Foreign Tax Credit

rjayakkumar · Post by **rjayakkumar** » Fri Aug 05, 2011 9:56 pm

Hi,

I claimed foreign tax credit (as I was paying taxes both in US and in India) during the years 2008 & 2009.I returned back to India in 2010.

We got letter from IRS stating that they had eliminated the FTC and sent us a revised return asking us to the tax deficiency with penalty (around 10K) .In the letter it has been mentioned that 'if we don't agree we can send any additional information that we would like them to consider' (meaning we can send the proofs for the same?).

What are all the thing that I need to send to them to prove that I had paid taxes in india also during that time. I have all the Indian salary pay slips / form 16 also for that period.Is that enough?

Is it better to send it through mail/fax or can we speak to IRS before sending?.Which way is better?

Pls clarify

Thanks in advance

rjayakkumar · Post by **rjayakkumar** » Fri Aug 05, 2011 10:02 pm

One more clarification needed.

If we speak to them, is it OK to tell them that we had returned to India (will they ask our contact number)?.Will I be asked, why it was not informed to them when I left USA?

As I may be travelling to US shortly in long term,am expecting your feedback

Will it create any problem, if we go for the visa interview next month (do they have this updated information that this issue with IRS is there, in the embassy?.

rjayakkumar · Post by **rjayakkumar** » Mon Aug 08, 2011 1:02 pm

Hi,

Can anyone please reply?

greyfri · Post by **greyfri** » Mon Aug 08, 2011 4:13 pm

rjayakkumar;403093Hi,

I claimed foreign tax credit (as I was paying taxes both in US and in India) during the years 2008 & 2009.I returned back to India in 2010.

We got letter from IRS stating that they had eliminated the FTC and sent us a revised return asking us to the tax deficiency with penalty (around 10K) .In the letter it has been mentioned that 'if we don't agree we can send any additional information that we would like them to consider' (meaning we can send the proofs for the same?).

What are all the thing that I need to send to them to prove that I had paid taxes in india also during that time. I have all the Indian salary pay slips / form 16 also for that period.Is that enough?

Is it better to send it through mail/fax or can we speak to IRS before sending?.Which way is better?

Pls clarify

Thanks in advance

Look at the notice from the IRS in detail. They should have explained why they 'eliminated' the FTC and revised the return. Was there a mistake in your original return ? Did you not file form 1116 ? Were you not eligible ? Are they asking for proof that foreign tax was paid ? They should not have 'eliminated' the FTC without giving you proper notice -- unless you ignored previous letters.

The letter should have informed you of what to do you disagree, your appeal and other rights. If not, look at this

http://www.irs.gov/individuals/article/0,,id=160745,00.html

They might have added interest, they should not have added a penalty.

If they are just asking for proof that foreign tax was paid, your Indian tax return + Form 16 should suffice (the Indian tax year is different, otherwise the Indian tax return would suffice). If you did not file a tax return, then its a little more complicated. They might accept TDS, but they can also ask for proof that the tax was actually due. You can only claim a foreign tax credit for tax that was actually due and paid.

This should not make any difference to your visa interview at all.

rjayakkumar · Post by **rjayakkumar** » Mon Aug 08, 2011 8:20 pm

Thanks, greyfri.

I had received only one letter from IRS, which says they had made changes to FTC. I filed form 1116.

In the letter they had mentioned that if we agree to their change, we need to pay the FTC which I claimed with interest & penalty (accuracy related penalty).They had mentioned 'If we don't agree with the changes, you should mail us any additional information the you would like us to consider'.So I assume, they are asking for the proof.

I am sending salary slips, form 16 and also ITR V Forms (proof from Govt Of India that I had paid the taxes) for those period.Apart from that, I am also sending my company's deputation letter with my global salary, global taxes etc.,

But in the last page of the letter, they had mentioned that 'we eliminated any foreign taxes that do not qualify for the credit under section 901 of the internal revenue code,since those taxes have not been established to be eligible for the credit as foreign income taxes'.Not clear on this.

When I filed, my consultant reviewed all those proofs, and then he proceeded with FTC for me.

Pls clarify.

greyfri · Post by **greyfri** » Tue Aug 09, 2011 10:02 pm

rjayakkumar;403482Thanks, greyfri.

I had received only one letter from IRS, which says they had made changes to FTC. I filed form 1116.

In the letter they had mentioned that if we agree to their change, we need to pay the FTC which I claimed with interest & penalty (accuracy related penalty).They had mentioned 'If we don't agree with the changes, you should mail us any additional information the you would like us to consider'.So I assume, they are asking for the proof.

I am sending salary slips, form 16 and also ITR V Forms (proof from Govt Of India that I had paid the taxes) for those period.Apart from that, I am also sending my company's deputation letter with my global salary, global taxes etc.,

But in the last page of the letter, they had mentioned that 'we eliminated any foreign taxes that do not qualify for the credit under section 901 of the internal revenue code,since those taxes have not been established to be eligible for the credit as foreign income taxes'.Not clear on this.

When I filed, my consultant reviewed all those proofs, and then he proceeded with FTC for me.

Pls clarify.

Only someone who has looked at your return and the IRS's letter in detail can 'clarify'. You should contact your consultant and ask him what to do. As the original preparer, he should represent you before the IRS. If he's not available, you can try to find another professional who has some expertise in foreign returns. Or just go over your form and the letter in detail.

The letter from the IRS may just have been a form letter, but it might indicate that they had actually eliminated the FTC. If the IRS was only asking for proof, they should have done that before removing the credit and certainly before asserting a penalty. It may be the case that you were not eligible for the FTC. In any case, you should likely be able to get the penalty removed.

rjayakkumar · Post by **rjayakkumar** » Wed Aug 10, 2011 1:19 pm

Thanks for your reply, greyfri.

But I have a doubt whether this is the first letter from IRS..As I had given my friend's address (since Iam in India),it would have been escaped his attention.

Because I read in various sites, that IRS informes about the proof required for a claim in the first letter and if no response, then it again send another one with the corrections.

In the letter I got, It says 'Income Tax Examination Changes' with the modified figure (eliminating FTC).But in the cover letter it asks us to send additional information,if we don't agree.So I think it should be the 2nd letter.

So Iam sending all the related document as proof of the taxes paid in India. Discussed with my consultant..He told these docs.should be enough.(I was on L1 visa during that time paying taxes both in India and US for the same salary.I was in US only during those period).

Can you pls tell me how long will it take for IRS to review and send their finding. In case if they accept the proofs but find some discrepency (in calculation / conversion rate etc.,),we need to pay only that difference amount , right?.Pls confirm.

As I will be sending the documents from India (with the guidance of my consultant, who is in USA), is it OK to inform IRS my India address, so that I don't miss any communications from them in future?

As I will be travelling in a couple of months, I want
to close this issue, as I don't want to get into trouble if I again file tax in US once I go there.

Thanks

greyfri · Post by **greyfri** » Wed Aug 10, 2011 4:02 pm

I can't really say how much time the IRS would take to respond. Maybe 1-2 months. You can give them your India address, although its probably more reliable to give them a US address if you have one. You can also try and call any contact number they might have given you by phone.

If there is some discrepancy in calculation, you will need to pay only difference amount + interest.

rjayakkumar · Post by **rjayakkumar** » Wed Aug 10, 2011 8:30 pm

Thanks for your clarification, greyfri.

rjayakkumar · Post by **rjayakkumar** » Thu Dec 15, 2011 12:55 pm

Hi,

I had sent all the document proofs to IRS from India, mentioned my India address also for future communication.

I had spoken to them a month ago, and was informed that they are yet to look into that.But yet to get any reply from them.

Iam leaving to USA in a couple of weeks. Will it be questioned in Port Of Entry (reg. this IRS issue)?.Do I need to carry the communication / documents sent to IRS to show it to them?

Another doubt : When IRS closes a issue, will it send a mail confirming the same?. Because I am not aware whether IRS had acted on this in the past month and closed.Pls clarify

Regards,

Jayakkumar