On August 31, 2026, the U.S. Court of Appeals for the Federal Circuit (the “Federal Circuit”) reversed two taxpayer-favorable decisions of the U.S. Court of Federal Claims, holding that neither the U.S.-Canada income tax treaty nor the U.S.-France income tax treaty permits a foreign tax credit ("FTC") to offset the U.S. net investment income tax ("NIIT").1
WHY THIS MATTERS
Under U.S. domestic law, an FTC is not allowed against the NIIT, meaning certain assignees subject to the NIIT may be subject to double tax on their personal investment income. The U.S. Court of Federal Claims’ decisions in Bruyea and Christensen appeared to provide treaty relief from this form of double taxation for affected assignees. Affected taxpayers may have filed refund claims based on these lower court holdings.
The Federal Circuit’s decisions reverse these taxpayer-favorable rulings. Affected assignees subject to the NIIT will continue to be subject to double tax, and any pending refund claims based on these lower court rulings are likely to be denied.
Background
U.S. citizens and green cardholders are generally subject to U.S. federal income tax on their worldwide income regardless of residence and may be subject to double taxation, which is generally mitigated by an FTC under domestic law or under the relief-from-double-taxation article of an applicable treaty. In addition to the regular income tax, U.S. citizens and residents are subject to the 3.8% NIIT on certain net investment income. Under the domestic FTC rules, a credit for foreign taxes cannot offset the NIIT.
In the initial lower court holdings in Bruyea and Christensen, the Court of Federal Claims had ruled in favor of the taxpayers, holding that U.S. citizens residing in Canada and France could claim a treaty-based FTC to offset the NIIT. On appeal, the Federal Circuit reversed the two taxpayer favorable rulings and held that because a treaty-based credit is subject to the limitations of the U.S. law, a treaty-based credit does not provide an independent basis to offset the NIIT.
The Federal Circuit's conclusion aligns with prior decisions rejecting a treaty-based FTC against the NIIT, including Toulouse v. Commissioner, 157 T.C. 49 (2021) and Kim v. United States, 664 F. Supp. 3d 1062 (C.D. Cal. 2023).
KPMG INSIGHTS
Taxpayers with pending, protective, or amended refund claims based on the U.S. Court of Federal Claims holdings in Bruyea and Christensen should revisit their positions, as their claims are likely to be denied by the IRS in light of the Federal Circuit’s holdings. In addition, taxpayers should weigh whether to preserve a protective claim pending any further appeal, considering any related interest and penalty exposure.
ENDNOTE:
1 See Estate of Bruyea v. United States, No. 2025-1563 (Fed. Cir. Aug. 31, 2026); Christensen v. United States, No. 2024-1284 (Fed. Cir. Aug. 31, 2026).
Contacts
More Information
Explore all GMS Flash Alert Topics
Explore GMS Flash Alert Newsletters & Trackers
Disclaimer
The above information is not intended to be “written advice concerning one or more federal tax matters” subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230 as the content of this document is issued for general informational purposes only.
The information contained in this newsletter was submitted by the KPMG International member firm in the United States.
GMS Flash Alert is a Global Mobility Services publication of the KPMG LLP Washington National Tax practice. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.
© 2026 KPMG LLP, a Delaware limited liability partnership, and its subsidiaries are part of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.