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November 14, 2023

U.S. Federal Claims Court permits US citizens who are residents of France to claim a treaty-based foreign tax credit against US net investment income tax

  • The court interpreted the US-France income tax treaty to allow US citizens residing in France to claim a treaty-based foreign tax credit against US net investment income tax (NIIT) for French income tax imposed on foreign-source income.
  • The court's holding could support US citizens resident in other foreign treaty jurisdictions in claiming a treaty-based foreign tax credit against NIIT imposed on certain income.

The U.S. Court of Federal Claims (court) held in Christensen v. United States1 that the US-France income tax treaty (Treaty) allows a foreign tax credit (FTC) to apply against net investment income tax (NIIT) under IRC Section 1411 for French income taxes paid on certain passive foreign-source income by US citizens residing in France.


The Christensens, who are married and file a joint income tax return, are US citizens residing in Paris, France. For 2015, they reported the following on their original and amended Form 1040, U.S. Individual Income Tax Return: earned income of $369,373; US-source passive income of $7,976; and foreign-source passive income of $101,353. Before FTCs, the Christensens had a $76,376 US federal income tax liability under Chapter 1 of the Internal Revenue Code. They also paid an NIIT of 3.8% on the $7,976 of US-source passive income and the $101,353 of foreign-source passive income, for a total NIIT of $4,155. In addition, the Christensens paid French income tax of approximately $26,653 on their foreign-source passive income.

In 2020, the Christensens filed a refund claim for $3,851 plus interest, the amount of NIIT on their foreign-source passive income, which they claimed was offset by a treaty-based FTC under Article 24 of the Treaty. The IRS initially denied the claim as untimely but later agreed the refund suit was timely filed.

The court restricted the case to the parties' cross-motions for partial summary judgment on whether the Treaty, as amended, provides an FTC against the NIIT imposed on the Christensens' foreign-source passive income under IRC Section 1411. Following the 72-page decision, the parties still need to resolve whether the Christensens properly computed their US FTC under the Treaty.

Interpreting the Treaty

According to the court, "two distinct groups" of FTCs exist under US law: (1) "statutory" FTCs under IRC Section 901(a), which can only be claimed against taxes imposed by Chapter 1 of the Code, and (2) "treaty-based" FTCs, which are claimed under income tax treaties and are not bound by the Code's restrictions on FTCs unless the treaty specifically provides for it.

US citizens, regardless of where they may reside, are subject to worldwide US taxation. Article 24(2)(b)'s "three-bite" rule, which appears in other US income tax treaties (but may differ in certain aspects), generally relieves US citizens who are residents of France from double taxation as follows:

  • The individual pays US tax on certain US-source income to the extent permitted under the Treaty if the individual were only a resident of France (the "first bite")
  • France taxes the individual as a French resident but must provide a credit for US tax (as determined under the first bite) on certain US-source income (including dividends and interest) (the "second bite")
  • The individual pays US residual tax on the basis of citizenship (the "third bite"), but the United States under Article 24(2)(b) must allow a credit for French income tax paid in the second bite (but only for the French income tax paid after the credit that is allowed for US tax in the first bite)
  • The US-source income subject to French income tax in the second bite may be re-sourced as foreign-source income to the extent necessary for IRC Section 904 purposes to utilize the credit for the French income tax. However, the credit cannot offset the US income tax from the first bite that was used as a credit against the French income tax in the second bite

After analyzing the Treaty, the court held that the Christensens could not claim a treaty-based FTC against the NIIT under Article 24(2)(a), because the treaty-based FTC under that rule must be "in accordance with the provisions and subject to the limitations" of the Code. Specifically, Article 24(2)(a) is limited by IRC Sections 27 and 901(a), which only allow FTCs against tax imposed under Chapter 1 of the Code. Because the NIIT is imposed by IRC Section 1411 in Chapter 2A, it cannot be offset by FTCs under paragraph 2(a).

The court observed, however, that Article 24(2)(b) of the Treaty could be liberally interpreted to allow US citizens who are residents of France to claim a treaty-based FTC against NIIT for French income tax imposed on foreign-source income.

Unlike Article 24(2)(a), the court noted, Article 24(2)(b) is not limited by the Code. Therefore, the court concluded that the Christensens could claim a treaty-based FTC under Article 24(2)(b) for French income tax imposed on their passive foreign-source income ($26,653) to offset the NIIT imposed on that income ($3,851).


Like the Court of Federal Claims, the Tax Court concluded in Toulouse v. Commissioner2 that Article 24(2)(a) of the Treaty and Article 23(2)(a) of the US-Italy income tax treaty do not permit US citizens living abroad to use FTCs to offset IRC Section 1411 NIIT (see Tax Alert 2021-1544). The Tax Court rejected Toulouse's contention that the IRC "is silent as to whether there is an FTC against the net investment income tax" because IRC Section 1411's placement in Chapter 2A is merely "happenstance and a clerical choice." Toulouse did not consider application of Article 24(2)(b) of the Treaty (or any other provision) because the petitioner did not argue that she was entitled to relief under that provision. Accordingly, Christensen remains consistent with Toulouse.


Christensen is a taxpayer victory, although US taxpayers should not assume it is necessarily far reaching. The holding does not apply to US taxpayers unless they are US citizens who are tax residents in a country that has an income tax treaty with the United States. Even then, the holding applies to a narrow group of taxpayers: US citizens who are resident in a foreign country whose income tax treaty with the United States does not specify that US law limits FTCs claimed against a foreign income tax assessed under a three-bite rule. Critical differences between the US-France treaty's three bite rule and another US treaty, however, may limit the outcome reached by the Christensen court. Further, the Christensens only claimed a treaty-based FTC under Article 24(2)(b) against NIIT imposed on income that was foreign-source income under the Code and did not attempt to claim a treaty-based FTC against NIIT imposed on income that was US source.3

Based on Christensen, US citizens who are subject to residence-based taxation in a treaty country may consider claiming a treaty-based FTC against NIIT for foreign income tax paid under an applicable provision of a treaty's three-bite rule to relieve double taxation on that item of income. Taxpayers should proceed cautiously, however, and carefully analyze the applicable treaty provisions, as different income tax treaties have different versions of the three-bite rule. Furthermore, given the likelihood that the government appeals the decision, the IRS may reject the claim and taxpayers may have to be prepared to manage that rejection through the examination process.

Even if a taxpayer is comfortable taking a treaty-based FTC against NIIT, there are additional practical considerations, primarily that the current Forms 1040, 1116, Foreign Tax Credit, and 8960, Net Investment Income Tax Individuals, Estates, and Trusts, are not designed to allow an FTC against NIIT. Furthermore, as the outcome in Christensen departs from the government's position in the case, taxpayers should consider the possibility that the government will appeal the decision. Taxpayers wishing to preserve their right to a refund while waiting to see how the case plays out may consider making protective refund claims.


Contact Information
For additional information concerning this Alert, please contact:
Private Client Services
   • David Kirk, Partner (
   • Caryn Friedman, Senior Manager (
   • Utena Yang, Manager (
International Tax and Transaction Services
   • Stephen Peng, Managing Director (
International Tax and Transaction Services – Private Company
   • Annette Rojas, Managing Director (

Published by NTD’s Tax Technical Knowledge Services group; Andrea Ben-Yosef, legal editor



1 No. 20-935T (Fed. Cl. Sept. 13, 2023).

2 157 T.C. 49 (2021).

3 Indeed, the opinion notes that the Christensens did not attempt to apply the three-bite rule in its entirety to even claim a credit against their US Chapter 1 income tax for French income tax that may have applied to certain amounts of their US-source income (taking into account the first bite by the US), and to re-source that US-source income as needed to utilize the credit for French income tax under the three-bite rule. Accordingly, the application of Article 24(2)(b) in this case appears to be a standalone application of the provision outside of the entire three-bite rule.


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