John Richardson – TaxResidentAbroad.com
March 10, 2026
Introduction
This is part 8 in a series of posts detailing the evolution of the “Elimination Of Double Taxation” clause in U.S. tax treaties. Some of the posts also discuss the Bruyea and Christensen cases which result in the double taxation of non-U.S. source investment income under the Internal Revenue Code. The first seven posts are found in Appendix D of this post.
U.S. Tax Treaties and the erosion of double taxation relief using a restrictive view of the “Elimination Of Double Taxation” article
This particular article examines the legal disputes surrounding how U.S. tax treaties should be applied to citizens living abroad, specifically focusing on the Bruyea and Christensen court cases. At the heart of the conflict is whether the Net Investment Income Tax (NIIT) can be offset by foreign tax credits, as the government currently argues that domestic law can limit treaty benefits. The author contends that the primary objective of these international agreements is the elimination of double taxation, a principle currently threatened by restrictive federal interpretations. If the government prevails in these appeals, it could establish a dangerous precedent allowing the U.S. to disallow tax credits on various types of foreign income by simply altering domestic tax classifications. Consequently, the outcome of these cases represents a critical turning point for the financial rights of Americans residing in Canada and France. This source serves as a technical overview for expatriates and legal professionals navigating the complexities of cross-border fiscal policy.
About The Net Investment Income Tax: The U.S. Net Investment Income Tax found in 1411 of the Internal Revenue Code IS and income tax within the meaning of the treaty
See Appendix A of this this post. The NIIT is an “income tax” as defined by the treaty!
“Can’t see the forest, but for the trees”
The Bruyea and Christensen cases have been argued. Interested parties await the decision. What follows are podcasts featuring:
The oral argument in the Bruyea appeal:
The oral argument in the Christensen appeal:
An AI generated podcast based on an “X Spaces” discussion about the appeals:
The “X Spaces” discussion about the Bruyea and Christensen appeals:
A PDF of the transcript of of the “X Spaces discussion”:
Discussion About Bruyea and Christensen-1
Interpreting legislation
Domestic tax legislation is difficult. Tax treaties are even more difficult. Combining domestic tax legislation with tax treaties is exponentially more difficult. In fact, understanding how how treaties impact the application of domestic law can be so difficult that tax preparers, accountants and lawyers become overwhelmed. They are often unable to understand the implications of an interpretation of a law and/or treaty provision in a broader context. The failure to understand the implications of of treaty interpretation meat that:
They “Can’t see the forest, but for the trees”!
Why Mr. Bruyea and the Christensens are trees in a larger forest
Mr. Bruyea and the Christensens are are concerned with whether the foreign taxes they paid on their non-U.S. investment income may be used as a foreign tax credit to offset the U.S. NIIT. They acknowledge that the FTC is not permissible under the U.S. Internal Revenue Code. Rather they argue that the Canada and France tax treaties require that the United States allow a credit.
The U.S. Government resists the Bruyea and Christensen claims based on their claim that the treaty requires a tax credit only “In accordance with the provisions and subject to the limitations of the law of the United States”. Most of the argument on March 3, 2026 focused on the interpretation of that language.
The issue …
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Does the language “In accordance with the provisions and subject to the limitations of the law of the United States” allow the United States to argue that the “Elimination Of Double Taxation” Article in a tax treaty means that the United States can deny the very foreign tax credit that the treaty was designed to provide?
Reading the language “In accordance with the provisions and subject to the limitations of the law of the United States” in context
The full phrase reads:
“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;”
It appears that the general principle is to AVOID double taxation. Surely this means that the correct interpretation – as argued in the Rosenbloom and Shaheen amicus brief – is that the United States cannot deny the tax credit in a way to further double taxation!
It is wrong to view the appeal as only about a tax credit against the NIIT! The appeal is about whether the U.S. tax treaties should be interpreted to allow the United States to deny a foreign tax credit against U.S. tax arising on any foreign source income!!!
What is at stake is FAR greater than the availability of a treaty based foreign tax credit to offset the NIIT. What is at stake is the ability of the United States to disallow foreign tax credits all day, every day any time they want. Should the government prevail, the United States would have the judicial authorization to disallow a foreign tax credit by:
– creating any new tax law outside Chapter 1 of the Internal Revenue Code (the NIIT is in Chapter 2A); or
– expanding the scope of the NIIT to include income streams that extend beyond traditional investment income!
Two real two examples of proposals to expand the forms of income defined as Net Investment Income:
In addition (although not a tax treaty issue) the United States could easily raise tax rates on Americans abroad by simply increasing the tax on the Net Investment Income Tax from 3.8% to any number it wanted. This would be particularly attractive if the taxes were not offset by foreign tax credits.
In conclusion:
What is at stake in Bruyea and Christen INCLUDES the issue of treaty based FTC against the NIIT. The real issue is whether the United States can interpret the language “In accordance with the provisions and subject to the limitations of the law of the United States” to deny foreign tax credits more broadly.
John Richardson – Follow me on X.com/ExpatriationLaw
Appendix A – Elimination of Double Taxation Article in the Canada/U.S. Tax Treaty
Article I
Personal Scope
This Convention is generally applicable to persons who are residents of one or both of the Contracting States.
Article II
Taxes Covered
1. This Convention shall apply to taxes on income and on capital imposed on behalf of each Contracting State, irrespective of the manner in which they are levied.
2. Notwithstanding paragraph 1, the taxes existing on March 17, 1995 to which the Convention shall apply are:
(a) in the case of Canada, the taxes imposed by the Government of Canada under the Income Tax Act; and
(b) in the case of the United States, the Federal income taxes imposed by the Internal Revenue Code of 1986. However, the Convention shall apply to:
(i) the United States accumulated earnings tax and personal holding company tax, to the extent, and only to the extent, necessary to implement the provisions of paragraphs 5 and 8 of Article X (Dividends);
(ii) the United States excise taxes imposed with respect to private foundations, to the extent, and only to the extent, necessary to implement the provisions of paragraph 4 of Article XXI (Exempt Organizations);
(iii) the United States social security taxes, to the extent, and only to the extent, necessary to implement the provisions of paragraph 2 of Article XXIV (Elimination of Double Taxation) and paragraph 4 of Article XXIX (Miscellaneous Rules); and
(iv) the United States estate taxes imposed by the Internal Revenue Code of 1986, to the extent, and only to the extent, necessary to implement the provisions of paragraph 3(g) of Article XXVI (Mutual Agreement Procedure) and Article XXIXB (Taxes Imposed by Reason of Death).
3. The Convention shall apply also to:
(a) any taxes identical or substantially similar to those taxes to which the Convention applies under paragraph 2; and
(b) taxes on capital;
which are imposed after March 17, 1995 in addition to, or in place of, the taxes to which the Convention applies under paragraph 2.
Appendix B – The Internal Revenue Code defines the NIIT as an income tax
26 U.S. Code Subtitle A – Income Taxes
CHAPTER 1—NORMAL TAXES AND SURTAXES (§§ 1 – 1400Z–2)
CHAPTER 2—TAX ON SELF-EMPLOYMENT INCOME (§§ 1401 – 1403)
CHAPTER 2A—UNEARNED INCOME MEDICARE CONTRIBUTION (§ 1411)
CHAPTER 3—WITHHOLDING OF TAX ON NONRESIDENT ALIENS AND FOREIGN CORPORATIONS (§§ 1441 – 1465)
CHAPTER 4—TAXES TO ENFORCE REPORTING ON CERTAIN FOREIGN ACCOUNTS (§§ 1471 – 1474)
[CHAPTER 5—REPEALED] (§§ 1491 – 1494)
CHAPTER 6—CONSOLIDATED RETURNS (§§ 1501 – 1564)
https://www.law.cornell.edu/uscode/text/26/subtitle-A
Appendix C – Elimination of Double Taxation Article in the Canada/U.S. Tax Treaty
Article XXIV
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.
2. In the case of Canada, subject to the provisions of paragraphs 4, 5 and 6, double taxation shall be avoided as follows:
(a) subject to the provisions of the law of Canada regarding the deduction from tax payable in Canada of tax paid in a territory outside Canada and to any subsequent modification of those provisions (which shall not affect the general principle hereof)
(i) income tax paid or accrued to the United States on profits, income or gains arising in the United States, and
(ii) in the case of an individual, any social security taxes paid to the United States (other than taxes relating to unemployment insurance benefits) by the individual on such profits, income or gains
shall be deducted from any Canadian tax payable in respect of such profits, income or gains;
(b) in the case of a company which is a resident of Canada owning at least 10 percent of the voting stock of a company which is a resident of the United States from which it receives dividends in any taxable year, Canada shall allow as a credit against the Canadian tax on income the appropriate amount of income tax paid or accrued to the United States by the second company with respect to the profits out of which the dividends are paid; and
(c) notwithstanding the provisions of subparagraph (a), where Canada imposes a tax on gains from the alienation of property that, but for the provisions of paragraph 5 of Article XIII (Gains), would not be taxable in Canada, income tax paid or accrued to the United States on such gains shall be deducted from any Canadian tax payable in respect of such gains.
3. For the purposes of this Article:
(a) profits, income or gains (other than gains to which paragraph 5 of Article XIII (Gains) applies) of a resident of a Contracting State which may be taxed in the other Contracting State in accordance with the Convention (without regard to paragraph 2 of Article XXIX (Miscellaneous Rules)) shall be deemed to arise in that other State; and
(b) profits, income or gains of a resident of a Contracting State which may not be taxed in the other Contracting State in accordance with the Convention (without regard to paragraph 2 of Article XXIX (Miscellaneous Rules)) or to which paragraph 5 of Article XIII (Gains) applies shall be deemed to arise in the first-mentioned State.
4. Where a United States citizen is a resident of Canada, the following rules shall apply:
(a) Canada shall allow a deduction from the Canadian tax in respect of income tax paid or accrued to the United States in respect of profits, income or gains which arise (within the meaning of paragraph 3) in the United States, except that such deduction need not exceed the amount of the tax that would be paid to the United States if the resident were not a United States citizen; and
(b) for the purposes of computing the United States tax, the United States shall allow as a credit against United States tax the income tax paid or accrued to Canada after the deduction referred to in subparagraph (a). The credit so allowed shall not reduce that portion of the United States tax that is deductible from Canadian tax in accordance with subparagraph (a).
5. Notwithstanding the provisions of paragraph 4, where a United States citizen is a resident of Canada, the following rules shall apply in respect of the items of income referred to in Article X (Dividends), XI (Interest) or XII (Royalties) that arise (within the meaning of paragraph 3) in the United States and that would be subject to United States tax if the resident of Canada were not a citizen of the United States, as long as the law in force in Canada allows a deduction in computing income for the portion of any foreign tax paid in respect of such items which exceeds 15 per cent of the amount thereof:
(a) the deduction so allowed in Canada shall not be reduced by any credit or deduction for income tax paid or accrued to Canada allowed in computing the United States tax on such items;
(b) Canada shall allow a deduction from Canadian tax on such items in respect of income tax paid or accrued to the United States on such items, except that such deduction need not exceed the amount of the tax that would be paid on such items to the United States if the resident of Canada were not a United States citizen; and
(c) for the purposes of computing the United States tax on such items, the United States shall allow as a credit against United States tax the income tax paid or accrued to Canada after the deduction referred to in subparagraph (b). The credit so allowed shall reduce only that portion of the United States tax on such items which exceeds the amount of tax that would be paid to the United States on such items if the resident of Canada were not a United States citizen.
6. Where a United States citizen is a resident of Canada, items of income referred to in paragraph 4 or 5 shall, notwithstanding the provisions of paragraph 3, be deemed to arise in Canada to the extent necessary to avoid the double taxation of such income under paragraph 4(b) or paragraph 5(c).
7. For the purposes of this Article, any reference to “income tax paid or accrued” to a Contracting State shall include Canadian tax and United States tax, as the case may be, and taxes of general application which are paid or accrued to a political subdivision or local authority of that State, which are not imposed by that political subdivision or local authority in a manner inconsistent with the provisions of the Convention and which are substantially similar to the Canadian tax or United States tax, as the case may be.
8. Where a resident of a Contracting State owns capital which, in accordance with the provisions of the Convention, may be taxed in the other Contracting State, the first-mentioned State shall allow as a deduction from the tax on the capital of that resident an amount equal to the capital tax paid in that other State. The deduction shall not, however, exceed that part of the capital tax, as computed before the deduction is given, which is attributable to the capital which may be taxed in that other State.
9. The provisions of this Article relating to the source of profits, income or gains shall not apply for the purpose of determining a credit against United States tax for any foreign taxes other than income taxes paid or accrued to Canada.
10. Where in accordance with any provision of the Convention income derived or capital owned by a resident of a Contracting State is exempt from tax in that State, such State may nevertheless, in calculating the amount of tax on other income or capital, take into account the exempted income or capital.
Appendix D – Parts 1 to 7 of 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