Tag Archives: Net Investment Income Tax

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

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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Does Article 22 the U.S. Australia Tax Treaty require the United States to allow U.S. citizens a foreign tax credit against the 3.8% Obamacare Surtax?

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Update January 2024 …

I had completely forgotten about this post. But, there have been a couple of recent comments (see below) asking about how the Christensen case might align with the U.S. Australia tax treaty. What follows is link to the post I wrote on Christensen.

Bottom line: I don’t think the France and Australian tax treaties are similar in the relevant aspects. I may write a post explaining this in more detail. But, for the moment is here is my post about Christensen. If you read carefully you will see why I think the situation is different.

http://citizenshipsolutions.ca/2023/10/24/bonjour-part-2-us-citizens-living-in-france-can-use-french-tax-as-a-credit-to-offset-the-obamacare-surtax/

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Introduction

The above tweet references a post which I wrote on August 7, 2016 which discussed the (August 5, 2016) decision of the United States Court of Appeals – District of Columbia Circuits in the Esher case. In this case, Justice Millet ruled that:

That extreme reading of the Totalization Agreement rests on nothing more than the Commissioner’s own say-so. It lacks any grounding in the Agreement’s text or in any principle governing the interpretation of international agreements. The tax court’s corresponding disregard of the Totalization Agreement’s textual direction concerning the role of French law in resolving undefined terms and in determining the content of the laws enumerated in Article 2(1)(b) was error and requires reversal.

The complete decision is here:

FRENCH-TAXES-US-COURT-REVERSAL-5-AUG-2016-1

The general point is this:

When interpreting international tax treaties the United States is not permitted to consider ONLY U.S. law when interpreting the treaty. The United States (and the treaty partner country) is required to consider each country’s expectations of what the treaty meant and how it might be interpreted with respect to laws that did not exist at the time the treaty was signed.

I concluded that post with my thought that:

The court ruled that international tax treaties must be interpreted in the context of what were the expectations of the country when the treaty was signed. This may open up the possibility of reconsidering how various U.S. tax laws may affect the residents and citizens of other nations.
For example: To what extent was or is it the expectation of a country that it can be interpreted to allow the U.S. to impose punitive taxation on those who are primarily citizens of and factually residents of other nations?

Time will tell.

The 3.8% Obamacare surtax and Americans abroad …

As the articles in the above tweets demonstrate, the 3.8% Obamacare surtax (assuming it’s applicability to Americans abroad) is considered to be:

– a form of pure double taxation when applied to Americans abroad

– more likely to be paid by Americans abroad than by Homeland Americans

– a way to force Americans abroad to pay for the medical care of Homeland Americans

– a costly compliance nightmare

– an example of “Boldly Go, where no regime of citizenship taxation has ever gone before”

#YouCantMakeThisUp!

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