Foreign Tax Credit?

If the only income I had in the UK last year was interest on a UK savings account, do I still need to file a form 1116? Obviously UK taxes were withheld but since it was my only UK income they will be returned to me when I file my UK return. Or should I attach it to my 1040 and just file it?

For the most part all my income last year was earned in the US because of a severance package even though I was not residing in the US at all in 2006.

You would still want to disclose you had foreign source income in the passive basket so that you can carry back or forward excess credits, so I'd file the form.

Scout,

Don't forget to also file Form TD F 90-22.1 if the value of your UK accounts exceeded $10,000.

Thanks. I sort of figured I should file it.

RE the TD F 90-22, It's my understanding that is to be filed separately from the 1040 no later than June 30th. Is that correct?

Correct.

Just to clarify- if the value of the UK account was less than $10,000, then would one need to file this form?

It's the value of all your UK accounts combined.  So, if you have two accounts each with $9,000 in them, you file it because the combined total is $18,000 (and thus over the $10,000 limit).

OK....stupid question here......Do I report this Passive Income (aka UK interest) on my form 1040? And if so where? I understand where to report the tax credit....but where do I report the passive income?

I am at the point here that I want to pull all my hair out. 

What happens if I don't file a form 1116? Do they hunt me down and shoot me in front of a firing squad or what?

1)  interest is reported on Sch B, same as always.
2)  you then take a tax credit for the UK tax paid on Form 1116.
3)  It's easier with software than it is by hand.  TurboTax is pretty good.
4)  What happens if you don't use 1116?
       a) you can take the foreign tax on Sch A instead.  You will pay more tax using this method.
       b) there's no law requiring you to take any tax deductions or credits at all.  You can blithely go through life not taking a single deduction, credit, or exemption (other than the standard ones) and just pay tax on the entire kit and kaboodle if you prefer.  Most people prefer to take the maximum amount of tax deductions, credits, and exemptions in order to pay the least possible amount to Uncle Sam.
       c)  therefore, the only thing that will happen to you is you will pay more tax.  Uncle Sam will like that a lot; your bank balance won't.