Section 901(j) income refers to income earned in (or derived from) certain sanctioned countries for which the United States does not allow a foreign tax credit. A credit is not permitted for foreign taxes paid or accrued to these specific countries.
Sanctioned countries are those designated by the Secretary of State as countries that repeatedly support international terrorism, countries the U.S. doesn't have or conduct diplomatic relations with, or countries whose governments the U.S. doesn't recognize.
Exception: Tax Paid to a Different (Non‑Sanctioned) Country
The credit isn't automatically lost just because the income came from a sanctioned country. What matters is where the tax was paid, not just where the income was earned.
If you paid tax to a country that is not sanctioned — even on income connected to business activity in a sanctioned country — that tax may still qualify for the credit.
Example: You're a U.S. citizen living in a non‑sanctioned country and paying that country's residence‑based income tax. Some of the income that tax applies to was earned from business activity in a sanctioned country. Because the tax itself was paid to the non‑sanctioned country, it can still be eligible for the credit — you would continue completing the rest of Form 1116 rather than stopping partway through.
If you're not sure which situation applies to you, see IRS Pub. 514.
Reporting Requirements
If you earned income from multiple sanctioned countries, each one must be reported separately, using its own Form 1116 for that country's income.
(Note to reviewer: please confirm current program behavior here — an earlier version of this article stated the program "allows only one Form 1116" to be included in a return, which would conflict with the instruction above. If that limitation still exists in the product, this section needs to say so explicitly and explain what a filer with multiple sanctioned countries should do instead; if it's been resolved, this note can be deleted.)
If a country's sanction status changes and it is no longer a sanctioned country by the end of the tax year, refer to IRS Pub. 514 for guidance on how to compute the credit for the period after sanctions ended.
Because taxes paid to a sanctioned country cannot be credited, you may want to evaluate whether those taxes can instead be claimed as an itemized deduction.
Presidential Waiver
The President of the United States has the authority to waive the denial of the credit for a sanctioned country if:
- The waiver is in the national interest of the United States and will expand trade and investment opportunities for U.S. companies in that country, and
- The President reports the intention to grant the waiver to Congress at least 30 days beforehand.
This is uncommon, but if it applies to your situation, the credit denial described above may not apply to you.
Program Navigation (Where to Enter)
- Federal
- Deductions (Select my forms)
- Credits
- Foreign Tax Credit
- Form 1116
- Section 901(j) income
Refer to the Form 1116 Instructions for complete details.