The Court of Federal Claims recently determined in Christensen v. United States that the Net Investment Income Tax (NIIT) is a creditable tax for Foreign Tax Credit (FTC) purposes under the US/France income tax treaty. The court’s opinion in Christensen is in contrast to the Tax Court’s 2021 opinion in Toulouse v. Commissioner, which determined that the NIIT isn’t a creditable Tax for FTC purposes under the US/France income tax treaty (nor under the US/Italy income tax treaty, as well).
The two cases, however, are not in direct conflict. The court in Christensen relied on Article 24(2)(b) of the US/France treaty to allow the credit. The Tax Court in Toulouse didn’t discuss that article, relying instead on Article 24(2)(a) of the treaty, which contains language making the FTC available “[i]n accordance with the provisions and subject to the limitations of the law of the United States.” Under the Internal Revenue Code (and, thus, under US law), the FTC is not available against the NIIT. As the court in Christensen determined, Article 24(2)(b) doesn’t contain the “provisions” and “limitations” language and thus provides a pathway for allowing the credit. Nevertheless, expect the government to appeal Christensen (to the Federal Circuit).
In the meantime, US persons who reside in France should consider filing amended returns claiming refunds of NIIT using FTCs. US persons residing in other treaty countries should check with their CBIZ advisors to determine whether such treaties contain provisions similar to Article 24(2)(b) of the US/France treaty.
The time limit for filing such claims is currently open for all years the NIIT has been imposed. (Claims filed by individuals for 2013 won’t be timely if filed after April 15, 2024.)
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