F1116 confusion: Prorating passive vs general income for 2019 tax return during streamlining

Thanks for confirming what my accountant said. I was hoping he was wrong! Can you explain more about how investment income might qualify as General category? My investments are just standard index funds through a Dutch broker, nothing fancy or business-related. Also, what kind of investment expenses would help here? I don't really have any specific costs related to my investments that I can think of.

For investment income to qualify as General category instead of Passive, it typically needs to be connected to an active trade or business. With standard index funds, that's unfortunately unlikely to apply in your situation. Regarding investment expenses, these could include management fees, tax preparation costs specifically related to investment income, or interest on money borrowed to purchase investments. However, these deductions have been limited since the 2017 tax reforms. If your broker charges fees or if you paid for specific investment advice, those might qualify, but they'd need to exceed certain thresholds to be deductible.

How exactly does this work with foreign language documents? All my Dutch tax paperwork is, well, in Dutch. Does the system handle that or would I need to translate everything first?

Sounds interesting but I'm skeptical about AI tax tools. How accurate is it really with complex international situations? I've had CPAs mess this up, so I'm hesitant to trust software with something as tricky as Form 1116 basketing.

The system actually handles Dutch documents quite well! It has multi-language capability and is specifically designed for expat situations. You can upload your Dutch tax documents directly and it will extract the relevant information and categorize it appropriately for US tax purposes. Regarding accuracy with complex international situations, I was skeptical too initially. But the platform was created specifically for cross-border tax scenarios and uses both AI and human review processes. For Form 1116 specifically, it identified optimization opportunities my previous accountant missed. It also provides explanation references to specific IRS rules and regulations, so you can verify its recommendations against the tax code if you want that extra peace of mind.

Wait, this actually works? I've tried calling the IRS international line multiple times and either get disconnected or told to call back another day. How exactly does this service get you through when normal calls don't work?

This sounds like a scam. Why would I pay someone to call the IRS for me? And even if you do get through, the agents often give contradictory information for complex international situations. I got three different answers from three different agents about Form 1116 categories.

The service works by using an automated system that navigates through the IRS phone tree and waits on hold for you. When an agent finally picks up, you get a call back to connect with them. It's essentially like having someone wait on hold for you, which is why it works when regular calls don't - they're persistent and use technology to stay in the queue. I understand your skepticism about IRS advice consistency. What made the difference for me was that I got connected to their international tax department specifically, not just a general agent. I also had my questions very precisely formulated, with specific references to the tax code sections I was asking about. I documented the agent's name and ID number, and asked them to reference the specific IRS publications supporting their guidance, which they did. This approach resulted in much more reliable information than my previous attempts.

Thanks for mentioning the treaty! I'll look into that. Regarding the FEIE, my accountant originally suggested using Foreign Tax Credits instead because the Dutch tax rates are higher than US rates, so I'd potentially get more benefit from the credits. Does that sound right, or should I reconsider using the FEIE?

Your accountant's reasoning about FTC vs FEIE is generally sound. When foreign tax rates are higher than US rates, the Foreign Tax Credit usually provides better results since it directly offsets your US tax liability dollar-for-dollar and can generate excess credits to carry forward. However, there's a potential hybrid approach worth considering: use the FEIE for your employment income and then use FTC for your investment income. This sometimes creates a more favorable tax situation, especially when dealing with the basketing limitations. The key advantage is that by excluding your earned income entirely from US taxation with the FEIE, the remaining investment income might fall into lower tax brackets, potentially reducing your overall US tax liability.

Yes, I completed streamlined last year with this exact issue. The key is to be consistent across all three tax years you're filing. Make sure your approach to categorizing income in the different baskets follows the same methodology for each year. In my certification statement (Form 14653), I specifically mentioned that I was uncertain about certain aspects of Form 1116 basketing but had made good faith efforts to comply based on my understanding of the rules. The IRS accepted my submission without any questions.