Question

IRS letter saying my income is ok but schedule A deductions are wrong and my return is 'frivolous'. A has foreign exclusion (2555) and foreign tax as it has for over 10y.

Forum|Forum|3 years ago
March 23, 2023
1 reply
0 views

Form 2555 was submitted. For 10+ years I hae always claimed foreign exclusion as well as foreign tax paid. I'm not sure what on earth the issue is. they are telling me to withdraw my filing but... it doesn't look wrong

TurboTax Online

DMarkM1

Yes, that is correct. You are not allowed to claim a foreign tax credit on income that has been excluded from US tax. Here is the IRS reference with more detailed information.

I draw your attention to the last statement in the "Qualifying Foreign Taxes" section: "If you elect to exclude either foreign earned income or foreign housing costs, you cannot take a foreign tax credit for taxes on income you exclude. If you do take the credit, one or both of the elections may be considered revoked."

Also, the last bullet in the "Compliance Issues" section: "A foreign tax credit may not be claimed for taxes on income that you exclude from U.S. gross income."

The issue could also be related to taking the income exclusion at all. Be sure you have met the requirements for that foreign income exclusion. Here is a reference to help with those qualifications.

**Say "Thanks" by clicking the thumb icon in a post**Mark the post that answers your question by clicking on "Mark as Best Answer"