2016-0669851C6 2016 CTF - Q12 - Support for US FTC Claims

Principal Issues: Support for US foreign tax credit claims

Position: Comments provided

Author: Panourgias, Marina
Section: -

2016 CTF Annual Conference
CRA Roundtable

Question 12: Support for U.S. Foreign Tax Credit claims

At the 2016 STEP Canada Roundtable, the CRA commented on its recent policy of requiring taxpayers to obtain official transcripts from U.S.  federal, state, and municipal tax authorities in order to support foreign tax credits that were claimed in respect of U.S. tax paid. In its response, the CRA announced that a taxpayer who is unable to provide a copy of a notice of assessment, transcript, statement, or other document from the applicable foreign tax authority would be allowed to support its foreign tax credit claims by providing bank statements, cancelled cheques, or official receipts.

a)    The IRS does not issue NOA’s like the CRA and there is no online taxpayer portal. It takes much longer to get an IRS account statement than the allotted 30 days even if a 30 day CRA extension is applied for, and barring obtaining IRS power of attorney (difficult to be granted) the IRS statement must be requested by the taxpayer.   Has the CRA considered reaching out to the IRS on this matter to streamline the process of obtaining verification of credits claimed.

b)    Where a taxpayer performs its employment duties in a large number of U.S. states and municipalities (e.g. professional athletes), it may be very laborious and cumbersome to obtain transcripts or official notices or statements from each of the states and municipalities. Some states and municipalities are very slow to or are incapable of confirming tax payments. Sometimes, no conventional proof of payment are available since the applicable U.S. tax is withheld directly from the taxpayer’s wages. 
Would the CRA accept U.S. Form 1040-NR showing a deduction against the U.S. federal tax owed for state tax paid as satisfactory support for the amount of U.S. state tax claimed as foreign tax credit?

CRA Response (a)

The following information was provided in the 2016 STEP Canada Roundtable document (2016-0634941C6).

It is recommended that taxpayers and their representatives not wait until CRA asks for supporting documents before requesting them.  According to the IRS website "Most requests will be processed within 10 business days".  If a request for the account transcript is made promptly, there would be a reduction or elimination of issues related to the timeframe for submitting a copy if the CRA asks for documentation.

Based on our findings, the IRS has a very structured process for requesting tax account transcripts online or through the mail using Form 4506-T.  Information about requesting transcripts from the IRS is available on their website at https://www.irs.gov/Individuals/Get-Transcript-FAQs. In addition, the majority of the U.S. states have an online system which allows the taxpayer to print his/her “account statement” which would confirm the taxpayer’s final tax liability.

At this time, the CRA has not communicated with the IRS on this matter. The CRA will take your suggestion under consideration.

CRA Response (b)

The Canadian FTC is dependent on a confirmed final tax liability with the foreign tax authority and the supporting documents requested are proof of that confirmed final tax liability.

Acceptable supporting documents for individuals reporting U.S. source income are as follows:

*     a completed Form T2209, Federal Foreign Tax Credits, for each country to which foreign taxes were paid;
*     federal, state, and municipal tax returns and all associated schedules and forms;
*     a federal account transcript;
*     an account statement or similar document from the state and municipal tax authority;
*     all information slips (W-2, 1042-S, 1099); and
*     any other document that may be needed to support the claim.

Note:
If a joint return is filed with a spouse or common-law partner, also provide a breakdown by income type (for example, interest, dividends, capital gains), country, and recipient.

As indicated in the 2016 STEP Canada Roundtable document (2016-0634941C6), if you are unable to provide a copy of the Account transcript from the IRS or the account statement or similar document from the state or municipal tax authority, the CRA will accept proof of payment made or refund received which “…may be in the form of bank statements, cancelled cheques, or official receipts. The following information has to be clearly indicated:

*     that the payment was made to or received from the applicable foreign tax authority;
*     the amount of the payment or refund;
*     the tax year to which the payment or refund applies;
*     the date that the amount was paid or received.

Note: If you are submitting photocopies of a cancelled cheque, you will need to copy both sides of the cheque unless the front has been micro-encoded by the banking institution.”

It should be noted that proof of payment made or refund received only replaces the requirement for a copy of the account transcript, account statement, or similar document, all other documents listed above still need to be provided in support of the claim.

Marina Panourgias
2016-066985
November 29, 2016

Response prepared in collaboration with:
Angella Heron
Collections and Verification Branch
Individual Compliance Directorate

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