Reclaimable foreign taxes withheld


G

Gary Goodman

Section 1.901-2(e)(2)(i) states: “An amount is not tax paid to a
foreign country to the extent that it is reasonably certain that the
amount will be refunded, credited, rebated, abated, or forgiven.”

That means you can't take the tax as a credit on your U.S. tax return.
How does one get a refund though? The broker says it won't do it on
behalf of the investor, a CRUT with over $3k of "reclaimable tax"
listed in the statement of additional information that came with the
1099.

Personally, I think that if an investor trusts over $20 million with a
broker, the broker should be responsible for it's actions.

Gary
 
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S

Stuart A. Bronstein

Gary Goodman said:
Section 1.901-2(e)(2)(i) states: “An amount is not tax paid to a
foreign country to the extent that it is reasonably certain that
the amount will be refunded, credited, rebated, abated, or
forgiven.”

That means you can't take the tax as a credit on your U.S. tax
return. How does one get a refund though?
I imagine you do the same thing you do in the US - find a local tax
preparer, or prepare your own return, and claim the refund.
The broker says it won't do it on behalf of the investor, a CRUT
with over $3k of "reclaimable tax" listed in the statement of
additional information that came with the 1099.
Why should the broker do that? It's the responsibility of the
trustee. Unless, of course, the broker is the trustee.
Personally, I think that if an investor trusts over $20 million
with a broker, the broker should be responsible for it's
actions.
Sure. But that isn't the broker's job, and it's not what the
broker is being paid for.
 
J

John Levine

Section 1.901-2(e)(2)(i) states: "An amount is not tax paid to a
foreign country to the extent that it is reasonably certain that the
amount will be refunded, credited, rebated, abated, or forgiven."

That means you can't take the tax as a credit on your U.S. tax return.
How does one get a refund though?
A refund of foreign tax? You do whatever the foreign government
requires, and they send you a check or make a transfer into your bank
account. If there's no evident way to do it, I'd think that it is not
reasonably certain that the amount will be refunded.

I occasionally get book royalties from the UK, and the payor withholds
UK tax. There is a process to tell them that you are not a UK
resident so you can get the tax back, but the fixed cost is high
enough that it's not worth it, so I take what I can on form 1116. My
position is that since I haven't asked for the tax to be refunded,
there's no likelihood at all that they will do so.

Personally, I think that if an investor trusts over $20 million with
a broker, the broker should be responsible for its actions.
For an account of that size, you should be able to find a broker that
offers satisfactory customer service. Perhaps you could point that
out to your current broker.

Regards,
John Levine, (e-mail address removed), Primary Perpetrator of "The Internet for Dummies",
Please consider the environment before reading this e-mail. http://jl.ly
 
G

Gene E. Utterback, EA, RFC, ABA

SNIPPED
I occasionally get book royalties from the UK, and the payor withholds
UK tax. There is a process to tell them that you are not a UK
resident so you can get the tax back, but the fixed cost is high
enough that it's not worth it, so I take what I can on form 1116. My
position is that since I haven't asked for the tax to be refunded,
there's no likelihood at all that they will do so.
STOP THE BUS!

Your position that you won't get it back simply because you won't ask for it
back, simply because it costs too much, MAY NOT be sufficient to allow you
to claim in your tax return. I cannot know for certain without doing the
research, and I'm assuming you're not interested in retaining me to do that
research, so I'd recommend you talk to your tax advisor.

There is an old court case, Klithermes I think, where Mr. Klithermes claimed
a deduction on his tax return for unreimbursed expenses. On audit the IRS
determined that he was eligible for reimbursement from the company if had
asked for it properly. He failed to ask, so he got nothing. The IRS, and
the court, determined that he was NOT entitled to the deduction because he
could have been reimbursed had he bothered to ask.

Klithermes is about unreimbursed business expenses and your case is about
foreign taxes. BUT the underlying similarity in both is that both you and
Klithermes ARE entitled to get your money back if you'd just ask for it.
Hence, it MAY BE that you are not entitled to the Form 1116 credit.

Good luck,
Gene E. Utterback, EA, RFC, ABA
 
J

John Levine

Your position that you won't get it back simply because you won't ask
for it back, simply because it costs too much, MAY NOT be sufficient
to allow you to claim in your tax return.
More specifically, I could file some forms with the UK government,
which they would consider and if they agree that I'm entitled not to
have the tax deducted, then they might refund it. It's not unlikely,
but I don't think it's "reasonably certain" that they'd approve my
application.

Anyway, the amount of tax is so small that it's not worth paying
anyone to do anything special. I've been claiming it for years. If
the IRS changes their mind and disallows it, so be it.

Bonus confusing facts: there is a UK organization called the ALCS that
collects statutory royalties on behalf of authors in the UK and other
countries. If you're an ALCS member, as I am, they pay your royalties
directly, less 20% tax and some administrative fees. If you're not an
ALCS member and you live in the US, they forward the money to the
Authors' Guild in New York, who convert it to dollars at a not very
good rate, take out more fees, and send it out. (I did that until I
realized I could join the ALCS and skip the middleman.) Tha Guild
told me they distribute ALCS money to several thousand US authors, and
I'd be surprised if a lot of them didn't claim the tax on Form 1116.
So if I'm not eligible, at least I'm in good company.

R's,
John
 
D

D. Stussy

John Levine said:
A refund of foreign tax? You do whatever the foreign government
requires, and they send you a check or make a transfer into your bank
account. If there's no evident way to do it, I'd think that it is not
reasonably certain that the amount will be refunded.

I occasionally get book royalties from the UK, and the payor withholds
UK tax. There is a process to tell them that you are not a UK
resident so you can get the tax back, but the fixed cost is high
enough that it's not worth it, so I take what I can on form 1116. My
position is that since I haven't asked for the tax to be refunded,
there's no likelihood at all that they will do so.
Not asking for a tax to be refunded does not make it non-refundable.
For an account of that size, you should be able to find a broker that
offers satisfactory customer service. Perhaps you could point that
out to your current broker.
Make certain you have another broker in mind first....
 
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R

removeps-groups

More specifically, I could file some forms with the UK government,
which they would consider and if they agree that I'm entitled not to
have the tax deducted, then they might refund it.  It's not unlikely,
but I don't think it's "reasonably certain" that they'd approve my
application.

Anyway, the amount of tax is so small that it's not worth paying
anyone to do anything special.  I've been claiming it for years.  If
the IRS changes their mind and disallows it, so be it.
But by claiming the FTC I think you're violating the language of the
statute. You have to fill out that application. If you get audited
you might be in trouble.

Of course, the ideal approach is to have the US government deal with
getting the money from the UK government.
 
S

Stuart A. Bronstein

STOP THE BUS!

Your position that you won't get it back simply because you
won't ask for it back, simply because it costs too much, MAY NOT
be sufficient to allow you to claim in your tax return. I
cannot know for certain without doing the research, and I'm
assuming you're not interested in retaining me to do that
research, so I'd recommend you talk to your tax advisor.
I haven't done the research either. However my guess is that if it
is unreasonably expensive to get the refund, it may not be necessary
to do so. Exactly where to draw the line will be the problem. But
if he makes a reasonable business decision (rather than a personal
decision based on non-financial issues), I'd think it would be ok.
 
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S

Seth

John Levine said:
Not asking for a tax to be refunded does not make it non-refundable.
The law doesn't say anything about "non-refundable". It says, as
quoted above, "reasonably certain that the amount will be refunded
.. . .". Do you believe it is reasonably certain that John's UK taxes
will be refunded? Will you bet even money that they will be? If you
won't even make a bet at even money that an event will occur, you
certainly shouldn't claim that the event is reasonably certain.

Seth
 

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