Attorney-at-Law

NO FOREIGN INCOME, NO FOREIGN TAX CREDIT

In Uncategorized on 07/19/2021 at 18:17

Sometimes small-claimers are as much fun as the big cases in the “small court.” Here’s Maher Bassily and Nermine Bassily, 2021 T. C. Sum  Op. 20, filed 7/19/21, with a new one on me.

I’ll let STJ Peter Panuthos, a hardened veteran jurist who has seen much, tell the tale.

“Petitioner Maher Bassily jointly owned two brokerage accounts, one with each of his sons, David Bassily and Daniel Bassily. Each of the brokerage accounts generated foreign-source income during [year at issue]. The Canadian Government withheld a total of $3,550 in taxes from the income earned on the brokerage accounts in [year at issue]. Petitioners timely filed a joint Form 1040, U.S. Individual Income Tax Return, for the [year at issue], but they did not report any foreign source income on their income tax return. Instead, all of the foreign source income related to the brokerage accounts that petitioner Maher Bassily owned jointly with his sons was reported on his son Daniel Bassily’s [year at issue] Federal income tax return. Despite the fact that petitioners did not report any of the foreign source income earned from the brokerage accounts on their tax return, they apparently attempted to make an election to claim a credit for foreign taxes paid related to the brokerage accounts by attaching a Form 1116, Foreign Tax Credit (Individual, Estate, or Trust), to their Form 1040. On the Form 1116 petitioners reported $3,550 in total foreign taxes paid or accrued during the [year at issue] and zero foreign source income. Petitioners reported a foreign tax credit of zero on both the Form 1116 and the Form 1040 for the year in issue.

“Rather than claim the foreign tax credit on the line designated for that credit on the tax return, petitioners added the $3,550 of foreign taxes to the total Federal income taxes withheld as reported on Form 1040. Thus, while petitioners’ Federal tax withholding amounted to $40,985, the Form 1040 reflected withholding of $44,535 (the amount of Federal withholding plus the $3,550 in foreign taxes withheld by the Canadian Government).” 2021 T. C. Sum. Op. 20, at pp. 3-4.

Well, I have to give Maher credit. That’s quite a move. Unfortunately for Maher, it doesn’t work.

“At trial petitioner Maher Bassily explained that he reported the income on his son Daniel’s income tax return because his son did not have a Federal income tax liability for the [year at issue]. Petitioners did not report any foreign-source income on their [year at issue] tax return. Therefore, the ratio of petitioners’ foreign taxable income to their total taxable income for [year at issue] is zero. Pursuant to the limitation in section 904(a), the amount of foreign tax credit petitioners may claim for [year at issue] is zero.” 2021 T. C. Sum. Op. 20, at p. 9.

Maher’s attempted shunt of the income to his son is a nonstarter.

“We have long held that income is taxable to the person who earns it and taxpayers may not shift the incidence of taxation to a person or entity having less or no tax liability. See, e.g., Frey v. Commissioner, T.C. Memo. 2019-62, at *7.” 2021 T. C. Sum. Op. 20, at p. 9, footnote 3.

But I still want to award Maher a Taishoff “good try,” even though I shouldn’t.

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