Form 1116 Foreign Tax Credit (FTC) / US-France Tax Treaty

[maximgt]

I am trying to find the section of the US-France tax treaty where I can the tax rate to be used on Form 1116 to claim the FTC on foreign wages (general category income) are reported on Form 1040. Alternatively, if you know the FTC tax rate for foreign wages, I would appreciate it. Thank you. 

[itonewbie]

Did your client reside in France and render those services in France?

If so, what kind of tax rate are you looking for from the treaty or otherwise?

[maximgt]

Yes, my client resided in France and in the USA. His foreign wages were taxed in France. However, for the purpose of the tax credit to be claimed on Form 1116, the tax treaty tax rate must be used, and not the actual income tax paid in France. This is my understanding of the IRS tax regulations. 

[itonewbie]

I don't think you meant your client resided in France and the USA.  Do you mean your client is a US person (i.e. citizen or GCH) and resided in France?  If he resided in both countries, that would have a different connotation.

You also seem to have misunderstood the treaty and regulation.  What are the treaty article(s) and Treasury Regs you are relying on?

[maximgt]

My client, a US citizen, resided in both the USA and France in 2023. He lived 8 months in the USA and 4 months in France. How do you determine the amount of FTC to be reported on Form 1116? Isn't it based on the tax rate stipulated on the tax treaty? Otherwise, what tax credit (Euros equivalent in USD) should be claimed for the income tax on wages paid in France? 

[itonewbie]

Did your client relocate from the US to France in 2023?  Or did your client reside in both countries but spent in aggregate 8 months in the US and 4 months in France?

If he relocated from the US to France, did he travel to France for work while living in the US and vice versa?

Where was his employment based?  How was he paid?

Did his payroll in US and France include any component that relate to services performed in the other jurisdiction (e.g. bonus, deferred comp, options, etc.)?

Other than monetary compensation, was he provided any benefits-in-kind that may be taxed preferentially in France (but would not be so in the US)?

Did he participate in any nonqualified plans for US tax purposes (which is common among expats)?

"How do you determine the amount of FTC to be reported on Form 1116?"

That's a function of the France taxes he paid/accrued, his FEIE, and the limitations computed for the various baskets.

"Isn't it based on the tax rate stipulated on the tax treaty?"

Not for employment income.

It does not appear you understand the basics of international returns.  And there is a lot more than FTC when it comes to expats.  As you may be aware, penalties for failure to properly file various international returns could be substantial and would even toll the SOL in some cases.

I have no doubt you are a very competent tax professional in domestic issues but you may like to consider referring this client to an expat tax specialist.

[maximgt]

Thank you for your suggestions.

This individual was a US resident from January 1 to August 25, 2023. And then relocated to France, starting August 26, 2023, and is still a resident in France.

The only income that he received in France, in addition to his US Form W-2, is for wages for approximately $20k. The income tax on the $20k is about $2k.

This client is not filing Form 2555.

[maximgt]

How do I report, and for how much, the foreign wages and the FTC on Form 1040? Thank you.