The IRS posted a clarification on its website that the IRS has changed its position with regard to certain taxes paid to France, holding that these taxes are not covered by the Agreement on Social Security between the two countries.[1] Thus, these taxes will be retroactively treated as income taxes for which a foreign tax credit is available.

The clarification states:

In 2019, the United States and the French Republic memorialized through diplomatic communications an understanding that the French Contribution Sociale Generalisee (CSG) and Contribution au Remboursement de la Dette Sociate (CRDS) taxes are not social taxes covered by the Agreement on Social Security between the two countries. Accordingly, the IRS will not challenge foreign tax credits for CSG and CRDS payments on the basis that the Agreement on Social Security applies to those taxes.

Individuals who paid these taxes in prior years are now able to file a claim for refund to the extend a foreign tax credit would now be available to the taxpayer. But what some taxpayers may not be aware of is that they can go back much further than the normal 3 year statute for claiming a refund of taxes.

As the IRS notes:

Generally individual taxpayers have ten (10) years to file a claim for refund of U.S. income taxes paid if they find they paid or accrued more creditable foreign taxes than what they previously claimed. The 10-year period begins the day after the regular due date for filing the return (without extensions) for the year in which the foreign taxes were paid or accrued. This means that amended returns may be filed, using Form 1040-X to include accompanying Form 1116, going back to tax year 2009.

The IRS provides the following instructions for preparing the Forms 1040X to claim refunds due to this change:

Individual taxpayers should write “French CSG/CRDS Taxes” in red at the top of Forms 1040-X, file them with accompanying Forms 1116 in accordance with the instructions for these forms. U.S. employers may not file for refunds claiming a foreign tax credit for CSG/CRDS withheld or otherwise paid on behalf of their employees.

This particular situation is a reminder that care must taken when clients ask about “how far back should I keep records” for tax related items. The foreign tax credit is not the only item in the tax law where issues may arise necessitating reference to documents that go back well beyond the traditional three year statute on assessments and refund claims.

[1] “Totalization Agreements,” IRS Website, https://www.irs.gov/individuals/international-taxpayers/totalization-agreements, Revised July 19, 2019, Retrieved July 21, 2019