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When 1099-B is not received you choose option C but you can not details of individual trade? Premier desktop version

Forum|Forum|3 years ago
September 23, 2022
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Asking for a relative who has foreign income in capital gains and interest.

She paid 1100$ foreign tax so she can claim that tax credit on 1116

But what if she can not give details of each trade for capital gain .because foreign broker(India) don't give 1099-B and also don't give trade details of individual trade like IRS wants to mention on 8949

So last year she chose to enter that income as other income and mention a statement to explain that this is from Indian capitgal gains and Indian bank interest

But someone said it does not comply with tax law ...well if she does the same thing this year i.e. 2021 - what can be penalty if IRS choose to flag it and send a notice?

also when using premier desktop version - is there anyway we can write a statement to mention that other income mentioned on SCH 1 is Indian capital gain and interest like she did last year (last year she used a paid tax preparer and that tax preparer's software had the option to write a statement explaining what that other income is - attached to SCH 1)

Best answer by pk12_2

@seccam , what I get from this tread is that
(a) a US person, sold capital assets ( what type ? if stocks are these also listed on US exchange or only in India? etc. etc. ) in India through local broker/investment house

(b) Tax payer also has interest income from bank deposits ( savings / CDs or what ) in India.

Generally these types of incomes are treated just as if these were domestic earnings i.e. Interest earnings ( even with absence of 1099-INT) are reported just like if earned these in the US ; ditto for dividends ( no 1099-DIV and generally these are not qualified dividends ) and for Capital assets ( no 1099-B and therefore are assumed to be not covered i.e. no basis reported to IRS by Broker ).

Reporting these types of incomes as "other" is not correct and the curative would be to file an amended return correcting these errors -- IRS expects incomes to be categorized as per their individual character. For example in the case of US earnings, if you enter your interest income as "other" and not as interest, the Automatic Under Reporter would recognize all the incomes reported and send you CP2000 that you did not report interest earnings. .

For Capital gains ( i.e. stocks/bonds sold in India ), you have report gross income, basis ( i.e acquisition cost including any commissions charged then at then exchange rate) , acquisition date and disposal date. You must have records to prove this , in case challenged. The US taxes are based on this and is totally independent of India tax laws.

Then if the taxes paid to India on all these foreign earnings ( i.e. interest, dividend, net sales profit of stocks/bonds before taxes--- sales proceeds LESS US basis plus any sales expenses/ commissions etc. converted to US $ on the actual date monies made available to you or the sales date ) on form 1116 as foreign income and the foreign taxes paid against this -- if you want foreign tax credit . Note that the available foreign tax credit for the year is multiplied by the ratio of foreign earnings to world income --- thus for US person with US income it is never 100%. . I can provide details on this if you need.

I hope this clarifies what you have to do for the 2020 return and you must do for 2021.

Namaste (or Salam aliqum )

pk

Employee

Employee

Duplicate question. Please post your question only once. If you want to add more information or post a follow-up question, add a reply to your original question. Do not post separate questions about the same issue. When information is scattered in multiple threads it's confusing and hard to follow, and hard to see the whole picture.

P

pk12_2Answer

Employee

@seccam , what I get from this tread is that
(a) a US person, sold capital assets ( what type ? if stocks are these also listed on US exchange or only in India? etc. etc. ) in India through local broker/investment house

(b) Tax payer also has interest income from bank deposits ( savings / CDs or what ) in India.

Generally these types of incomes are treated just as if these were domestic earnings i.e. Interest earnings ( even with absence of 1099-INT) are reported just like if earned these in the US ; ditto for dividends ( no 1099-DIV and generally these are not qualified dividends ) and for Capital assets ( no 1099-B and therefore are assumed to be not covered i.e. no basis reported to IRS by Broker ).

Reporting these types of incomes as "other" is not correct and the curative would be to file an amended return correcting these errors -- IRS expects incomes to be categorized as per their individual character. For example in the case of US earnings, if you enter your interest income as "other" and not as interest, the Automatic Under Reporter would recognize all the incomes reported and send you CP2000 that you did not report interest earnings. .

For Capital gains ( i.e. stocks/bonds sold in India ), you have report gross income, basis ( i.e acquisition cost including any commissions charged then at then exchange rate) , acquisition date and disposal date. You must have records to prove this , in case challenged. The US taxes are based on this and is totally independent of India tax laws.

Then if the taxes paid to India on all these foreign earnings ( i.e. interest, dividend, net sales profit of stocks/bonds before taxes--- sales proceeds LESS US basis plus any sales expenses/ commissions etc. converted to US $ on the actual date monies made available to you or the sales date ) on form 1116 as foreign income and the foreign taxes paid against this -- if you want foreign tax credit . Note that the available foreign tax credit for the year is multiplied by the ratio of foreign earnings to world income --- thus for US person with US income it is never 100%. . I can provide details on this if you need.

I hope this clarifies what you have to do for the 2020 return and you must do for 2021.

Namaste (or Salam aliqum )

pk

S

seccamAuthor

For 2020 , I hired a EA (enrolled agent) tax preparer and she filed it as other income and added a statement saying 1. Foreign capital gains - $5000 and 2. Foreign interest income - $5000($ amount is just an example)

Than she efiled - I forgot the software she used - and IRS accepted and there is no notice until now. Its been over a year no notice from IRS.

She also 1116- foreign tax credit form - but since there was no tax payable(her total income was less than std deduction) - no use of that credit which was about $800

I thought I should do the same this year - declare as other income and give little explanation like she did - but you are saying that is not correct.

By the way tax payer (my relative) is not residing in USA since May 2020 and she is senior citizen. She has no income from USA at all ...not a $ worth of income from US sources.

Should we file 1040-SR (senior)? also I have turbotax premier CD software

P

pk12_2

Employee

@seccam ,

1. because your return ( or that of your relative ) is filed under perjury jurat, it is not material whether the EA chose ( erroneously in me opinion) to enter the barter/exchange/disposal of capital assets and interest earnings as "other" -- it is the taxpayer's responsibility to be truthful. The fact that IRS has not flagged this ( because there is no "information return" to corroborate ) does not mean it is correct.

2. Note that India uses inflation adjusted basis for assets where as US does not --- this means that it is up to the taxpayer to prove that the basis used for US tax computation is correct -- cannot use India's figures for gain computation. IRS expects that the taxpayer has records to base the filings on -- else the basis is ZERO.

3. Agree that if the taxpayer's taxable income ( AGI adjusted for deductions ) results in zero tax liability, then foreign tax credit ( a non-refundable credit) will not allow for any allowable foreign tax credit but will be available for prior year or future year adjustments ( when foreign income present ).

4. Are you saying that the taxpayer is no longer a US person ( not a citizen/ Green Card ) and not residing in the USA ? If so why is she filing since she has no US sourced/ connected income? She does not get Social Security either ?

Having read through your response, and while I recognize that it is each taxpayer' choice as to how to file their return, my position based on tax laws is still the same -- amend the 2020 return and file 2021 properly. I do not agree with your EA's position.

I apologize, if I sound not willing to compromise my position--please forgive

Is there more I can do for you ?

pk