Yesterday, the Court of Appeals for the Federal Circuit reversed the Court of Federal Claims; the Court of Federal Claims had held that the Net Investment Income Tax (NIIT) could be offset by a foreign tax credit. The court ruled in Christensen v US and Estate of Bruyea v US that you cannot take a foreign tax credit against the NIIT.
In Christensen, the taxpayer paid NIIT on investment gains to France; in Bruyea, the taxpayer paid NIIT on the sale of real estate in Canada. The analysis in both cases gets technical–where the NIIT appears in the Tax Code and what portion of the Code foreign tax credits can offset–but the short answer is that in this case Congress has not allowed a foreign tax credit against the NIIT.
While one or both cases can be appealed to the Supreme Court, I doubt this is the kind of case that the Supreme Court would accept. There’s no circuit split, and the reasoning of the Court of Appeals seems sound to me. For Americans residing in the US the NIIT creates double taxation (you pay income tax on the underlying income, and then pay the NIIT); that’s now the case for Americans residing abroad.
