Foreign Tax Credit that seems impossible

Hypothetically, let's say I pay a smallish tax to HMRC in 2018, for a 403B disbursement made in late 2017 (thus, in the 2017/18 HMRC tax year). Let's say it's the equivalent of about $500.

The IRS booklet says that to calculate foreign tax credits one divides all foreign-source income by all sources of income, to arrive at a percentage. So, if I don't happen to have any passive foreign income in 2018 there is no way to recover the HMRC tax paid on the 403B disbursement made in 2017 by claiming a foreign tax credit with the IRS on the 2018 return, correct?

I don’t know the answer but I would think that a simple solution would be to not file your 2017 US taxes until after filing your 2017/18 taxes. There is an automatic extension for overseas filers to June 15th (I haven’t filed my US taxes yet) and UK taxes can be filed anytime after April 6th.

Our son has filed for an extension until October since this is his first year in the UK and needs to have been physically here 330 days to avoid the ACA penalty and to be able to use FEIE.

Sorry, you've lost me there. If I haven't paid anything in 2017 to HMRC, I can't take anything off of my 2017 IRS taxes for HMRC, no? So why would delaying filing do anything?

If I ~had~ foreign income of the same basket type in 2018, and when adding the $500-ish to the taxes on that, it would probably be over the limit for 2018 and I could then carry the excess tax paid HMRC back to 2017 for the IRS.  But it appears I will have no foreign income of that basket type in 2018 to use to calculate the tax credit for 2018.

OR, am I misunderstanding, and the $500 paid to HMRC in 2018 can still be carried back to 2017's taxes via a carryback?

You said that you “knew” you had paid $500 in 2018 for a disbursement in Nov 2017 so the tax actually arose in 2017 so I don’t see the problem. I always pay some of my US taxes in the year after the taxes arose. For example my 4th estimated tax payment for 2017 was paid in January 2018 and the balance owed in May or June 2018.

You could also tick the “accrued “ box on the 1116 meaning that you accrued $500 in 2017 to be paid in 2018.

Ok, now I am terribly confused again. 

I did run my UK taxes, and I will have to pay that $500 sometime. For IRS purposes, I was planning to do that before 31 Dec 2018.

I had to pay the same amount to the IRS for the 403B income with my 2017 tax year return.

I was under the impression that I could ONLY take a credit with the IRS for the taxes actually paid in a given year. So, I would take my 2017's $500 off my 2018 IRS taxes. I would have thought. But in looking at how to do that, since I have no foreign income for 2018....? The IRS form 1116 instructions seem to indicate I have a percentage to use of zero (foreign income divided by world-wide income). Hence, no credit from 2018.

Is that NOT correct? (It won't matter immediately, but it will eventually!)

Ok, now I am terribly confused again. 

I did run my UK taxes, and I will have to pay that $500 sometime. For IRS purposes, I was planning to do that before 31 Dec 2018.

I had to pay the same amount to the IRS for the 403B income with my 2017 tax year return.

I was under the impression that I could ONLY take a credit with the IRS for the taxes actually paid in a given year. So, I would take my 2017's $500 off my 2018 IRS taxes. I would have thought. But in looking at how to do that, since I have no foreign income for 2018....? The IRS form 1116 instructions seem to indicate I have a percentage to use of zero (foreign income divided by world-wide income). Hence, no credit from 2018.

Is that NOT correct? (It won't matter immediately, but it will eventually!)

Yes, what you say is correct, I think, that FTC's can only be set off against taxes that have been paid, so if you have no foreign income in 2018 I don't think you can claim the tax you paid for the UK 2017/18 year against your IRS 2018 return.

Therefore if you have already filed your US taxes for 2017 I would suggest you file an amended return, this time with a 1116 form to claim back the HMRC tax you paid/accrued in 2017/18.

I did something similar in 2017. I filed with the IRS in May 2017 including forms 1116 to claim accrued tax credits for HMRC taxes. When I actually filed my 2016 HMRC tax return later in 2017, myself and my wife paid about $1,200 HMRC tax more than I had estimated so I then filed an amended return with the actual FTC's.

Nan, you made the decision in an earlier thread to file your 1116 under the 'cash basis'.

For the passive basket:
Under the cash basis, if you made NO payments to HMRC during 2017 on any income that must be defined as passive, you will have no FTCs from the 2017, 1116 passive.

Under the cash basis, if you will make NO payments to HMRC during 2018 on any income that must be defined as passive, you will have no FTCs from the 2018, 1116 passive.

Under the cash basis, if you do not have any excess FTCs for 2018, then you will not be able to reclaim the tax due the IRS from 2017 passive income. If you DO make payments to HMRC during 2018 on any income that must be defined as passive, you MAY have some excess FTCs which you may then apply to 2017, 1116 passive via a 1040X.

The IRS form 1116 instructions seem to indicate I have a percentage to use of zero (foreign income divided by world-wide income).

The above IRS quote applies globally but there is another formula (carried out through lines 17 to 22 on 1116: the limitation) applying to each individual 1116 basket. You may have excess FTCs in another basket, but, generally, (applying the formula) FTCs from those baskets will be 'limited' and may not cover income and HMRC tax from the passive basket. You may end up with 'excess FTCs' in one basket, but NO FTCs in another basket, and during the final amalgamation of the different baskets (last items on 1116) you may find you do not have sufficient FTCs to cover the tax due from 1040.

Cross post with durhamlad.

Thanks OAP, a much more comprehensive and well advised answer than mine. But I think you are also suggesting she file an amended return (1040x)

Ok. Let me trot this back past you again. Thanks for your patience.  I'm not quite sure I understand, still.

I paid IRS 403b tax on my 2017 IRS tax return. (Or, rather, they kept the tax out of the withholding they had already taken.) I will be taxed on a portion of the 403b that throws me over the personal exclusion in the UK, in the 2017/18 tax year. That tax to HMRC would be around $500 and WILL be paid to HMRC in 2018.

EDITED:

So, I'm only dealing with the 403b resourced by treaty to be foreign amount for 2017. I will have no foreign income of any variety at all in 2018.  (I am going to go ahead and claim my pension as exempt from UK tax, as I do have a letter from HMRC stating this is so.)

My mock-up 1116 for 2017 would indicate that I could have up to about $1,200 that could be utilized if there was a carry-back of that much available from 403b retirement income taxes from 2018. I've only actually got the $500 that WILL be paid in 2018 to HMRC.

But  0 foreign/global income = 0 limit for 2018, correct?  I have to take the smaller of either the foreign tax paid or the limit for 2018. The limit is 0.  No excess for 2018.
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QUESTION:  Can I still file an amended return with an amended 1116 for 2017 and claim "accrued" (sent in with "paid" and annotated for resource-basket record-keeping only, no tax credit requested on it) and get the refund?