I'm new to this forum. I am trying to help my mother solve a situation. She is a US citizen who is a resident of the UK. In 2017, she received UK pension income and traditional IRA distributions from an account set up years ago in the US. When her UK tax accountant prepared her UK tax return, she was told that she would not owe tax to the UK on the IRA distributions. So, she filed her US tax return claiming a credit for taxes paid to the UK on the UK pension only. She was recently contacted by her UK tax accountant who told her that he was wrong and that she would have to pay tax to the UK on the traditional IRA income received in 2017. When she filed her 2017 US tax return and took a foreign tax credit for tax paid to the UK on the UK pension income, she completed Form 1116 on the "taxes paid" basis. Now, she will be paying tax to the UK in 2020 for that IRA income she reported in her 2017 US tax return. Does she need to file an amended 2017 US tax return with a corrected Form 1116 for that year to add the tax she will now have to pay to the UK even though it will be paid in 2020? Or could she amend her 2017 US tax return, not change the Form 1116, and then complete a Form 8833 to exclude the IRA income from US taxable income due to the treaty without claiming a foreign tax credit for the tax paid to the UK on the IRA income?
She also a similar situation for tax year 2018. However, in that year, she only had the traditional IRA income and she had no UK pension income, therefore, no foreign tax credit was claimed at all in her 2018 US tax return. Can she amend her 2018 US tax return to include a Form 1116 and claim the taxes she will pay to the UK in 2020 for that IRA income that was received in 2018 by using the "taxes accrued" method? I just want to help her figure out the best way to correct this situation and get any US foreign tax credits she is entitled to back as soon as possible since she'll now be out of pocket for tax to the UK on the same income she's already paid to the US on.
