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Jean, a U.S. citizen, pays an inheritance tax to the Spanish government. It is based on an inheritance she received upon the death of an uncle. Can Jean compute a foreign tax credit against the inheritance tax she pays to the Spanish government? Do your best to justify your answers related to Jean with tax authority. Further, based on the resources for this module, discuss how the drilling moratorium in the Gulf affected Hercules Offshore, if at all.
Expert Answer
In the United States, a gift or inheritance which results from a person’s death is known as a testamentary gift. The IRS does not impose any estate or inheritance tax obligations onto beneficiaries of testamentary gifts. Furthermore, a testamentary gift is not considered taxable income and should not be included in the determination of such income on Form 1040.
Generally, the following four tests must be met for any foreign tax to qualify for the credit:
- The tax must be imposed on you
- You must have paid or accrued the tax
- The tax must be the legal and actual foreign tax liability
- The tax must be an income tax (or a tax in lieu of an income tax)
Hence in this case jean can compute foreign tax Credit.
