Foreign Tax Credit for Taxes on Swiss Tax Returns

13 November 10
Cross Border Tax Q&A

Question

Hello,

I lived in Switzerland for a few years and I failed to file my US returns. I’m a US citizen, currently residing in the US but I have been living in Switzerland for a few years. I’m currently catching up with my delinquent US returns and I just have a small question for you, hopefully you can help.

In Switzerland, the government will assess you tax on a based amount if you don’t file your tax returns to prove to them how much income you actually earn. So for instance if you didn’t file your taxes they would assess you income on a base amount of $50,000 and apply tax to that amount and send you a bill.

If you fail to file a tax return showing them that you earned less income  then you’ll just have to pay the tax. This is what happened to me in 2007. I failed to file my taxes and they assessed me on a base amount and I had to pay about $7,000 in tax. I neglected to file the tax return and I just went ahead and paid the $7,000 and left it. In fact, in that year I didn’t have any income at all.

So now when I get around to doing my 2007 US return, I don’t have any taxes or I don’t have income on the 1040 return however I’m wondering if I can use the $7,000 of Swiss tax I paid as a foreign tax carry forth to be used in 2008 where I had a significant amount of income. Does the IRS  let me use this foreign tax carry forth although I didn’t have income on 2007?

Thanks for your help

XXXXXX

Answer

Dear XXXX

It’s explicit in the US  Tax code that for foreign taxes to be credible they would have had to been levied on income of that foreign country.

Because the taxes were not necessarily levied on income that you had in 2007, just the fact that you failed to file, it’s most likely gonna be difficult to have the IRA allow the foreign tax carry-forward from 2007 to 2008.

Here’s the link to the IRS website that specifically states the availability of a foreign tax credit which specifically needs to be levied on income tax be creditable on the 1040 tax return.

Hope that helps. Don’t hesitate to give me a call if you wanna discuss this further.

Phil Hogan, CA
250-661-9417

Phil Hogan, CPA, CA, CPA (Colorado)

Phil Hogan is a Canadian and US CPA working with clients throughout Canada and the US. Phil advises on cross border tax and financial planning matters. Phil can be reached at phil@beaconhillwm.ca or via telephone at 250-661-9417. You can also read more about Phil at www.Beaconhillwm.ca/team/about-phil/

This commentary reflects the personal opinions, viewpoints and analyses of the Beacon Hill Wealth Management Ltd. partner providing such comments, and should not be regarded as a description of advisory services provided by Beacon Hill Wealth Management Ltd. or performance returns of any Beacon Hill Wealth Management Ltd. client. The views reflected in the commentary are subject to change at any time without notice. Nothing in this commentary constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Beacon Hill Wealth Management Ltd. manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results. Any discussion about taxation is for educational purposes only and should not be viewed as professional advice. Consult your tax professional for tax advice on your particular situation.

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