2026-09-01
Yesterday the Court of Appeals for the Federal Circuit reversed both the Bruyea and Christensen decisions. The Court of Federal Claims had previously held: (i) that, under the Canada-US Income Tax Treaty, Bruyea could claim a foreign tax credit against the net investment income tax (NIIT) for Canadian income taxes paid and (ii) that, under the France-US Income Tax Treaty, Christensen could claim a foreign tax credit against the NIIT for French income taxes paid. The Court of Appeals for the Federal Circuit held that neither treaty allows a foreign tax credit to offset the NIIT.
The court noted that the interpretation advanced by Bruyea would yield “anomalous results.”
[A] U.S. citizen residing in Toronto could claim a NIIT credit against her U.S. tax liability for income taxes paid to Canada on income generated in Canada, while a similarly-situated U.S. citizen living in nearby Buffalo, New York may not. This is because the U.S. citizen residing in Toronto is subject to the paragraph 4(b) Credit Clause, which Bruyea contends is not limited by the U.S. Law Limitation and the Code, while the U.S. citizen in New York is subject to the paragraph 1 Credit Clause, which (as we have held today) is subject to the Code via the U.S. Law Limitation.
The Christensen opinion mentioned a similar anomaly for the taxpayer’s interpretation under the France-US Income Tax Treaty.