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I have a TP with PFICs and Additional 1291TAX. The tax gets added to the regular income tax. But PTO allows General Cat FTC to reduce 1291TAX. How do you adjust that?

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Level 15

Yes, for FTC, PTO is not the greatest in many ways, especially when it comes to more complicated cases, although it's still better than PS and many other professional tax software out there.

I think the problem with F.1116 is that Lacerte/PTO follow what's on F.1116 but there's no reference on the Form or the instructions for 1291Tax.  Intuit should really have referred to §1291 and Prop. Reg. §1.1291-5.

PTO (and even Lacerte) doesn't allow for adjustment or override for Line 20 of F.1116.  The only way is to adjust the numerator on Line 16.  You can make it exact, down to the dollar for the most part.

Here's how it will work out in your example:

  • First of all, we'll assume you've already taken care of prior year excess distribution tax, if any, on F.8621.
  • 1291INT will not affect F.1116 as you pointed out.
  • Ratio of Regular Tax to Total Line as shown on Line 20 is 90.[social security number removed] % (10,000 / 11,000)
  • Assuming all your client has is Passive income and no US-source income at all (to avoid getting into discussions about ODL), the taxable income for the Passive basket on Lines 7 and 17 of F.1116 should, theoretically, be the same as the worldwide taxable income on Line 18.  That's why PTO thinks 100% of the entire $11,000 on Line 20 should be offset by the $13,000 Foreign Tax Available for Credit.
  • Let's assume the amounts on Lines 7, 17, and 18 are $50,390.  You will then enter an adjustment on Line 16 (as you would for SLL/OFL/ODL) for negative 4,581 ($50,390 x (1 - 0.90909090909)).  This will reduce Line 17 to $45,809 ($50,390 - $4,581).  This will then limit the FTC to $10,000 ($45,809 / $50,390 x $11,000).
  • The result is $10,000 Regular Tax + $1,000 1291TAX - $10,000 FTC + $50 1291INT.

Not ideal but that's the workaround until Intuit feels it is important enough to fix Lacerte/PTO (which is unlikely given the number of similar questions we've seen here).  For a lot of folks, this may not even be material provided their clients are not in a high tax jurisdiction and it is unlikely there'll be FTC carryback even when there's excess limitation.

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Still an AllStar

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Level 15

PTO does not really do much for 1291TAX.  In fact, F.8621 in PTO is almost a dumb form.  You have to run all the computations offline and plug in the numbers.  The "smartest" things it does are to flow the 1291TAX you entered to F.1040 Line 12a and the 1291INT you input to Sch 2.  You still have to manually input the rest everywhere else.

If you have numbers on F.1116 for 1291, you must have entered some numbers somewhere.  You may want to double-check your entries.

If you could offer more info, someone may be able to take another stab at it.

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Still an AllStar
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Thanks for the reply.  

I do all the 8621 computations offline and then plug the numbers on the form.  So the 1291TAX that is added to the 1040 is correct.  However, since all my income on the return is from Foreign Sources, PTO assumes that the available tax credits from the 1116 can cover the total tax, i.e. regular tax + 1291TAX.  I my idea was to adjust the foreign income on the 1116 for the excess distribution amount that generates the 1291TAX but that still leaves some of the 1291TAX being credited with Foreign Tax Credits from the 1116.  It seems a better solution than eliminating the complete 1291TAX with FTC but still not 100% accurate in my estimation.  

For example: 

1291TAX = $1,000
1291 Interest = $50

Regular tax = $10,000
FTC Available = $13,000
Total Tax on Line 12a = $11,000

Regular FTC should cover $10,000
Net Tax Payable = $1,050 (TAX + INTEREST),  HOWEVER, PTO applies $11,000 of FTC available for Net Tax Payable = $50

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Level 15

Yes, for FTC, PTO is not the greatest in many ways, especially when it comes to more complicated cases, although it's still better than PS and many other professional tax software out there.

I think the problem with F.1116 is that Lacerte/PTO follow what's on F.1116 but there's no reference on the Form or the instructions for 1291Tax.  Intuit should really have referred to §1291 and Prop. Reg. §1.1291-5.

PTO (and even Lacerte) doesn't allow for adjustment or override for Line 20 of F.1116.  The only way is to adjust the numerator on Line 16.  You can make it exact, down to the dollar for the most part.

Here's how it will work out in your example:

  • First of all, we'll assume you've already taken care of prior year excess distribution tax, if any, on F.8621.
  • 1291INT will not affect F.1116 as you pointed out.
  • Ratio of Regular Tax to Total Line as shown on Line 20 is 90.[social security number removed] % (10,000 / 11,000)
  • Assuming all your client has is Passive income and no US-source income at all (to avoid getting into discussions about ODL), the taxable income for the Passive basket on Lines 7 and 17 of F.1116 should, theoretically, be the same as the worldwide taxable income on Line 18.  That's why PTO thinks 100% of the entire $11,000 on Line 20 should be offset by the $13,000 Foreign Tax Available for Credit.
  • Let's assume the amounts on Lines 7, 17, and 18 are $50,390.  You will then enter an adjustment on Line 16 (as you would for SLL/OFL/ODL) for negative 4,581 ($50,390 x (1 - 0.90909090909)).  This will reduce Line 17 to $45,809 ($50,390 - $4,581).  This will then limit the FTC to $10,000 ($45,809 / $50,390 x $11,000).
  • The result is $10,000 Regular Tax + $1,000 1291TAX - $10,000 FTC + $50 1291INT.

Not ideal but that's the workaround until Intuit feels it is important enough to fix Lacerte/PTO (which is unlikely given the number of similar questions we've seen here).  For a lot of folks, this may not even be material provided their clients are not in a high tax jurisdiction and it is unlikely there'll be FTC carryback even when there's excess limitation.

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Still an AllStar

View solution in original post

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Level 15

How "intelligent" can this forum get?  Can't believe a series of numbers for percentage would be taken as SSN and be censored.  @IntuitAustin Could you please take a look and fix this?  Thanks!

@sowfinancialsoluThe 90.[social security number removed] % censored by the forum is actually  9 0 . 9 0 9 0 9 0 9 0 9 0 9 %.

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Still an AllStar
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Level 14

The other day it removed a zip code it thought was SSN.


ex-AllStar
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Level 15

For goodness sake, this is a professional forum but the rules are set up by Khoros like this is for some school kids.  And the funny thing, which is not so funny, is that Intuit seems to believe that those rules are appropriate.

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Still an AllStar
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Thanks for walking me through the steps.  Very helpful.  The IRS will likely never catch it if it gets all covered by FTC.  I have filed returns that way before but the numbers were less than $10 in 1291TAX.  Didn't seem worth the effort.  In my actual scenario we are talking about 1,700 tax.   In relation to taxpayer's net worth, it is still peanuts but they expect to pay some tax 🙂

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Level 15

NP, @sowfinancialsolu!  Glad it helps.

Agree the IRS would likely not have found out and a lot of tax practitioners (fully reliant on the software) would not have caught it either.

Cheers!

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Still an AllStar
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Community Manager
Community Manager

Thanks for the feedback on this.  I have changed up the original filter, hoping this one works better.  

 

Cheers! 

Betty Jo 

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