The IRS will no longer challenge foreign tax credits for CSG and CRDS payments on the basis that the totalization agreement applies to those taxes. Affected taxpayers may amend their prior years tax return to take advantage of this foreign tax credit.
US and France Agreement on CSG and CRDS
In 2019, the United States and the French Republic memorialized through diplomatic communications an understanding that the French Contribution Sociale Generalisee (CSG) and Contribution au Remboursement de la Dette Sociale (CRDS) taxes are not social taxes covered by the Agreement on Social Security between the two countries. Accordingly, the IRS will not challenge foreign tax credits for CSG and CRDS payments on the basis that the Agreement on Social Security applies to those taxes.
What does IRS position change mean for taxpayers?
The IRS’s change in policy means individual taxpayers, who paid or accrued these taxes but did not claim them, can file amended returns to claim a foreign tax credit. This change of position applies to past and future tax years.
Amended US 1040 for foreign tax credits
Generally individual taxpayers have ten (10) years to file a claim for refund of U.S. income taxes paid if they find they paid or accrued more creditable foreign taxes than what they previously claimed. The 10-year period begins the day after the regular due date for filing the return (without extensions) for the year in which the foreign taxes were paid or accrued. This means that amended returns may be filed, using Form 1040X to include accompanying Form 1116, going back to tax year 2009.
How to amend and claim the foreign tax credit?
You must submit form 1040X, amended U.S. individual tax return to take the credit. Complete and attach form 1116 to the amended return.
Individual taxpayers should write “French CSG/CRDS Taxes” in red at the top of Form 1040-X, file it with accompanying Form 1116 in accordance with the instructions for this form. U.S. employers may not file for refunds claiming a foreign tax credit for CSG/CRDS withheld or otherwise paid on behalf of their employees.
You must file a form 1040 for each year you are claiming the tax credit and follow the same procedures.
Should I amend my tax returns or not?
The answer depends on each individual situation. Is it worth it to amend? Will there be a refund or not? Will the refund be more than the cost/effort to amend the return? If I do not receive a tax refund for one amended year, will I then increase my foreign tax carry forward? And many more other reasons.
Whin Global accountants are available to assist you in amending or deciding whether or not you should amend. For more information, call, email, or fill out this contact form.
