Internal Revenue Service United States Department of the Treasury
Level Basic Advanced Military International

Foreign Tax Credit and Completing Form 1116

Completing Form 1116

Part III (continued)

Line 12: Reduction in Foreign Taxes

On Form 1116, Part II, all Puerto Rico taxes paid or accrued on both exempt and nonexempt income may be shown when computing the credit. However, taxes paid on exempt income are not allowed as part of the foreign tax credit. Taxes allocated to the exempt Puerto Rico income should be included in Part III, line 12, as a reduction in foreign taxes.

To find a taxpayer's reduction in foreign taxes, use this formula:

Income from Puerto Rico sources
not subject to federal tax under IRC 933


Deductible expenses allocable to that income



Tax paid or accrued to Puerto Rico

Total income subject to Puerto Rico tax


Deductible expenses allocable to that income

Form 1116, Line 12.