CPA · Question 04 · Area I: Individual Compliance and Planning
A U.S. citizen accepts a permanent assignment in France on January 1, Year 1. In Year 1, they earn $140,000 in salary. The maximum Foreign Earned Income Exclusion (FEIE) for Year 1 is $120,000 (stated for this scenario). They also pay $15,000 in French income taxes allocable to the excluded income. If the taxpayer elects the FEIE, what is the impact on their Foreign Tax Credit (FTC)?
Answer options:
They can claim the full $15,000 as a Foreign Tax Credit.
They can deduct the $15,000 on Schedule A but cannot claim a credit.
The foreign taxes allocable to the excluded income ($15,000) are disallowed for the Foreign Tax Credit.
They must reduce the FEIE by the amount of the foreign taxes paid.
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