Foreign tax credit

[TIM G]

I have a client that lived and worked in the Netherlands for five consecutive years. She returned to the US (and remained) in November 2004.

She received a severance package that was paid to her in February 2005. The payment had Dutch taxes withheld.

She has been accumulating and carrying forward foreign tax credits for the past four years.

I have been able to determine where to enter the foreign tax credits (for the prior years) on the 1116.

My issue is that I am not sure how to properly capture the foreign income and the foreign taxes paid on this income.

It occurred to me to create a substitute W2 and not indicate that any taxes were withheld.

That captures the income on line 7 but does not give credit for the taxes paid to the foreign country.

Any help will be appreciated.

[Roland Slugg]

How to report

Dear TIM G

Report the gross income on F-1040, line 7, even though your client didn't receive a U.S. W-2 form for that income. Do not create a "fake" W-2. Your tax prep software should have a worksheet or other screen on which to enter such non-W-2 wages. Report the foreign tax withheld only on F-1116.

Your client may be entitled to exclude some or all of her FSI. See F-2555 ... and good luck with it!