What foreign taxes do not qualify for the Foreign Tax Credit?

The following foreign taxes do not qualify:

1.      Taxes eligible for a refund (even if not claimed)

2.      Taxes used to provide a subsidy to you or someone related to you

3.      Taxes not required by law, because you could have avoided paying the taxes to the foreign country

4.      Taxes that are paid or accrued to a country if the income giving rise to the tax is for a period (the sanction period) during which:

  • a.       The Secretary of State has designated the country as one that repeatedly provides support for acts of international terrorism
  • b.      The United States has severed or doesn’t conduct diplomatic relations with the country
  • c.       The United States doesn’t recognize the country’s government, unless that government is eligible to purchase defense articles or services under the Arms Export Control Act

5.      Withheld foreign taxes on dividends for foreign stocks that don’t meet required minimum holding periods

6.      Withheld foreign taxes on gains and income from other foreign properties that don’t meet required minimum holding periods

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