Court rules against Christensens in tax treaty dispute

The U.S. Court of Appeals for the Federal Circuit recently ruled against Matthew and Katherine Christensen in a tax dispute concerning foreign tax credits. The court's decision, issued on August 31, 2026, reversed a previous ruling from the Court of Federal Claims that had granted the Christensens a tax refund related to their net investment income tax (NIIT). This ruling impacts U.S. taxpayers living abroad, particularly those who may seek credits for foreign taxes paid.

The case, Christensen v. United States, docket number 24-1284, arose from the Christensens' tax situation in 2015 when they were living in Paris, France. They sold shares in a French company and paid taxes to both the U.S. and French governments, including a NIIT payment of $3,851 to the IRS. The couple sought a refund, arguing that provisions in a tax treaty between the U.S. and France allowed them to offset their U.S. tax liability with the French taxes they paid.

The Christensens contended that two specific articles in the tax treaty, known as the Convention, should grant them a credit for the French taxes paid. The Court of Federal Claims initially agreed with their argument regarding one of the articles, leading to the appeal by the U.S. government.

The court's ruling focused on whether Article 24 of the Convention, which aims to relieve double taxation, applies to the NIIT. The court determined that it does not. The opinion stated, “the Code and Convention unambiguously preclude offsetting the NIIT by a foreign tax credit.” This ruling reversed the lower court's decision, which had found in favor of the Christensens.

Judges Chen, Hughes, and Stark presided over the case. The court explained that the NIIT, established by Congress in 2010, is treated separately from other income taxes under the U.S. tax code. The judges clarified that the provisions allowing foreign tax credits only apply to taxes imposed under Chapter 1 of the Internal Revenue Code, which does not include the NIIT.

The court also addressed the Christensens' argument that a different provision in the treaty, which applies to U.S. citizens living in France, should allow them to claim a credit against the NIIT. The judges rejected this argument, stating that the limitations set forth in the U.S. tax code still apply, effectively denying the Christensens any tax relief from the NIIT based on the taxes they paid in France.

This ruling has significant implications for U.S. citizens living abroad who may find themselves in similar situations. The court's decision reinforces the interpretation that foreign tax credits cannot offset the NIIT, potentially affecting many taxpayers who earn income in foreign countries and pay taxes there.

The ruling also sets a precedent regarding the interpretation of tax treaties and the application of U.S. tax law to foreign income. It underscores the importance of understanding the distinctions between different types of taxes and how they interact with international tax agreements.

Moving forward, U.S. citizens living abroad should be aware that the ability to claim foreign tax credits is limited when it comes to the NIIT. This ruling may encourage taxpayers to seek further clarification on their tax obligations and rights under international treaties.

As for the Christensens, they may consider appealing the decision, although the court's ruling is final unless challenged in a higher court. There are no related cases pending that would directly influence this decision, but the implications of this ruling could lead to further scrutiny of tax treaties and their application in similar cases.