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The lump sum W received served as a substitute for the ordinary income he would have otherwise received over a period of time. The IRS reclassified it as ordinary income and assessed a $660,784 deficiency. In contrast, if the foreign-source income is ordinary income taxed at regular income tax rates, the adjustment ensures the maximum allowable credit is based on the taxpayer's regular income tax rates, rather than the reduced tax rates on capital gains and/or qualified dividends. |
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