ERROR MSGHow To Claim the Credit Portugal hotelsIf you meet the requirements and choose to be exempt from theforeign tax credit limit, explained earlier, you claim the credit online 46 of Form 1040. If you are not exempt from the limit, you mustfile Form 1116 to claim a foreign tax credit. You must also translateyour foreign income and taxes into U.S. dollars. Form 1116 You must file a Form 1116 with your U.S. income tax return, Form1040. You must file a separate Form 1116 for each of the followingcategories of income for which you claim a foreign tax credit. Passive income. High withholding tax interest. Financial services income. Shipping income. Dividends from a DISC or former DISC. Certain distributions from an FSC or former FSC. Lump-sum distributions. Section 901(j) income. Income re-sourced by treaty. General limitation income--all other income fromsources outside the United States. A Form 1116 consists of four parts as explained next. Part I--Taxable Income or Loss From SourcesOutside the United States for Category Checked Above. Enter thegross amounts of your foreign or possession source income in theseparate limit category for which you are completing the form. Fromthese, subtract the deductions that are definitely related to theseparate limit income, and a ratable share of the deductions notdefinitely related to that income. If, in a separate limit category,you received income from more than one foreign country or U.S.possession, complete a separate column for each. Part II--Foreign Taxes Paid or Accrued. Thispart shows the foreign taxes you paid or accrued on the income in theseparate limit category in foreign currency and U.S. dollars. If youpaid (or accrued) foreign tax to more than one foreign country or U.S.possession, complete a separate line for each. Part III--Figuring the Credit. You use thispart to figure the foreign tax credit that is allowable. Part IV--Summary of Credits From Separate PartsIII. You use this part on one Form 1116 to summarize the foreigntax credits figured on separate Forms 1116. Records To Keep Files: You should keep the following records in case you are later askedto verify the taxes shown on your Form 1116 or Form 1040. You do nothave to attach these records to your Form 1040. A receipt for each foreign tax payment. The foreign tax return if you claim a credit for taxesaccrued. Any payee statement (such as Form 1099-DIV or Form1099-INT) showing foreign taxes reported to you. The receipt or return you keep as proof should be either theoriginal, a duplicate original, a duly certified or authenticatedcopy, or a sworn copy. If the receipt or return is in a foreignlanguage, you also should provide a certified translation of it.Revenue Ruling 67-308 in Cumulative Bulletin 1967-2discusses in detail the requirements of the certified translation. Youcan buy the Cumulative Bulletin from the GovernmentPrinting Office. Copies of the Cumulative Bulletins arealso available in most IRS offices and you are welcome to read themthere. Alternative Minimum Tax In addition to your regular income tax, you may be liable for thealternative minimum tax. The foreign tax credit is allowed to alimited extent against this tax. See the instructions for Form 6251,Alternative Minimum Tax--Individuals, for a discussionof the alternative minimum tax and the foreign tax credit appliedagainst it. Foreign Currency andExchange Rates U.S. income tax is imposed on income expressed in U.S. dollars,while the foreign tax is imposed on income expressed in foreigncurrency. Therefore, the tax credit is affected when the foreigncurrency depreciates or appreciates in value in terms of U.S. dollars. Translating foreign currency into U.S. dollars.If you receive all or part of your income or pay some or all ofyour expenses in foreign currency, you must translate the foreigncurrency into U.S. dollars. How you do this depends on your functionalcurrency. Your functional currency generally is the U.S.dollar unless you are required to use the currency of a foreigncountry. You must make all federal income tax determinations in yourfunctional currency. The U.S. dollar is the functional currency forall taxpayers except some qualified business units. A qualifiedbusiness unit is a separate and clearly identified unit of a trade orbusiness that maintains separate books and records. Unless you areself-employed, your functional currency is the U.S. dollar. Even if you are self-employed and have a qualified business unit,your functional currency is the dollar if any of the following apply. You conduct the business in dollars. The principal place of business is located in the UnitedStates. You choose to or are required to use the dollar as yourfunctional currency. The business books and records are not kept in the currencyof the economic environment in which a significant part of thebusiness activities is conducted. If your functional currency is the U.S. dollar, you mustimmediately translate into dollars all items of income, expense, etc.,that you receive, pay, or accrue in a foreign currency and that willaffect computation of your income tax. If there is more than oneexchange rate, use the one that most properly reflects your income.You can generally get exchange rates from banks and U.S. Embassies. If your functional currency is not the U.S. dollar, make all incometax determinations in your functional currency. At the end of theyear, translate the results, such as income or loss, into U.S. dollarsto report on your income tax return. Envelope: For more information, write to:     Internal Revenue Service Hall in Tirol accommodationAssistant Commissioner (International) Attention: OP:IN:D:CS 950 L'Enfant Plaza South, SW Washington, DC 20024 hotels HagueRate of exchange for foreign taxes paid.If you claim the credit for foreign taxes on the cash basis, use the rate of exchange in effect onthe date you paid the foreign taxes to the foreign country. If yourtax was withheld in foreign currency, you use the rate of exchange ineffect for the date on which the tax was withheld. If you make foreignestimated tax payments, you use the rate of exchange in effect for thedate on which you made the estimated tax payment. If you claim the credit forforeign taxes on an accrual basis, you must generally usethe average exchange rate for the tax year to which the taxes relate.This rule applies to accrued taxes relating to tax yearsbeginning after 1997 and only under the following conditions. The foreign taxes are paid on or after the first day of thetax year to which they relate, but not later than 2 years after theclose of that tax year. The foreign taxes are not paid in an inflationary currency. For all other foreign taxes, you should use the exchange rate as ofthe time the taxes are paid. Accrued taxes relating to tax years beginning before 1998.If you claim the credit for accrued taxes relating to tax yearsbeginning before 1998, use the rate of exchange that was in effect onthe last day of the tax year to which the taxes relate. This is aprovisional or interim credit. If a different rate of exchange is ineffect when you actually pay the tax, you must make an adjustment toreflect that rate. See Tax years beginning before 1998under Foreign Tax Redetermination, earlier.