Reduction in income tax amount for U.S. taxpayers whose foreign-earned income is taxed twice - once in the country where the income is earned and then again in the U.S. The objective of the foreign tax credit is to avoid the double-taxation burden in accordance with the agreement (a taxation treaty) that the U.S. has with many other nations. Normally, the IRS allows a reduction up to the amount the taxpayer paid to the country where the income was earned. The taxpayer doesn't have to live or work overseas as this credit can also be claimed on the foreign income tax paid on returns from a mutual fund based in a non-U.S. territory.