Finding Deductions

Foreign Taxes NOT Eligible for a credit?

You cannot take a Foreign Tax Credit based on any of the following taxes:

1. Taxes paid to a foreign country that you do not legally owe, including amounts eligible for refund by the foreign country. If you do not exercise your available remedies to reduce the amount of foreign tax to what you legally owe, a credit for the excess amount is not allowed.

2. Taxes imposed by and paid to certain foreign countries. These countries are those designated by the secretary of State as countries with which the United States does not have diplomatic relations, or countries whose governments are not recognized by the U.S. Publication 514 contains a list of these countries. You can find this list on page 8 of the 2013 instructions.

3. Foreign taxes withheld on a dividend from a corporation, if you have not held the stock for at least 16 days within the 31-day period that begins 15 days before the ex-dividend date OR the dividends are for a period or periods totaling more than 366 days on preferred stock you held for less than 46 days during the 91-day period that begins 45 days before the ex-dividend date. This required holding period is greater for preferred-stock dividends attributable to periods totaling more than 366 days. See section 901 (k)(3) or Publication 514.

4. Foreign taxes withheld on a dividend to the extent that you have to make related payments on positions in similar or related property.

5. Foreign taxes withheld on income or gain (other than dividends) from property if you have not held the property for at least 16 days within the 31-day period that begins 15 days before the date on which the right to receive the payment arises. See section 901 (I) or Publication 514 page 9 of the 2013 instructions.

6. Foreign taxes withheld on income or gain (other than dividends) from property to the extent you have to make related payments on positions in similar or related property.

7. Payments of foreign tax that are returned to you in the form of a subsidy.

8. Taxes paid or accrued to a foreign country in connection with the purchase or sale of oil or gas extracted in that country if you do not have an economic interest in the oil or gas, and the purchase price or sales price is different from the fair market value of the oil or gas at the time of the purchase or sale.

9. Foreign taxes paid or accrued on income for which you are claiming an exclusion on Form 8873, Extraterritorial Income Exclusion. However, see section 943 (d) for an exception for certain withholding taxes.

10. Taxes from international boycott operations. If you participate in or cooperate with an international boycott during the tax year, your friend taxes resulting from boycott activities will reduce the total taxes available for credit. A list of countries which may require participation in an international boycott can be found on Page 9 of Publication 514.

You cannot take a credit for any interest of penalties you must pay.

For full details see Publication 514 in it's entirety