Herrick Vs Philippines Case Study

Individuals or corporations would always want to minimize their tax liability. There are different rules that can totally be the offset against tax liability. A foreign tax credit (FTC) is eligible for anyone who has either investment income or worked in a foreign country. Any individual or business entity claim a tax credit for any foreign income tax paid in another country other than the U.S. Section 27(a). The sole purpose of foreign tax credit (FTC) is to avoid double taxation. If the tax has already been paid on income earned in a different country, there should not be a need to pay the taxed again in the U.S. For individuals, foreign taxable income is determined before personal and dependency exemption is deducted. Mr. Malik
U.S., the plaintiff seeks a tax refund from the Internal Revenue Service for the calendar years 2000 through 2006. Plaintiff is a U.S. citizen, the Estate of Austin D. Herrick who lived and worked in the Philippines during the time period claimed for a refund. Plaintiff argues that Herrick, by mistake believed that he does not owe United States taxes on the income he earned in the Philippines because he already paid high income taxes on that income in the Philippines. Herrick did not file United States tax returns from years 2000 through 2006. However, for those years IRS prepared substitute tax returns for Herrick which did not include the foreign taxes Herrick paid. Therefore, the IRS charged Herrick $1,330,162.66 in Unites States taxes. The IRS took that amount from Herrick's United States investment accounts to pay the amounts due from the IRS prepared substitute tax returns. On the other hand, after the death of Herrick in 2011, his daughter, the administrator of his estate, prepared U.S. income tax returns and filed for the tax years 2000 through 2006. Those tax returns properly stated Herrick's foreign taxes paid and applied the foreign earned income exclusion. Based on these returns, Plaintiff argued for a refund from IRS. Being the defendant, the U.S did argue that the plaintiff needed additional document to qualify for a refund. However, the plaintiff provided records of taxes paid in the Philippines and
Malik could learn from the case of Mr. Herrick that if he had provided all the tax return from India, the IRS could have granted him the proper refund. However, Mr. Malik could seek a refund from IRS by filing for a foreign tax credit. The IRS took the tax amount from Mr. Herrick’s Estate and still granted him the refund after filing the proper tax returned providing the foreign tax returns from the Philippines. From the scenario of Mr. Herrick, Mr. Malik should realize that he would have a better chance of a refund since he had filed tax returns in both countries and paid all the taxes. Therefore, Mr. Malik should argue that he is entitled to a refund because he paid double taxation on the income. Since Mr. Malik paid foreign taxes to a foreign country, India and to the U.S., he is definitely qualified to take either a credit or an itemized deduction for his taxes. However, it is better for Mr. Malik to file for a credit because foreign income taxes would reduce his U.S. tax liability. Therefore, it is more beneficial to take a credit rather than itemized deduction. Section 164. If Mr. Malik files for a deduction for his foreign income taxes it would reduce his U.S. taxable income. If Mr. Malik takes the foreign tax credit and the taxes paid exceed the credit limit for the tax year, he would be able to carry over or carry back the excess to another tax year as well. Section 1.904-2(a). The defendant did try to argue for Mr. Herrick that he does not have proper