Category Archives: Little Red Tax Treaty Book

Part 2: Inheriting From America AKA Anxiety On Steroids – Retain Or Renounce U.S. Citizenship? What About U.S. Tax Compliance?

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Prologue

This is the Part 2 of two posts motivated by the story of a Canada/U.S. dual citizen living in Canada who sought help from the University of Washington “Low Income Tax Clinic” – “LITC”. The first post is here.

Part 1: The University Of Washington “Low Income Tax Clinic” And A Canadian Student

This was also discussed by “Tax Fairness Abroad“.

It’s worth reading the entire blog post from Tax Fairness Abroad titled “A summer job and bad advice land an American in Canada in international tax court“.

The post references a report from the University of Washington “Low Income Tax Clinic”. (Note that the “LITC” also provided assistance to Gabriel Morrow who is another American abroad who received advice from the clinic.)

The complete text of the “LITC” report AKA the drama of taxing Americans abroad

“Taxpayer is a dual US-Canada citizen; TP is a long-term resident of Canada and is employed there. TP’s father passed away in 2020 and client received an inherited retirement account in 2021 (approximately $110K). TP was misinformed by the retirement account custodian that the “taxes have been paid” (when,in reality, this was just the tax withholding from the transaction). TP believed that taxes had been reported and paid; the retirement account was not included in the 2021 tax return. TP also did not include 1099-income earned while doing a summer job in Canada for a U.S. domiciled company. TP received a notice of deficiency, and a tax court petition was filed. Unfortunately, the TP has a deficiency because the retirement account; nonetheless, IRS appeals refused to apply the LITC’s treaty claim in regard to the 1099 income and is invoking the US-Canada Treaty savings clause. The LITC will be requesting a competent authority determination on this issue (Revenue Procedure 2015-40, Section 6.04(3) and related IRM provisions). However, the TP will still have a liability because of the retirement account taxable income—this liability process will continue through appeals while the competent authority determination is submitted and a determination is received from the IRS.”

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What facts can we glean from the report?

It appears that this dual Canada/U.S. citizen who resides in Canada filed a U.S. tax return for the 2021 year. That return omitted both distributions from the U.S. IRA AND income from the summer emmployment performed in Canada. It is likely that the IRS was able to match his Social Security Number with the information returns that had been filed for both the IRA distributions and the wages from the U.S. based employer. Put another way: the existence of the information returns combined with the Social Security Number on the U.S. tax return, alerted the IRS to the two specific income sources that should have been included on the tax return.

Question: What does this imply for Americans abroad who stand to inherit retirement plans or other income generating assets (for example a stock portfolio) from a U.S. relative? This is a recurring question. What about long term Americans abroad who may not be current on their U.S. tax returns? Should those people renounce U.S. citizenship prior to inheriting these assets? Should they remain American? If so, how do they manage U.S. tax compliance? Inheriting assets of a kind that would generate income and require the reporting of that U.S. source income implicates the question of U.S. tax compliance.

Two background points that are worthy of note:

1. The United States does NOT impose tax on the value of an inheritance. Rather it taxes the income generated from that inheritance. As per 102 of the Internal Revenue Code:

Gross income does not include the value of property acquired by gift, bequest, devise, or inheritance.

(Note that your country of residence may impose an inheritance tax.)

2. In most states, depending on the circumstances, it is possible to “disclaim” an inheritance. As always, the Internal Revenue Code – section 2518 – imposes specific procedural requirements. If you want to completely avoid these issues (perhaps because the amount of the inheritance is very small) you should be aware that a disclaimer is possible. That said, to disclaim an inheritance – although there may be good reasons to disclaim an inheritiance – is an erosion of your wealth.

The inheritance from America – The Good, The Bad And The Ugly

Inheritances (and gifts) can be income producing or non-income producing. It seems likely that inheritances that are non-income producing will not produce income tax (and therefore tax filing) consequences. For example, if a U.S. citizen were to receive personal property that would not be used to generate income there would be no presumptive income issues. The problem is more likely to arise where the American abroad receives assets that are (1) income producing and (2) reported as income producing. An obvious example of an income producing inheritance would be an IRA.

This purpose of this post is to discuss the quesion of “income producing inheritances” from various perspectives. The “LITC” case of the Canadian student reinforces why “information returns matter. The effect of the information return (reporting the fact of the inheritance of the IRA and the fact of the employment) is that the IRS would have a reason to expect income to be reported on a U.S. tax return.

If you are a U.S. citizen living outside the United States you should consider the implications of receiving any inheritance, but most particulary an inheritance from the United States. I suggest that the implications should be considered from the following perspectives in Category A, Category B and Category C.

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Part 1: The University Of Washington “Low Income Tax Clinic” And A Canadian Student

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Prologue

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.

Part 2: Inheriting From America AKA Anxiety On Steroids – Retain Or Renounce U.S. Citizenship? What About U.S. Tax Compliance?

In any case, we begin with Part 1 …
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Bonjour Part 8 – Interpreting The Tax Treaty To Create Double Taxation Instead Of Eliminating Double Taxation

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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”!

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Bonjour Part 7 – Bruyea and Chrisensen Cases Argued March 3, 2026

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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.
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Bonjour Part 6 – Rosenbloom and Shaheen Brief In Support Of Bruyea

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This is the sixth post in the “Bonjour” tax treaty series. In the fifth post I discussed that the U.S. Treasury is appealing both the Bruyea and Christensen cases. The dispute in these cases was over the issue of whether foreign taxes paid on investment income could be used as a tax credit against the Net Investment Income Tax. The background has been discussed in previous posts (See the appendix to this post). The precise is whether:

The Canada/U.S. tax treaty and the France/U.S. tax treaty (and similar treaties) allow for a foreign tax credit that is separate and independent of the foreign tax credits allowed under the Internal Revenue Code.

A foreign tax credit against the 3.8% NIIT is NOT permitted under the U.S. Internal Revenue Code. This means that, most Americans abroad who are subject to the NIIT will pay tax separately to BOTH the United States and their country of residence on the same investment income!

To put it another way: for Americans abroad, the Internal Revenue Code guarantees double taxation.

Can the tax treaties be interpreted to allow a foreign tax credit against the NIIT?

What follows is the Amicus brief authored by Professors Rosenbloom and Shaheen.

Bruyea – Amicus Brief

For better understanding here is a podcast which explains the Rosenbloom Shaheen amicus brief.

In addition, I wrote a more expansive version of this post for the Isaac Brock Society.

Does The Canada U.S. Tax Treaty Allow A Foreign Tax Credit Against The Net Investment Income Tax?

John Richardson – Follow me on X.com @ExpatriationLaw

Appendix – The First five 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.

Bonjour: Different US Tax Treaties Provide Different US Taxation For Different Groups Of Americans Abroad

Bonjour: Different US Tax Treaties Provide Different US Taxation For Different Groups Of Americans Abroad

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.

Bonjour Part 2 – US Citizens Living In France Can Use French Tax As A Credit To Offset The Obamacare Surtax!

Bonjour Part 2 – US Citizens Living In France Can Use French Tax As A Credit To Offset The Obamacare Surtax!

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!!

https://citizenshipsolutions.ca/2025/01/20/bonjour-part-3-from-christensen-to-bruyea-boldly-go-where-no-interpretation-of-foreign-tax-credits-for-the-niit-has-gone-before/

Bonjour Part 3 – From Christensen To Bruyea: Boldly Go Where No Interpretation Of Foreign Tax Credits For The NIIT Has Gone Before!

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.

https://citizenshipsolutions.ca/2025/03/11/bonjour-part-4-what-the-bruyea-case-and-the-%c2%a7-2801-regs-suggest-about-the-last-in-time-rule-and-tax-treaty-overrides/

Bonjour Part 4 – What The Bruyea Case And The § 2801 Regs Suggest About The “Last In Time” Rule And Tax Treaty Overrides

The fifth post reveals Treasury’s decision to appeal both the Bruyea and Christensen cases.

https://citizenshipsolutions.ca/2025/09/03/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/

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?

The sixth post introduces the Rosenbloom and Shaheen amicus brief in support of Bruyea and Christensen

https://citizenshipsolutions.ca/2026/01/09/bonjour-part-6-rosenbloom-and-shaheen-brief-in-support-of-bruyea/

Bonjour Part 6 – Rosenbloom and Shaheen Brief In Support Of Bruyea

A Simple And Unilateral Fix For Citizenship Taxation – Richardson, Snyder and Alpert – Join Us On October 8, 2025

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A Simple Tax Treaty Fix To Citizenship Taxation

The problem of citizenship taxation for Americans abroad is acute. Many people agree that citizenship taxation must end. Citizenship taxation is a combination of the U.S. Internal Revenue Code (imposing punitive taxation on non-U.S. assets and income streams), Regulations (the Internal Revenue Code gives Treasury broad regulatory authority) and tax treaties (the treaty “saving clause” denies U.S. citizens most of the benefits of the tax treaties. Unsurprisingly, various remedies have been proposed.

Legislative Fix (a change to the Internal Revenue Code):

Examples of proposals that are legislative fixes include the 2018 Holding bill and the 2024 LaHood bill. Significantly, neither bill ends citizenship as a sufficient condition for U.S. tax residency.

Regulatory Fix (mitigating the problems of citizenship taxation by regulation):

In 2020, Dr. Laura Snyder, Dr. Karen Alpert and John Richardson published “A Simple Regulatory Fix For Citizenship Taxation”. In this paper we demonstrated how Treasury through its regulatory authority could change the impact of the U.S. (domestic) Internal Revenue Code on on Americans abroad.

A Tax Treaty Fix To Citizenship Taxation:

In 2025, Dr. Laura Snyder, Dr. Karen Alpert and John Richardson published “A Simple and Unilateral Treaty Fix for Citizenship Taxation”. Both the paper and discussion is available at the SEAT site. Notably, this approach changes neither U.S. domestic law nor regulations. Rather, it simply argues that U.S. Treasury could refrain from exercising its rights under the “saving clause” found in U.S. tax treaties. The “saving clause” gives the United States the right (but not the obligation) to impose U.S. taxation on U.S. citizens abroad as though the treaty did not exist. Notably, this prevents U.S. citizens from using “tax treaty residency tie break” provisions to elect to be treated as tax residents of ONLY their country of residence. Incredibly, Green Card holders ARE permitted to (effectively) “opt in” to residence-based taxation.

The SEAT argument is that:

The United States could end the double taxation of Americans abroad simply by electing to NOT exercise its rights under the “saving clause”. This would allow President Trump to fulfill his pledge to end the “double taxation” of Americans abroad by NOT invoking the “saving clause”.

The argument is explained here:

A Simple and Unilateral Treaty Fix for Citizenship Taxation

Join us for discussion on October 8, 2025 – Two opportunities

1. Wednesday October 8, 2025 Youtube – 7:30 am Eastern (Toronto and New York) time

2. Wednesday October 8, 2025 – X. Spaces – 10:00 am Eastern (Toronto and New York) time

Slides for both presentations …

This is important! Hope you can make one or both of the discussions.

John Richardson – Follow me on X.com/@ExpatriationLaw

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?

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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.

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The New “Seniors” $6000 Deduction Is NOT Available to “Married” U.S. Citizens Living In Canada Unless They File Jointly

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Summary:

In countries where – as per the tax treaty – the U.S. does not have taxing rights to U.S. Social Security and “Social Security Like” equivalents, the standard deduction coupled with the new $6000 bonus $12000 if married and filing jointly) may exclude large numbers of Americans abroad from actually having to pay U.S. tax. My initial reaction is that it will NOT have any impact on the requirement to file a U.S. tax return.

Of particular relevance to Americans abroad (who if married are more likely to use the “married filing separately” category) is that:

If one is married, one MUST file jointly in order to be eligible for this benefit. 71013 of the “Big Beautiful Bill” includes:

v) Married individuals.–If the taxpayer is a married individual (within the meaning of section 7703), this subparagraph shall apply only if the taxpayer and the taxpayer’s spouse file a joint return for the taxable year.

Although it is obvious why this provision is included, it is a negative for Americans abroad who are more likely to use the “married filing separately” category. To put it simply:

If you are an American abroad who is married you benefit from this provision ONLY if you file jointly with your spouse.

Part I – Possible payment of U.s. tax

1. The $6000 is per person ($12000 for a married couple filing jointly) and is an additional deduction from income. (Not available for those who file “married filing separately”!)

2. In Canada: U.S. Social Security, Canada Pension Plan, OAS and certain other pensions are taxed ONLY by Canada. See the U.S./Canada tax treaty – Article XVIII

3. This means that a U.S. citizen living in Canada who is a “Senior” effectively has (explained by the AARP as follows):

Does it replace the existing extra standard deduction for people 65 and older?

No. The new deduction is in addition to the existing extra standard deduction for people age 65-plus. For the 2025 tax year, that’s $2,000 for single taxpayers and $1,600 per qualifying spouse for married couples filing jointly.

As a result, the new $6,000 deduction is stacked on top of both the regular standard deduction — $15,750 for single filers or $31,500 for married couples filing jointly in 2025 — and the 65-plus addition.For instance, a 65-year-old single taxpayer who qualifies for the full $6,000 deduction would be able to deduct a total of $23,750 from these three tax breaks on their 2025 tax return. A qualifying 65-year-old couple could deduct up to $46,700.

What if I’m itemizing?

You can claim the new deduction regardless of whether you itemize your taxes or claim the standard deduction.

If you itemize, you stack the new deduction on top of your itemized deductions. Let’s say you’re single, 65 years old, eligible for the full $6,000 deduction and have $40,000 of itemized deductions. If you have no other deductions, you can lower your taxable income by a total of $46,000.

Bottom line: For $23,750 USD is the deduction from income. This is approximately $32,585.13 CDN (as of today’s exchange rate). Again, this means that a U.S. citizen living in Canada would have to have $32,585.12 (at today’s exchange rates) to have taxable income in the United States.

Benefit: This could really simplify the tax filing because:

– Neither form 2555 nor the FTC 1116 forms might not need to be filed

– meaning the return could conceivably be as simple as: 1040, Schedule B, Form 8333 (possibly) Form 8938, and FBAR. (Depending on your activities other forms might be still be required: Form 8621, Form 5471, etc.

You might be able to file yourself!!


Part II – Who is required to file a U.S. tax return?

According to HR Block (July of 2025):

Do I have to file taxes? Minimum income to file taxes

When it comes to filing, the following taxable income thresholds determine whether you should file a federal return depending on your filing status.

Single filing status:
$14,600 if under age 65
$16,550 if age 65 or older
Married Filing Jointly:
$29,200 if both spouses are under age 65
$30,750 if one spouse is under age 65 and one is age 65 or older
$32,300 if both spouses are age 65 or older
Married Filing Separately — $5 regardless of age
Head of Household:
$21,900 if under age 65
$23,850 if age 65 or older
Qualifying Surviving Spouse:
$29,200 if under age 65
$30,750 if age 65 or older

Some odds and ends:

1. if you are “self-employed” and have more than $400 of income then you are required to file.

2. Note that if your are “married filing separately” you are required to file if your income hits the $5 threshold.

https://www.hrblock.com/tax-center/income/other-income/how-much-do-you-have-to-make-to-file-taxes/

John Richardson – Follow me on X.com/expatriationlaw

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Appendices Generally show that the $6000 is a deduction that is:

1. Separate from the standard deduction; and

2. Is applied in addition to either the standard deduction or itemized deduction

Appendix A – Internal Revenue Code 63 – The Role Of The Standard Deduction

26 U.S. Code § 63 – Taxable income defined

(a) In general

Except as provided in subsection (b), for purposes of this subtitle, the term “taxable income” means gross income minus the deductions allowed by this chapter (other than the standard deduction).

(b) Individuals who do not itemize their deductions In the case of an individual who does not elect to itemize his deductions for the taxable year, for purposes of this subtitle, the term “taxable income” means adjusted gross income, minus—

(1) the standard deduction,

(2) the deduction for personal exemptions provided in section 151,

(3) any deduction provided in section 199A, and
(4) the deduction provided in section 170(p).
(c) Standard deduction For purposes of this subtitle—
(1) In general Except as otherwise provided in this subsection, the term “standard deduction” means the sum of—
(A) the basic standard deduction, and
(B) the additional standard deduction.
(2) Basic standard deduction For purposes of paragraph (1), the basic standard deduction is—
(A) 200 percent of the dollar amount in effect under subparagraph (C) for the taxable year in the case of—
(i) a joint return, or
(ii) a surviving spouse (as defined in section 2(a)),
(B) $4,400 in the case of a head of household (as defined in section 2(b)), or
(C) $3,000 in any other case.

https://www.law.cornell.edu/uscode/text/26/63

JR Commentary: The “standard deduction” is different from this new deduction for Seniors

Appendix B – Internal Revenue Code 151 – Additional Personal Deductions

26 U.S. Code § 151 – Allowance of deductions for personal exemptions

(a) Allowance of deductions

In the case of an individual, the exemptions provided by this section shall be allowed as deductions in computing taxable income.
(b) Taxpayer and spouse

An exemption of the exemption amount for the taxpayer; and an additional exemption of the exemption amount for the spouse of the taxpayer if a joint return is not made by the taxpayer and his spouse, and if the spouse, for the calendar year in which the taxable year of the taxpayer begins, has no gross income and is not the dependent of another taxpayer.
(c) Additional exemption for dependents

An exemption of the exemption amount for each individual who is a dependent (as defined in section 152) of the taxpayer for the taxable year.
(d) Exemption amount For purposes of this section—
(1) In general

Except as otherwise provided in this subsection, the term “exemption amount” means $2,000.
(2) Exemption amount disallowed in case of certain dependents

In the case of an individual with respect to whom a deduction under this section is allowable to another taxpayer for a taxable year beginning in the calendar year in which the individual’s taxable year begins, the exemption amount applicable to such individual for such individual’s taxable year shall be zero.
(3) Phaseout
(A) In general

In the case of any taxpayer whose adjusted gross income for the taxable year exceeds the applicable amount in effect under section 68(b), the exemption amount shall be reduced by the applicable percentage.
(B) Applicable percentage

For purposes of subparagraph (A), the term “applicable percentage” means 2 percentage points for each $2,500 (or fraction thereof) by which the taxpayer’s adjusted gross income for the taxable year exceeds the applicable amount in effect under section 68(b). In the case of a married individual filing a separate return, the preceding sentence shall be applied by substituting “$1,250” for “$2,500”. In no event shall the applicable percentage exceed 100 percent.
(C) Coordination with other provisions

The provisions of this paragraph shall not apply for purposes of determining whether a deduction under this section with respect to any individual is allowable to another taxpayer for any taxable year.
(4) Inflation adjustment Except as provided in paragraph (5), in the case of any taxable year beginning in a calendar year after 1989, the dollar amount contained in paragraph (1) shall be increased by an amount equal to—
(A) such dollar amount, multiplied by
(B) the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, by substituting “calendar year 1988” for “calendar year 2016” in subparagraph (A)(ii) thereof.

(5) Special rules for taxable years 2018 through 2025In the case of a taxable year beginning after December 31, 2017, and before January 1, 2026—
(A) Exemption amount

The term “exemption amount” means zero.
(B) References

For purposes of any other provision of this title, the reduction of the exemption amount to zero under subparagraph (A) shall not be taken into account in determining whether a deduction is allowed or allowable, or whether a taxpayer is entitled to a deduction, under this section.

(e) Identifying information required

No exemption shall be allowed under this section with respect to any individual unless the TIN of such individual is included on the return claiming the exemption.

https://www.law.cornell.edu/uscode/text/26/151

Appendix C – Relevant Text Of The OBBB

SEC. 70103. TERMINATION OF DEDUCTION FOR PERSONAL EXEMPTIONS OTHER THAN
TEMPORARY SENIOR DEDUCTION.
(a) In General.–Section 151(d)(5) is amended–
(1) by striking “2018 through 2025” in the heading and
inserting “beginning after 2017”,
(2) by striking “, and before January 1, 2026”, and
(3) by adding at the end the following new subparagraph:

(C) Deduction for seniors.–
“(i) In general.–In the case of a taxable year
beginning before January 1, 2029, there shall be allowed a
deduction in an amount equal to $6,000 for each qualified
individual with respect to the taxpayer.
“(ii) Qualified individual.–For purposes of clause
(i), the term `qualified individual’ means–

“(I) the taxpayer, if the taxpayer has attained
age 65 before the close of the taxable year, and
“(II) in the case of a joint return, the
taxpayer’s spouse, if such spouse has attained age 65
before the close of the taxable year.

“(iii) Limitation based on modified adjusted gross
income.–

“(I) In general.–In the case of any taxpayer for
any taxable year, the $6,000 amount in clause (i) shall
be reduced (but not below zero) by 6 percent of so much
of the taxpayer’s modified adjusted gross income as
exceeds $75,000 ($150,000 in the case of a joint
return).
“(II) Modified adjusted gross income.–For
purposes of this clause, the term `modified adjusted
gross income’ means the adjusted gross income of the
taxpayer for the taxable year increased by any amount
excluded from gross income under section 911, 931, or
933.

“(iv) Social security number required.–

“(I) In general.–Clause (i) shall not apply with
respect to a qualified individual unless the taxpayer
includes such qualified individual’s social security
number on the return of tax for the taxable year.
“(II) Social security number.–For purposes of
subclause (I), the term `social security number’ has
the meaning given such term in section 24(h)(7).

“(v) Married individuals.–If the taxpayer is a
married individual (within the meaning of section 7703),
this subparagraph shall apply only if the taxpayer and the
taxpayer’s spouse file a joint return for the taxable
year.”.

https://www.congress.gov/bill/119th-congress/house-bill/1/text

PLAW-119publ21

Take YOUR Money And Run: Understanding The Proposed § 899. ENFORCEMENT OF REMEDIES AGAINST UNFAIR FOREIGN TAXES

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Update – June 27, 2025 – The 899 Penalty Tax has been removed from the “Big Beautiful Bill”:

Update – June 22, 2025:

The Senate version of the Big Beautiful has been released. The full text is here:

https://www.finance.senate.gov/imo/media/doc/finance_committee_legislative_text_title_vii.pdf

In general, the Senate version retains the substance and principles of the House version.

The Senate version begins on page 138.

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Attention (At Least) Residents Of Countries With DSTs (“Digital Services Tax):

The Trump administration’s “Big Beautiful Bill” includes a provision to impose punitive taxes on nonresident aliens, with U.S. source income, who are residents of countries that have “Digital Services Taxes” (and other taxes applying to U.S. persons that they deem to be unfair).

This is “pretty rich” coming from the one country in the world that through it’s “citizenship tax” regime imposes taxation on the non-U.S. source income of received by people who don’t live in the United States!

At present the following countries (including Canada) impose DSTs. Note that the imposition of certain kinds of taxes (in addition to DSTs) may subject individual nonresident aliens to punitive taxation.

Generally, the law would impose, in addition to the existing U.S. tax, an additional tax, ranging from an additional 5% to an additional 20%.

Bottom Line:

Nonresident aliens who hold U.S. securities, U.S. real estate or have income that is effectively connected to the United States (“ECI”) may want to consider liquidating these investments.

My initial reaction and analysis suggests that Canadian residents will be particularly impacted by this measure. I will update this post as necessary and appropriate. Nevertheless:

“To Be FORMWarned Is To Be FORMArmed!”

This will not effect immediately. You have time to ponder this and understand it. This will not take effect immediately.

To understand the reasons, tax and general methodology for this conclusion, read on …

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Bonjour Part 4 – What The Bruyea Case And The § 2801 Regs Suggest About The “Last In Time” Rule And Tax Treaty Overrides

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This is the fourth in a series of posts about “treaty based” foreign tax credits. The purpose of this post is NOT to discuss how the foreign tax credit rules work. The purpose is to discuss when a later statute can override an earlier tax treaty. It just so happens that this principle will be discussed in the context of foreign tax credit issues.

(The three previous posts discussed the foreign tax credit rules in the context of the NIIT (“Net Investment Income Tax“). For a description of the first three posts, see the Appendix to this post.)

The governing principle for when a statute can override a tax treaty seems to be that:

1. Generally statutes and treaties are (if possible) to be interpreted to give effect to both.

2. A later statute will override an earlier treaty only when the the statute reflects a clear legislative intent to do override the treaty.

When Can A Statute Override A Tax Treaty?

The principle will be explored in the context of:

A. The Bruyea Case

B. The Section 2801 Regulations Governing Covered Gifts

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