2014 NC Resident and Pureto Rico income on PR Form 480.6C?

[cjs]

I have a client who is a NC resident for all of 2014.

He worked some in Puerto Rick in 2014. He gave me a Form 480.6C. This form reports his PR earning of $12,000 and Amt of PR WH of $2,500.

It appears to me that he does not have to file PR income tax return, because the WH is enough to pay the PR income tax?

It also appears to me that he does have to file the $12,000 fbo IRS and NC?

My thoughts are to put the $12,000 on Sch C, and deduct any expenses associated with earning PR income?

Is the WH $2,500 a credit to US Income Tax owed?

Is the WH $2,500 a credit to NC Income Tax owed?

Is there anybody out there to help me know if I have it figured out right or wrong?

My office is 910-293-3168 if we need to talk.

Thank you for any assistance.

[FEDUKE404]

Dealing with Puerto Rico income and tax credits

I believe you need to do a bit of further research. . .starting with IRS Publication 570. A quick Google search showed several other sources of information you could use.

Although I am not familiar with a Puerto Rico Form 480.6C ("Income subject to withholding — nonresidents"), it would appear to me that your client would definitely need to report this income on both his US/NC tax returns.

Also, from Publication 570 (we cannot post links): "If you have income from American Samoa, the CNMI, Guam, Puerto Rico, or the USVI, you may have to file a tax return with the tax department of that possession. Or, you may have to file two annual tax returns, one with the possession's tax department and the other with the U.S. Internal Revenue Service."

Since the "same" income would also have been taxed by a foreign country/state, it is likely a tax credit would be available via Form 1116 and/or NC Form D-400 TC. To do so, you would first need to have available a copy of the "foreign" tax return to show the amount of tax liability that foreign income generated. (Amount is tax withheld is likely irrelevant.) You have already stated person is a US/NC resident for all of 2014.

Without having further facts, I don't think generating a Schedule C (with expenses??) is a viable route. (Was your client an employee or self-employed while in Puerto Rico??) Be advised that if he was self-employed, he would likely be subject to Schedule SE tax on his net income.

The first thing I would do is see what is required for the preparation of a Puerto Rico tax return, and then work forward from there. (I think you will need to prepare three tax returns.)

FE