ExpertMinds LogoExpertMinds
Medium1 markMultiple Choice
Area I: Individual Compliance and PlanningTCPIndividual TaxInternational

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:

A.

They can claim the full $15,000 as a Foreign Tax Credit.

B.

They can deduct the $15,000 on Schedule A but cannot claim a credit.

C.

The foreign taxes allocable to the excluded income ($15,000) are disallowed for the Foreign Tax Credit.

D.

They must reduce the FEIE by the amount of the foreign taxes paid.

How to approach this question

Apply the principle of 'no double benefit.' If income is excluded from U.S. tax, the expenses (including foreign taxes) related to generating that income cannot be used to reduce U.S. tax on other income.

Full Answer

C.The foreign taxes allocable to the excluded income ($15,000) are disallowed for the Foreign Tax Credit.✓ Correct
IRC §911(d)(6) explicitly denies a deduction or credit for foreign taxes paid or accrued with respect to amounts excluded from gross income under the Foreign Earned Income Exclusion.

Common mistakes

Assuming the taxpayer can take both the exclusion and the full foreign tax credit.
03All questions05

Practice the full CPA TCP Practice Exam 2

68 questions · hints · full answers · grading

Sign up freeTake the exam

More questions from this exam

Q01In Year 1, an executive receives an Incentive Stock Option (ISO) to purchase 1,000 shares of stoc...MediumQ02A taxpayer is calculating their Alternative Minimum Tax (AMT) liability for Year 1. They claimed ...MediumQ03On January 1, Year 1, a corporation lends $500,000 to a shareholder at a 0% interest rate. The Ap...HardQ05A 12-year-old child has $5,000 of interest income and no earned income in Year 1. The standard de...MediumQ06A taxpayer expects their marginal tax rate to increase from 24% in Year 1 to 35% in Year 2. They ...Medium
View all 68 questions →