This is the first of two blog posts (Part 1 and Part 2) that discuss the University of Washington Low Income Tax Clinic report referencing a dual Canada/U.S. citizen student living and working in Canada.
Part 1 (this) will discuss the report generally and how the circumstances actually trigger the Canada/U.S. tax treaty. Think of it! A few thousand dollars of summer income received by a Canadian student implicates an international tax treaty. Only in America!
Interestingly, the specific factual circumstances include an example of what happens when a U.S. citizen living outside the United States receives a U.S. inheritance that generates U.S. source income. This is a concern for many Americans abroad. It is a complicated area.
Mostly Part 1 will discuss the “LITC” Report. Specifically how the “LITC” viewed the issue. How they incorrectly tried to apply the U.S. Canada tax treaty (apparently) without regard to the “saving clause” which is included in all U.S. tax treaties.
The report seems to say that the taxpayer filed a U.S. tax return for the 2021 tax year and filed to include income which (because of information reporting) the IRS was aware of. This should be of concern to Americans abroad generally. I will discuss this aspect more fully in Part 2.
Part 2 will discuss the specific problem of a U.S. citizen abroad inheriting (or anticipating inheriting) U.S. assets (whether income producing or not). I am making this a separate post because it is a complicated topic. The most rational response to this situation is highly dependent on your factual situation.
— John Richardson – Counsellor for US persons abroad (@ExpatriationLaw) March 2, 2026
For those interested in hearing the March 3, 2026 oral arguments in Bruyea followed by Christensen, here it is. Would love to hear any thoughts on this.https://t.co/GNXVn61Wc9
— John Richardson – Counsellor for US persons abroad (@ExpatriationLaw) March 3, 2026
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?
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.
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. Continue reading →
"Bonjour Part 5 – U.S. Treasury Appeals The Bruyea And Christensen Cases – Can A Tax Treaty Provide A Credit Independent Of The Internal Revenue Code?"
— John Richardson – Counsellor for US persons abroad (@ExpatriationLaw) September 3, 2025
Introduction
This is the fifth in a series of posts about “treaty based” foreign tax credits. Previous posts have discussed how the Bruyea and Christensen cases resulted in court rulings that U.S. tax treaties can create a foreign tax credit that is separate from and independent from tax credits allowed under the Internal Revenue Code. Of course, this depends on the terms of the treaty.
The facts as described in the Bruyea breif – filed September 2, 2025
STATEMENT OF THE ISSUES
Whether the Court of Federal Claims correctly determined that the income tax treaty between the United States and Canada (the “Canada Treaty”)1 allows a U.S. citizen resident in Canada to claim a treaty-based foreign tax credit against the net investment income tax (the “NIIT”) imposed by Section 1411 of the Internal Revenue Code of 1986 (26 U.S.C. — the “Code”).
SUMMARY OF ARGUMENT
For over 80 years, Canada and the United States have had income tax treaties in place, with the primary goal of preventing double taxation of the same income. Article XXIV of the Canada Treaty, entitled “Elimination from Double Taxation,” advances this purpose by providing that certain taxes imposed by each country are eligible for a foreign tax credit — a “treaty-based foreign tax credit” — even if otherwise not permitted under the internal laws of either country.
In 2010, Congress enacted the net investment income tax, the NIIT, which imposes a 3.8 percent tax on certain investment income generated by U.S. citizens (including those living abroad) and U.S. residents. Code Sec. 1411. For the 2015 tax year at issue, the Appellee, Paul Bruyea (the “Taxpayer”) was subject both to (1) Canadian taxation by virtue of his Canadian tax residency and (2) U.S. taxation by virtue of his U.S. citizenship. In that year, he sold real property located in Canada and paid more Canadian federal and provincial income taxes on that real estate gain than what he would have owed in total U.S. income tax and NIIT. As the Code does not provide a foreign tax credit — a “Code-based foreign tax credit” — against the NIIT, the IRS collected the NIIT on that same investment income on which he paid tax to Canada, resulting in double taxation. Here, the Taxpayer claims entitlement to a treaty-based foreign tax credit under Article XXIV of the Canada Treaty to offset the NIIT.
Framing the issue in the Bruyea case in simple terms:
The argument for allowing the credit: Bruyue argues that one would reasonably interpret the Canada/US tax treaty to allow a U.S. resident or citizen a foreign tax credit in the amount of the Canadian tax paid on that same income taxable, received at that same time, under the Internal Revenue Code.
The argument for denying the credit: U.S. Treasury argues that credit for the Canadian taxes paid on the income taxed by the United States is allowable ONLY to the extent that U.S. internal law (Internal Revenue Code) allows the credit.
— Parviz پرویز Malakouti-Fitzgerald (@ParvizMalakouti) August 12, 2025
Republicans Overseas continues to (1) recognize President Trump’s commitment to end the double taxation of Americans abroad and (2) remains committed to the goal of ending this double taxation. The goal cannot be achieved without the support and committment of the community of individual U.S. citizens living outside the United States.
Achieving changes of this magnitude is “NOT A Spectator Sport!”
Here is how the assistance of individual Americans abroad (wherever you may be) is required:
– written testimonials explaining how the U.S. tax code has resulted in double (and damaging) taxation in a manner that would NOT be experienced by U.S. residents
– examples could include: transition tax, GILTI, U.S. taxation of tax deferred retirement planning accounts, your pensions being unjustly taxed as foreign trusts, problems of using non-U.S. mutual funds for investing, PFIC, etc. We need specific testimonials describing exactly how the U.S. tax code imposed on Americans abroad leads to this result.
– penalties that have been unjustly levied on the failure to report (or late reporting) of the normal instruments of financial/retirement planning in your country of residence (Penalties imposed on TFSA, ISA, small business corps, etc.)
– taxation on phantom capital gains on the sale or refinancing of your home outside the United States
– having to pay the 3.8% Obamacare surtax on non-U.S. investment income while not being permitted to offset the foreign tax payable by using foreign tax credits
– being denied access to normal banking and brokerage accounts in your country of residence because of FATCA
– having your career opportunities limited because of a reluctance to hire, partner with, or invest with “U.S. persons”
– former U.S. citizens who feel they were forced to renounce U.S. citizenship because they could not afford the enormous compliance costs associated with U.S. citizenship or because the U.S. tax code limited their career opportunities
– other?
In other words, we want to document the actual damage!! I will assist you in drafting your testimonial so that it accurately explains HOW the U.S. tax code has resulted in double taxation.
Republicans Overseas is continuing its years long mission to end the unjust double taxation of Americans abroad. President Trump has committed to ending the unjust double taxation of Americans abroad. It is expected that there will be a second legislative opportunity in the fall of 2025.
Actual testimonials focusing on double taxation are critical. The testimonials are required by mid September 2025.
— Parviz پرویز Malakouti-Fitzgerald (@ParvizMalakouti) January 31, 2026
Laugh if you want. But the humble 32 ounce McDonaldLand Coffee has powered the MOST robust tax discussions on the planet.
Don't miss tomorrow. John Richardson is getting fired up for California's Exit Tax! https://t.co/Jyo4racC93
— IRSMEDIC | Anthony E. Parent, Esq. (@IRS_MEDIC) January 27, 2026
Over the years I have been a guest on the IRS Medic Youtube Channel a number of times. The topics have been varied and of relevance to Americans abroad. I thought I would collect “some” of the videos in one post. If you scroll down, I expect that you will some topics of interest to you. Many if not most of the topics have included written presentations in PDF format. I will add those when I have the time and am able to locate them.
If after watching any of these, if you want to schedule a consultation to discuss your situation:
— John Richardson – Counsellor for US persons abroad (@ExpatriationLaw) January 8, 2025
I received the following message from:
Dr. Suzanne de Treville
Swiss Finance Institute Professor of Operations Management, Emeritus
University of Lausanne
Faculty of Business and Economics
1015 Lausanne-Dorigny
Switzerland
A very interesting analysis of double taxation indeed. I am reproducing this as a blog post with her kind permission.
Suzanne has kindly agreed to participate in an upcoming “Spaces Discussion” as part of our “Understanding Double Taxation” series. Stay tuned!
This message is in response to your request for proposals for how to define double taxation..
My field is operations and supply-chain management. I recently retired as a professor of operations and supply-chain management at the University of Lausanne, and served as co-EIC of the Journal of Operations Management (a Financial Times 50 journal) from 2018 to 2023. I began applying operations logic to the taxation process a couple of years ago because of the usual expat problems—and the incredible difficulty of finding anyone who actually understands how this reporting should work. Democrats Abroad provided helpful material, I got to know Rebecca Lammers, and have been helping out on the analysis and drafting side of the Taxation Task Force for a couple of years.
I propose to define taxation as an operation, such that double taxation is a second pass of a taxation operation to revenue or assets.
An analogy is a harvester going over a field. We the taxpayers are the field. I am a tax resident of Switzerland, so the Swiss tax authorities make a first pass over my income and wealth. Because I am a US citizen, the IRS then makes a second pass over what has already been processed by the Swiss authorities.
A harvester making a second pass over a field collects a small fraction of what was harvested the first time. This is why 54% of 2021 returns from outside the US had no tax liability at all, compared to 19% for US tax returns as a whole. The fact that I receive a credit for the Swiss taxes paid means that my tax liability to the US is minimal. Whether or not I also pay taxes to the US does not change the fact that my income and assets have been doubly “processed”, first by Switzerland, and then by the US. And, the main costs of the second pass through the taxation process concern the cost and complexity of compliance.
Taking a harvester that is costly to run and deploying its capacity to cover fields that have already been harvested once is typically not cost effective. The IRS is short of capacity, so would do financially better to avoid using capacity in ways that bring little or no revenue. Also, collecting taxes from and managing the taxation process for those living abroad is more expensive than for domestic taxpayers. Again considering the 2021 data, we see that the tax revenue from returns with an AGI of less than $100,000 was only $708 million, and for those with an AGI of less than $200,000 it was $1.56 billion—again a relatively small number.
The complexity of reporting for expats comes not only from the need to prepare full reports to two jurisdictions, but to a large extent from the difficulty of reconciling the two operations that apply different principles. Let’s compare this to a Finnish citizen who moves to Switzerland and becomes Swiss. Each chunk of income is allocated via the tax treaty to one or the other country to be taxed. Pension income from work done in Finland before the move to Switzerland is taxed by Finland as source income if the person is a Finnish but not Swiss citizen. If the person becomes a Swiss citizen, they notify the Finnish authorities and the taxation shifts to Switzerland. There is very little in terms of duplication in reporting.
Many of the taxation problems that emerge for expats come from this second pass of a taxation operation. Although the second pass tends to produce little, it can unfairly increase the tax liability for income that is not taxed by the country of residence (e.g., disability payments). This provides little for the IRS, yet creates a crushing burden for the taxpayer. Defining taxation as a process/operation/“machine”—with double taxation being a second pass of that machine over the same revenue or assets—should make it easier to explain these problems. And, it makes crystal clear the deceptive nature of the savings clause.
Imagine that the US would eliminate this second pass over income (assets) that are taxed by the country in which the taxpayer is a tax resident. This could be combined with prioritizing US taxation of US-sourced income. I am, for example, first taxed by Switzerland on investment income from the US, then get a tax credit for those taxes to offset US taxes. The US could consider negotiating with Switzerland that US-sourced investment income would be first taxed in the US. Someone like Heitor David Pinto would be positioned to do a simulation of how an increase in US taxation of US-sourced income would compare to the loss of revenue from eliminating the second pass of the taxation machine.
One final point: International Information Returns and FATCA do not fit the definition of double—or even single—taxation. They are not that kind of machine! Their purpose combines control and penalty generation. This penalty-as-a-revenue model is beginning to be understood, and needs to be addressed, but it is not (double) taxation.
I hope that these thoughts are useful to you. Thank you for the leadership that you are showing at this critical time.
All the best,
Suzanne
_________________________________________
This slide presentation from Suzanne further explains the issue of double taxation.
