Question

According to Publication 514, Foreign Tax Credit for Individuals, a U.S. nonresident alien taxpayer may qualify for the Foreign Tax Credit if they pay or accrue tax to a foreign country on income from foreign sources if which of the following is true?

A) They have a diplomatic passport.

B) They claim the Foreign Tax Credit as a treaty benefit.

C) The income was earned in the year the green card test was met.

D) The income is effectively connected with a business in the U.S.

Answer 1

From a Multiple choice question point of view the answer is - D) The income is effectively connected with a business in the U.S.

As per the Publication 514, U.S. nonresident alien taxpayer is not able to claim credit except,

1. Bonafide resident of Puerto Rico for the full or entire tax year.

2. paid/accrued tax to a foreign country or U.S. possession on income from foreign sources which is connected with a trade or business in the U.S.

Hence, Option D is correct.

Further, just to give you a practical view, to promote trade and commerce at global level generally tax treaties (also known as double tax avoidance agreements) are signed between countries, so if such treaties/agreements gives credit to any particular transaction or person then credit would be available up to the extent of the particular transactions or person.