Bruyea v. United States

In the United States Court of Federal Claims

No. 23-766T

(Filed: December 5, 2024)

)

PAUL BRUYEA, )

)

Plaintiff, )

)

v.

)

THE UNITED STATES, )

)

Defendant. )

)

Stuart E. Horwich, Horwich Law LLP, London, United Kingdom, and Max Reed,

Polaris Tax Counsel, Vancouver, British Columbia, Canada, for Plaintiff.

Jason Bergmann, United States Department of Justice, Tax Division, Washington,

D.C., for Defendant. With him on the briefs were David I. Pincus, Chief, Court of

Federal Claims Section, Mary M. Abate, Assistant Chief, and David A. Hubbert,

Deputy Assistant Attorney General.

OPINION AND ORDER

Plaintiff, Mr. Paul Bruyea, claims that he overpaid his 2015 taxes by approximately

$263,523, and therefore is entitled to a tax refund of that amount from the United States.

Mr. Bruyea asserts he is owed the claimed refund once a treaty-based foreign tax credit

is properly applied against the Net Investment Income Tax (“NIIT”) he paid to the United

States. Although Mr. Bruyea acknowledges that the Internal Revenue Code does not by

its terms provide for such a foreign tax credit, he argues that a tax treaty between the

United States and Canada independently entitles him to the claimed credit and, thus, the

refund. This case turns on the proper interpretation of that tax treaty and how it fits with

the text and structure of the Internal Revenue Code.

The interpretative puzzle is complicated but ultimately Mr. Bruyea’s approach

makes more sense of the relevant legal data. This Court thus agrees with Mr. Bruyea that

he is entitled to the foreign tax credit he claims.

I. FACTUAL AND PROCEDURAL BACKGROUND

“All American citizens are subject to U.S. taxes, regardless of where they live or

earn their income. Citizens living and working abroad must therefore report their

foreign-source income to the Internal Revenue Service.” Kappus v. Comm’r, 337 F.3d 1053,

1055 (D.C. Cir. 2003) (citations omitted). Pursuant to United States law and bilateral tax

treaties (where applicable), however, “[U.S.] [t]axes on such income . . . may often be

offset . . . by credits for taxes paid to foreign governments[.]” Id.

On May 25, 2023, Mr. Bruyea initiated this case by filing a tax refund complaint

against Defendant, the United States. ECF No. 1 (“Compl.”). He seeks a refund of federal

income tax paid “for the taxable year ended December 31, 2015.” Id. ¶ 4. During that tax

year, Mr. Bruyea was a resident of British Columbia, Canada. Id. ¶ 10. He paid nearly

$2 million in taxes to Canada, and “claimed a foreign tax credit of $1,398,683 to offset the

regular U.S. tax liability[.]” Id. At the time, Mr. Bruyea “did not claim a foreign tax credit

to offset the NIIT.” Id. ¶ 11.

On November 7, 2016, Mr. Bruyea “filed an amended tax return (Form 1040X) with

the Internal Revenue Service . . . claiming a refund of $263,523 by virtue of a foreign tax

credit that offsets the NIIT[.]” Compl. ¶ 12. In particular, Mr. Bruyea asserts he is entitled

to a foreign tax credit “based on the provisions of Article XXIV” of the Convention

between Canada and the United States of America with Respect to Taxes on Income and

on Capital (“Canada Tax Treaty” or “Treaty”). Compl. ¶¶ 3, 12. 1 The IRS rejected the

refund claim, concluding that “the Canada Tax Treaty did not provide an independent

basis for a foreign tax credit to offset the NIIT and that such a foreign tax credit is not

allowed under U.S. statutory foreign tax credit rules.” Id. ¶ 13.

When Mr. Bruyea failed to convince the IRS, he “invoked the ‘Simultaneous

Appeal Procedure’ pursuant to which he sought the opinions of the U.S. and Canadian

competent authorities to resolve a situation in which double taxation is present (i.e.[,]

Canadian income tax and U.S. NIIT on the same items of income and gain with no foreign

tax credit offset available).” Compl. ¶ 15. The Canadian tax authority agrees with

Mr. Bruyea. ECF No. 18-6 (“The position of the Canadian competent authority in this

regard is that Canada, as the country of source, has the right to tax the gain, while the US,

1 The Treaty — also referred to as a “convention” — was originally signed on September 26, 1980,

and subsequently amended via various Protocols between 1983 and 2007. The parties agree that

none of the amendments impact the original Treaty provisions that are at issue in this case.

2

as the country which has residual taxation rights, must provide relief in accordance with

Article XXIV of the Convention.”). Following the IRS’s denial of his tax refund claim,

Mr. Bruyea filed his complaint in this Court, asserting that “he is entitled to a refund of

the NIIT that he paid in the amount of $263,523 for the 2015 tax year.” Compl. ¶ 21.

On February 14, 2024, Mr. Bruyea moved for partial summary judgment, arguing

that “he is entitled to a foreign tax credit for his 2015 tax year under the terms of [the

Canada Tax Treaty].” ECF Nos. 18 at 1; 18-1 (collectively, “Pl. MSJ”). 2 The government

filed a cross-motion for summary judgment and response in opposition to plaintiff’s

motion. ECF No. 24 (“Def. MSJ”). 3 Each party filed a reply brief. See ECF No. 22 (“Pl.

Rep.”); ECF No. 26 (“Def. Rep.”).

On September 19, 2024, this Court held oral argument on the parties’ motions. ECF

No. 28 (“Tr.”).

II. JURISDICTION

Neither party disputes this Court’s jurisdiction to decide this case. Nevertheless,

this Court has an independent responsibility to confirm its jurisdiction. See Rule 12(h)(3)

of the Rules of the United States Court of Federal Claims (“RCFC”). This Court finds

that it has jurisdiction pursuant to 28 U.S.C. § 1491(a) and 26 U.S.C. (“I.R.C.”) § 7422. 4 See

Christensen v. United States, 168 Fed. Cl. 263, 297 (2023) (concluding that 26 U.S.C. §

7422(f)(1) “expressly provides an exception to the jurisdictional bar on treaty-based

claims” otherwise contained within 28 U.S.C. § 1502). 5

2Citations to specific page numbers within electronic filings are to the ECF-stamped page

numbers in the header of the filed PDF.

3 The government initially filed a cross-motion for summary judgment and response in opposition

to plaintiff’s motion on March 29, 2024. ECF No. 20. The government subsequently moved to file

a corrected version of its motion and response, ECF No. 23. This opinion refers only to the

government’s corrected filing, ECF No. 24.

4 Title 26 of the United States Code is the Internal Revenue Code, and is often abbreviated or cited

as “I.R.C.”

5 “While 28 U.S.C. 1346(a)(1) mentions the Court of Federal Claims in the course of conferring

jurisdiction on district courts, it is not the source of the Court of Federal Claims’ jurisdiction over

tax refund cases; rather, such jurisdiction is based on 28 U.S.C. § 1491, which pre-dated section

1346(a)(1).” Topsnik v. United States, 120 Fed. Cl. 282, 286 n.3 (2015) (citing Ferguson v. United

States, 118 Fed. Cl. 762, 763 n.2 (2014)). In Gaynor v. United States, 150 Fed. Cl. 519, 530 (2020), the

undersigned wrote that “I.R.C. § 7422(a) provides this Court with jurisdiction (pursuant to the

Tucker Act) to decide claims seeking a refund of taxes or penalties the IRS collected.” More

3

III. SUMMARY JUDGMENT STANDARD

Summary judgment is appropriate when there is no genuine issue of material fact

and the moving party is entitled to a judgment as a matter of law. RCFC 56(a); Celotex

Corp. v. Catrett, 477 U.S. 317, 322 (1986). A fact is material if it “might affect the outcome

of the suit under the governing law.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248

(1986). An issue is genuine if it “may reasonably be resolved in favor of either party.” Id.

at 250. “When both parties move for summary judgment, the court must evaluate each

motion on its own merits, resolving reasonable inferences against the party whose motion

is under consideration.” Silver State Land LLC v. United States, 155 Fed. Cl. 209, 212 (2021)

(quoting First Commerce Corp. v. United States, 335 F.3d 1373, 1379 (Fed. Cir. 2003)); see also

Lippmann v. United States, 127 Fed. Cl. 238, 244 (2016) (“The [RCFC 56] standard also

applies when the Court considers cross-motions for summary judgment.”).

In this case, both parties seek summary judgment as to liability, which reduces to

a legal question regarding the proper interpretation of the Canada Tax Treaty and the

I.R.C. Def. MSJ at 50 (explaining that “the parties have reserved questions regarding the

computation of a foreign tax credit until after the Court has resolved the parties’ dispute

regarding the availability of a foreign tax credit in any amount”). Given the absence of

any disputed material fact regarding liability, this Court agrees with the parties that

liability may be properly resolved as a matter of law on summary judgment.

IV. PRINCIPLES OF TREATY INTERPRETATION

Interpreting a treaty is similar to interpreting a statute or a contract. Thus, “[t]he

interpretation of a treaty, like the interpretation of a statute, begins with its text.” Golan v.

Saada, 596 U.S. 666, 676 (2022) (emphasis added) (quoting Abbott v. Abbott, 560 U.S. 1, 10

(2010)). Courts are further directed to consider a treaty’s “text and structure,” just like we

must for a statute or contract. Water Splash, Inc. v. Menon, 581 U.S. 271, 276 (2017)

accurately, however, that statute is a limit on this Court’s jurisdiction but is not the source of it.

See Barnes v. United States, 2023 WL 4683550, at *1 (Fed. Cl. July 21, 2023) (“To invoke this Court’s

jurisdiction in a tax refund suit, a plaintiff must comply with 26 U.S.C. § 7422(a)[.]”); but see

Chicago Milwaukee Corp. v. United States, 40 F.3d 373, 374 (Fed. Cir. 1994) (noting that plaintiff

“brought suit under I.R.C. § 7422(a)” and that “Section 7422(a) waives the United States’

sovereign immunity from refund suits, . . . provided the taxpayer has previously filed a

qualifying administrative refund claim” (internal citation omitted)); Grigsby v. United States, 2018

WL 1417398, at *2 (Fed. Cl. Mar. 7, 2018) (“Pursuant to 26 U.S.C. § 7422(a), this Court has

jurisdiction to entertain suits for tax refunds.”).

4

(emphasis added) (discussing “[t]he text and structure of the Hague Service

Convention”); cf. Hunt Const. Grp., Inc. v. United States, 281 F.3d 1369, 1372 (Fed. Cir. 2002)

(“The contract must be considered as a whole and interpreted to effectuate its spirit and

purpose, giving reasonable meaning to all parts.”). In that regard, courts follow “the

maxim that the construction of any legal document—like a statute, contract or patent—

should try to give meaning to every term in that document; otherwise, a lawyer or court

will have erred by reading the chosen words of the document into oblivion.” Advanced

Commc’n Design, Inc. v. Premier Retail Networks, Inc., 46 F. App’x 964, 980–81 (Fed. Cir.

2002) (emphasis added). 6

When it comes to a treaty, however, there is a notable difference from other legal

instruments: courts are encouraged to consider a treaty’s purpose, as well as extrinsic

evidence of the intent of the parties to the treaty. In that regard, “[b]ecause a treaty

ratified by the United States is ‘an agreement among sovereign powers,’” the United

States Supreme Court has “also considered as ‘aids to its interpretation’ the negotiation

and drafting history of the treaty as well as ‘the postratification understanding’ of

signatory nations.” GE Energy Power Conversion France SAS, Corp. v. Outokumpu Stainless

USA, LLC, 590 U.S. 432, 441 (2020) (quoting Medellin v. Texas, 552 U.S. 491, 507 (2008)

(quoting Zicherman v. Korean Air Lines Co., 516 U.S. 217, 226 (1996))). 7 Particularly “when

a treaty provision is ambiguous,” courts “may look beyond the written words to the

history of the treaty, the negotiations, and the practical construction adopted by the

parties.” Water Splash, 581 U.S. at 280 (quoting Volkswagenwerk Aktiengesellschaft v.

Schlunk, 486 U.S. 694, 700 (1988)). Thus, “[t]he practice of treaty signatories counts as

evidence of the treaty’s proper interpretation, since their conduct generally evinces their

understanding of the agreement they signed.” United States v. Stuart, 489 U.S. 353, 369

(1989). The Supreme Court has also instructed that “[t]he ‘opinions of our sister

6 Cf. Chevron Corp. v. Republic of Ecuador, 949 F. Supp. 2d 57, 68 (D.D.C.) (“plain-meaning analysis

. . . end[s] the matter . . . in the interpretation of contracts, judgments, and statutes”), judgment

entered, 987 F. Supp. 2d 82 (D.D.C. 2013), and aff’d sub nom. Chevron Corp. v. Ecuador, 795 F.3d 200

(D.C. Cir. 2015).

7 See also Arizona v. Navajo Nation, 599 U.S. 555, 567 (2023) (“[C]ourts must stay in their proper

constitutional lane and interpret the law (here, the treaty) according to its text and history[.]”

(emphasis added)); Golan, 596 U.S. at 679 (“Courts must remain conscious of th[e treaty’s]

purpose, as well as the [treaty’s] other objectives and requirements[.]”); BG Grp., PLC v. Republic

of Argentina, 572 U.S. 25, 37 (2014) (“As a general matter, a treaty is a contract, though between

nations. Its interpretation normally is, like a contract’s interpretation, a matter of determining the

parties’ intent.”) (cited with approval in ZF Auto. US, Inc. v. Luxshare, Ltd., 596 U.S. 619, 634

(2022)).

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signatories,’ . . . are ‘entitled to considerable weight.’” El Al Israel Airlines, Ltd. v. Tsui

Yuan Tseng, 525 U.S. 155, 176 (1999) (quoting Air France v. Saks, 470 U.S. 392, 404 (1985)).

There is yet another, meta-principle that applies to treaty interpretation. A tax

treaty, in particular, “should generally be ‘construe[d] . . . liberally to give effect to the

purpose which animates it’ and . . . ‘[e]ven where a provision of a treaty fairly admits of

two constructions, one restricting, the other enlarging, rights which may be claimed

under it, the more liberal interpretation is to be preferred[.]’” Stuart, 489 U.S. at 368

(quoting Bacardi Corp. of America v. Domenech, 311 U.S. 150, 163 (1940) (citations omitted)).

Our appellate court, the United States Court of Appeals for the Federal Circuit,

has synthesized the Supreme Court’s treaty interpretation principles as follows:

In construing a treaty, the terms thereof are given their

ordinary meaning in the context of the treaty and are

interpreted, in accordance with that meaning, in the way that

best fulfills the purposes of the treaty. . . . The judicial

obligation is to satisfy the intention of both of the signatory

parties, in construing the terms of a treaty.

Unless the treaty terms are unclear on their face, or unclear as

applied to the situation that has arisen, it should rarely be

necessary to rely on extrinsic evidence in order to construe a

treaty, for it is rarely possible to reconstruct all of the

considerations and compromises that led the signatories to

the final document. However, extrinsic material is often

helpful in understanding the treaty and its purposes, thus

providing an enlightened framework for reviewing its terms.

However, “the ultimate question remains what was intended

when the language actually employed . . . was chosen,

imperfect as that language may be.” Great–West Life Assurance

Co. v. United States, 678 F.2d 180, 188, 230 Ct. Cl. 477 (1982).

Xerox Corp. v. United States, 41 F.3d 647, 652–53 (Fed. Cir. 1994) (citations omitted). In

short, a Court “must ‘examine not only the language, but the entire context of

agreement.’” Nat’l Westminster Bank, PLC v. United States, 512 F.3d 1347, 1353 (Fed. Cir.

6

2008) (quoting Great–West Life, 678 F.2d at 183). 8 In Xerox Corp., the Federal Circuit

specifically noted that it had “reviewed the [extrinsic] evidence[.]” 41 F.3d at 653.

Although the Supreme Court has often given “great weight” to the Executive

Branch’s interpretation of the treaty, Sumitomo, 457 U.S. at 184–85, more recently the

Supreme Court has acknowledged that it has “never provided a full explanation of the

basis for our practice of giving weight to the Executive’s interpretation of a treaty.” GE

Energy, 590 U.S. at 444. And, in any event, binding Federal Circuit authority instructs us

that “an agency’s position merits less deference ‘where an agency and another country

disagree on the meaning of a treaty[.]’” Nat’l Westminster Bank, 512 F.3d at 1358 (quoting

Iceland Steamship Co., Eimskip v. U.S. Dep’t of the Army, 201 F.3d 451, 458 (D.C. Cir. 2000)).

Moreover, the Federal Circuit “has declined to defer to Treasury’s contemporaneous

interpretation where it conflict[s] with the contemporaneous intent of the Senate.” Id.

(citing Xerox, 41 F.3d at 653–57).

“A treaty, when ratified, supersedes prior domestic law to the contrary and is

equivalent to an act of Congress.” Xerox Corp., 41 F.3d at 658 (citing United States v. Lee

Yen Tai, 185 U.S. 213, 220–22 (1902)). 9 On the other hand, the “tacit abrogation of prior

law will not be presumed and, unless it is impossible to do so, treaty and law must stand

together in harmony.” Id.

Summarizing those interpretive principles is far easier than applying them. The

Court turns next to that task.

8 See also Nat’l Westminster Bank, 512 F.3d at 1353 (“When construing a treaty, ‘[t]he clear import

of treaty language controls unless ‘application of the words of the treaty according to their

obvious meaning effects a result inconsistent with the intent or expectations of its signatories.’”

(quoting Sumitomo Shoji America, Inc. v. Avagliano, 457 U.S. 176, 180 (1982))); United Techs. Corp. v.

United States, 315 F.3d 1320, 1322 (Fed. Cir. 2003) (“The terms of a treaty are to be given their

ordinary meaning in the context of the treaty, and are to be interpreted to best fulfill the purpose

of the treaty.” (citing Xerox Corp., 41 F.3d at 652)).

9 See Bell v. Off. of Pers. Mgmt., 169 F.3d 1383, 1386 (Fed. Cir. 1999) (“[W]hen a statute which is

subsequent in time is inconsistent with a treaty, the statute to the extent of conflict renders the

treaty null.” (quoting Breard v. Greene, 523 U.S. 371, 376 (1998))); see also Akins v. United States, 551

F.2d 1222, 1229 (C.C.P.A. 1977) (“As a rule of priority between equals, a later dated statute in

direct conflict with a treaty supersedes the treaty.”).

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V. DISCUSSION

A. The Canada Tax Treaty

The primary locus of the parties’ dispute within the Treaty is Article XXIV, notably

entitled “Elimination of Double Taxation.” Canada Tax Treaty, ECF No. 18-2 at 24

(emphasis added). Paragraph 1 of Article XXIV provides, in relevant part:

In the case of the United States, [1] subject to the provisions of

paragraphs 4, 5 and 6, double taxation shall be avoided as

follows: [2] In accordance with the provisions and subject to

the limitations of the law of the United States (as it may be

amended from time to time [3] without changing the general

principle hereof), [4] the United States shall allow to a citizen

or resident of the United States . . . as a credit against the

United States tax on income the appropriate amount of

income tax paid or accrued to Canada . . . .

Id. (For ease of reference, the Court has inserted bracketed numbers to mark operative

phrases within Paragraph 1 of Article XXIV, above; hereafter, the words “Clause” or

“Clauses” followed by bracketed number(s) refers to the marked phrases. Clause [2] is

referred to as the “U.S. Law Limitation.”)

Paragraph 4 of Article XXIV provides:

Where a United States citizen is a resident of Canada, the

following rules shall apply:

(a) Canada shall allow a deduction from the Canadian tax in

respect of income tax paid or accrued to the United States

in respect of profits, income or gains which arise (within

the meaning of paragraph 3) in the United States, except

that such deduction need not exceed the amount of the tax

that would be paid to the United States if the resident were

not a United States citizen; and

(b) for the purposes of computing the United States tax, the

United States shall allow as a credit against United States tax

8

the income tax paid or accrued to Canada after the deduction

referred to in subparagraph (a). The credit so allowed

shall not reduce that portion of the United States tax that

is deductible from Canadian tax in accordance with

subparagraph (a).

Canada Tax Treaty at 25 (emphasis added).

The Treaty, in turn, defines “United States tax” as “the taxes referred to in Article

II (Taxes Covered) . . . that are imposed on income by the United States.” Canada Tax

Treaty at 3 (Art. III (“General Definitions”), ¶ 1(d)). And Article II provides that the

Treaty “shall apply to taxes on income . . . imposed on behalf of each Contracting State,

irrespective of the manner in which they are levied.” Id. at 2 (Art. II, ¶ 1) (emphasis added).

Article II further provides that “the taxes existing on March 17, 1995 to which the

Convention shall apply are . . . in the case of the United States, the Federal income taxes

imposed by the Internal Revenue Code of 1986.” Id. (Art. II, ¶ 2(b)). The parties also

clearly anticipated future changes to their respective tax codes, with the Treaty specifying

that “[t]he Convention shall apply also to . . . any taxes identical or substantively similar to

those taxes to which the Convention applies under paragraph 2 [of Article II].” Id. at 3

(Art. II, ¶ 3(a)) (emphasis added).

B. The NIIT

Chapter 2A of the I.R.C. covers the “Unearned Income Medicare Contribution.” It

contains but a single provision: 26 U.S.C. § 1411 (“Imposition of tax”). That tax provision

imposes an income tax on individuals as follows:

(1) Application to individuals.--In the case of an individual,

there is hereby imposed (in addition to any other tax imposed

by this subtitle) for each taxable year a tax equal to 3.8 percent

of the lesser of--

(A) net investment income for such taxable year, or

(B) the excess (if any) of-- (i) the modified adjusted gross

income for such taxable year, over (ii) the threshold amount.

26 U.S.C. § 1411(a).

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C. The Crux of the Interpretive Problem

According to Mr. Bruyea, the Treaty in Article XXIV, Paragraph 1 — and

particularly Clause [4] of that paragraph — creates a Treaty-based tax credit applicable

to the NIIT irrespective of whether the I.R.C. provides for, or permits, that credit. Three

textual data points support his view. First, Article XXIV’s purpose, as indicated by its

title, is the “Elimination of Double Taxation.” Canada Tax Treaty at 24; see also Pl. MSJ at

20. 10 Second, Clause [4] expressly provides that “the United States shall allow to a citizen

. . . of the United States . . . as a credit against the United States tax on income the

appropriate amount of income tax paid or accrued to Canada[.]” Canada Tax Treaty at

24 (emphasis added). The government does not dispute that the NIIT qualifies as a

“United States tax” as defined in Article II and Article III of the Treaty. See Canada Tax

Treaty at 2-3. Third, Mr. Bruyea points to Paragraph 4(b) of Article XXIV, which provides

that “for the purposes of computing the United States tax, the United States shall allow

as a credit against United States tax the income tax paid or accrued to Canada after the

deduction referred to in subparagraph (a).” Id. at 25 (emphasis added).

In opposing Mr. Bruyea’s reading, the government relies primarily on the U.S.

Law Limitation (i.e., Clause [2] of Article XXIV, ¶ 1). See Def. MSJ at 12, 25, 32. According

to the government, any Treaty-based credit — whether based on Paragraphs 1 or 4 of

Article XXIV — must be “[i]n accordance with the provisions . . . of the law of the United

States[.]” Canada Tax Treaty at 24. Put differently, the government maintains that a

Treaty-based credit simply cannot exist independently of the I.R.C.— the “law of the

United States.” Id. The government further points out, Def. MSJ at 35, that Clause [2]

specifically anticipates that the law of the United States “may be amended from time to

time,” thus extending the reach of the U.S. Law Limitation to future I.R.C. provisions that

conflict with the Treaty.

Applying the U.S. Law Limitation to the facts of this case, the government

contends that the NIIT — or, more accurately, the NIIT’s placement outside of I.R.C.

Chapter 1 — precludes the Treaty-based tax credit Mr. Bruyea claims. In particular, the

government points to I.R.C. § 27, which provides that “[t]he amount of taxes imposed by

foreign countries . . . shall be allowed as a credit against the tax imposed by this chapter to

the extent provided in section 901[.]” 26 U.S.C. § 27 (emphasis added). Section 27 is in

Chapter 1 of the I.R.C. 11 The NIIT, 26 U.S.C. § 1411, resides by its lonesome in Chapter 2A.

10 Clause [1] instructs that “double taxation shall be avoided.” Canada Tax Treaty at 24.

11 I.R.C. § 901 is also contained within Chapter 1 of the I.R.C., and references “the tax imposed by

10

Because the I.R.C. provides that a foreign tax credit is only available for taxes within

Chapter 1, and because the NIIT is outside of Chapter 1, the government argues that

Mr. Bruyea cannot claim a Treaty-based foreign tax credit against the NIIT.

There is yet more textual complexity. Because the Treaty guarantees that any

future amendment to United States law will not “chang[e] the general principle hereof,”

Canada Tax Treaty at 24 (Clause [3]), the government arguably cannot rely on the mere

(later) location of the NIIT, within I.R.C. Chapter 2A, to preclude a Treaty-based credit.

See Pl. MSJ at 37-39. Mr. Bruyea further asserts the “general principle hereof” refers to

the Treaty’s goal of eliminating (or avoiding) double taxation. Id.

By now, the basic interpretive problem is readily apparent. On the one hand, the

Canada Tax Treaty plainly provides for a foreign tax credit in Mr. Bruyea’s favor. See

Canada Tax Treaty at 24–25 (Article XXIV, ¶ 1, Clause [4]; Article XXIV, ¶ 4(b)). On the

other hand, a literal reading of the U.S. Law Limitation arguably takes back what Article

XXIV otherwise giveth (because the I.R.C., by its terms, certainly does not provide for the

Treaty-based tax credit Mr. Bruyea claims).

If Mr. Bruyea’s refund claim were based only on the I.R.C., even he concedes that

he would surely be out of luck. That is, Mr. Bruyea agrees with the foundational axiom

that the I.R.C. does not provide the foreign tax credit he seeks to apply against the NIIT.

He argues, however, that the I.R.C. cannot — and does not — answer the critical

interpretative question posed by his complaint: “As the NIIT falls outside [C]hapter 1 [of

the I.R.C.], the parties agree that no credit is allowed under domestic law, but Plaintiff’s

view is that the NIIT is covered by the foreign tax credit rules of the Canada Treaty.” Pl.

MSJ at 18. In other words, according to Mr. Bruyea, the government’s position simply

begs the question whether the Treaty independently provides a tax credit against the

NIIT notwithstanding that the I.R.C. does not provide for such a credit.

More significantly, the government’s interpretation has a glaring consistency

problem: the government takes an ad-hoc approach to the U.S. Law Limitation. The

government interprets the U.S. Law Limitation differently when applied to different

paragraphs within Article XXIV. In fact, as the Court details below, the government

concedes that there are Treaty provisions that the government must follow even though

this chapter[.]” More specifically, § 901 is within Subpart A (“Foreign Tax Credit”) of

Part III (“Income From Sources Without the United States”) of Subchapter N (“Tax Based on

Income From Sources Within or Without the United States”).

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they are inconsistent with the I.R.C. That is a powerful concession in Mr. Bruyea’s favor

because if there are such Treaty provisions, how does the U.S. Law Limitation work?

How can the government ask this Court to read the U.S. Law Limitation to apply to some

paragraphs of Article XXIV but not others? On the other hand, Mr. Bruyea must contend

with the meaning of the U.S. Law Limitation.

The Court grapples with these questions infra, but no matter how the interpretive

problem is sliced, once a literal, expansive reading of the U.S. Law Limitation is off the

table, resorting to extrinsic evidence is all but unavoidable. Accordingly, this Court first

addresses the plain text of the various Treaty and I.R.C. provisions at issue, and then

explores the extrinsic material — all through the lens of the treaty interpretation

principles set forth in the binding Supreme Court and Federal Circuit decisions this Court

summarized above. At the end of the day, the Court concludes that Mr. Bruyea has the

better case.

D. The Canada Tax Treaty Provides the Tax Credit Mr. Bruyea Claims

Consistent with the case law, both parties extensively rely on extrinsic evidence,12

suggesting that neither party can throw a knock-out interpretive punch here. And the

Court agrees: neither the Treaty nor the I.R.C. supplies a truly definitive answer — via

the text’s plain meaning — to the central issues in this case. More specifically, the Canada

Tax Treaty contains no language that expressly answers the twin questions of: (1) whether

“the NIIT is covered by the foreign tax credit rules of the Canada Treaty[,]” as Mr. Bruyea

asserts, Pl. MSJ at 18; or (2) whether the U.S. Law Limitation precludes such a Treaty-

based credit, as the government argues, Def. MSJ at 32.

But that does not mean this Court may disregard the Treaty’s plain language or

that it is unhelpful. To the contrary, this Court begins with the Treaty’s plain language

and fleshes it out by first considering points of common ground. Once we have a clear

view of what the parties agree upon, the points of disagreement are sharpened into focus.

Only then does the Court consider the extrinsic evidence upon which the parties rely.

12 See, e.g., Pl. MSJ at 36 (citing the Canadian government’s interpretation of the Treaty and the

Technical Explanation to the Canada Treaty); Def. MSJ at 37 (citing to the United States Treasury

Department’s guidance on the NIIT).

12

Ultimately, this Court concludes that Mr. Bruyea’s interpretive approach places

less strain on the Treaty’s text than the government’s interpretation, and that his

approach finds greater support within the extrinsic evidence.

1. The textual evidence favors Mr. Bruyea’s interpretation of the Treaty

At the outset, the government concedes 13 that a treaty generally may provide a self-

executing tax credit (i.e., even where the I.R.C. contains no implementing provisions or

even where it is inconsistent with a treaty-based tax credit). In that regard, the

government agrees that, in a hypothetical case, “the treaty would have effect,

notwithstanding the Code, unless the treaty was later amended by a code provision

providing directly to the contrary[.]” Tr. 4:7–17 (emphasis added). This gets us quickly to

the very heart of the textual dispute in this case because that is precisely what Mr. Bruyea

contends Paragraphs 1 and 4 of Article XXIV accomplish here:

THE COURT: … [M]y first question when we began is that

it’s possible for the treaty to have a self-executing credit, even

if the Code didn’t expressly provide for it.

[GOVERNMENT COUNSEL]: Yes.

THE COURT: I think that’s kind of Plaintiff’s [central]

position[:] . . . the Treaty gives us the credit and nothing in the

Code takes it away.

[GOVERNMENT COUNSEL]: Well, I think the Code takes it

away by putting the [NIIT] outside of Chapter 1 [of the I.R.C.].

Tr. 22:8–18 (emphasis added).

13 See ModernaTx, Inc. v. Arbutus Biopharma Corp., 18 F.4th 1352, 1361 (Fed. Cir. 2021) (quoting a

concession by counsel at oral argument as evidence a plaintiff fell short of its burden); Faiella v.

Fed. Nat’l Mortg. Ass’n, 928 F.3d 141, 146 (1st Cir. 2019) (“A party ordinarily is bound by his

representations to a court and — having staked out his position in response to the district court’s

inquiry — the appellant cannot now repudiate that position.” (citation omitted)); United States v.

Lloyd, 10 F.3d 1197, 1209 (6th Cir. 1993) (concession made by defendant’s attorney in district court

was binding on appeal); Adidas Sportschuhfabriken ADI Dassler KG v. Chen, 1988 WL 1091940, at *7

(N.D. Cal. Feb. 2, 1988) (concluding that a court “is entitled to rely upon and enforce the

representations of counsel” because “the Court system would soon fail to function were the Court

not able to rely upon representations and stipulations of counsel acting on behalf of their

clients.”).

13

The government thus agrees that United States law need not expressly implement

a Treaty-based tax credit for one to exist. Rather, a Treaty-based credit can be “self-

executing.” Id. And we see that the government further concedes, albeit implicitly, that

the Treaty here does generally create a Treaty-based tax credit. Otherwise, there would

be nothing for the Code to “take[] away.” Id. Finally, according to the government, the

Treaty-based tax credit claimed here — that is, as applied to the NIIT — is precluded not

by any express I.R.C. text per se, but rather by the NIIT’s placement outside of I.R.C.

Chapter 1.

Because the NIIT’s statutory terms are silent about not only foreign tax credits

generally, but also about Mr. Bruyea’s putative Treaty-based credit in particular, the

critical question is this: may this Court infer that any Treaty-based tax credit against the

NIIT is precluded based upon its placement outside of Chapter 1 of the I.R.C.?

To answer that question, we first must understand that the Treaty, as a matter of

law, will give way to the I.R.C. in only two circumstances. The first is where a later-

enacted statutory provision “directly” conflicts with the Treaty. Tr. 4:15–17. That “last-

in-time rule” is a background, bedrock legal principle of treaty interpretation. The second

circumstance is where the Treaty, by its terms, defers to the I.R.C. The government

asserts both grounds in arguing that this Court should reject Mr. Bruyea’s tax claim.14

The Court addresses each issue, in turn.

a. The “last-in-time rule” does not apply here

A later-enacted statute controls over a directly conflicting treaty provision. Bell, 169

F.3d at 1386. This is known as the “last-in-time rule.” Kappus, 337 F.3d at 1057 (“When a

statute conflicts with a treaty, the later of the two enactments prevails over the earlier

under the last-in-time rule.” (discussing Whitney v. Robertson, 124 U.S. 190, 194-95 (1888));

Whitney, 124 U.S. at 195 (“The duty of the courts is to construe and give effect to the latest

expression of the sovereign will.”). Moreover, Congress has codified, in 26 U.S.C.

§ 7852(d)(1), the “last-in-time principle as applied to tax treaties and statutes.” Kappus,

337 F.3d at 1057 (discussing 26 U.S.C. § 7852(d)(1)). Here, the parties do not dispute that

14 Def. MSJ at 31 (“Because the tax imposed by § 1411 on net investment income is not a Chapter

1 tax, the text and structure of the Code make clear that foreign tax credits are not allowed against

it.); id. at 32 (“Thus, to allow a credit against the NIIT would not be ‘[i]n accordance with the

provisions . . . of the law of the United States,’ and would contravene both the Code and the text

of paragraph (1).”).

14

the NIIT was enacted after the operative Treaty provisions on which Mr. Bruyea relies to

support his claim. But the “last-in-time rule” only has significance if the NIIT indeed

conflicts directly with the treaty. The government’s mere talismanic invocation of the

“last-in-time rule” does not mean it is applicable or that it resolves the salient question.

Now, Mr. Bruyea concedes that if Congress had enacted a later statute that

expressly precluded any foreign tax credit — or any Treaty-based credit — from being

applied to the NIIT, such a provision would control over the Treaty, and he would not

have a viable claim here. Pl. MSJ at 24 (“Later enacted statutes can override a treaty if

Congress intends to do so, but . . . Congress did not intend an override when enacting the

NIIT.”). In other words, such a hypothetical statute would control even if the Treaty

lacked the U.S. Law Limitation (contained within Art. XXIV, ¶ 1, Clause [2]). That, of

course, necessarily means that the U.S. Law Limitation is completely irrelevant to the

“last-in-time rule,” which, again, is a background rule that would apply even if the Treaty

did not contain the U.S. Law Limitation. We can thus put the U.S. Law Limitation to the

side for now and concentrate solely on whether the “last-in-time rule” applies here in

some dispositive way.

The first major problem for the government’s argument, according to Mr. Bruyea,

is that “[b]ecause there has not been an explicit Congressional override, long-established

case law requires that the NIIT and the Canada Treaty should be read harmoniously to

give effect to both.” Pl. MSJ at 25. Mr. Bruyea is correct. This Court must attempt to

harmonize Treaty and statutory provisions: “Where a treaty and a statute ‘relate to the

same subject, the courts will always endeavor to construe them so as to give effect to both,

if that can be done without violating the language of either.’” Kappus, 337 F.3d at 1056

(quoting Whitney, 124 U.S. at 194, and citing Xerox Corp., 41 F.3d at 658)).

In Kappus, the United States Court of Appeals for the District of Columbia Circuit

declined to attempt to harmonize the Canada Tax Treaty with 26 U.S.C. § 59(a)(2), the

statute at issue in that case. 337 F.3d at 1056. There, the D.C. Circuit acknowledged that

“[t]he question of whether the Treaty and statute can be harmonized as the government

suggests is an extremely close one.” The court concluded, however, that “[i]t is not . . . a

question that [the court] need resolve” because the plaintiffs conceded that the Treaty and

statute were in “irreconcilable conflict” — indeed, the plaintiffs “contend[ed] that

harmonization is not possible” — and the D.C. Circuit found that the statute was last in

time. Id.

15

Mr. Bruyea does not concede the “irreconcilable conflict” point here and he is

correct not to do so. Because neither the NIIT nor any other I.R.C. provision expressly

precludes the application of the Treaty-based tax credit Mr. Bruyea claims, this Court

further agrees with Mr. Bruyea that we can dispense with the “last-in-time rule” on that

basis alone. Simply put, the fact that the I.R.C. provides for foreign tax credits only in

Chapter 1 does not expressly preclude the Treaty’s serving as an independent source for

such a credit against the NIIT (i.e., just because the NIIT is located elsewhere within the

I.R.C.).

Again, if Congress, after the Treaty’s ratification, had enacted a provision

mandating that “the NIIT shall not be subject to any foreign tax credit,” this case would

be over (and decisively so, in favor of the government). But this Court cannot infer such

a meaning or result — and read the I.R.C. as if such express language exists — merely

because the NIIT was placed in a separate chapter of the IRC. See, e.g., Cook v. United

States, 288 U.S. 102, 120 (1933) (“A treaty will not be deemed to have been abrogated or

modified by a later statute, unless such purpose on the part of Congress has been clearly

expressed.”); Trans World Airlines, Inc. v. Franklin Mint Corp., 466 U.S. 243, 252 (1984)

(“There is, first, a firm and obviously sound canon of construction against finding implicit

repeal of a treaty in ambiguous congressional action.” (citing Cook, 288 U.S. at 120,

amongst other cases)); In re Rath, 402 F.3d 1207, 1219 (Fed. Cir. 2005) (Bryson, J.,

concurring) (applying Cook).

In Trans World Airlines, the Supreme Court explained that “[l]egislative silence is

not sufficient to abrogate a treaty.” 466 U.S. at 252 (citing Weinberger v. Rossi, 456 U.S. 25,

32 (1982)). There, the Supreme Court concluded that “[n]either the legislative histories

of the Par Value Modification Acts, the history of the repealing Act, nor the repealing Act

itself, make any reference to the [treaty]” at issue in that case. Id. To the contrary,

explained the Court, the legislation at issue “was unrelated to the [treaty].” Id. The same

is true in this case. The government has pointed to no express textual or extrinsic

evidence — literally, nothing — even remotely suggesting that Congress’s placement of

the NIIT outside of Chapter 1 was intended to preclude a Treaty-based tax credit. See

Def. MSJ at 23-24. Nor does any such evidence likely exist.15

15 See Ausher M.B. Kofsky & Bryan P. Schmutz, What a Long Strange Trip It’s Been for the 3.8% Net

Investment Income Tax, 78 Md. L. Rev. Online 14, 31 (2019) (“In summary, the NIIT arose as a last-

minute revenue replacement to offset the revenue loss from Congress’s delayed implementation

of the 40% excise tax on high-cost . . . health insurance plans.”).

16

In Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc., the Supreme Court

contrasted, in the context of a treaty, “an exception to arbitrability grounded in express

congressional language” with “a judicially implied exception.” 473 U.S. 614, 639 n.21 (1985)

(emphasis added). The Court reasoned that it was “[d]oubtless” that “Congress may

specify categories of claims it wishes to reserve for decision by our own courts without

contravening this Nation’s obligations under the Convention” at issue in that case. Id.

The Court declined, however, “to subvert the spirit of the United States’ accession to the

Convention by recognizing subject-matter exceptions where Congress has not expressly

directed the courts to do so.” Id. (emphasis added). Here, as in Mitsubishi, there is no

express direction for courts to disregard the Treaty-based tax credit Mr. Bruyea claims

based on Congress’s having placed the NIIT in its own chapter within the I.R.C. (i.e.,

outside of Chapter 1).

In sum, there is nothing “expressly” (or even necessarily) inconsistent about the

NIIT’s placement and the Treaty-based credit Mr. Bruyea claims in this case. Magone v.

Heller, 150 U.S. 70, 74 (1893) (“the adverb ‘expressly,’ in its primary meaning, denotes

precision of statement, as opposed to ambiguity, implication, or inference, and is

equivalent to ‘in an express manner’ or ‘in direct terms[.]’”); Express, Black’s Law

Dictionary (12th ed. 2024) (defining “Express” as “Clearly and unmistakably

communicated; stated with directness and clarity.”). 16 This Court rejects the

government’s argument that “the placement [of the NIIT] is itself an express

inconsistency” with the Treaty. Tr. 21:18–19.

The government’s argument, however, is even more ambitious, rejecting the need

for any specificity in the later-enacted provision to overrule the Treaty. According to the

government, the general rule that “a Congressional intention to modify a treaty by statute

must be clearly expressed” does not apply to tax cases; rather, the government asserts, “a

different standard applies under the [Internal Revenue] Code.” Def. MSJ at 42 n.20. In

particular, the government points to 26 U.S.C. § 7852(d)(1), which provides that “[f]or

purposes of determining the relationship between a provision of a treaty and any law of

the United States affecting revenue, neither the treaty nor the law shall have preferential

status by reason of its being treaty or law.” 17 The government thus asserts that “treaties

have no preferential status over tax statutes, and there need be no explicit statement of

16 An “express repeal” is a “[r]epeal by specific declaration in a new statute . . . .” Repeal, Black’s

Law Dictionary (12th ed. 2024).

17 This provision was enacted as part of the Technical and Miscellaneous Revenue Act of 1998

(“TAMRA”), Pub. L. No. 100-647, 102 Stat. 3342.

17

Congressional intent that the Code will prevail in case of conflict with a treaty.” Def. MSJ

at 42 n.20 (citing S. Rep. No. 100-445 at 325-26 (1988)).

The government cannot get the mileage out of 26 U.S.C. § 7852(d)(1) it desires. As

the D.C. Circuit recognized — citing the same Senate Report as the government here —

“this provision was intended to codify the last-in-time principle as applied to tax treaties

and statutes.” Kappus, 337 F.3d at 1057. And, indeed, that is all the statute’s plain

language accomplishes. The government is wrong; tax statutes aren’t different than other

statutes vis-à-vis treaties.

To be clear, neither this Court nor Mr. Bruyea takes any issue with the “last-in-

time” principle in general. The question is simply whether it applies here. The Court

continues to answer that question in the negative. Because 26 U.S.C. § 7852(d)(1) does

nothing more than codify the “last-in-time rule,” as the D.C. Circuit recognized, the

statute itself does nothing more than beg the question whether there is, in fact, a necessary

conflict between the NIIT statute, on the one hand, and the Treaty, on the other. The

government answers that question in the affirmative based on the NIIT’s placement —

and despite any textual evidence that its placement in Chapter 2A was intended to defeat

the Treaty-based tax credit. Mr. Bruyea, in contrast, correctly points to the general rule

that this Court should not manufacture a conflict between the statute and the Treaty by

implication. That is precisely what this Court established infra, and 26 U.S.C. § 7852(d)(1)

does not change this Court’s analysis.

Kappus further demonstrates why the government is flat wrong. In that case, I.R.C.

§ 59(a)(2) — the tax statute at issue that conflicted with the Treaty — was subject to yet

another TAMRA provision that specified that § 59(a)(2) was “intended to apply

notwithstanding any inconsistent treaty obligations[.]” 337 F.3d at 1057 (discussing

TAMRA, § 1012(aa)(2), codified at 26 U.S.C. § 861 note, and citing S. Rep. No. 100-45 at

319). According to the D.C. Circuit, “TAMRA thus made it crystal clear that Congress

intended [§ 59(a)(2)] to supercede any preexisting treaty obligation with which it

conflict[s].” Id. at 1058. Here, in contrast, the Treaty and the NIIT statute may be

harmonized and, relatedly, there is no similar “crystal clear” congressional language like

that in Kappus, indicating that the NIIT’s placement was designed to “supercede” a

Treaty-based tax credit.

Finally, if the government were correct that 26 U.S.C. § 7852(d)(1) somehow

vitiates the Supreme Court’s instruction that “a Congressional intention to modify a

18

treaty by statute must be clearly expressed[,]” Def. MSJ at 42 n.20, we would expect to

see some clear authority to that effect. The government notably quotes no language from

the Senate Report or any case law so holding. And that is because there is no support for

the government’s assertion. To the contrary, the D.C. Circuit in Kappus recognized — as

does this Court — the continued vitality of the Supreme Court’s general rule that

“statutes and treaties should be harmonized if possible,” even in tax cases. Kappus, 337

F.3d at 1059 n.7 (citing Whitney, 124 U.S. at 194, and the Federal Circuit’s decision in Xerox

Corp., 41 F.3d at 658). Indeed, the D.C. Circuit instructed that “[t]he best way to

harmonize § 59(a)(2) with [later-enacted] protocols [amending the Treaty] is to assume the

latter were not intended to repeal the former.” Id. (emphasis added). And that is precisely

how this Court approaches the NIIT. Moreover, this Court again notes that, quite unlike

the plaintiffs in Kappus, Mr. Bruyea does not concede a conflict between the Treaty and a

statute. Nor, for that matter, does the government point to language — “crystal clear,”

id. at 1058, or otherwise — making a conflict between the Treaty and the NIIT

“irreconcilable,” id. at 1056, or making them “absolutely incompatible,” id. at 1059.

To side with the government, this Court would have to disregard the Federal

Circuit’s instruction in Xerox Corp. that “unless it is impossible to do so, treaty and law

must stand together in harmony.” Kappus, 337 F.3d at 1059 n.6 (quoting Xerox Corp., 41

F.3d at 658). This Court has done its best to implement that instruction and the result

favors Mr. Bruyea.

b. The Treaty’s U.S. Law Limitation does not preclude the application of a

Treaty-based credit to the NIIT

But what about the second possibility: that the Treaty itself somehow precludes

the application of a Treaty-based tax credit to the NIIT? The government argues that the

Treaty’s U.S. Law Limitation does precisely that. The fatal problem for the government

is that the government simultaneously (and variously) contends that the U.S. Law

Limitation means that the I.R.C. always trumps the Treaty and — try to wrap your head

around this — that the Treaty sometimes does trump the I.R.C. The government cannot

have it both ways. As demonstrated infra, the Court attempted during oral argument to

pin the government down on the precise meaning and scope of the U.S. Law Limitation,

but that proved to be “an effort to nail jello to a wall.” Alexander v. Mayhew, 334 F.R.D.

626, 627 (N.D. Fla. 2020).

For starters, the government critically concedes that the U.S. Law Limitation does

not always preclude a Treaty-based tax credit unless implemented in the I.R.C. Indeed,

19

the government agrees that the Treaty, in Article XXIV, contains several paragraphs that

control over conflicting United States statutory provisions. For example, the

government readily agrees not only that Paragraph 3 of Article XXIV is inconsistent with

the I.R.C., Tr. 13:5–17, but also that “Paragraphs 3, 4, 5, and 6 [of Article XXIV] do make

promises that are inconsistent with the Code and provide rights that would not otherwise

be provided for under the Code[.]” Tr. 28:1–5 (emphasis added) (further agreeing that the

“extrinsic materials that we refer to are quite specific about that”). In other words,

computing taxes pursuant to Article XXIV, ¶¶ 3–6, would yield a different result than if

the I.R.C. were followed instead. 18

That critical concession creates an insurmountable impediment to the

government’s interpretive approach to the Treaty. That is because whatever the proper

scope of the Treaty’s U.S. Law Limitation, the government agrees that it cannot be read

literally to mean that the I.R.C. always trumps the Treaty. And once we know that the

Treaty contains some provisions that must be followed even though they conflict with

United States law, the next, natural question is not rocket science: why is the Treaty-based

tax credit Mr. Bruyea claims pursuant to Paragraphs 1 and 4 of Article XXIV any different than

what is permitted in Paragraphs 3-6? The Court spent the bulk of oral argument trying to

unravel the mystery of that question — i.e., how the government can contend both that

U.S. Law Limitation precludes Mr. Bruyea’s claimed credit, but elsewhere permits Treaty

provisions to trump the I.R.C. There is no gentle way to say this — the government had

the Court going in circles:

THE COURT: But doesn’t this also – [“]the subject [to] the

provisions and limitations of the law of the United States[”]

[language] apply to all the subsequent paragraphs? Isn’t this

. . . a general rule for . . . the double taxation compromise

generally?

[GOVERNMENT COUNSEL]: It does, yes. . . . [E]xcept

where the other [Treaty] paragraphs specifically trump

specific provisions of the Code.

18 See Pl. MSJ at 20 (“Article XXIV(5) provides a United States foreign tax credit to a Canadian

resident United States citizen on dividends, royalties, and interest arising in the United States.

Under Code Sections 901 and 904(a), a foreign tax credit is only available with respect to foreign

source income. Thus, the credit under Article XXIV(5) of the Canada Treaty represents a credit

that is not available under the Code and is independently provided by the Canada Treaty.”).

20

Tr. 28:17–29:1 (cleaned-up).

But there are no Treaty paragraphs that “specifically” — i.e., explicitly, by their

terms — “trump specific provisions of the Code.” Id. No such language exists. As hard

as the Court tried to pin down precisely how the government reads the U.S. Law

Limitation consistently across Article XXIV, the Court could not get the government to

articulate a consistent approach:

THE COURT: If we’re putting aside Whitney vs. Robinson,

[and focus just on the Treaty language] “in accordance with

the provisions and subject to the limitations of the [law of the]

United States,” the Code should trump all of these other

[Treaty] provisions that you are saying are enforceable, and

I’m trying analytically to figure out how do you know that

some of these provisions in the Treaty trump the Code and in

other cases the Code trumps the Treaty?

[GOVERNMENT COUNSEL]: Because the Treaty in its text

specifically provides for remedies that are different from the

remedies that are in the Code.

THE COURT: So? Maybe the[] [Treaty provisions] just lose

in the face of the Code.

[GOVERNMENT COUNSEL]: Well, the Government is not

taking such a draconian position in this case, Your Honor.

THE COURT: Right, but it’s an unprincipled one if I can’t

come up with a rule, an interpretive rule that explains your

position in both cases, and it doesn’t sound like I’ve got one.

[GOVERNMENT COUNSEL]: The interpretive rule is that

as a general matter, for any foreign tax credit that’s allowed

under the Treat[y], [it] is subject to the provisions and

limitations of the Code except to the extent that elsewhere in

the treaty there are specific provisions of the Code that are

altered by the Treaty partners agreeing to do so in a particular

[case].

Tr. 29:3–30:3 (cleaned-up).

21

The government’s explanation in a nutshell amounts to this: the Treaty governs

unless it doesn’t. 19

At best, a generous characterization of the government’s position is that while

there is no hard-and-fast rule, the Court should consider the relative specificity of

competing Treaty and statutory provisions. At worst, the government concedes that its

interpretation would nullify other paragraphs within Article XXIV, but the government

knows that result would be absurd and so its only recourse is to arbitrarily adjust its

interpretation of the U.S. Law Limitation depending on the paragraph at issue. When the

Court pressed the government on just these problems, the government hypothesized a

specificity distinction:

THE COURT: It seems like that . . . “in accordance language,”

works differently depending on what we’re talking about.

When we’re talking about the other paragraphs with the . . .

greater details on the three-bite [computation] rule, you agree

19 Even if the U.S. Law Limitation must be read to apply to Paragraphs 3–6 of Article XXIV, and

not just Paragraph 1 of that article, Mr. Bruyea still prevails. See, e.g., Def. MSJ at 38 (arguing that

the U.S. Law Limitation “applie[s] to the credits referenced in paragraph 4(b) [of Article XXIV] as

well”); Tr. 40:5–9 (government arguing that “Paragraph 1 is, itself, subject to Paragraphs 4, 5, and

6, so there is an interlink between the two”). Indeed, the Court is inclined to agree with the

government that Paragraph 1 of Article XXIV — including the U.S. Law Limitation — applies to

any Treaty-based tax credit claim based on Paragraph 4. See Def. MSJ at 43. Thus, in contrast to

Christensen v. United States, 168 Fed. Cl. 263, 330 (2023), the undersigned sees no reason to

distinguish between the operative Treaty-based tax credit language in Paragraph 1 and that of

Paragraph 4(b). Accordingly, the undersigned disagrees with Christensen that the U.S. Law

Limitation applies in the former but not the latter. Instead, this Court concludes that the U.S. Law

Limitation applies to both paragraphs, but they must be read together and are not expressly

inconsistent with the I.R.C. What that means is that the U.S. Law Limitation does not preclude

the Treaty-based foreign tax credit against the NIIT in either Paragraph 1 or 4(b). In that regard,

Christensen itself concluded that there was “no evidence of congressional intent when placing

I.R.C. § 1411 in Chapter 2A of the I.R.C.,” 168 Fed. Cl. at 328, and that “nothing in the legislative

history of the enactment of I.R.C. § 1411 indicates the congressional intent with respect to

abrogating any foreign tax credit provided by” the nearly-identical tax treaty with France at issue

in that case “when Congress enacted the [NIIT] in Chapter 2A[,]” id. at 331. Thus, in the

undersigned’s view, Christensen ultimately correctly rejected the government’s request for “this

court to assume from the words of [the NIIT] and its placement in Chapter 2A of the I.R.C. . . . that

Congress intended to exclude the [NIIT] from all foreign tax credits.” Id. at 331 (emphasis added).

Christensen also is correct that I.R.C. § 6511(d)(3)(A) squarely supports the proposition “that a

foreign tax credit may be allowed by the provisions of a treaty without also being provided by

the terms of I.R.C. § 901.” Id. at 332–33. In sum, the U.S. Law Limitation does not preclude

Mr. Bruyea’s claimed tax credit even if that clause applies to Paragraph 4(b) of Article XXIV.

22

that the Treaty provisions -- what is it called, the sourcing

rules?

[GOVERNMENT COUNSEL]: Yes.

THE COURT: That trumps the Code.

[GOVERNMENT COUNSEL]: Yes.

THE COURT: Because they are inconsistent. All I’m asking

you, if they are inconsistent with the Code, why does the

Treaty provisions win there, but if I interpret the Treaty

provision in Paragraph 1 to be what the Plaintiff is saying, it

does not trump? That’s what I’m asking.

[GOVERNMENT COUNSEL]: Because when the parties

enacted Paragraph 1 of the Treaty, they were not expressly

making a promise to alter the Code, whereas paragraphs 3, 4,

5, and 6 contain express promises to alter certain aspects of the

Code.

THE COURT: Where is that? Where is the express promise

that they are altering the Code? Is it just in their specificity?

[GOVERNMENT COUNSEL]: Yes.

Tr. 31:25–32:24 (cleaned-up) (emphasis added).

This Court rejects the government’s specificity argument. As the Court discussed

during oral argument, and holds now, there are no “express promises” — contrary to the

government’s assertion — that provide that the Treaty trumps the Code in Paragraphs 3,

4, 5, and 6 of Article XXIV, but not in Paragraph 1. To conclude otherwise, and to side

with the government, would require conflating the words “express” and “inferred”:

THE COURT: Counsel, that is not what we mean when we

say “express.” “Express” means [something like]

“notwithstanding any provision of the United States Code,

we amend it as follows.” You want me to infer [such

language] from the specificity [of Article XXIV, ¶¶ 3-6], which

then means we’re just debating levels of specificity and what

ought to govern when things aren’t specific. It’s a much

different argument.

23

[GOVERNMENT COUNSEL]: You are right that it does not

say “notwithstanding the Code.”

THE COURT: Right. So it’s not express. . . . Express means

literal.

[GOVERNMENT COUNSEL]: [The Treaty] creates rules

that govern the application of foreign tax credits that are

themselves inconsistent with the Code.

THE COURT: Right. So why doesn’t the Code win?

[GOVERNMENT COUNSEL]: Because the parties . . .

agreed to a provision . . . in the Treaty that differed from the

Code . . . .

THE COURT: So the Treaty wins, not the Code?

[GOVERNMENT COUNSEL]: In that case, yes.

THE COURT: Why?

[GOVERNMENT COUNSEL]: Because that’s what . . . the

Treaty partners agreed to in the text of the Treaty[.]

Tr. 33:1–34:2 (cleaned-up).

In sum, the government’s reading of the U.S. Law Limitation would

simultaneously: (1) preclude Mr. Bruyea’s claimed Treaty-based tax credit because it

putatively conflicts with the I.R.C.’s foreign tax credit scheme in Chapter 1 of the I.R.C.;

and (2) permit the computation of foreign tax credits in a manner that definitely conflicts

with the I.R.C. This Court rejects the government’s ad-hoc approach to the U.S. Law

Limitation. Below, the Court further finds that other Treaty language supports

Mr. Bruyea’s claim in this case and addresses the meaning of the U.S. Law Limitation

utilizing the relevant extrinsic evidence, per the treaty interpretation rules the Supreme

Court and the Federal Circuit have instructed us to follow.

c. Other Treaty language supports Mr. Bruyea’s claim

The government’s interpretation fails to explain the proviso in Clauses [2] and [3]

of Article XXIV, Paragraph 1, reserving to the United States the right to “amend[]” its

laws “from time to time without changing the general principle” of the Treaty. Canda Tax

Treaty at 24 (emphasis added). The government does not adequately explain what

24

“general principle” the Treaty is referencing, but it seems quite clear to the Court that the

Treaty refers to the “general principle” of eliminating or avoiding double taxation.

The government opposes this view, but once again engages in circular, question-

begging reasoning, asserting that “the general principle cannot be broader than the

language it follows in [P]aragraph (1), which requires the United States to provide

foreign-tax-credit relief in accordance with its own domestic law.” Def. MSJ at 35. At

oral argument, the government further asserted that “[t]he ‘general principle’ refers to

the allowance of a credit under the Code[.]” Tr. 18:11–12. According to the government,

this language is a “promise . . . that the United States will not repeal the foreign tax credit

provisions from the Code. That’s what it promises.” Tr. 19:17–19. But this reading

critically assumes that the Treaty promised something impossible and, therefore,

meaningless: to eliminate the “last-in-time rule.” Of course, the Treaty cannot preclude

the government from later repealing foreign tax credit provisions within the I.R.C.

Moreover, the government’s hypothesis about the meaning of the “general principle”

language further critically assumes that a Treaty-based tax credit is precluded unless

domestic law provides for it. But the government already has conceded that: (1) nothing

in our domestic law expressly precludes a Treaty-based tax credit per se; and (2) Article

XXIV itself contains provisions that are inconsistent with domestic law.

The government makes no attempt to reconcile those concessions with its frankly

incredible assertion that the U.S. Law Limitation means that the Treaty “does not

necessarily provide U.S. taxpayers with rights beyond those already provided by the

Code[.]” Def. MSJ at 36 (arguing that “Article XXIV(1) of the Treaty need not provide

rights to taxpayers beyond those in the Code”). In using the word “necessarily” without

further explanation, the government confirms this Court’s suspicion that the government

is engaged in an ad hoc interpretation of the U.S. Law Limitation; it means whatever the

government wants it to, depending on the paragraph. And if the government is correct

that the Treaty provides nothing “beyond . . . the Code,” id., the Treaty accomplishes…

what, precisely? The government’s approach — that Paragraph 1 of Article XXIV may

well give nothing beyond the I.R.C. — may render Article XXIV entirely inoperative,20

20 See Tr. 17:17–23 (“THE COURT: But if [Paragraph 1 of Article XXIV] were inconsistent with

the Code, [the Treaty provision] would give nothing. . . . [I]t [would] really all come[] down to

the Code. The Code either provides for a credit or it doesn’t. [GOVERNMENT COUNSEL]:

You are correct, Your Honor, that Paragraph 1 does not give anything beyond the Code….”).

That is an inexplicable position, as a matter of basic textual interpretation principles, and one that

is inconsistent, in any event, with the government’s own concessions, as explained supra.

25

which is exactly what the government accuses Mr. Bruyea of doing to the U.S. Law

Limitation.

Accordingly, this Court agrees with Mr. Bruyea: “If Defendant’s position were

accepted, it is hard to understand what Defendant contends is the purpose of Article

XXIV(1). If this provision simply states that domestic law governs the allowance of a

foreign tax credit, the article would have no independent purpose or effect in

contravention of the fundamental rules of U.S. legal interpretation.” Pl. MSJ at 38.

In any event, the Court does not read that “the general principle” language as

“broader” than the U.S. Law Limitation, but rather as an interpretive rule to say this:

where the United States enacts a later tax code provision, the “general principle” of eliminating

or avoiding double taxation should be effectuated (i.e., unless the “last-in-time rule” requires

otherwise because there is a direct conflict). Indeed, if Congress wants to override treaty

obligations where there is a possible inconsistency with a statute — as opposed to a direct

conflict governed by the “last-in-time rule” — Congress knows how to do that. See, e.g.,

26 U.S.C. § 7874(f) (“Special rule for treaties.--Nothing in section 894 or 7852(d) or in any

other provision of law shall be construed as permitting an exemption, by reason of any

treaty obligation of the United States heretofore or hereafter entered into, from the

provisions of this section.”). The Court’s approach avoids the government’s ipse dixit and

gives meaning to the “the general principle” phrase, which, in the Court’s view, clearly

refers to the principle of eliminating or avoiding double taxation — a principle that the

government, contrary to the Treaty, entirely disregards.

Finally, the government admits that the Treaty’s definition of “United States tax”

includes the NIIT. Def. MSJ at 32 n. 13 (“Defendant does not disagree with plaintiff’s

position . . . that the NIIT is a ‘covered tax’ under Article II(3) of the Treaty.”). Now, if

anything is sufficiently specific from which the Court may draw a conclusion, that

definition is an express provision that is at least as specific as Paragraphs 3-6 of Article

XXIV and certainly far clearer than the inference the government wants this Court to

draw from the placement of the NIIT outside of I.R.C. Chapter 1. Again, the Treaty also

provides that it “shall apply also to . . . any taxes identical or substantively similar to those

taxes to which the Convention applies under paragraph 2 [of Article II].” Id. at 3

(emphasis added) (Art. II, ¶ 3(a)). This language covers the NIIT and the government

offers no response.

26

2. The extrinsic evidence supports Mr. Bruyea’s interpretation of the Treaty

The government — contradicting its broad reading of the U.S. Law Limitation

within Paragraph 1 — asserts that “[t]he fact that certain other provisions of the Treaty,

such as Article XXIV(5), may in certain circumstances provide benefits to taxpayers that

would not otherwise be allowed by the Code does not mean that the ‘provisions’ and

‘limitations’ language may be read out of [Article XXIV] paragraph (1).” Def. MSJ at 34.

There are three problems with that argument.

First, the Court notes that the government once again concedes that Article XXIV

does contain provisions that are binding and provide benefits to taxpayers even though

they conflict with the I.R.C.

Second, the government’s assertion is a strawman. The government is correct that

the U.S. Law Limitation must be given meaning, but we now know that it simply cannot

be read as broadly as the government insists; at least not if the provision is going to have

a consistent meaning throughout Article XXIV (given the government’s own view of the

Treaty provisions in Paragraph 3–6 of Article XXIV that the government agrees conflict

with United States law).

Third, Mr. Bruyea’s interpretation of the Treaty sits comfortably alongside the

disputed U.S. Law Limitation language. To explain how, we must refer, as both parties

do, to the extrinsic evidence. The extrinsic evidence not only generally supports

Mr. Bruyea’s claim to a Treaty-based tax credit but also provides a plausible answer

regarding what the parties intended with the U.S. Law Limitation.

a. The Technical Explanation

The Technical Explanation of the Treaty “is an official guide to the Convention”

published by the Treasury Department. See ECF No. 18-3 at 1 (Treasury Department

Technical Explanation of the Convention Between the Government of the United States

of America and Canada with Respect to Taxes on Income and on Capital Signed at

Washington, D.C. on September 26, 1980, as Amended by the Protocol Signed at Ottawa

on June 14, 1983 and the Protocol Signed at Washington on March 28, 1984). Both parties

rely on it. Pl. MSJ at 36–37; Def. MSJ at 44–46. It answers three critical questions.

27

First, what taxes does the Treaty cover? The Technical Explanation of Article II

indicates that the Treaty “shall apply . . . in the case of the United States, to the Federal

income taxes imposed by the Internal Revenue Code.” ECF No. 18-3 at 2. The Technical

Explanation notes that the Treaty expressly excludes particular United States taxes, such

as “the estate, gift, and generation-skipping transfer taxes, the Windfall Profits Tax,

Federal unemployment taxes, social security taxes imposed under sections 1401, 3101,

and 3111 of the Code, and the excise tax on insurance premiums imposed under Code

section 4371.” Id. More significantly — and consistent with the plain language of Article

II, Paragraph 3 — the Technical Explanation makes clear that the Treaty may apply to

future taxes no matter where they are located in the I.R.C.:

Paragraph 3 provides that the Convention also applies to any

taxes identical or substantially similar to the taxes on income in

existence on September 26, 1980 which are imposed in addition

to or in place of the taxes existing on that date. Similarly, taxes

on capital imposed after that date are to be covered.

Id. at 3 (emphasis added); see also id. at 4 (addressing Paragraph 1(d) of Article III). The

Court once again notes that the government concedes that the NIIT is a “Federal income

tax” and a “United States tax” as the Treaty defines those terms. Def. MSJ at 32 n. 13

(“Defendant does not disagree with plaintiff’s position (at 11-12) that the NIIT is a

‘covered tax’ under Article II(3) of the Treaty.”).

Second, does Paragraph 1 of Article XXIV contain a mere truism that gives United

States citizens nothing, as the government at times has suggested? The Technical

Explanation answers that question squarely in the negative: “Paragraph 1 provides the

general rules that will apply under the Convention with respect to foreign tax credits for

Canadian taxes paid or accrued.” ECF No. 18-3 at 37 (emphasis added). The Technical

Explanation clearly supports Mr. Bruyea’s claim: “The United States undertakes to allow

a citizen . . . of the United States . . . a credit against the Federal income taxes imposed by

the Code for the appropriate amount of income tax paid or accrued to Canada.” Id.

Third, how should we read the critical language in the U.S. Law Limitation?

According to the Treasury Department, the parties intended something very specific:

The direct and deemed-paid credits allowed by paragraph 1 are

subject to the limitations of the Code as they may be amended

28

from time to time without changing the general principle of

paragraph 1. Thus, as is generally the case under U.S. income

tax conventions, provisions such as Code sections 901(c), 904,

905, 907, 908, and 911 apply for purposes of computing the

allowable credit under paragraph 1. In addition, the United

States is not required to maintain the overall limitation

currently provided by U.S. law.

ECF No. 18-3 at 37 (emphasis added).

We learn several things from the Technical Explanation: (1) the Treaty, by its

terms, covers the NIIT even though it was enacted later; (2) Paragraph 1 of Article XXIV

itself contains “rules” and commits the United States to allowing its citizens credits

“against the federal income taxes imposed by the [I.R.C.] for taxes paid to Canada”;

(3) Paragraph 1 of Article XXIV contains no suggestion that it was intended to limit in

any way the type of United States tax to which a foreign tax credit might apply; and

(4) consistent with United States law, particular I.R.C. provisions may be appropriately

utilized to compute the quantum of the tax credit.

Any remaining contention that a taxpayer is not entitled to any Treaty-based credit

unless the I.R.C. provides for it is flatly refuted by the Technical Explanation in two

different ways.

First, the Technical Explanation advises this:

The term “income tax paid or accrued” is defined in

paragraph 7 of Article XXIV to include certain specified taxes

which are paid or accrued. The Convention only provides a

credit for amounts paid or accrued. The determination of

whether an amount is paid or accrued is made under the

Code. Paragraph 1 provides a credit for these specified taxes

whether or not they qualify as creditable under Code section

901 or 903.

ECF No. 18-3 at 37 (emphasis added). Whatever is meant by “these specified taxes,” it is

perfectly clear the parties intended that Paragraph 1 of the Treaty “provides a credit”

29

even if those taxes do “not . . . qualify as creditable under [I.R.C.] 901 or 903.” Id. This

alone is a complete refutation of the government’s overall position.

Second, the Technical Explanation refers to “[a] taxpayer who claims credit under

the Convention for Canadian taxes made creditable solely by paragraph 1.” Id. (emphasis

added). This, too, is a QED in Mr. Bruyea’s favor. The government does not address any

of this language in its briefs.

Finally, the Technical Explanation indicates that “[t]he rules of Paragraph 1” of

Article XXIV must be construed in concert with the “rules in paragraphs 4 and 5.” ECF

No. 18-3 at 43 (“The rules of paragraph 1 are modified in certain respects by rules in

paragraphs 4 and 5 for income derived by United States citizens who are residents of

Canada.”). That is the government’s position, see supra note 19, and, again, the Court

takes no issue with that straightforward proposition. But the point yields the government

no advantage as there is no suggestion that there is any limitation — in Paragraphs 4 and

5 — regarding the type of “United States tax” to which a Paragraph 1, 4, or 5 credit may

apply. In other words, so long as the NIIT qualifies as a “United States tax,” which the

government concedes is this case here, the Treaty provides for the claimed credit.

b. Other extrinsic evidence supports Mr. Bruyea’s claim

The Letter of Submittal from the President to the United States Senate, seeking its

“advice and consent to ratification,” ECF No. 18-4 at 2, also supports Mr. Bruyea’s case.

The Transmittal Letter explains that the Treaty “contains a rule . . . for eliminating double

taxation of United States citizens who are residents in Canada.” Id. at 4 (emphasis added).

The purpose of the Treaty — at least in the President’s contemporaneous view — could

not be clearer and we are instructed to take it into account. Water Splash, 581 U.S. at 281

(considering a report that the President included when transmitting a treaty to the United

States Senate for consideration and explaining that “[t]he Court also gives ‘great weight’

to ‘the Executive Branch’s interpretation of a treaty’” (quoting Abbott, 560 U.S. at 15)).

The Joint Committee on Taxation’s explanation of the Treaty, ECF No. 18-5 (“JCT

Explanation”), similarly explains that “[t]he principal purposes of the proposed income tax

treaty between the United States and Canada is to reduce or eliminate double taxation of

income earned by citizens and residents of either county from sources within the other

country[.]” ECF No. 18-5 at 7 (emphasis added).

30

The JCT Explanation also clarifies that the Treaty provides for a foreign tax credit

independent of the I.R.C., noting that “[t]he U.S. foreign tax credit provided for by the treaty

is to be applied on a per-country basis: that is, Canadian taxes will only be permitted to

offset U.S. tax imposed on Canadian income.” Id. at 11 (emphasis added). Indeed, that

“contrasts with the Code limitation which is computed on an overall, worldwide basis.”

Id. (emphasis added).

And here’s another total refutation of the government’s position from the JCT

Explanation: “[T]he treaty’s rules are used only if the taxes are not creditable under the Code.”

Id. (emphasis added). The JCT Explanation expressly acknowledges that the Treaty “will

apply to substantially similar taxes which either country may subsequently impose.” ECF No.

18-5 at 16 (emphasis added).

While the JCT Explanation does comment that “[t]he credit is provided . . . only to

the extent permitted under domestic law[,]” that means that “[t]he credit is to be computed

in accordance with the provisions of and subject to the limitations of U.S. law.” ECF No.

18-5 at 40 (emphasis added). Note that this language contains the same phrase as the U.S.

Law Limitation, upon which the government primarily relies, but is explained to reflect

that it references computation, and not general allowability. This dovetails nicely, and is

consistent, with the Technical Evaluation’s referencing specific I.R.C. provisions that

could be employed to compute the quantum of any Treaty-based credit (but that do not

themselves nullify such a credit). Thus, in the same section, the JCT Explanation

references the “use[] [of] the Treaty credit,” id., as well as a taxpayer’s “claiming benefits

under the treaty not available under the [I.R.C. ,]” id. at 40-41.

The JCT Explanation directly addresses Mr. Bruyea’s claim and supports it: “The

proposed treaty also contains special rules for U.S. citizens who are residents of

Canada. . . . [T]he United States will allow the citizen a credit against his U.S. tax for any

tax paid to Canada after Canda has allowed the credit for U.S. taxes.” ECF No. 18-5 at 42

(emphasis added). Note the expansive language — “U.S. tax” without limitation — and

the lack of any limitation based on the I.R.C.

Finally, the government relies on the Technical Explanation of the 2006 U.S. model

treaty, Def. MSJ at 26 (discussing ECF No. 20-13), but that document also provides

support for Mr. Bruyea. It notes that “the United States will allow a credit to its citizens

and residents in accordance with the Article, even if such credit were to provide a benefit not

available under the [I.R.C.].” ECF No. 20-13 at 6 (emphasis added).

31

3. Other interpretive principles support Mr. Bruyea’s claim

As noted above, this Court must also account for Canada’s view, as “[t]he

‘opinions of our sister signatories,’ . . . are ‘entitled to considerable weight.’” El Al Israel

Airlines, 525 U.S. at 176 (quoting Air France, 470 U.S. at 404). Here, Canada has indicated

that Mr. Bruyea is entitled to the Treaty-based tax credit he seeks. ECF No. 18-6 (“The

position of the Canadian competent authority in this regard is that Canada, as the country

of source, has the right to tax the gain, while the US, as the country which has residual

taxation rights, must provide relief in accordance with Article XXIV of the Convention.”).

The Supreme Court further instructs that “‘where a provision of a treaty fairly

admits of two constructions, one restricting, the other enlarging, rights which may be

claimed under it, the more liberal interpretation is to be preferred[.]’” Stuart, 489 U.S. at

368 (quoting Bacardi Corp., 311 U.S. at 163 (citations omitted)). The Court sees no reason

to disregard that principle here and it clearly favors Mr. Bruyea, just as it did the plaintiff

in Christensen. See Christensen, 168 Fed. Cl. at 333 (discussing Stuart and following the

Supreme Court’s instruction that a “liberal interpretation” of tax treaties is warranted).

4. Treasury’s own regulatory explanations refute the government’s policy-

based objections

The government asserts that recognizing “a Treaty-based allowance of foreign tax

credits against the NIIT would require the creation of a brand new, parallel, foreign-tax

credit regime not contemplated by the Code[.]” Def. MSJ at 56. Thus, argues the

government, “[t]he absence of any such methodology in the Code suggests strongly that

Congress did not contemplate the application of foreign tax credits against the NIIT.” Id.

The government’s objection, in essence, is that the precise methodology for calculating

Mr. Bruyea’s claimed credit is not clear in the I.R.C. and thus this Court should infer no

such credit may be claimed.

For starters, the government already has agreed that this computational question

may be decided after the entitlement issue the parties’ motions for summary judgment

presents for resolution. Indeed, the computation problem is a non-issue at this stage of

the case because “[t]he parties have agreed at this stage to defer any computation issues

pending the outcome of this motion for partial summary judgment.” Pl. Rep. at 18 n.11;

see also Def. MSJ at 50 (explaining that “the parties have reserved questions regarding the

computation of a foreign tax credit until after the Court has resolved the parties’ dispute

regarding the availability of a foreign tax credit in any amount”).

32

Moreover, the government’s objection, by its own admission, is overblown. In the

final regulation implementing the NIIT, the Treasury Department and IRS agreed that

there is no per se obstacle to a treaty-based credit applying to the NIIT:

The Treasury Department and the IRS also received

comments asking whether United States income tax treaties

may provide an independent basis to credit foreign income

taxes against the section 1411 tax. The Treasury Department

and the IRS do not believe that these regulations are an

appropriate vehicle for guidance with respect to specific

treaties. An analysis of each United States income tax treaty

would be required to determine whether the United States

would have an obligation under that treaty to provide a credit

against the section 1411 tax for foreign income taxes paid to

the other country.

Net Investment Income Tax, 78 Fed. Reg. 72394-01, 72396, 2013 WL 6222406 (Dec. 2, 2013).

The clear and necessary implication is that a treaty-based credit may apply to the NIIT

and, thus, that the NIIT’s placement in Chapter 2A of the I.R.C. (i.e., outside of Chapter 1)

does not preclude a foreign tax credit.

The Court recognizes that the very same Federal Register commentary reads the

U.S. Law Limitation as precluding “an independent basis for a credit against the section

1411 tax.” Id. But particularly in the absence of any explanation of that assertion —

persuasive or otherwise — that addresses the canons of treaty interpretation, the extrinsic

evidence, and the other interpretive difficulties this Court analyzed above but which the

government fails to answer, this Court declines to afford Treasury’s view any deference.

See, e.g., Loper Bright Enterprises v. Raimondo, -- U.S. --, 144 S. Ct. 2244, 2266 (2024)

(concluding that “agencies have no special competence in resolving statutory

ambiguities” and that “[t]he Framers . . . expected that courts would resolve them by

exercising independent legal judgment”). And to be clear, there are no actual regulatory

provisions Treasury or IRS promulgated that address the issues in this case.

33

VI. REDUX

Given the relative complexity of the parties’ contentions and arguments, the Court

provides this basic summary of its decision:

1. The United States and Canada entered a tax treaty: the Convention between

Canada and the United States of America with Respect to Taxes on Income and

on Capital.

2. Based upon that Treaty, Mr. Bruyea claims he is entitled to a foreign tax credit to

be applied against the NIIT he paid to the United States.

3. The Treaty provides in Paragraph 1 of Article XXIV that “the United States shall

allow to a citizen or resident of the United States . . . as a credit against the United

States tax on income the appropriate amount of income tax paid or accrued to

Canada . . . .”

4. The Treaty similarly provides in Paragraph 4 of Article XXIV that “for the

purposes of computing the United States tax, the United States shall allow as a credit

against United States tax the income tax paid or accrued to Canada.”

5. The government agrees that, in general, a taxpayer may claim a treaty-based

foreign tax credit — i.e., the I.R.C. does not have to implement a treaty-based tax

credit for one to exist.

6. The government nevertheless argues that the I.R.C. only provides for foreign tax

credits against income taxes contained within Chapter 1 of the I.R.C. Because

Congress placed the NIIT in Chapter 2A of the I.R.C., no foreign tax credit may

be applied against the NIIT. This is for two reasons: (a) because the NIIT was

enacted after the Treaty, the NIIT’s terms and placement in Chapter 2A trump the

Treaty pursuant to the “last-in-time rule”; and (b) pursuant to the Treaty’s terms,

any Treaty-based foreign tax credit must be “[i]n accordance with the provisions

and subject to the limitations of the law of the United States.” In that regard,

Mr. Bruyea agrees that the I.R.C. does not provide for the foreign tax credit he

seeks.

7. The government’s “last-in-time” argument fails because the Court is required to

harmonize the Treaty and the I.R.C. where possible, and here it is possible to do

so; the NIIT contains no text specifically and expressly inconsistent with the

Treaty-based foreign tax credit language upon which Mr. Bruyea relies.

8. More importantly, the government concedes that Article XXIV of the Treaty

contains several paragraphs that are incompatible with the I.R.C. but that are not

trumped by the I.R.C. Thus, the government does not read the phrase “[i]n

accordance with the provisions and subject to the limitations of the law of the

United States” (the U.S. Law Limitation clause) to mean that Treaty provisions

must be consistent with the I.R.C. to be enforceable. That phrase must be read

34

consistently across Article XXIV, but the government does not do so. Instead, the

government sometimes applies it (i.e., to preclude Mr. Bruyea’s claimed foreign

tax credit) and sometimes does not (i.e., the government implements the credit

calculation rules contained within Paragraphs 3-6, even though they are

inconsistent with the U.S. Law Limitation). As a result, the Court rejects the

government’s overly-broad reading of that provision.

9. The parties in the Treaty defined “United States tax” in a manner that covers the

NIIT and further agreed that “[t]he Convention shall apply also to . . . any taxes

identical or substantively similar to those taxes to which the Convention applies

under paragraph 2 [of Article II].” These Treaty terms support Mr. Bruyea’s

claim.

10. One purpose of the Treaty is to eliminate or avoid double taxation and

Mr. Bruyea’s interpretation best effectuates that purpose of the parties to the

Treaty.

11. Mr. Bruyea’s interpretation also better accounts for the extrinsic evidence, which

substantiates that the parties contemplated Treaty-based foreign tax credits even

where inconsistent with the I.R.C.

12. The U.S. Law Limitation clause is focused on how a Treaty-based credit is

computed but not its existence. Thus, the Treaty may provide for a tax credit even

where the I.R.C. does not otherwise effectuate that credit.

VII. CONCLUSION

For the foregoing reasons, Mr. Bruyea is entitled to partial summary judgment on

the issue of entitlement to a Treaty-based foreign tax credit for his 2015 tax year. See

RCFC 56. On or before January 16, 2025, the parties shall file a joint status report

regarding how this case should proceed.

IT IS SO ORDERED.

s/Matthew H. Solomson

Matthew H. Solomson

Judge

35