Unemployment compensation - category for foreign tax credit


D

David Rosenbaum

Here's a bit of a weird question. When claiming a foreign tax credit
using Form 1116, income needs to be categorized.

Should unemployment compensation (foreign, obviously) be reported as
passive or as general limitation?

Thanks for any ideas.

David Rosenbaum
 
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A

Alan

Here's a bit of a weird question. When claiming a foreign tax credit
using Form 1116, income needs to be categorized.

Should unemployment compensation (foreign, obviously) be reported as
passive or as general limitation?

Thanks for any ideas.

David Rosenbaum
It's not a lump sum distribution using averaging.
It's not income resourced by treaty.
It's not Sec. 901(j) income.
It's not in the definition for passive income.

Therefore, I must conclude that it is general category income.
 
S

siemelnaran

Here's a bit of a weird question. When claiming a foreign tax credit
using Form 1116, income needs to be categorized.

Should unemployment compensation (foreign, obviously) be reported as
passive or as general limitation?
I think it is general income because it's a division of wages/salary http://www.irs.gov/instructions/i1116/ch01.html#d0e439.
From IRC 904
BEGIN QUOTE http://www.taxalmanac.org/index.php/Internal_Revenue_Code:Sec._904._Limitation_on_credit

(B) Passive income
(i) In general
Except as otherwise provided in this subparagraph, the term
''passive income'' means any income received or accrued by
any person which is of a kind which would be foreign personal
holding company income (as defined in section 954(c)).

(ii)

END QUOTE

There are also parts (ii) to (v) though I don't think they apply here.
From IRC 954
BEGIN QUOTE http://www.taxalmanac.org/index.php/Internal_Revenue_Code:Sec._954._Foreign_base_company_income

(c) Foreign personal holding company income
(1) In general
For purposes of subsection (a)(1), the term ''foreign personal
holding company income'' means the portion of the gross income
which consists of:
(A) Dividends, etc.
Dividends, interest, royalties, rents, and annuities.
(B) Certain property transactions ...
(C) Commodities transactions ...
(D) Foreign currency gains ...
(E) Income equivalent to interest ...
(F) Income from notional principal contracts ...
(G) Payments in lieu of dividends ...
(I) Personal service contracts ...

END QUOTE

These statutes are very complicated and have lots of clauses that don't apply to most people, like (B) to (I) above, and one sections refers to another like how 904 refers to 954. Seems Congress has too much time on its hands :).
 
D

David Rosenbaum

On 5/25/12 9:44 AM, David Rosenbaum wrote:> Here's a bit of a weird question. When claiming a foreign tax credit




It's not a lump sum distribution using averaging.
It's not income resourced by treaty.
It's not Sec. 901(j) income.
It's not in the definition for passive income.

Therefore, I must conclude that it is general category income.
Thanks.

You're correct that the instructions don't include it in passive. But
the language used was "Passive income generally includes dividends"
etc. Implication is that it could include other things. I haven't
checked the Code.

David
 
D

David Rosenbaum

I think it is general income because it's a division of wages/salaryhttp://www.irs.gov/instructions/i1116/ch01.html#d0e439.


BEGIN QUOTEhttp://www.taxalmanac.org/index.php/Internal_Revenue_Code:Sec._904._L...

        (B) Passive income
          (i) In general
            Except as otherwise provided in this subparagraph, the term
          ''passive income'' means any income received or accrued by
          any person which is of a kind which would be foreign personal
          holding company income (as defined in section 954(c)).

          (ii)

END QUOTE

There are also parts (ii) to (v) though I don't think they apply here.


BEGIN QUOTEhttp://www.taxalmanac.org/index.php/Internal_Revenue_Code:Sec._954._F...

    (c) Foreign personal holding company income
      (1) In general
        For purposes of subsection (a)(1), the term ''foreign personal
      holding company income'' means the portion of the gross income
      which consists of:
        (A) Dividends, etc.
          Dividends, interest, royalties, rents, and annuities.
        (B) Certain property transactions ...
        (C) Commodities transactions ...
        (D) Foreign currency gains ...
        (E) Income equivalent to interest ...
        (F) Income from notional principal contracts ...
        (G) Payments in lieu of dividends ...
        (I) Personal service contracts ...

END QUOTE

These statutes are very complicated and have lots of clauses that don't apply to most people, like (B) to (I) above, and one sections refers to another like how 904 refers to 954.  Seems Congress has too much time on its hands :).
Sounds good.

Thanks,

David
 
I

ira smilovitz

On Monday, May 28, 2012 10:50:23 AM UTC-4, David Rosenbaum wrote:

[snipped]
Thanks.

You're correct that the instructions don't include it in passive. But
the language used was "Passive income generally includes dividends"
etc. Implication is that it could include other things. I haven't
checked the Code.

David
I would have interpreted the quoted language the other way around. That is, although passive income generally includes dividends there are circumstances where dividends are not passive income.

Ira Smilovitz
 
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A

Alan

Thanks.

You're correct that the instructions don't include it in passive. But
the language used was "Passive income generally includes dividends"
etc. Implication is that it could include other things. I haven't
checked the Code.

David
The way the law is written, there are 7 categories defined. (I didn't
show all 7 because your situation would not have included all 7.) If you
don't fall into one of the defined 7, then you fall into general
limitation. Unemployment compensation is not included in any of the 7.
Therefore, it is general limitation.

Passive income is defined in IRC Sec. 904(d) and its regulations at
1.904-4 and various court decisions.
 
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D

David Rosenbaum

The way the law is written, there are 7 categories defined. (I didn't
show all 7 because your situation would not have included all 7.) If you
don't fall into one of the defined 7, then you fall into general
limitation. Unemployment compensation is not included in any of the 7.
Therefore, it is general limitation.

Passive income is defined in IRC Sec. 904(d) and its regulations at
1.904-4 and various court decisions.
Thanks!

David
 

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