On August 31, 2026, the U.S. Court of Appeals for the Federal Circuit ruled that the U.S.-Canada and U.S.-France income tax treaties do not create a foreign tax credit against the net investment income tax (NIIT) imposed under Internal Revenue Code Section 1411, reversing two taxpayer-favorable decisions from the U.S. Court of Federal Claims.
The Cases Before the Federal Circuit
The appellate panel decided the cases together: Estate of Paul Bruyea v. United States and Christensen v. United States. Both taxpayers had persuaded the Court of Federal Claims that treaty language guaranteeing relief from double taxation created a credit independent of the Internal Revenue Code, one broad enough to reach the 3.8% NIIT that the Code itself does not allow foreign taxes to offset. The Federal Circuit disagreed and reinstated the government’s position in both cases.
Paul Bruyea, a U.S. citizen residing in Canada, sold Canadian real estate and paid Canadian tax on the gain. He sought to offset roughly $260,000 of resulting NIIT liability with a treaty-based credit under Article XXIV of the U.S.-Canada tax treaty.
Matthew and Katherine Christensen sold stock in a French company and paid French capital gains tax at a 30% rate and attempted to assert a treaty-based claim to offset some of the French taxes paid against their NIIT liability.
Why the Court Rejected the Treaty-Based Credit
Both treaties condition the credit on compliance “with the provisions of and subject to the limitations of the law of the United States.” The Federal Circuit read that clause as a saving provision: the credit available under a treaty cannot exceed what the Code itself allows, and the Code does not treat the NIIT as a tax that a foreign tax credit can offset.
What the Ruling Means for Taxpayers
The court framed the outcome as a matter of parity between U.S. citizens living in the United States and those residing abroad, holding both groups to the same limitation on foreign tax credits against the NIIT. For taxpayers who filed refund claims relying on the earlier Court of Federal Claims decisions, the ruling reopens the question of whether those claims remain viable and whether either taxpayer will seek further review from the U.S. Supreme Court. Clients with cross-border investment income affected by NIIT exposure should reach out to their WG advisor to evaluate the impact on any pending or planned refund claims.
