Need help RE: Foreign Tax Credit Please

[WhiteOleander]

Client in another office filed a return that included a credit for foreign tax credit.(He doesn't meet the time requirements for the income exclusion.) The IRS is challenging the credit.
(numbers are fictional)
He worked in Brazil. He received a W-2 from a US company for approx 120,000. No withholding or FICA reported on W-2. He has a letter from the Brazilian Company stating they paid the Gov't 30,000 in tax. They did not withhold it from the client. They paid the tax to the taxing authority. Preparer included the 30,000 on line 21 as other income since it is income to him.

Does anyone know if the IRS is correct that since the company paid the tax. not him, he cannot take the credit even though the 30,000.00 is included into the income?

Thanks

[Nashville]

I think so

but will be the first to admit my pea-sized brain is not used to a situation like this.

If he has a letter from a Brazilian (hypothetical) company that the taxing authority was paid by the taxpayer (either through withholding, retainage, or some other method so long as the TAXPAYER effectively paid it), I think it should stand. Absent the US being able to dictate information returns to 300 other countries, I would say give him benefit of the doubt. It would be helpful if this letter also stated:
1) that this is an INCOME tax, and
2) disclosed the income BASE for calculation of the tax. Without this, I believe the mechanics of the credit will fail.

I don't feel as good about the neglect to withhold social security or medicare, however. We assume this is a US citizen being paid by a US company? Don't see how his company can exempt themselves from withholding requirements for SS and Medicare.

[Kram BergGold]

Credit is valid

By reporting the 30k as income he has made the tax paid his and the credit is valid.