Using Form 4952 to recharacterize foreign dividends as investment income?

[LAJTAX]

My client has foreign qualified dividends that are taxed at source at 25%. I believe I can increase the foreign tax credit (FTC) by using Form 4952 (Line 4g) to elect to have the foreign dividends treated as investment income. In this way the foreign dividends should no longer be subject to the qualified dividend adjustment for FTC purposes. This means that a larger percentage of the foreign taxes paid will be included in the FTC. Of course the amount of tax due (before the FTC) will increase as the investment income is taxed at marginal rates. I would like to run both scenarios to determine which results in a lower total tax due amount. My question is how do I implement the 4952 scenario in ATX in order to avoid the dividend adjustment? Thanks.

[Lee B]

Interesting idea. Never had a client with enough Foreign Tax to consider it.

I will be curious to see how it works out.

[Abby Normal]

Aren't all dividends already included in investment income? On a 1099DIV foreign dividends are already included in box 1.

[Lee B]

I believe by entering the dividends on 4 g, you are electing to have them taxed at ordinary rates.

[Abby Normal]

29 minutes ago, cbslee said:

I believe by entering the dividends on 4 g, you are electing to have them taxed at ordinary rates.

Yeah, I just looked at the form and you can elect to exclude qualified dividends and long-term capital gains from using favorable tax rates, in order to claim more investment interest.

Not clear how this will affect the foreign tax credit, if at all.