Is it true that a taxpayer's source of income is not relevant for the foreign tax credit?

The assertion that a taxpayer's source of income is not relevant for the foreign tax credit is false. The foreign tax credit is designed specifically to alleviate the double taxation burden on U.S. taxpayers who earn income abroad. To qualify for this credit, the income must be sourced from foreign sources; this means that income earned in the U.S. does not qualify for the credit.

The credit allows taxpayers to claim a dollar-for-dollar reduction in their U.S. tax liability based on the foreign taxes they have already paid on their foreign-sourced income. Therefore, the source of the income is crucial because only foreign income can be eligible for the foreign tax credit. This is particularly relevant for U.S. persons who have investments, business interests, or other income-producing activities outside the United States.