Shifting Tides in Tax Law | The Christensen v. United States | Decision and its Impact on Foreign Tax Credits and U.S. Expatriates

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Stephanie Uribe

Stephanie Uribe

International Tax Consultant


Ms. Uribe is an international tax consultant with more than a decade of professional experience in Mexican taxation and international tax advisory matters.  She maintains a particular focus on acquisitions (including due diligence), transfers, mergers, spin-offs, and various corporate reorganizations. She is experienced with cross-border transactions, including advising clients with respect to federal and state tax obligations in Mexico; the application of international tax treaties and the avoidance of double taxation, including permanent establishment status; complex international tax strategies; expatriate compensation plans; and tax audits.

Stephanie is certified to practice as an Enrolled Agent (“EA”) before the IRS in the U.S. As a certified EA, she brings a profound understanding of U.S. tax law, and with her background experience in other tax jurisdictions, she offers a fresh and innovative perspective on tax representation. Stephanie’s capabilities extend to efficiently handling audits, appeals, and tax collection disputes, as well as providing advice in tax planning and preparation in the U.S.

Stephanie received her law degree from the Facultad Libre de Derecho de Monterrey, in Monterrey, Mexico, where she graduated with honors, and holds a Master’s in Law in International Taxation from Vienna University of Economics and Business (WU), in Vienna, Austria. For her Master Thesis she published the Article “Taxation of Capital Gains: The Substantial Participation Clause in Article 13(5)” in Special Features of the UN Model Convention.

She is member of the International Fiscal Association and has participated as a speaker in several Mexican and international tax conferences. She holds a certification in Management (Harvard ManageMentor Program) from Harvard Business School.


International tax law is frequently a complex network of detailed regulations and international tax agreements. The United States Court of Federal Claims ruling in Christensen v. United States, No. 20-935T, represents a critical turning point within this complex domain.

In this significant case, the Court examined the complexities of international tax law. Matthew and Katherine Kaess Christensen (“the Christensens”), sought to recover funds from the Internal Revenue Service (IRS) for a “net investment income tax” they had paid in the tax year 2015. Their case was heavily reliant on the details of the tax treaty between the United States and France, highlighting the conflict and interaction between national tax duties and international treaty agreements.

The decision in Christensen v. United States, issued on September 13, 2023, underscored the difficulties U.S. citizens encounter when dealing with international tax issues. The case of the Christensens, who contested the imposition of U.S. tax law on their overseas earnings, could set a precedent for similar legal actions in the context of our progressively interconnected global economy.

This article aims to clarify the complex legal arguments presented, examine the Court’s detailed rationale, and explain the wider significance of this important ruling.


The dispute in Christensen v. United States centers around the eligibility for foreign tax credits. The Christensens, U.S. citizens residing in France during the tax year 2015, contested the IRS denial of their claim for a credit. Specifically, they sought to offset French taxes paid against their U.S. net investment income tax as defined in Internal Revenue Code (“I.R.C.”) § 1411. The dispute in Christensen v. United States hinges on how the 1994 Treaty, officially known as the “Convention between the Government of the French Republic and the Government of the United States of America for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital,” is to be construed.

The cornerstone of the Christensens’ case rests on their reading of the treaty, which they contend grants them the right to deduct the taxes they paid in France from their U.S. income tax liabilities. Once the legal process was set in motion with their complaint, both parties embarked on a detailed phase of discovery, setting the stage for the legal arguments to be presented in Court.

This case highlights a significant concern in today’s interconnected financial world: to what extent can U.S. citizens leverage international treaties to mitigate their domestic tax liabilities?

The Christensens maintained that the treaty’s explicit clauses unequivocally granted them the tax credit they sought. The U.S. government, however, contended that granting such a credit would be at odds with the existing statutory framework that governs U.S. tax law.

Key points of law

Whether Christensens (U.S. citizens) could utilize foreign tax credits against their U.S. net investment income tax, as per the United States-France tax treaty of 1994 (“the Treaty”)?

The Court found that while paragraph 2(a) of Article 24 of the 1994 Treaty, as amended, does not allow for a foreign tax credit against the net investment income tax for the French income taxes paid by the Christensens, paragraph 2(b) of the same article does indeed permit such a credit against the net investment income tax imposed by I.R.C. § 1411. This distinction is critical as it clarifies that the treaty’s provisions do accommodate the use of foreign tax credits in a specific context, potentially expanding the application of such credits for U.S. taxpayers residing abroad, particularly in France.

This means that the Christensens, and by extension, other U.S. citizens in similar positions, can, in fact, utilize foreign tax credits against their U.S. net investment income tax, albeit within the constraints and interpretations provided by the Court in this case.


Legal framework

In the context of strengthening international tax relations, the 1994 Tax Treaty between the United States and France emerged as a significant framework. Its primary aim is to prevent double taxation and combat tax evasion for individuals and corporations under the jurisdiction of both nations.

The agreement outlines comprehensive taxation rules, emphasizing the use of tax credits and collaborative dispute resolution to ensure equitable tax treatment. Notably, it incorporates a savings clause that permits the U.S. to tax its citizens in line with domestic laws, safeguarding against double taxation in specific instances.

Endorsed by the U.S. Senate in 1995, this treaty has been recognized for enhancing economic partnership and reducing trade impediments, a reflection of the Foreign Relations Committee’s support. The Treasury Department’s detailed explanation reaffirms the treaty’s effectiveness in creating a balanced tax structure that honors the fiscal sovereignty of the United States and France.

The 2004 Protocol amending the 1994 Treaty took effect on December 21, 2006. This amendment refined the provisions for double taxation relief, aligning with changes to the pension and public remuneration articles. Specifically, it eliminated certain obsolete credits for U.S. citizens residing in France and restructured the numbering of existing paragraphs to maintain consistency. The U.S. Treasury Department’s Technical Explanation provided clarity on these amendments, ensuring that the intentions and applications of the changes were clear.

The Senate Committee on Foreign Relations, in its 2006 report, expressed strong support for the Protocol, affirming its role in continuing to prevent double taxation and reinforcing economic ties between the U.S. and France. The Committee’s favorable report underscored the importance of the Protocol in sustaining the objectives of the original 1994 Treaty: facilitating economic cooperation and removing fiscal obstacles to trade and investment.

The 2009 Protocol, effective December 23, 2009, signifies a continued commitment by the United States and France to update their joint taxation framework. This Protocol amends the 1994 Treaty for the Avoidance of Double Taxation and includes important revisions for consistency and clarity in tax regulations. It renumbers paragraphs in Article 24 for uniformity across language versions and revises clauses to better reflect contemporary financial scenarios concerning dividends, interest, capital gains, director’s fees, and income of artists and sportsmen.

A significant development introduced by the 2009 Protocol is the mandatory binding arbitration procedure outlined in Article 26, offering a structured resolution path for cases where mutual agreement cannot be reached through regular competent authority procedures. The new procedure requires taxpayer consent and confidentiality agreements, ensuring that information disclosed during arbitration is not made public.

The United States Senate Committee on Foreign Relations, in its report, supported the 2009 Protocol, recognizing it as a vehicle for modernizing the tax treaty to align with domestic laws and to support trade and investment between the two nations. The Protocol also seeks to eliminate withholding taxes on certain cross-border payments and to strengthen the exchange of tax-related information. The Committee’s endorsement was conditional on the Treasury Department providing detailed rules for the arbitration process, underlining the importance of transparency and procedure in international tax arbitration.

Top of Form

  1. R.C. provisions

The I.R.C. provides mechanisms for U.S. citizens residing abroad to mitigate double taxation on foreign income. These mechanisms include (1) the foreign earned income exclusion under I.R.C. § 911 and (2) the foreign tax credit under I.R.C. §§ 901-909.

Specifically, I.R.C. § 911 allows qualifying individuals to exclude certain foreign earned income from U.S. taxable income, defining “foreign earned income2 as earnings from services performed by an individual within a foreign country. See I.R.C. § 911(a), (b)(1)(A). Conversely, I.R.C. § 901 permits a credit for income, war profits, and excess profits taxes paid to foreign countries against U.S. income tax. See I.R.C. § 901(a), (b)(1).

Further delineating the foreign tax credit, I.R.C. §§ 27, 901, and 904 provides the rules for crediting foreign taxes against U.S. tax liability. I.R.C. § 27 sanctions a credit against U.S. taxes for foreign taxes paid, as provided in § 901. I.R.C. § 901 elaborates on the allowance of the credit and its various applicable amounts for different taxpayers. Meanwhile, I.R.C. § 904, imposes a limitation on the amount of credit to prevent the offset of U.S. tax on U.S.-source income. See I.R.C. § 904(a); Suringa, 2016.

The current case scrutinizes the applicability of foreign tax credits against the net investment income tax (NIIT) imposed by I.R.C. § 1411, situated in Chapter 2A, which is distinct from Chapter 1 that houses the regular income tax provisions. Enacted in 2010, the NIIT targets certain investment income of individuals, estates, and trusts at a rate of 3.8%, subject to specific income thresholds and definitions of net investment income. See I.R.C. § 1411; Health Care and Education Reconciliation Act of 2010.

Regulations under Treasury Regulations (“Treas. Reg.”) § 1.1411-0 et seq. provide guidance on the NIIT and its interplay with foreign tax credits. Notably, Treas. Reg. § 1.1411-1(e) clarifies that foreign tax credits applicable only against Chapter 1 taxes are not creditable against NIIT unless explicitly provided in the Code.

Christensens in the case argue that NIIT, using concepts from Chapter 1, qualifies as an income tax under the foreign tax credit provisions, despite its separate identification in the Code. The Government contends that NIIT is an additional levy with its own tax base and deductions, sometimes overlapping with Chapter 1 income tax and at other times applying exclusively (IRS, 2023).

The IRS elucidates the NIIT as a tax on investment income that exceeds certain threshold amounts based on filing status, with specific inclusions and exclusions for calculating net investment income (IRS, 2023). In its educational materials, the IRS clarifies which gains are considered in net investment income and what deductions are applicable, emphasizing that certain tax credits, including foreign income tax credits, cannot reduce NIIT liabilities (IRS, 2023).

Lastly, a Senate Budget Committee report on tax expenditures discusses the NIIT as a revenue-raising measure, imposing a 3.8-percent tax on higher-income individuals’ unearned income exceeding threshold amounts, thus increasing Medicare taxes paid by this demographic (CONG. RSCH. SERV., 2010).

The implications of this case extend to the treatment of foreign tax credits in relation to the NIIT, with potential impacts on U.S. citizens residing abroad and facing double taxation on their investment income.

  1. Facts

The case of the Christensens, U.S. citizens residing in Paris, France, concerns their 2015 tax return filings and subsequent amendments. In 2016, the Christensens filed their joint federal income tax return for the tax year 2015 with the IRS Center in Charlotte, North Carolina, reporting an income comprising earned income, U.S. source passive income, and foreign source passive income, leading to a U.S. federal income tax liability of $76,376, before any foreign tax credits were applied. They initially paid $4,672.00 in income taxes and $4,155.00 in net investment income tax (NIIT), of which $3,851 was associated with foreign source investment income (Christensen et al. v. United States, 2021).

In January 2020, the Christensens filed an amended tax return claiming a refund of $3,851.00 for NIIT, based on their interpretation of the U.S.-France Income Tax Treaty and the U.S.-France Totalization Agreement. This claim was supported by Forms 8833 and 8275, which argued for a foreign tax credit against their NIIT liability and disputed IRS regulations that did not allow for such a credit.

The IRS denied the claim based on the contention that the filing was untimely as per the statutory deadlines. However, in the subsequent motion for partial summary judgment, the Government (the U.S. government) conceded that the refund suit was timely under I.R.C. Section 6511(d)(3), removing the dispute over the timeliness of the claim in the current litigation.

The Christensens initiated legal action on July 31, 2020, bypassing administrative appeals with the IRS, to seek a refund for the net investment income tax paid for the 2015 tax year. The core of the dispute rests on the interpretation and application of the “three-bite rule” as articulated in the 1994 Treaty between the U.S. and France, which was later amended by the 2004 and 2009 Protocols.

The “three-bite rule” determines the order in which taxes are applied by the U.S. and France on income earned by U.S. citizens residing in France. The rule outlines a sequence: U.S. tax on U.S.-source income, French tax on resident income, and then U.S. tax on global income based on citizenship. Under this framework, France and the U.S. are required to provide foreign tax credits in certain circumstances to avoid double taxation.

However, the essence of the dispute lies in whether Christensens accurately calculated these taxes in line with the three-bite rule, with the Government alleging that the Christensens did not properly account for U.S. taxes when computing French tax credits (“The Government’s cross-motion for partial summary judgment”).

The Christensens and the Government presented their interpretations and insisted on the correct implementation of the rule as per the Treaty. Both parties agreed on the rule’s existence and its general framework but diverge on its application to the Christensens’ tax calculations. The Government repeatedly requested documentation to verify the Christensens’ compliance with the three-bite rule, while the Christensens asserted they already provided all necessary evidence and that the rule does not apply to their case as they did not claim foreign tax credits on U.S. source income.

The Court, considering the parties’ inability to agree on the factual calculations related to the three-bite rule, decided to focus the current legal debate on whether the 1994 Treaty, as amended, allows for foreign tax credits against the net investment income tax as outlined in I.R.C. § 1411.

The Court deferred the computational issues until after resolving the legal question at hand, converting the parties’ cross-motions for summary judgment to cross-motions for partial summary judgment on this issue.

1. The Parties’ Cross-Motions for Partial Summary Judgment

The parties filed cross-motions for partial summary judgment under Rule 56 of the Rules of the United States Court of Federal Claims (RCFC) (2021), which is akin to Rule 56 of the Federal Rules of Civil Procedure (2023).

Rule 56 dictates that summary judgment should be granted if there is no genuine dispute over material facts, and the moving party is entitled to judgment as a matter of law. The primary consideration is whether the facts in question are material and could affect the case’s outcome under the relevant law.

The Court’s role in summary judgment is not to weigh evidence but to determine whether there is a genuine issue for trial. If no such issue exists, the motion should be granted. However, if there is evidence that could support the opposing party’s case, the motion must be denied, and all reasonable inferences must favor the non-moving party.

The parties’ dispute revolves around whether the NIIT, governed by I.R.C. § 1411 in Chapter 2A of the I.R.C., is eligible for foreign tax credits. I.R.C. §§ 27 and 901(a) restrict foreign tax credits to taxes imposed by Chapter 1 of the I.R.C., which does not include the NIIT. Therefore, by the explicit terms of these sections, foreign tax credits do not apply to the NIIT.

The Christensens’ argued that the NIIT should be considered an income tax, similar to those in Chapter 1, and thus, foreign tax credits should be applicable. The Christensens’ cited Article 2(1)(a) of the 1994 Treaty, which defines the U.S. taxes to which it applies, and contend that the NIIT falls under this treaty. Article 2(2) of the treaty covers new, substantially similar taxes, making the NIIT eligible for foreign tax credits.

The Government, on the other hand, maintained that the NIIT is not a Chapter 1 tax, as it is imposed by § 1411 in Chapter 2A, thereby excluding it from foreign tax credit eligibility. Christensens concede that without the application of the 1994 Treaty, the Internal Revenue Code would not allow a foreign tax credit against the NIIT, potentially leading to double taxation.

The case revolves around whether Christensens can claim a foreign tax credit against the net investment income tax for French income taxes paid. Christensens argue that specific provisions in the 1994 Treaty between the United States and France, as amended, permit this. See paragraphs 2(a) and 2(b) of Article 24 of the treaty.

Paragraph 2(a) of Article 24 allows for a foreign tax credit against U.S. income tax for French income tax paid by U.S. citizens or residents, subject to U.S. law limitations. Christensens argue that this provision should be interpreted to include foreign tax credits based on I.R.C. Section 904 principles and not just taxes imposed by Chapter 1 of the I.R.C.

Paragraph 2(b) of Article 24 deals with individuals who are both residents of France and U.S. citizens, allowing a foreign tax credit against U.S. income tax for French income tax paid, with certain restrictions.

The Government argued that neither paragraph 2(a) nor paragraph 2(b) of Article 24 of the 1994 Treaty, as amended, provides for a foreign tax credit against the net investment income tax, and foreign tax credits should be determined in accordance with U.S. law.

In contrast, the government’s counter motion painted a scenario where the treaty did not confer the extensive benefits claimed by the Christensens. The government’s argument for treaty interpretation sought to align the treaty with domestic law, notably the Internal Revenue Code (I.R.C.), asserting that treaty readings should not conflict with Congressional intentions, as articulated in Consol. See Coal Co. v. United States, 615 F.3d 1378, 1380 (2010).

2. The Parties’ Arguments on Treaty Interpretation Standards

The Christensens appealed to the Vienna Convention on the Law of Treaties, advocating for a textual interpretation of the 1994 Treaty. They argued that the treaty’s explicit language endorsed their claim for a foreign tax credit, citing the precedent set by Air France v. Saks, 470 U.S. 392, 396-98 (1985). They also contended that conflicts between treaty provisions and statutes should be resolved through harmonization, referring to Supreme Court precedents (Weinberger v. Rossi, 456 U.S. 25, 32 (1982); Moser v. United States, 341 U.S. 41, 45 (1951); United States v. Lee Yen Tai, 185 U.S. 213, 221-22 (1902); Murray v. Schooner Charming Betsy, 6 U.S. (2 Cranch) 64, 118 (1804)). The Christensens’ argument centered on the notion that the enactment of the Net Investment Income Tax (NIIT) was not intended to modify any U.S. treaty obligations, asserting that the treaty-based foreign tax credit should have been allowed under the 1994 Treaty, as amended.

In contrast, the Government contended that treaty interpretation should not stand in isolation but must consider domestic legal principles. It argued that treaties should be read in concordance with Congressional statutes to ensure that interpretations of international agreements do not contravene clear legislative intentions, as upheld in United States v. Stuart, 489 U.S. 353, 366-69 (1989). Relying on the last-in-time rule established by Supreme Court precedents. See Breard v. Greene, 523 U.S. 371, 376 (1998); Kappus v. Commissioner of Internal Revenue, 337 F.3d 1053, 1058-60 (D.C. Cir. 2003). The Government argued that the NIIT, positioned outside Chapter 1 of the I.R.C., rendered it ineligible for foreign tax credits under I.R.C. §§ 27 and 901(a).

The dispute extended to the applicability of Treasury Decision 9644, an interpretation of I.R.C. § 1411. Christensens challenged its relevance, asserting that it overlooked the 1994 Treaty’s aim to eliminate double taxation. They argued that the treaty’s definition of covered taxes should supersede domestic law, making French income taxes creditable under the treaty. Christensens emphasized paragraphs 2(a) and 2(b) of Article 24 of the 1994 Treaty, as amended, as support for their interpretation, as these provisions allowed a foreign tax credit against U.S. income tax, including the NIIT.

The Government countered by highlighting the provisions and limitations language in paragraph 2(a) of Article 24 of the 1994 Treaty, as amended, which expressly deferred to U.S. statute provisions in determining foreign tax credit eligibility. The Government argued that Congress’s placement of the NIIT outside Chapter 1 of the I.R.C. clearly indicated its intent to exclude the NIIT from foreign tax credits under I.R.C. §§ 27 and 901(a).

On the other hand, the Government argued for a broader context in treaty interpretation, emphasizing the need to consider domestic legal principles and Congressional statutes. The Government relied on the last-in-time rule established by Supreme Court precedents, asserting that the most recent expression of the sovereign will should take precedence in resolving conflicts between statutes and treaties. The Government claimed that the Net Investment Income Tax (NIIT) falls outside Chapter 1 of the Internal Revenue Code and is ineligible for foreign tax credits.

The Government highlighted the Treasury Decision 9644’s interpretation of I.R.C. § 1411, arguing that it aligns with the U.S. Treasury Department’s explanations of the 1994 Treaty. They stressed the importance of adhering to the terms of the treaty and the limitations it imposes on double taxation relief. Furthermore, the Government argued that paragraph 2(b) of Article 24 of the 1994 Treaty, as amended, implements the three-bite rule and does not expand U.S. law to provide a foreign tax credit against the NIIT.

The Government expressed concerns that ruling in favor of the Christensens could disrupt the policy foundation of the foreign tax credit system, potentially allowing U.S. citizens residing in France to claim more generous credits than those residing in the United States. They outlined scenarios where such credits could be claimed, emphasizing the need to maintain the integrity of the foreign tax credit system.

In addition, the Government contended that there is no evidence of the Government of the French Republic’s specific interpretation of the tax issues relevant to the case. They argued that neither the United States nor France had an expectation that the United States would automatically apply foreign tax credits to all subsequently enacted income taxes under the Internal Revenue Code.

In the intricate case of Christensen v. United States, the Court of Federal Claims delivered a critical but not final adjudication. The Court judiciously granted in part and denied in part the cross-motions for partial summary judgment. It ruled that paragraph 2(a) of Article 24 from the modified treaty does not sanction a foreign tax credit against the net investment income tax for French taxes paid by U.S. citizens. However, it also held that paragraph 2(b) of the same article does authorize such a credit in relation to I.R.C. § 1411.

This nuanced decision stands as a milestone for U.S. expatriates, especially in France, potentially broadening their entitlement to foreign tax credits. Yet, the case remains unresolved. The parties have not united on the interpretation and calculation of the “three-bite rule,” which will determine the Christensens’ tax refund. The Court’s judgment is thus provisional, with further proceedings required to settle the remaining questions.

The Court has indicated that these subsequent discussions will be organized through an impending order, leaving stakeholders awaiting definitive guidance on this intricate aspect of international tax law.


The Court of Federal Claims delivered a decisive interpretation of international tax law through its verdict in Christensen v. United States. The Court affirmed that under paragraph 2(b) of Article 24 of the 1994 Treaty, as amended, U.S. citizens Matthew and Katherine Kaess Christensen are justified in claiming a foreign tax credit against the net investment income tax under I.R.C. § 1411. This judgment signifies a notable shift from the IRS’s prior restrictive approach, which confined the application of foreign tax credits to Chapter 1 of the I.R.C.

This decision emphasizes the supremacy of treaty provisions when they come into conflict with domestic tax statutes, asserting that treaties and domestic laws should be construed in harmony whenever feasible. The Court’s interpretation of the I.R.C., in accordance with the U.S.-France treaty, has expanded the availability of foreign tax credits for U.S. residents in France, thereby setting a valuable precedent for future tax treaty interpretations.

Moreover, the ruling elucidates the importance of honoring the intentions and mutual expectations of the countries party to the treaty. It clarifies the circumstances under which foreign tax credits are accessible, thereby fortifying the legal infrastructure surrounding international tax duties.

The outcome of Christensen v. United States is a significant success for the Christensens, highlighting the intricate relationship between domestic legislative language and international treaty obligations. It serves as a vivid demonstration of the influence that treaties hold in sculpting tax legislation and reflects the continuous negotiation between domestic fiscal policies and global fiscal agreements.