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NC TC

Technical topics regarding tax preparation.
#1
Bell  
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NC is one of the only states that allows a credit for foreign taxes paid to another country. If coming from an investment company, what proof should you send with the return? If it comes from another state, they want the other states return. In the case of a foreign tax paid on a Dividend...........what would you send if anything?
 

#2
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I send the top page (summary sheet) from 1099-DIV showing total foreign tax paid. Been doing it this way for years and have yet to have an issue.
 

#3
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Just watch out for GS105-151(b). TPs usually get a credit on the federal return for foreign tax withheld on investments.
 

#4
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I disagree that foreign tax credit on federal return prevents NC credit for foreign tax paid.
 

#5
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You reduce the amount of foreign taxes paid by any ANY credits or refunds given for those foreign taxes. This includes foreign tax credits on the federal return.
 

#6
HowardS  
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(b) If any taxes paid to another state or country for which a taxpayer has been allowed a credit under this section are at any time credited or refunded to the taxpayer, a tax equal to that portion of the credit allowed for the taxes so credited or refunded is due and payable from the taxpayer and is subject to the penalties and interest provided in Subchapter I of this Chapter.


Seems pretty clear to me. No credit for a credit.
I suffer from depreciation.
 

#7
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Okay, thanks. I didn’t know
 

#8
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I have never taken a credit on the NC return for the foreign tax credit when a federal credit was taken. In the last couple of years I have taken on quite a few clients. I always get the prior year tax return. In reviewing many of those returns, the credit was taken on the NC return as well as the federal return. One of the firms doing this was a very large firm. I did a lot of research to see what I had been missing, but came to the conclusion the credit should not be taken on the NC return. Evidently, this is an area of a lot of confusion.
 

#9
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Seems pretty clear to me. No credit for a credit.


That seems to be a very bad mis-reading. It’s saying, for example, that if you pay foreign taxes, and take a foreign tax credit in NC for said payment, and then the foreign jurisdiction later refunds those taxes that you paid – meaning you really didn’t pay any foreign taxes in the end - you get no credit in NC. Or, if you took a credit in NC, you have to repay it.
In reviewing many of those returns, the credit was taken on the NC return as well as the federal return.

I'm fairly confident they did it right and you did it wrong. We have a handful of NC resident clients and have always claimed credit for foreign taxes paid, pursuant to the plain language of the statute.

You reduce the amount of foreign taxes paid by any ANY credits or refunds given for those foreign taxes. This includes foreign tax credits on the federal return.


That is absolutely absurd. That’s like saying if you deducted your mortgage interest at the federal level, you can’t at the state level.

All in all, many of you are mis-reading the phrase “are at any time credit or refunded” – the “credit” they’re talking about here isn’t the foreign tax “credit” – it’s the crediting of an overpayment. If you pay $5k in foreign taxes, but it turns out your current year foreign tax liability is $0, you can have the $5k refunded or “credited” to next year’s tax liability (or to some prior year liability, if one is still outstanding). That’s the type of credit they’re talking about here. The same type of “crediting” you see in IRC Sec 6511, for example.
 

#10
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The reason I have not been taking the NC credit is because the instructions say: "You must attach a copy of the tax return filed with the other state or country AND a copy of your check, receipt or other proof showing payment of income tax paid to the other state or country."

Anyone attaching a copy of the tax return filed with the other country? Sure, I can attach a copy of the 1099, but I am not filing a tax return in another country. Now if I prepare a foreign tax return, that would be a different story.
 

#11
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I find myself agreeing with Jeff. Wow. However, Seaside makes a good point. NC is not going to give credit for tax paid, even indirectly, to a foreign jurisdiction simply because the taxpayer chooses not to file a claim for refund in the foreign country.

Well, at least they don't give the credit officially. At my former employer's, we did a return for a partner with income and tax paid in numerous states and two or three foreign countries. We filed it as one number. NC wrote back requesting that we identify each separate jurisdiction. So I did that. Along with the form, we sent them the K-1 with attachments and the pages from the Form 1099. client got the full credit we asked for second time around.
 

#12
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Another look at the NC instructions for Form D-400TC says: "When income is taxed by North Carolina for a period during which you were a legal resident of NC and the same income is also taxed by another state or country because it was earned in or derived from sources within that state or country, a tax credit may be claimed, BUT NOT ON THE BASIS OF A WITHHOLDING STATEMENT ALONE.
 

#13
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Call 1-877-252-3052 and talk with a tax technician. Ask them if the amount used for the credit should be reduced by any amounts taken as a credit on the federal return. Share what they say. We all would like to know.
 

#14
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NC is not going to give credit for tax paid, even indirectly, to a foreign jurisdiction simply because the taxpayer chooses not to file a claim for refund in the foreign country.


Yes they are. And they have for a number of years.

Well, at least they don't give the credit officially.


Yes they do. I’m sorry guys, you’ve been costing your clients a lot of money. We’ve been doing the opposite at our firm. Your flawed analysis, on two fronts, has led to costing your clients a lot of money.

We filed it as one number.


Not a good idea or approach. I don’t blame NC for what they did here. You have to compute things on a jurisdiction-by-jurisdiction basis.

I find myself agreeing with Jeff. Wow.

You should agree with me more, because I’m usually right.

Ask them if the amount used for the credit should be reduced by any amounts taken as a credit on the federal return
.

Why? What do those people know? I understand what the phrase “credited or refunded” means, you apparently don’t. It is obviously talking about “credited or refunded” by the foreign jurisdiction. It is not talking about the U.S. Federal government. And it is not talking about a “credit” as in having a federal foreign tax “credit” allowed. Your argument makes zero sense. Wake up guys. The Large Firm, like the one referenced in Post #8, isn’t stupid.
 

#15
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I don't recall saying that the large firm was stupid. I have been preparing NC returns based on how the instructions say to prepare them. I would not say that is wrong.

If you choose to take the credit on NC without attaching a copy of the foreign tax return, sure, it will probably go through. Does it make it right? Not according to the instructions. Will it pass in an audit? Probably not.
 

#16
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Jeff-Ohio wrote:
It is obviously talking about “credited or refunded” by the foreign jurisdiction. It is not talking about the U.S. Federal government. And it is not talking about a “credit” as in having a federal foreign tax “credit” allowed. Your argument makes zero sense. Wake up guys. The Large Firm, like the one referenced in Post #8, isn’t stupid.


Says who? Based upon what? A clear reading of the statute? If fed allows a credit, the NC credit needs to be reduced by that amount.
 

#17
HowardS  
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Jeff is right. I have misinterpreted the statute and I'm wrong. A credit is allowed for income taxed by both NC and a foreign country just as it for income taxed by NC and another state. The statute refers to a refund of credits. A learning experience for me.
I suffer from depreciation.
 

#18
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I would not say that is wrong.

I would say it is absolutely wrong. Maybe you missed this, which has been the policy of NCDOR since I can remember:

https://www.ncdor.gov/taxes/individual- ... or-country

Does it make it right?


Sure does.

Will it pass in an audit?


Sure will.

What is absolutely scary here, about you deniers, is your overall thought process. Garbage in, garbage out.

I don't recall saying that the large firm was stupid.


You’re acting like you know something they don’t know, based on your superior research skills (from the form instructions).

Deny all you want. You are doing your clients a great disservice.

Says who? Based upon what? A clear reading of the statute? If fed allows a credit, the NC credit needs to be reduced by that amount.


Not so. Here is from the NCDOR’s website, FWIW, which is entirely consistent with what I’ve been saying:

If any tax for which a resident has claimed a tax credit on the North Carolina income tax return is refunded at any time by the other state or country, a tax equal to that portion of the credit allowed for the taxes credited or refunded must be paid to North Carolina within thirty days of the date of receipt of this refund or notice of the credit.

So, to answer your question about “says who” – The NCDOR says it. A clear reading of the statute also says it. Jeff-Ohio says it. HowardS now also says it. The Large Firm says it. TaxMeUp originally said it, but then doubted himself. Common sense also says it.
 

#19
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I'm aware of what's on the website. When did what's on a website become authority?
 

#20
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Thanks for piping up and keeping me straight Jeff-Ohio.
 

#21
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When did what's on a website become authority?

Not a real good question, because it doesn’t matter if it’s authority or not. And nobody said it was. It simply reflects the NCDOR’s correct reading of the law. We’re not taking the credit “just because” the website says too, we’re taking it because the statute (i.e. the authority) does.

I'm aware of what's on the website.


Then it’s even more incredible that you’re still a denier.

As nicely as I can put it, your argument is pathetic. I don’t even know where to start…but I’ll try:

It goes like this: Taxpayer pays foreign taxes. Taxpayer claims a federal foreign tax credit. Despite the fact that there’s an entire statute in NC that says foreign taxes are creditable at the NC level, we don’t get a credit in NC because we took one at the federal level. This would hold true whether or not we filed a return in the foreign jurisdiction. Such a position would force your client, if eligible and if applicable, to claim the foreign earned income exclusion. And then you’d probably say, “Now client, we can claim a credit at the NC level because we took no federal credit.” Great idea. Let’s take a credit at the NC level on income that wasn’t taxed in NC in the first place. I think you’d have a little problem with that (you’d actually end up with no NC credit at all). In the end, we have a statute that specifically references foreign countries, but if he’s your client, he can’t claim the credit in NC [if he claimed the federal credit] and he can’t claim the credit in NC [if he took the FEIE]. Then we wonder why the statute is even on the books…Oh I know, it’s on the books because it means something different than what you think.
 


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