Introduction
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Today March 3, 2026 the Christensen (France) and Bruyea (Canada) appeals were argued. The issue is whether FTCs can be used to offset the 3.8% NIIT. The NIIT is found in Chapter 2A of the Internal Revenue Code instead of Chapter 1 which has the the FTC rules. Of course, FTCs (foreign tax credits) are available only as a credit against foreign taxes paid on foreign source income. In the context of the NIIT, it appears well settled (under the provisions of the Internal Revenue Code) that because the NIIT is found in Chapter 2A, that foreign tax credits cannot be used as a credit against U.S. tax owing. To put it simply, in enacting the NIIT, Congress imposed pure double taxation on “foreign” net investment income. Think of it (like PFIC) as a “tariff” on investing in foreign financial assets. This is a huge problem for Americans abroad because their assets (and income streams) are more likely to be foreign. Hence, it is no surprise that this litigation arises from the circumstances of American citizens living outside the United States. Both Mr. Bruyea and the Christensens are Americans abroad.
Hence, the issue in both Bruyea and Christensen is whether the tax treaties provide a foreign tax credit, where the Internal Revenue Code does not.
Do tax treaties create a foreign tax credit under circumstances where the U.S. Internal Revenue Code would NOT allow a foreign tax credit?
Paragraph 1 of Article XXIV of the Canada/U.S. Tax Treaty reads as follows:
Elimination of Double Taxation
1. In the case of the United States, subject to the provisions of paragraphs 4, 5 and 6, double taxation shall be avoided as follows: In accordance with the provisions and subject to the limitations of the law of the United States (as it may be amended from time to time without changing the general principle hereof), the United States shall allow to a citizen or resident of the United States,
or to a company electing to be treated as a domestic corporation,as a credit against the United States tax on income the appropriate amount of income tax paid or accrued to Canada;and, in the case of a company which is a resident of the United States owning at least 10 per cent of the voting stock of a company which is a resident of Canada from which it receives dividends in any taxable year, the United States shall allow as a credit against the United States tax on income the appropriate amount of income tax paid or accrued to Canada by that company with respect to the profits out of which such dividends are paid.
The France U.S. tax treaty has a similar provision which INCLUDES as follows:
ARTICLE 24
Relief From Double Taxation
1. (a) In accordance with the provisions and subject to the limitations of the law of the United States (as it may be amended from time to time without changing the general principle hereof), the United States shall allow to a citizen or a resident of the United States as a credit against the United States income tax:
(i) the French income tax paid by or on behalf of such citizen or resident;
U.S. Treasury position’s is that the language in italics In accordance with the provisions and subject to the limitations of the law of the United States allows the United States to DENY a foreign tax credit if a foreign tax credit is not allowed under the Internal Revenue Code. Obviously this interpretation would make Article XXIV meaningless. Why would it be needed? In fact, it would turn Article XXIV, which purports to be a vehicle for the “Elimination of Double Taxation”, into an Article which would guarantee double taxation. Nevertheless, that is the Orwellian position of U.S. Treasury.
On March 3, 2026 the United States Court of Appeals heard the appeals from BOTH Bruyea (Canada) and Christensen (France). The decisions of the courts of first instance (which conflicted on this question) were:
Bruyea (Canada)– The words In accordance with the provisions and subject to the limitations of the law of the United States should NOT be read to allow the United States to deny a foreign tax credit; and
Christensen (France) – The words In accordance with the provisions and subject to the limitations of the law of the United States SHOULD be read to allow the United States to deny a foreign tax credit. (The Christensen’s were successful based on arguing that a second section of the “double taxation” clause created an independent treaty based foreign tax credit.)
In accordance with the provisions and subject to the limitations of the law of
the United States
The meaning of those words is what the court has been asked to resolve. Specifically, do treaties create a foreign tax credit that extends beyond what is allowed under the IRC. If you are interested in this issue, I think you will find the oral arguments in Bruyea and Christensen interesting. They were heard back to back.
The cases are huge and the stakes are very high! If Bruyea and/or Christensen lose, I would think think that the terms of the treaty would allow the USA to deny a foreign tax credit by simply keeping a tax out of Chapter 1.
Interested to hear your thoughts on the prognosis and/or how you handle the issue of the NIIT payable on non-U.S. source income now.
Bruyea Files:
01 Bruyea – Government Opening Brief
02 Bruyea – Taxpayer Response Brief
03 Bruyea – Government Reply Brief
04 Bruyea – Government Appendix_compressed
Christensen Files:
01 Christensen – Government Opening Brief
02 Christensen – Taxpayer Corrected Response Bri
03 Christensen – Government Reply Brief04 Christensen – Government Corrected Appendix-c
04 Christensen – Government Corrected Appendix-c
Amicus Brief:
John Richardson – Follow me on X.com/expatriationlaw
Appendix – The First six posts in the “Bonjour” series …
The four previous posts discussed the foreign tax credit rules in the context of the NIIT (“Net Investment Income Tax“). For a description of the first four posts, see the Appendix to this post.
The first post detailed the provisions of the U.S. France tax treaty which created the “three bite rule”. By creating the “three bite rule” the U.S. France treaty was used to create a treaty based foreign tax credit.
The second post (also based on the U.S. France tax treaty) described how the U.S. France tax treaty was used to create an independent treaty based foreign tax credit. The purpose was to allow for a foreign tax credit against the NIIT (“Net Investment Income Tax”). Although a major breakthrough, it’s important to note that this case (Christensen):
1. Found that the treaty should be interpreted to create an a foreign tax credit that was independent of the credits allowed under the Internal Revenue Code;
2. Specifically ruled that the language “subject to the limitations of the law of the United States” (found in the opening paragraph of the double taxation clause) should be interpreted to preclude a foreign tax credit for payment of foreign tax on foreign investment income.
The third post continued the “NIIT Tax Treaty Chronicles”. Specifically, this post detailed how Judge Solomson, in the case of Paul Bruyea, determined that (contrary to Judge Blank’s ruling in Christensen) that the “subject to the limitations of the law of the United States”clause in Article XXIV, Paragraph 1:
1. Does NOT preclude the use of a foreign tax credit to offset the NIIT; and
2. That Article XXIV, Paragraph 1 allows a U.S. citizen or U.S. resident living in Canada to use taxes paid to Canada as a credit against the U.S. NIIT!
Judge Blank in Christensen and Judge Solomson in Bruyea reached opposite conclusions with respect to whether the following clause (as represented in the 2016 U.S. Model Tax Treaty) can be used to create a foreign tax credit which is independent of the foreign tax credit rules in the Internal Revenue Code (Sections 27, 901 and 904).
Article 23
RELIEF FROM DOUBLE TAXATION
1. In the case of __________, double taxation will be relieved as follows:
2. In accordance with the provisions and subject to the limitations of the law of the United States (as it may be amended from time to time without changing the general principle hereof), the United States shall allow to a resident or citizen of the United States as a credit against the United States tax on income applicable to residents and citizens:
a) the income tax paid or accrued to __________ by or on behalf of such resident or citizen; and
Therefore, I expect that this issue has NOT been fully resolved.
Judge Solomson’s decision in Bruyea is a very exciting decision. It goes FAR beyond the decision in Christensen and opens the door to arguing that many (if not all) U.S. treaties guarantee that the NIIT can be offset by foreign tax credits!!
The fourth post focused on Judge Solomson’s comments in Bruyea about when a later in time statute can override an earlier treaty. In general he was of the view that a later statute can override an earlier treaty only when Congress expresses a clear intent to overrule the treaty.
The fifth post reveals Treasury’s decision to appeal both the Bruyea and Christensen cases.
The sixth post introduces the Rosenbloom and Shaheen amicus brief in support of Bruyea and Christensen
Bonjour Part 6 – Rosenbloom and Shaheen Brief In Support Of Bruyea
Bonjour Part 7 – Bruyea and Chrisensen Cases Argued March 3, 2026