Taxes paid to Foriegn country on US Income

[Lloyd Hudson]

I have not ever had to address this issue. The client is dual citizen US and Eritrea. In order to maintain ownership of family home in Eritrea, they are charging her 2% tax on US earnings. 

I cannot figure how to exclude the tax paid to Eritrea. 

This is a $4000.00  tax with corresponding income double taxed. 

Any takers among this august group of smarter than me folks? 

[Margaret CPA in OH]

Why wouldn't there be a foreign tax credit for the tax paid to Eritrea?  My German clients with income here and in Germany have a tax credit for the tax paid on income taxed by both.

[Catherine]

Form 1116 foreign tax credit.  I have see (very rare!) circumstances where taking a deduction on Sch A works better - so I always look at both choices before finalizing.

[Lloyd Hudson]

I am unable to understand how to enter it on 1116  without foreign income.  the country is charging her 2% on US  W-2 earnings. Forcing on schedule A does not help. 

I know how to use 1116 for taxes on foreign income but this is not foreign income. 

[Max W]

That's the problem of dual citizenship.  You can be taxed by both countries. Eritrea is rightfully claiming him as well as the USA.

If he wants to have the benefit of both countries, he has to suffer the consequences as well.

[jklcpa]

Other countries around the world are calling this extortion and an illegal tax, and the Netherlands recently expelled Eritrea's top diplomat from the country over this tax.  I would highly doubt that this is eligible for any sort of credit here but I couldn't find anything specific.  If you can't find anything in your searches, try searching for it's other name "Eritrean Diaspora Tax".

From one of the articles linked below: " In December 2011, a UN security council resolution (pdf) called on Eritrea to “cease using extortion, threats of violence, fraud and other illicit means to collect taxes outside of Eritrea from its nationals or other individuals of Eritrean descent”.  

I googled for "Eritrean Diaspora Tax", also called the "2% tax", and came up with a lot of  articles. Here are a couple of those:

This one from 2015 has a lot of information: https://www.theguardian.com/global-development/2015/jun/09/eritrea-diaspora-tax-uk-investigated-metropolitan-police

This from Jan 2018, seems the view hasn't changed: https://qz.com/1183766/netherlands-expels-eritreas-top-diplomat-for-diaspora-tax/

Sorry, not much help, but I found this interesting and had to read about it.

[Max W]

Oh well. the UN condemned the tax.  That should make everything all right.

The condemnation is not of the tax per se, but the use of the tax funds to arm violent, destabilizing forces in Africa and of the methods used to collect the tax.

Sort of sounds like the old IRS before the taxpayers bill of rights.

[SaraEA]

Lloyd, you do have to have foreign income to claim the credit.  The deduction has the same limitations as the credit, so no dice there either.  I have a client who owns a rental in India, and he can deduct the taxes paid to that country on Sch E, but then again he has foreign income (the rent collected).

[Margaret CPA in OH]

Doh!  What was I thinking?  It makes sense that a tax credit is an income tax credit and the tax in this OP case maybe is more like real estate tax.  SaraEA, many thanks for setting me straight.