Court Rules that Foreign Tax Credits can be used to offset the Net Investment Income Tax (NIIT)

A Federal Court decision was handed down on October 24, 2023 which will allow a US couple living in France to use the US-France tax treaty to claim foreign tax credits (FTC) against their net investment income tax liability (NIIT). The case, Christensen v. United States, argued that articles 24 (2)(a) and 24 (2)(b) of the US-France tax treaty allowed them to use their foreign taxes paid to offset their US tax NIIT tax liability. The Federal Court agreed and ruled in favor of the Christensens. The ruling could also apply to US citizens living in other countries as the article provisions in the US-France tax treaty are contained in many of the US tax treaties and therefore would affect many US citizens living overseas. The IRS may appeal the ruling. ACA will continue to monitor and provide updates.