CHRISTENSEN et al v. USA

Filing 66

REPORTED OPINION. Signed by Senior Judge Marian Blank Horn. (jm5) Service on parties made.

In the United States Court of Federal Claims
No. 20-935T
Filed: September 13, 2023
Reissued for Publication: October 23, 20231

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MATTHEW AND KATHERINE KAESS
CHRISTENSEN,
Plaintiffs,
v.
UNITED STATES,
Defendant.

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Stuart E. Horwich, Horwich Law LLP, London, U.K., for plaintiffs.
Jason Bergmann, Assistant Chief, Court of Federal Claims Section, Tax Division,
United States Department of Justice, Washington, D.C., for defendant. With him were
David I. Pincus, Chief, Court of Federal Claims Section, and David A. Hubbert, Deputy
Assistant Attorney General, Tax Division. Mary M. Abate, Assistant Chief, Court of
Federal Claims Section, of counsel.

OPINION
HORN, J.
Plaintiffs, Matthew and Katherine Kaess Christensen, filed their complaint in this
court seeking a refund of $3,851.00 paid to the Internal Revenue Service (IRS) as a “net
investment income tax” for tax year 2015, “plus interest and costs allowed by law, and
such other relief as the Court may deem just and appropriate.” Plaintiffs allege that,
because they are United States citizens residing in France, “a foreign tax credit should
have been allowed for French taxes that the plaintiffs paid with respect to the income
giving rise to the net investment income tax, as provided by the income tax treaty that
exists between the United States and France,” namely the “Convention between the
Government of the French Republic and the Government of the United States of America
1

This Opinion was previously issued under seal on September 13, 2023. After asking for
comments from with the parties, this Opinion is now issued in final form.

for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect
to Taxes on Income and Capital,” Fr.-U.S., Aug. 31, 1994, 1963 U.N.T.S. 67 [hereinafter
the 1994 Treaty2], which plaintiffs refer to as the “French Treaty”3 and defendant refers to
as the “Convention.”4 After defendant filed an answer to plaintiffs’ complaint, the parties
engaged in fact discovery. The court held oral argument on the cross motions for
summary judgment, after which, given the remaining issues on damages, the court, with
the agreement of the parties, converted the motions for summary judgment into motions
for partial summary judgment.
BACKGROUND
The 1994 Treaty
This case concerns the intersection of the Internal Revenue Code (I.R.C.), Title 26
U.S.C. (2018), and binding treaties between the United States and France, namely the
1994 Treaty and subsequent amendatory protocols thereto. Before this court, plaintiffs
argue that they are entitled to a tax refund due to the provisions of the 1994 Treaty, which
was first signed by the United States and French Governments in 1994 and which was
later amended in 2004 and 2009.5 The 1994 Treaty, at Article 2, states:
2

The 1994 Treaty was ratified by the United States Senate on August 11, 1995. See Tax
Convention with the French Republic, CONGRESS.GOV, https://www.congress.gov/treatydocument/103rd-congress/32/resolutiontext?q=%7B%22search%22%3A%22%5C%22French+Republic%5C%22%22%7D&s=3
&r=1 (last visited Oct. 23, 2023).
Plaintiffs consistently refer to the “French Treaty” in their filings, despite the fact that the
treaty at issue is a bilateral treaty between the United States and France.
3

Defendant consistently refers to the “Convention” in its filings, in reference to the first
word of the full name of the 1994 Treaty, as well as “the Treaty.” The court refers to the
treaty between the United States and France at issue in this case, as it was originally
agreed to by the signatory countries, as the “1994 Treaty,” except when quoting the
parties’ filings in this case, documents in the record before this court, or publicly available
documents, including legislative history, documents setting forth the executive’s
interpretation, and relevant judicial decisions.
4

Defendant’s cross-motion for partial summary judgment indicates that “[t]he Treasury
Department publishes the texts of the 1994 convention, the 2004 protocol, and the 2009
protocol on its website,” while “[t]he website of the French Embassy to the United States
publishes a version that consolidates all three documents into one, at the following url:
https://franceintheus.org/spip.php?article704.” (alterations added). This “consolidated”
version of the 1994 Treaty, as amended, is attached to defendant’s cross-motion for
partial summary judgment, however, at the time of issuing this Opinion, the “consolidated”
version of the 1994 Treaty, as amended, is no longer available on the website of the
French Embassy. See French/US Tax Treaties, FRANCE IN THE UNITED STATES,
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2

1. The taxes which are the subject of this Convention are:
(a) in the case of the United States:
(i) the Federal income taxes imposed by the Internal Revenue Code
(but excluding social security taxes); and
(ii) the excise taxes imposed on insurance premiums paid to foreign
insurers and with respect to private foundations
(hereinafter referred to as “United States tax”). The Convention,
however, shall apply to the excise taxes imposed on insurance
premiums paid to foreign insurers only to the extent that the risks
covered by such premiums are not reinsured with a person not
entitled to exemption from such taxes under this or any other income
tax convention which applies to these taxes;
(b) in the case of France, all taxes imposed on behalf of the State,
irrespective of the manner in which they are levied, on total income,
on total capital, or on elements of income or of capital, including
taxes on gains from the alienation of movable or immovable property,
as well as taxes on capital appreciation, in particular:
(i)
the income tax (l’impôt sur le revenu);
(ii)
the company tax (l’impôt sur les sociétés);
(iii)
the tax on salaries (la taxe sur les salaires) governed by the
provisions of the Convention applicable, as the case may be,
to business profits or to income from independent personal
services; and
(iv)
the wealth tax (l’impôt de solidarité sur la fortune)
(hereinafter referred to as “French tax”).
2. The Convention shall apply also to any identical or substantially similar
taxes that are imposed after the date of signature of the Convention in

https://franceintheus.org/spip.php?article704 [https://perma.cc/YPJ8-GW9H] (last visited
Oct. 23, 2023). Apart from the “consolidated” 1994 Treaty, as amended, the parties have
not provided, and the court has not located, a version of the 1994 Treaty, as amended,
which reflects the changes made by the 2004 and 2009 Protocols to the original 1994
Treaty. Moreover, as further discussed below, the 2004 and 2009 Protocols described
changes to the 1994 Treaty without reproducing in full an amended version of the text of
the 1994 Treaty as it had been changed. The court refers to the text of the 1994 Treaty
with all changes from the 2004 and 2009 Protocols in effect as the “1994 Treaty, as
amended,” and to the historical, unamended 1994 Treaty as the “1994 Treaty.” No version
of the 1994 Treaty, as amended, appears to be included in official reporting services such
as the United Nations Treaty Series or the United States Treaties and Other International
Agreements Series. Neither plaintiffs nor defendant have objected to use of the
“consolidated” version of the 1994 Treaty, as amended, provided to the court by
defendant. Accordingly, to represent the present text of the 1994 Treaty, as amended,
the court cites to the “consolidated” version of the treaty provided by defendant, originally
from the website of the French Embassy to the United States.

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addition to, or in place of, the existing taxes. The competent authorities[6]
of the Contracting States shall notify each other of any significant
changes which have been made in their respective taxation laws and of
any official published material concerning the application of the
Convention, including explanations, regulations, rulings, or judicial
decisions.
1994 Treaty, art. 2 (footnote added). No text of any “notification” as contemplated by
paragraph 2 of Article 2 of the 1994 Treaty is included in the record currently before the
court. The 1994 Treaty further provides, at Article 3, paragraph 2:
3. As regards the application of the Convention by a Contracting State, any
term not defined herein shall, unless the competent authorities agree to
a common meaning pursuant to the provisions of Article 26 (Mutual
Agreement Procedure), have the meaning which it has under the
taxation laws of that State.
1994 Treaty, art. 3, ¶ 2.
In the portion of the 1994 Treaty relied upon by plaintiffs in the above captioned
case, Article 24, “Relief From Double Taxation,” (capitalization and emphasis in original),
the 1994 Treaty provides:
1. (a) 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 without
changing the general principle hereof), the United States shall allow to
a citizen or a resident of the United States as a credit against the United
States income tax:
(i)
the French income tax paid by or on behalf of such citizen or
resident; and
(ii)
in the case of a United States company owning at least 10
percent of the voting power of a company that is a resident of
France and from which the United States company receives
dividends, the French income tax paid by or on behalf of the
distributing corporation with respect to the profits out of which the
dividends are paid.
(b) In the case of an individual who is both a resident of France and a
citizen of the United States:
(i) The United States shall allow as a credit against the United States
income tax the French income tax paid after the credit referred to
in subparagraph (a)(iii) of paragraph 2. However, the credit so
The 1994 Treaty provides at Article 3, in relevant part, that the meaning of “competent
authority” under the Treaty is “in the United States, the Secretary of the Treasury or his
delegate,” or “in France, the Minister in charge of the budget or his authorized
representative.” 1994 Treaty, art. 3, ¶ 1(h).
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allowed against United States income tax shall not reduce that
portion of the United States income tax that is creditable against
French income tax in accordance with subparagraph (a)(iii) of
paragraph 2;
(ii) Income referred to in paragraph 2 and income that, but for the
citizenship of the taxpayer, would be exempt from United States
income tax under the Convention, shall be considered income
from sources within France to the extent necessary to give effect
to the provisions of subparagraph (b)(i). The provisions of this
subparagraph (b)(ii) shall apply only to the extent that an item of
income is included in gross income for purposes of determining
French tax. No provision of this subparagraph (b) relating to
source of income shall apply in determining credits against United
States income tax for foreign taxes other than French income tax
as defined in subparagraph (e); and
(c) In the case of an individual who is both a resident and citizen of the
United States and a national of France, the provisions of paragraph
2 of Article 29 (Miscellaneous Provisions) shall apply to remuneration
and pensions described in paragraph 1 or 2 of Article 19 (Public
Remuneration), but such remuneration and pensions shall be treated
by the United States as income from sources within France.
(d) If, for any taxable period, a partnership of which an individual
member is a resident of France so elects, for United States tax
purposes, any income which solely by reason of paragraph 4 of
Article 14 is not exempt from French tax under this Article shall be
considered income from sources within France. The amount of such
income shall reduce (but not below zero) the amount of partnership
earned income from sources outside the United States that would
otherwise be allocated to partners who are not residents of France.
For this purpose, the reduction shall apply first to income from
sources within France and then to other income from sources outside
the United States. If the individual member of the partnership is both
a resident of France and a citizen of the United States, this provision
shall not result in a reduction of United States tax below that which
the taxpayer would have incurred without the benefit of deductions
or exclusions available solely by reason of his presence or residence
outside the United States.
(e) For the purposes of this Article, the term “French income tax” means
the taxes referred to in subparagraph (b)(i) or (ii) of paragraph 1 of
Article 2 (Taxes Covered), and any identical or substantially similar
taxes that are imposed after the date of signature of the Convention
in addition to, or in place of, the existing taxes.
2. In the case of France, double taxation shall be avoided in the following
manner:
(a) Income arising in the United States that may be taxed or shall be
taxable only in the United States in accordance with the provisions

5

of this Convention shall be taken into account for the computation of
the French tax where the beneficiary of such income is a resident of
France and where such income is not exempted from company tax
according to French domestic law. In that case, the United States tax
shall not be deductible from such income, but the beneficiary shall
be entitled to a tax credit against the French tax. Such credit shall be
equal:
(i)
in the case of income other than that referred to in
subparagraphs (ii) and (iii), to the amount of French tax
attributable to such income;
(ii)
in the case of income referred to in Article 14 (Independent
Personal Services), to the amount of French tax attributable to
such income; however, in the case referred to in paragraph 4 of
Article 14 (Independent Personal Services), such credit shall
not give rise to an exemption that exceeds the limit specified in
that paragraph;
(iii)
in the case of income referred to in Article 10 (Dividends), Article
11 (Interest), Article 12 (Royalties), paragraph 1 of Article 13
(Capital Gains), Article 16 (Directors’ Fees), and Article 17
(Artistes and Sportsmen), to the amount of tax paid in the
United States in accordance with the provisions of the
Convention; however, such credit shall not exceed the amount
of French tax attributable to such income.
(b) In the case where the beneficial owner of the income arising in the
United States is an individual who is both a resident of France and a
citizen of the United States, the credit provided in paragraph 2 (a)(i)
shall also be granted in the case of:
(i)
income consisting of dividends paid by a company that is a
resident of the United States, interest arising in the United
States, as described in paragraph 5 of Article 11 (Interest), or
royalties arising in the United States, as described in paragraph
6 of Article 12 (Royalties), that is derived and beneficially owned
by such individual and that is paid by:
(aa) the United States or any political subdivision or local
authority thereof; or
(bb) a person created or organized under the laws of a state of
the United States or the District of Columbia, the principal
class of shares of or interests in which is substantially and
regularly traded on a recognized stock exchange as
defined in subparagraph (e) of paragraph 6 of Article 30
(Limitation on Benefits of the Convention);
or
(cc) a company that is a resident of the United States, provided
that less than 10 percent of the outstanding shares of the
voting power in such company was owned (directly or
indirectly) by the resident of France at all times during the

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part of such company’s taxable period preceding the date
of payment of the income to the owner of the income and
during the prior taxable period (if any) of such company,
and provided that less than 50 percent of such voting
power was owned (either directly or indirectly) by
residents of France during the same period;
or
(dd) a resident of the United States, not more than 25 percent
of the gross income of which for the prior taxable period
(if any) consisted directly or indirectly of income derived
from sources outside the United States;
(ii)
capital gains derived from the alienation of capital assets
generating income described in subparagraph (i); however,
such alienation shall be taken into account for the determination
of the threshold of taxation applicable in France to capital gains
on movable property;
(iii)
profits or gains derived from transactions on a public United
States options or futures market;
(iv)
income dealt with in subparagraph (a) of paragraph (1) of Article
18 (Pensions) to the extent attributable to services performed
by the beneficiary of such income while his principal place of
employment was in the United States;
(v)
income that would be exempt from United States tax under
Articles 20 (Teachers and Researchers) or 21 (Students and
Trainees) if the individual were not a citizen of the United
States; and
(vi)
U.S. source alimony and annuities. The provisions of this
subparagraph (b) shall apply only if the citizen of the United
States who is a resident of France demonstrates that he has
complied with his United States income tax obligations, and
subject to receipt by the French tax administration of such
certification as may be prescribed by the competent authority of
France, or upon request to the French tax administration for
refund of tax withheld together with the presentation of any
certification required by the competent authority of France.
(c) A resident of France who owns capital that may be taxed in the
United States according to the provisions of paragraph 1, 2, or 3 of
Article 23 (Capital) may also be taxed in France in respect of such
capital. The French tax shall be computed by allowing a tax credit
equal to the amount of tax paid in the United States on such capital.
That tax credit shall not exceed the amount of the French tax
attributable to such capital.
(d) (i) For purposes of this paragraph, the term “resident of France”
includes a “société de personnes,” a “groupement d’intérêt
économique” (economic interest group), or a “groupement européen
d'intérêt économique” (European economic interest group) that is

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constituted in France and has its place of effective management in
France.
(ii) The term “amount of French tax attributable to such income” as
used in subparagraph (a) means:
(aa) where the tax on such income is computed by applying a
proportional rate, the amount of the net income
concerned multiplied by the rate which actually applies
to that income;
(bb) where the tax on such income is computed by applying a
progressive scale, the amount of the net income
concerned multiplied by the rate resulting from the ratio
of the French income tax actually payable on the total
net income in accordance with French law to the amount
of that total net income.
(iii) The term “amount of tax paid in the United States” as used in
subparagraph (a) means the amount of the United States
income tax effectively and definitively borne in respect of the
items of income concerned, in accordance with the provisions
of the Convention, by the beneficial owner thereof who is a
resident of France. But this term shall not include the amount of
tax that the United States may levy under the provisions of
paragraph 2 of Article 29 (Miscellaneous Provisions).
(iv) The interpretation of subparagraphs (ii) and (iii) shall apply, by
analogy, to the terms “amount of the French tax attributable to
such capital” and “amount of tax paid in the United States,” as
used in subparagraph (c).
(e) (i) Where French domestic law allows companies that are residents
of France to determine their taxable profits on a consolidation basis,
including the profits or losses of subsidiaries that are residents of the
United States or of permanent establishments situated in the United
States, the provisions of the Convention shall not prevent the
application of that law.
(ii) Where in accordance with its domestic law, France, in
determining the taxable profits of residents, permits the
deduction of the losses of subsidiaries that are residents of
the United States or of permanent establishments situated in
the United States and includes the profits of those
subsidiaries or of those permanent establishments up to the
amount of the losses so deducted, the provisions of the
Convention shall not prevent the application of that law.
(iii) Nothing in the Convention shall prevent France from applying
the provisions of Article 209B of its tax code (code général
des impôts) or any substantially similar provisions which may
amend or replace the provisions of that Article.
1994 Treaty, art. 24.

8

The 1994 Treaty, at Article 26, “Mutual Agreement Procedures,” (capitalization and
emphasis in original), additionally provides:
1. Where a person considers that the actions of one or both of the
Contracting States result or will result for him in taxation not in
accordance with the provisions of this Convention, he may, irrespective
of the remedies provided by the domestic law of those States, present
his case to the competent authority of the Contracting State of which he
is a resident or national. The case must be presented within three years
of the notification of the action resulting in taxation not in accordance
with the provisions of this Convention.
2. The competent authority shall endeavor, if the objection appears to it to
be justified and if it is not itself able to arrive at a satisfactory solution, to
resolve the case by mutual agreement with the competent authority of
the other Contracting State, with a view to the avoidance of taxation
which is not in accordance with the Convention. Any agreement reached
shall be implemented notwithstanding any time limits or other procedural
limitations in the domestic law of the Contracting States.
3. The competent authorities of the Contracting States shall endeavor to
resolve by mutual agreement any difficulties or doubts arising as to the
interpretation or application of the Convention. In particular, they may
agree:
(a) to the same attribution of profits to a resident of a Contracting
State and its permanent establishment situated in the other
Contracting State;
(b) to the same allocation of income between a resident of a
Contracting State and any associated enterprise described in
paragraph 1 of Article 9 (Associated Enterprises);
(c) to the same determination of the source of particular items of
income;
(d) concerning the matters described in subparagraphs (a), (b), and
(c) of this paragraph with respect to past or future years; or
(e) to increase the money amounts referred to in Articles 17 (Artistes
and Sportsmen) and 21 (Students and Trainees) to reflect
economic or monetary developments.
They may also agree to eliminate double taxation in cases not provided
for in the Convention.
4. The competent authorities of the Contracting States may communicate
with each other directly for the purpose of reaching an agreement in the
sense of the preceding paragraphs. When it seems advisable for the
purpose of reaching agreement, the competent authorities or their
representatives may meet together for an oral exchange of opinions.
6. [sic] If an agreement cannot be reached by the competent authorities
pursuant to the previous paragraphs of this Article, the case may, if both
competent authorities and the taxpayer agree, be submitted for

9

arbitration, provided that the taxpayer agrees in writing to be bound by
the decision of the arbitration board. The competent authorities may
release to the arbitration board such information as is necessary for
carrying out the arbitration procedure. The decision of the arbitration
board shall be binding on the taxpayer and on both States with respect
to that case. The procedures, including the composition of the board,
shall be established between the Contracting States by notes to be
exchanged through diplomatic channels after consultation between the
competent authorities. The provisions of this paragraph shall not have
effect until the date specified in the exchange of diplomatic notes.
1994 Treaty, art. 26 (alteration added). Moreover, the 1994 Treaty, at Article 29, provides,
in relevant part:
1. The Convention shall not restrict in any manner any exclusion,
exemption, deduction, credit, or other allowance now or hereafter
accorded by
(a) the laws of:
(i) the United States;
(ii) France, in the case of a resident (within the meaning of Article
4 (Resident)) or citizen of the United States. However,
notwithstanding the preceding sentence, the provisions of
paragraph 5 of Article 6 (Income from Real Property), Article 19
(Public Remuneration), Article 20 (Teachers and Researchers),
and Article 24 (Relief From Double Taxation) shall apply,
regardless of any exclusion, exemption, deduction, credit, or
other allowance accorded by the laws of France; or
(b) by any other agreement between the Contracting States.
2. Notwithstanding any provision of the Convention except the provisions of
paragraph 3, the United States may tax its residents, as determined
under Article 4 (Resident), and its citizens as if the Convention had not
come into effect. For this purpose, the term “citizen” shall include a
former citizen whose loss of citizenship had as one of its principal
purposes the avoidance of income tax, but only for a period of 10 years
following such loss.
3. The provisions of paragraph 2 shall not affect:
(a) the benefits conferred under paragraph 2 of Article 9 (Associated
Enterprises), under paragraph 1(b) of Article 18 (Pensions), and
under Articles 24 (Relief From Double Taxation), 25 (NonDiscrimination), and 26 (Mutual Agreement Procedure); and
(b) the benefits conferred under Articles 19 (Public Remuneration), 20
(Teachers and Researchers), 21 (Students and Trainees), and 31
(Diplomatic and Consular Officers), upon individuals who are neither
citizens of, nor have immigrant status in, the United States.
1994 Treaty, art. 29, ¶¶ 1-3.

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Attached to defendant’s cross-motion for partial summary judgment is an
Executive Report from the Senate Committee on Foreign Relations, dated August 10,
1995, titled “INCOME TAX CONVENTION WITH THE FRENCH REPUBLIC,” which
“reports favorably” on the 1994 Treaty, “without amendment, and recommends that the
Senate give its advice and consent to ratification thereof, subject to one declaration [not
relevant here] as set forth in this report and accompanying resolution of ratification.” S.
EXEC. REP. NO. 104-7, at 1 (1995) (capitalization in original; alteration added) (1995
Senate Report). The 1995 Senate Report states:
The principal purposes of the proposed income tax treaty between the
United States and the French Republic (“France”) are to reduce or eliminate
double taxation of income earned by residents of either country from
sources within the other country, and to prevent avoidance or evasion of
income taxes of the two countries. The proposed treaty is intended to
continue to promote close economic cooperation between the two countries
and to eliminate possible barriers to trade caused by overlapping taxing
jurisdictions of the two countries. It is also intended to enable the countries
to cooperate in preventing avoidance and evasion of taxes.
Id. The 1995 Senate Report indicates that “[t]he proposed treaty was amplified by
diplomatic notes signed the same day [August 31, 1994], and by additional notes signed
on December 19, 1994 and December 20, 1994.” Id. (alterations added). While the 1995
Senate Report and other documents relating to the 1994 Treaty and its subsequent
amendatory Protocols refer to “diplomatic notes,” no such diplomatic notes are included
in the record currently before the court after the parties completed discovery. The 1995
Senate Report, with respect to paragraph 2 of Article 29 of the 1994 Treaty, a “savings
clause,” states that “[u]nder this provision, the United States generally retains the right to
tax its citizens and residents as if the treaty had not come into effect,” but also, in
paragraph 1 of Article 29, that “the proposed treaty contains the standard provision that it
does not apply to deny a taxpayer any benefits that person is entitled to under the
domestic law of the country or under any other agreement between the two counties,” or,
as also stated in the 1995 Senate Report, “the treaty applies to the benefit of taxpayers.”
S. EXEC. REP. NO. 104-7, at 2-3 (alteration added). The 1995 Senate Report further states,
with respect to Article 24 of the 1994 Treaty:
The article provides special rules for U.S. citizens who reside in France. In
this case, the proposed treaty provides that items of income which may be
taxed by the United States solely by reason of citizenship (under the saving
clause) are to be treated as French source income to the extent necessary
to avoid double taxation. In no event, however, would the tax paid to the
United States be less than the tax that would be paid if the individual were
not a U.S. citizen. This rule is similar to corresponding rules in several recent
U.S. treaties.

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S. EXEC. REP. NO. 104-7, at 13. Moreover, with respect to the binding arbitration provisions
of Article 26 of the 1994 Treaty, the 1995 Senate Report explains: “The arbitration
procedure can only be invoked by the agreement of both countries.” S. EXEC. REP. NO.
104-7, at 14.
Attached to the defendant’s cross-motion for partial summary judgment is a
document which defendant identifies as a “Treasury Department Technical Explanation”
of the 1994 Treaty,7 (capitalization in original) (1994 Treaty Treasury Department
Technical Explanation), which states that it “is an official guide to the Convention” which
“reflects the policies behind particular Convention provisions, as well as understandings
reached with respect to the application and interpretation of the Convention.” According
to the 1994 Treaty Treasury Department Technical Explanation, “the saving clause in
[Article 29 of] this Convention is, at France’s request, unilateral, applying only for United
States tax purposes.” (alteration added). The 1994 Treaty Treasury Department
Technical Explanation states with respect to the “competent authority” for the United
States under the 1994 Treaty:
The U.S. competent authority is the Secretary of the Treasury or his
delegate. The Secretary of the Treasury has delegated the competent
authority function to the commissioner of Internal Revenue, who has, in turn,
redelegated the authority to the [IRS] Assistant Commissioner
(International). With respect to interpretive issues, the Assistant
Commissioner acts with the concurrence of the Associate Chief Counsel
(International) of the Internal Revenue Service.
(alteration added). The 1994 Treaty Treasury Department Technical Explanation, with
respect to Article 24, “Relief From Double Taxation,” (capitalization and emphasis in
original), of the 1994 Treaty, further states, in relevant part:
7

The full title of the 1994 Treaty Treasury Department Technical Explanation, as stated
on the first page of that document, is
TREASURY DEPARTMENT TECHNICAL EXPLANATION OF THE
CONVENTION BETWEEN THE GOVERNMENT OF THE UNITED
STATES OF AMERICA AND THE GOVERNMENT OF THE FRENCH
REPUBLIC FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE
PREVENTION OF FISCAL EVASION WITH RESPECT TO TAXES ON
INCOME AND CAPITAL SIGNED AT PARIS ON AUGUST 31, 1994.
(capitalization in original). The 1994 Treaty Treasury Department Technical Explanation
is not dated. The 1994 Treaty Treasury Department Technical Explanation is available on
the IRS website in a list of “complete texts” of “tax treaty documents,” along with the 1994
Treaty, its subsequent amendatory Protocols, and their corresponding technical
explanations. See France - Tax Treaty Documents, INTERNAL REV. SERV.,
https://www.irs.gov/businesses/international-businesses/france-tax-treaty-documents
(last visited Oct. 23, 2023).
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This Article describes the manner in which each Contracting State
undertakes to relieve double taxation. The United States uses the foreign
tax credit method exclusively. France uses a combination of foreign tax
credit and exemption methods. The provisions of this Article are more
complicated than in most U.S. income tax treaties, because they include
special relief provisions for U.S. citizens resident in France. The format of
the Article has been revised, but the provisions are substantially the same
as in the 1967 Convention (as amended by subsequent Protocols).
In subparagraph 1(a) [of Article 24], the United States agrees to allow its
citizens and residents to credit against their U.S. income tax the income
taxes paid or accrued to France. Subparagraph 1(a) also provides for a
deemed-paid credit, consistent with section 902 of the Code, to a U.S.
corporation in respect of dividends received from a French corporation in
which the U.S. corporation owns at least 10 percent of the voting power.
The deemed-paid credit is for the tax paid by the French corporation on the
portion of the profits that is distributed as dividends to the U.S. parent
company.
The credits provided under the Convention are allowed in accordance with
the provisions and subject to the limitations of U.S. law, as that law may be
amended over time, so long as the general principle of this Article, i.e., the
allowance of a credit, is retained. Thus, although the Convention provides
for a foreign tax credit, the terms of the credit are determined by the
provisions of the U.S. statutory credit at the time a credit is given. The
limitations of U.S. law generally limit the credit against U.S. tax to the
amount of U.S. tax due with respect to net foreign source income within the
relevant foreign tax credit limitation category (see [Internal Revenue] Code
section 904(a)). Nothing in the Convention prevents the limitation of the U.S.
credit from being applied on an overall or per-country basis or on some
variation thereof.
Subparagraph 1(b) [of Article 24] provides special rules to avoid the double
taxation of U.S. citizens who are residents of France. Under subparagraph
2(a)(iii), France agrees to credit the U.S. tax paid, but only for the amount
of tax that the United States could impose under the Convention on a
resident of France who is not a citizen of the United States. Under
subparagraph 1(b), the United States agrees that, where additional U.S. tax
is due solely by reason of citizenship, it will credit the French tax imposed
on the basis of residence to the extent that the French tax exceeds the tax
that the United States may impose on the basis of source (i.e., net of the
credit allowed by France). Under subparagraph 2(b), France shares the
burden of avoiding double taxation of U.S. citizens resident in France by
exempting from French tax certain items of U.S. source income of such
citizens that would otherwise be subject to French tax.
Subparagraph 1(b) also provides that certain U.S. source income will be
treated as French source income to permit the additional credit to fit within
the foreign tax credit limitation of [Internal Revenue] Code Section 904. This

13

resourcing provision applies only to items of income that are included in
gross income for French tax purposes, and it cannot be used in determining
the foreign tax credit limitation applicable to income taxes paid to any other
country.
The following simplified example illustrates how subparagraph 1(b) works.
The U.S. tax on a dividend paid by a U.S. corporation to a portfolio investor
resident in France is limited by Article 10 (Dividends) of the Convention to
15 percent. The United States, therefore, will impose a tax of 15 on a
dividend of 100, and France will allow a tax credit of 15. Suppose that the
French individual income tax due is 22 percent. In that case, the net tax
payable to France will be 7. However, assume that this individual is a U.S.
citizen and, therefore, liable to U.S. tax of 22 percent. In the absence of a
special relief provision, the individuals total tax would be 35: 28 to the United
States, with no foreign tax credit because the dividend is from U.S. sources,
and 7 to France. Under subparagraph 1(b), the 7 of French tax is credited
against the 28 of U.S. tax, reducing the combined burden to 28, the higher
of the two taxes. In this example, in order to credit the French tax of 7 at a
U.S. rate of 28, 25 of the dividend would be treated as from French sources
so that the 7 of French tax could be claimed as a foreign tax credit (7/28 x
100). Additional examples of the calculation of this additional credit are
provided in IRS Publication 901 on U.S. tax treaties.
(alterations added).
Moreover, the 1994 Treaty Treasury Department Technical Explanation states,
with respect to the “Mutual Agreement Procedure” set forth in Article 26 of the 1994
Treaty, that “[i]t is not necessary for the taxpayer to have fully exhausted the remedies
provided under the national laws of the Contracting States before presenting a case to
the competent authorities.” (alteration added). Additionally, the 1994 Treaty Treasury
Department Technical Explanation states with respect to arbitration procedures under the
same Article 26 of the 1994 Treaty, “[i]t is expected that such procedures will ensure that
arbitration will not generally be available where matters of either State’s tax policy or
domestic law are involved.” (alteration added).
The 2004 Protocol
On December 8, 2004, the Government of the United States and the Government
of the French Republic agreed to a “Protocol amending the Convention between the
Government of the French Republic and the Government of the United States of America
for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect
to Taxes on Income and Capital,” signed at Paris on 31 August 1994, Fr.-U.S., Dec. 8,
2004, 2478 U.N.T.S. 175 [hereinafter the 2004 Protocol],8 which entered into force on

8

The 2004 Protocol was ratified by the United States Senate on March 31, 2006. See
Protocol Amending
the
Tax
Convention
with
France,
CONGRESS.GOV,
14

December 21, 2006.9 As relevant to the above captioned case, the 2004 Protocol, in
Article V, made the following amendment to Article 24 of the 1994 Treaty:
1. Subparagraph (b)(iv) of paragraph 2 [Paragraph 1 in French language]
of Article 24 (Relief From Double Taxation) of the Convention shall be
deleted.
2. Subparagraphs (b)(v) and (b)(vi) of paragraph 2 [Paragraph 1 in French
language] of Article 24 (Relief From Double Taxation) of the Convention
shall be renumbered as subparagraphs (b)(iv) and (b)(v), respectively.
3. Subparagraph (c) of paragraph 1 [Paragraph 2 in French language] of
Article 24 (Relief From Double Taxation) of the Convention shall be
deleted and replaced by the following:
“(c) In the case of an individual who is both a resident and citizen of
the United States and a national of France, the provisions of
paragraph 2 of Article 29 (Miscellaneous Provisions) shall apply to
remuneration described in paragraph 1 of
[sic]
Article 19 (Public Remuneration), but such remuneration shall be
treated by the United States as income from sources within France.”
Id. art. V (emphasis in original; last alteration added).
Attached to defendant’s cross-motion for partial summary judgment is a United
States Treasury Department “Technical Explanation” of the 2004 Protocol (2004 Protocol
Treasury Department Technical Explanation). Like the 1994 Treaty Treasury Department
Technical Explanation, the 2004 Protocol Treasury Department Technical Explanation
was prepared by the United States Treasury Department and states that it “is an official
guide to the Protocol” which “explains policies behind particular provisions, as well as
understandings reached during the negotiations with respect to the interpretation and
application of the Protocol,” and also states that “[t]o the extent that the Convention has
not been amended by the Protocol, the Technical Explanation of the Convention remains
the official explanation.” (alteration added). With respect to the changes made by the 2004
Protocol to Article 24 of the 1994 Treaty, the 2004 Protocol Treasury Department
Technical Explanation states:

https://www.congress.gov/treaty-document/109th-congress/4/resolution-text?s=4&r=2
(last visited Oct. 23, 2023).
9

The title page of the 2004 Protocol states that the 2004 Protocol entered into force on
“21 December 2006 by notification, in accordance with article VII.” See 2004 Protocol,
2478 U.N.T.S. at 175. Article VII of the 2004 Protocol states, at paragraph 1: “The
Contracting States shall notify each other when their respective constitutional and
statutory requirements for the entry into force of this Protocol have been satisfied. The
Protocol shall enter into force on the date of receipt of the later of such notifications.” Id.
art. VII ¶ 1.
15

The Protocol deletes subparagraph (b)(iv) of paragraph 2 [Paragraph 1 in
French language] of Article 24 (Relief From Double Taxation) of the treaty,
which allows a U.S. citizen and resident of France a credit equal to the
amount of French tax attributable to income dealt with in subparagraph (a)
of paragraph 1 of Article 18 (Pensions) that was also subject to tax in the
United States. Subparagraph (b)(iv) is rendered obsolete by the provisions
of Article 18 as amended by the Protocol.
The Protocol renumbers subparagraphs (b)(v) and (vi) of paragraph 2
[Paragraph 1 in French language] of Article 24 subparagraphs (b)(iv) and
(v) respectively to account for the deletion of subparagraph (b)(iv).
The Protocol replaces subparagraph (c) of paragraph 1 [Paragraph 2 in
French language] of Article 24 to omit the reference to paragraph 2 of Article
19 (Public Remuneration). This change conforms to revisions made to
Article 18 and Article 19 (Public Remuneration) by the Protocol.
(alterations in original).
Also attached to defendant’s cross-motion for partial summary judgment is a report
on the 2004 Protocol from the Senate Committee on Foreign Relations, dated March 27,
2006, and titled “PROTOCOL AMENDING THE INCOME TAX CONVENTION WITH
FRANCE (TREATY DOC. 109-4).” S. EXEC. REP. NO. 109-9, at 1 (2006) (capitalization in
original) (2006 Senate Report). The 2006 Senate Report states that the Senate
Committee on Foreign Relations “reports favorably” on the 2004 Protocol and
recommends ratification thereof. See id. With respect to the purpose of the 1994 Treaty
and the 2004 Protocol, the 2006 Senate Report states:
The principal purposes of the existing income tax treaty between the United
States and France and the proposed protocol amending the treaty are to
reduce or eliminate double taxation of income earned by residents of either
country from sources within the other country and to prevent avoidance or
evasion of the taxes of the two countries. The existing treaty and proposed
protocol also are intended to continue to promote close economic
cooperation between the two countries and to eliminate possible barriers to
trade and investment caused by overlapping taxing jurisdictions of the two
countries.
Id. at 1-2 (footnote omitted).
The 2009 Protocol
On January 13, 2009, the Government of the United States of America and the
Government of the French Republic agreed to a further

16

Protocol amending the Convention between the Government of the French
Republic and the Government of the United States of America for the
Avoidance of Double Taxation and the Prevention of Fiscal Evasion with
Respect to Taxes on Income and Capital, signed at Paris on 31 August
1994, as amended by the Protocol signed on 8 December 2004 (with
Memorandum of Understanding),
Fr.-U.S., Jan. 13, 2009, 2659 U.N.T.S. 82 [hereinafter the 2009 Protocol],10 which entered
into force on December 23, 2009.11 As relevant to the above captioned case, the 2009
Protocol, at Article VIII, amends Article 24 of the 1994 Treaty. As particularly relevant to
the above captioned case, and as described below, at paragraph 1 of Article VIII, the
2009 Protocol renumbers and reorders the paragraphs of Article 24 of the 1994 Treaty,
resulting in the numbering of paragraphs 1 and 2 of Article 24 of the 1994 Treaty, as
amended, currently in effect. The 2009 Protocol provides, in relevant part:
1. Regarding Article 24 (Relief From Double Taxation) of the Convention
as incorporated in the alternat[12] of the United States, in both the
English and French version of such alternat, paragraph 1 shall be
renumbered paragraph 2, and paragraph 2 shall be renumbered
paragraph 1.
2. Clause (iii) of subparagraph a) of paragraph 1 of Article 24 (Relief From
Double Taxation) of the Convention, as amended by paragraph 1 of this
Article VIII of this Protocol, shall be deleted and replaced by the
following:
“(iii) in the case of income referred to in Article 10 (Dividends), Article
11 (Interest), paragraph 1 of Article 13 (Capital Gains), Article 16
(Director’s Fees), and Article 17 (Artistes and Sportsmen), to the
10

The 2009 Protocol was ratified by the United States Senate on December 3, 2009. See
Protocol
Amending
Tax
Convention
with
France,
CONGRESS.GOV,
https://www.congress.gov/treaty-document/111thcongress/4?q=%7B%22search%22%3A%22%5C%22French+Republic%5C%22%22%
7D&s=6&r=1 (last visited Oct. 23, 2023).
The title page of the 2009 Protocol states that it entered into force on “23 December
2009 by notification, in accordance with article XVI.” See 2009 Protocol, 2659 U.N.T.S.
at 82. Article XVI of the 2009 Protocol provides, at paragraph 1: “The Contracting States
shall notify each other when their respective constitutional and statutory requirements for
the entry into force of this Protocol have been satisfied. The Protocol shall enter into force
on the date of receipt of the later of such notifications.” Id. art. XVI ¶ 1.
11

The term “alternat” is a French word meaning “[t]he rotation in precedence among
states, diplomats, etc., esp. in the signing of treaties.” Alternat, BLACK’S LAW DICTIONARY
(11th ed. 2019) (alteration added). According to Black’s Law Dictionary, “[t]his practice
gives each diplomat a copy of the treaty with the diplomat’s signature appearing first.” Id.
(alteration added).
12

17

amount of tax paid in the United States in accordance with the
provisions of the Convention; however, such credit shall not exceed
the amount of French tax attributable to such income.”
3. Clause (i) of subparagraph b) of paragraph 1 of Article 24 (Relief From
Double Taxation) of the Convention, as amended by paragraph 1 of this
Article VIII of this Protocol, shall be deleted and replaced by the
following:
“(i) income consisting of dividends paid by a company that is a
resident of the United States, or interest arising in the United States,
as described in paragraph 5 of Article 11 (Interest), or royalties
arising in the United States, as described in paragraph 4 of Article 12
(Royalties), that is derived and beneficially owned by such individual
and that is paid by:
aa) the United States or any political subdivision or local authority
thereof; or
bb) a person created or organized under the laws of a state of the
United States or the District of Columbia, the principal class
of shares of or interests in which is substantially and regularly
traded on a recognized stock exchange as defined in
subparagraph d) of paragraph 7 of Article 30 (Limitation on
Benefits of the Convention); or
cc) a company that is a resident of the United States, provided
that less than 10 percent of the outstanding shares of the
voting power in such company was owned (directly or
indirectly) by the resident of France at tall times during the part
of such company’s taxable period preceding the date of
payment of the income to the owner of the income and during
the prior taxable period (if any) of such company, and
provided that less than 50 percent of such voting power was
owned (either directly or indirectly) by residents of France
during the same period; or
dd) a resident of the United States, not more than 25 percent of
the gross income of which for the prior taxable period (if any)
consisted directly or indirectly of income derived from sources
outside the United States;”.
4. Clause (i) of subparagraph e) of paragraph 1 of Article 24 (Relief From
Double Taxation) of the Convention as amended by paragraph 1 of this
Article VIII of this Protocol, shall be deleted and replaced by the
following:
“(i) Where a company resident of France is taxed in that state
according to French domestic law on a consolidated tax base,
including the profits or losses of subsidiaries that are residents of the
United States or of permanent establishments situated in the United
States, the provisions of the Convention shall not prevent the
application of that law.”

18

5. Subparagraph c) of paragraph 2 of Article 24 (Relief From Double
Taxation) of the Convention, as amended by paragraph 1 of this Article
VIII of this Protocol, shall be deleted.
2009 Protocol, art. VIII (footnote added).
The 2009 Protocol, at Article X, makes the following amendment to Article 26 of
the 1994 Treaty:
Paragraph 5 of Article 26 (Mutual Agreement Procedure) shall be deleted
and replaced by the following paragraphs:
“5. Where, pursuant to a mutual agreement procedure under this Article,
the competent authorities have endeavored but are unable to reach
a complete agreement, the case shall be resolved through arbitration
conducted in the manner prescribed by, and subject to, the
requirements of paragraph 6 and any rules or procedures agreed
upon by the Contracting States, if:
a) tax returns have been filed with at least one of the Contracting
States with respect to the taxable years at issue in the case;
b) the case is not a particular case that both competent authorities
agree, before the date on which arbitration proceedings would
otherwise have begun, is not suitable for determination by
arbitration; and
c) all concerned persons agree according to the provisions of
subparagraph (d) of paragraph 6.
An unresolved case shall not, however, be submitted to arbitration if
a decision on such case has already been rendered by a court or
administrative tribunal of either Contracting State.
6. For the purposes of paragraph 5 and this paragraph, the following
rules and definitions shall apply:
a) the term “concerned person” means the presenter of a case to a
competent authority for consideration under this Article and all
other persons, if any, whose tax liability to either Contracting
State may be directly affected by a mutual agreement arising from
that consideration;
b) the “commencement date” for a case is the earliest date on which
the information necessary to undertake substantive consideration
for a mutual agreement has been received by both competent
authorities;
c) arbitration proceedings in a case shall being on the later of:
(i) two years after the commencement date of that case, unless
both competent authorities have previously agreed to a
different date, and
(ii) the earliest date upon which the agreement required by
subparagraph d) has been received by both competent
authorities;

19

d) the concerned person(s), and their authorized representatives or
agents, must agree prior to the beginning of arbitration
proceedings not to disclose to any other person any information
received during the course of the arbitration proceeding from
either Contracting State or the arbitration panel, other than the
determination of such panel;
e) unless any concerned person does not accept the determination
of an arbitration panel the determination shall constitute a
resolution by mutual agreement under this Article and shall be
binding on both Contracting States with respect to that case only;
and
f) for the purposes of an arbitration proceeding under paragraph 5
and this paragraph, the members of the arbitration panel and their
staffs shall be concerned “persons or authorities” to whom
information may be disclosed under Article 27 (Exchange of
Information) of the Convention.”
2009 Protocol, art. X.13
Attached to defendant’s cross-motion for partial summary judgment is the United
States Treasury Department’s “Technical Explanation” for the 2009 Protocol (2009
Protocol Treasury Department Technical Explanation). Similar to the Technical
Explanations for the 1994 Treaty and 2004 Protocol, the 2009 Protocol Treasury
Department Technical Explanation was prepared by the United States Treasury
Department and states that it “is an official guide to the [2009] Protocol and Memorandum
of Understanding. It explains policies behind particular provisions, as well as
13

Appended to the 2009 Protocol in the United Nations Treaty Series is a
“MEMORANDUM OF UNDERSTANDING,” (capitalization and emphasis in original), in
which the Government of the United States of America and the Government of the French
Republic “have agreed to define the mode of application of paragraphs 5 and 6 of Article
26 (Mutual Agreement Procedure) of the Convention,” and in which the signatory
governments state:
In respect of any case where the competent authorities have endeavored
but are unable to reach an agreement under Article 26 regarding the
application of the Convention, binding arbitration shall be used to determine
such application, unless the competent authorities agree that the particular
case is not suitable for determination by arbitration. If an arbitration
proceeding under paragraph 5 of Article 26 commences (the Proceeding),
the following rules and procedures shall apply.
2009 Protocol, 2659 U.N.T.S. at 112. In the Memorandum of Understanding, the United
States and France detail rules for the procedures of arbitration proceedings commenced
pursuant to the 1994 Treaty. The Memorandum of Understanding entered into force on
the same date on which the 2009 Protocol entered into force, December 23, 2009.
20

understandings reached during the negotiations with respect to the interpretation and
application of the Protocol and Memorandum of Understanding.” (alteration added). The
2009 Treasury Department Technical Explanation states, however, that it “is not intended
to provide a complete guide to the existing [1994] Convention as amended by the [2009]
Protocol and Memorandum of Understanding.” (alterations added).
With respect to the changes made to Article 24 of the 1994 Treaty by the 2009
Protocol, the 2009 Protocol Treasury Department Technical Explanation provides that the
renumbering of paragraphs 1 and 2 of Article 24 “is intended to make the numbering of
the paragraphs of Article 24 of the Convention in the alternat of the United States and the
alternat of France consistent.” The 2009 Protocol Treasury Department Technical
Explanation further provides that other changes were made to Article 24 in order to
“update[] cross-references and make[] them consistent with amendments made by this
Protocol” and “to clarify” the application of provisions of the 1994 Treaty not relevant to
the above captioned case. (alterations added). Moreover, with respect to the changes
made to Article 26 of the 1994 Treaty by the 2009 Protocol, the 2009 Protocol Treasury
Department Technical Explanation indicates that the added paragraphs “provide a
mandatory binding arbitration proceeding” and that the Memorandum of Understanding
included with the 2009 Protocol “provides additional rules and procedures that apply to a
case considered under the arbitration provisions.” The 2009 Protocol Treasury
Department Technical Explanation states with respect to the arbitration proceedings:
New paragraph 5 provides that a case shall be resolved through arbitration
when the competent authorities have endeavored but are unable to reach
a complete agreement regarding a case and the following three conditions
are satisfied. First, tax returns have been filed with at least one of the
Contracting States with respect to the taxable years at issue in the case.
Second, the case is not a case that the competent authorities agree before
the date on which arbitration proceedings would otherwise have begun, is
not suitable for determination by arbitration. Third, all concerned persons
and their authorized representatives agree, according to the provisions of
subparagraph (d) of paragraph 6, not to disclose to any other person any
information received during the course of the arbitration proceeding from
either Contracting State or the arbitration board, other than the
determination of the board (confidentiality agreement). The confidentiality
agreement may also be executed by any concerned person that has the
legal authority to bind any other concerned person on the matter. For
example, a parent corporation with the legal authority to bind its subsidiary
with respect to confidentiality may execute a comprehensive confidentiality
agreement on its own behalf and that of its subsidiary.
New paragraph 5 provides that an unresolved case shall not be submitted
to arbitration if a decision on such case has already been rendered by a
court or administrative tribunal of either Contracting State.
Attached to defendant’s cross-motion for partial summary judgment is the Report
of the Senate Committee on Foreign Relations on the 2009 Protocol, dated December 1,

21

2009, and titled “PROTOCOL AMENDING THE CONVENTION BETWEEN THE
GOVERNMENT OF THE UNITED STATES OF AMERICA AND THE GOVERNMENT OF
THE FRENCH REPUBLIC FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE
PREVENTION OF FISCAL EVASION WITH RESPECT TO TAXES ON INCOME AND
CAPITAL (TREATY DOC. 111-4).” See S. EXEC. REP. NO. 111-1, at 1 (2009)
(capitalization in original) (2009 Senate Report). Similar to the Senate Reports on the
1994 Treaty and the 2004 Protocol, the 2009 Senate Report states that the Foreign
Relations Committee “reports favorably” on the 2009 Protocol and recommends that the
Senate ratify the 2009 Protocol. See id. The 2009 Senate Report provides, with respect
to the purpose of the 2009 Protocol:
The purpose of the Protocol, along with the underlying treaty, is to promote
and facilitate trade and investment between the United States and France.
Principally, the Protocol would amend the existing tax treaty with France
(the “Treaty” or “Convention”) in order to eliminate withholding taxes on
cross-border dividend and royalty payments, establish a mandatory
arbitration scheme for resolving disputes between the parties to the treaty,
prevent inappropriate use of the treaty, as amended, by third-country
residents, and facilitate the exchange of information between tax authorities
in both countries.
Id. at 2. The 2009 Senate Report further provides that “[t]his [2009] Protocol was
negotiated to modernize our relationship with France in the areas set forth above and to
update the 1994 treaty to better reflect U.S. and French domestic law.” Id. (alterations
added). In the conclusion of the 2009 Senate Report, the Senate Committee on Foreign
Affairs recommends ratification of the 2009 Protocol, subject to the condition that the
Secretary of the Treasury submit to the Senate Committees on Finance and Foreign
Relations and the Joint Committee on Taxation the rules and procedures to be used
during mandatory arbitration proceedings under the 1994 Treaty as amended by the 2009
Protocol. See id. at 4-7.
Relevant Internal Revenue Code Provisions
In its cross-motion for partial summary judgment, defendant describes the
statutorily provided process by which United States taxpayers living abroad may reduce
their tax liability to the United States with respect to foreign income: “The Code provides
U.S. citizens living abroad with two primary methods of relief from double taxation—an
exclusion from U.S. tax of certain foreign earned income (under [I.R.C., 26 U.S.C.] § 911)
and credits for foreign income taxes paid (under [I.R.C.] §§ 901-909).” (alterations added).
Quoting I.R.C. § 911, defendant explains that “Section 911(a) allows a ‘qualified
individual’ to elect to exclude ‘foreign earned income’ from his or her taxable income in
the United States,”14 and that “Foreign earned income is ‘the amount received by such
The statute at I.R.C. § 911(d)(1) (2018) defines “qualified individual” in the context of
foreign tax credits as:
14

22

individual from sources within a foreign country . . . which constitute earned income
attributable to services performed by such individual.’”15 (ellipsis in defendant’s brief)
(quoting I.R.C. § 911(a), (b)(1)(A)). In addition, quoting I.R.C. § 901, defendant states that
“the Code allows ‘a citizen of the United States’ to credit against ‘the tax imposed by’
Chapter 1 [of the I.R.C.] ‘the amount of any income, war profits, and excess profits taxes
paid or accrued’ to ‘any foreign country.’” (alteration added) (quoting I.R.C. § 901(a),
(b)(1) (2018)).
(1) Qualified individual.--The term “qualified individual” means an
individual whose tax home is in a foreign country and who is-(A) a citizen of the United States and establishes to the satisfaction
of the Secretary that he has been a bona fide resident of a foreign
country or countries for an uninterrupted period which includes
an entire taxable year, or
(B) a citizen or resident of the United States and who, during any
period of 12 consecutive months, is present in a foreign country
or countries during at least 330 full days in such period.
I.R.C. § 911(d)(1) (emphasis in original). The statute at I.R.C. § 911(d)(2)(A) further
provides:
The term “earned income” means wages, salaries, or professional fees, and
other amounts received as compensation for personal services actually
rendered, but does not include that part of the compensation derived by the
taxpayer for personal services rendered by him to a corporation which
represents a distribution of earnings or profits rather than a reasonable
allowance as compensation for the personal services actually rendered.
I.R.C. § 911(d)(2)(A).
15

The statute at I.R.C. § 911(b)(1)(A) provides:
The term “foreign earned income” with respect to any individual means the
amount received by such individual from sources within a foreign country or
countries which constitute earned income attributable to services performed
by such individual during the period described in subparagraph (A) or (B) of
subsection (d)(1), whichever is applicable.

I.R.C. § 911(b)(1)(A). The statute at I.R.C. § 911(b)(2)(A) further provides:
The foreign earned income of an individual which may be excluded under
subsection (a)(1) for any taxable year shall not exceed the amount of foreign
earned income computed on a daily basis at an annual rate equal to the
exclusion amount for the calendar year in which such taxable year begins.
I.R.C. § 911(b)(2)(A).
23

Three sections of the I.R.C., I.R.C. §§ 27, 901, and 904, are particularly relevant
to understanding the case currently before this court. The statute section 27 of the I.R.C.
provides: “The amount of taxes imposed by foreign countries and possessions of the
United States shall be allowed as a credit against the tax imposed by this chapter [Chapter
1 of the I.R.C.16] to the extent provided in section 901[.]” I.R.C. § 27 (2018) (alterations
and footnote added). Additionally, the statute at I.R.C. § 901 provides, in relevant part:
(a) Allowance of credit.--If the taxpayer chooses to have the benefits of
this subpart, the tax imposed by this chapter [Chapter 1 of the I.R.C.]
shall, subject to the limitation of section 904, be credited with the
amounts provided in the applicable paragraph of subsection (b) plus, in
the case of a corporation, the taxes deemed to have been paid under
section 960. Such choice for any taxable year may be made or changed
at any time before the expiration of the period prescribed for making a
claim for credit or refund of the tax imposed by this chapter for such
taxable year. The credit shall not be allowed against any tax treated as
a tax not imposed by this chapter under section 26(b).
(b) Amount allowed.--Subject to the limitation of section 904, the following
amounts shall be allowed as the credit under subsection (a):
(1) Citizens and domestic corporations.--In the case of a citizen of
the United States and of a domestic corporation, the amount of any
income, war profits, and excess profits taxes paid or accrued during
the taxable year to any foreign country or to any possession of the
United States; and
(2) Resident of the United States or Puerto Rico.--In the case of a
resident of the United States and in the case of an individual who is
a bona fide resident of Puerto Rico during the entire taxable year, the
amount of any such taxes paid or accrued during the taxable year to
any possession of the United States; and
(3) Alien resident of the United States or Puerto Rico.--In the case
of an alien resident of the United States and in the case of an alien
individual who is a bona fide resident of Puerto Rico during the entire
taxable year, the amount of any such taxes paid or accrued during
the taxable year to any foreign country; and
(4) Nonresident alien individuals and foreign corporations.--In the
case of any nonresident alien individual not described in section 876
and in the case of any foreign corporation, the amount determined
pursuant to section 906; and

Chapter 1 of the I.R.C. is titled “Normal Taxes and Surtaxes” and includes certain I.R.C.
sections which are relevant to the above captioned case, including I.R.C. §§ 27, 901, 904,
and 911, but, as explained further below, Chapter 1 does not include I.R.C. § 1411, which
imposes the net investment income tax and which is in Chapter 2A of the I.R.C., titled
“Unearned Income Medicare Contribution.”
16

24

(5) Partnerships and estates.--In the case of any person described in
paragraph (1), (2), (3), or (4), who is a member of a partnership or a
beneficiary of an estate or trust, the amount of his proportionate
share of the taxes (described in such paragraph) of the partnership
or the estate or trust paid or accrued during the taxable year to a
foreign country or to any possession of the United States, as the case
may be. Under rules or regulations prescribed by the Secretary, in
the case of any foreign trust of which the settlor or another person
would be treated as owner of any portion of the trust under subpart
E but for section 672(f), the allocable amount of any income, war
profits, and excess profits taxes imposed by any foreign country or
possession of the United States on the settlor or such other person
in respect of trust income.
I.R.C. § 901(a)-(b) (emphasis in original; alteration added). The provisions found in I.R.C.
§§ 27 and 901(a) restrict foreign tax credits to apply only against taxes imposed by
Chapter 1 of the I.R.C. and are central to the issue currently before the court because, as
explained further below, the net investment income tax, against which plaintiffs seek to
apply a foreign tax credit, is imposed by I.R.C. § 1411, which is in Chapter 2A of the I.R.C.
The I.R.C. further provides, at section 904, in relevant part:
(a) Limitation.--The total amount of the credit taken under section 901(a)
shall not exceed the same proportion of the tax against which such
credit is taken which the taxpayer’s taxable income from sources
without the United States (but not in excess of the taxpayer’s entire
taxable income) bears to his entire taxable income for the same taxable
year.
I.R.C. § 904(a) (emphasis in original). The statute at I.R.C. § 904 sets forth a number of
detailed limitations on foreign tax credits which, however, are not relevant to the issues
raised by plaintiffs’ complaint in this court. See, e.g., I.R.C. § 904(c) (providing a one-year
carryback and ten-year carryover for foreign tax credits exceeding the limitation of I.R.C.
§ 904(a)). Defendant, quoting Dirk Suringa, The Foreign Tax Credit Limitation Under
Section 904, 6060 Tax Mgmt., at A-1 (BNA 2016), states that the statute at I.R.C. § 904’s
limitation of foreign tax credits “‘prevent[s] the foreign tax credit from relieving a taxpayer
of U.S. tax that would otherwise be payable against U.S.-source income.’” (alteration
added).
The case currently before the court concerns the availability of foreign tax credits
against the net investment income tax, which is imposed by I.R.C. § 1411 (2018). As
plaintiffs indicate in their motion for partial summary judgment, the net investment income
tax was originally created in 2010, when the Health Care and Education Reconciliation
Act of 2010 inserted I.R.C. § 1411 into the newly created Chapter 2A of Subtitle A of the
I.R.C., titled “UNEARED INCOME MEDICARE CONTRIBUTION.” See Health Care and
Education Reconciliation Act of 2010, Pub. L. No. 111-152, § 1402(a)(1), 124 Stat. 1029,

25

1060-61 (capitalization in original). The statute at I.R.C. § 1411 has not been amended
since it was first enacted in 2010 and describes the application of the net investment
income tax to taxpayers:

(a) In general.--Except as provided in subsection (e)-(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.
(2) Application to estates and trusts.--In the case of an estate or
trust, there is hereby imposed (in addition to any other tax imposed
by this subtitle) for each taxable year a tax of 3.8 percent of the lesser
of-(A) the undistributed net investment income for such taxable
year, or
(B) the excess (if any) of-(i) the adjusted gross income (as defined in section
67(e)) for such taxable year, over
(ii) the dollar amount at which the highest tax bracket
in section 1(e) begins for such taxable year.
(b) Threshold amount.--For purposes of this chapter, the term “threshold
amount” means-(1) in the case of a taxpayer making a joint return under section 6013
or a surviving spouse (as defined in section 2(a)), $250,000,
(2) in the case of a married taxpayer (as defined in section 7703)
filing a separate return, ½ of the dollar amount determined under
paragraph (1), and
(3) in any other case, $200,000.
(c) Net investment income.--For purposes of this chapter-(1) In general.--The term “net investment income” means the excess
(if any) of-(A) the sum of-(i) gross income from interest, dividends, annuities,
royalties, and rents, other than such income which is
derived in the ordinary course of a trade or business
not described in paragraph (2),
(ii) other gross income derived from a trade or business
described in paragraph (2), and
(iii) net gain (to the extent taken into account in
computing taxable income) attributable to the

26

disposition of property other than property held in a
trade or business not described in paragraph (2), over
(B) the deductions allowed by this subtitle which are properly
allocable to such gross income or net gain.
(2) Trades and businesses to which tax applies.--A trade or
business is described in this paragraph if such trade or business is-(A) a passive activity (within the meaning of section 469) with
respect to the taxpayer, or
(B) a trade or business of trading in financial instruments or
commodities (as defined in section 475(e)(2)).
(3) Income on investment of working capital subject to tax.--A
rule similar to the rule of section 469(e)(1)(B) shall apply for purposes
of this subsection.
(4) Exception for certain active interests in partnerships and S
corporations.--In the case of a disposition of an interest in a
partnership or S corporation-(A) gain from such disposition shall be taken into account
under clause (iii) of paragraph (1)(A) only to the extent of the
net gain which would be so taken into account by the
transferor if all property of the partnership or S corporation
were sold for fair market value immediately before the
disposition of such interest, and
(B) a rule similar to the rule of subparagraph (A) shall apply to
a loss from such disposition.
(5) Exception for distributions from qualified plans.--The term
“net investment income” shall not include any distribution from a plan
or arrangement described in section 401(a), 403(a), 403(b), 408,
408A, or 457(b).
(6) Special rule.--Net investment income shall not include any item
taken into account in determining self-employment income for such
taxable year on which a tax is imposed by section 1401(b).
(d) Modified adjusted gross income.--For purposes of this chapter, the
term “modified adjusted gross income” means adjusted gross income
increased by the excess of-(1) the amount excluded from gross income under section 911(a)(1),
over
(2) the amount of any deductions (taken into account in computing
adjusted gross income) or exclusions disallowed under section
911(d)(6) with respect to the amounts described in paragraph (1).
(e) Nonapplication of section.--This section shall not apply to-(1) a nonresident alien, or
(2) a trust all of the unexpired interests in which are devoted to one
or more of the purposes described in section 170(c)(2)(B).

27

I.R.C. § 1411 (2018) (emphasis in original). During the tax year at issue in this case, tax
year 2015, and to the time of the issuance of this Opinion, Chapter 2A of Subtitle A of the
I.R.C. included only I.R.C. § 1411.
The Treasury Department has promulgated regulations implementing I.R.C.
§ 1411 at Treasury Regulation, 26 C.F.R., § 1.1411-0 et seq., certain of which sections
describe the net investment income tax and its relationship to the foreign tax credits at
issue in this case. The regulation at Treasury Regulation § 1.1411-1(e) provides:
(e) Disallowance of certain credits against the section 1411 tax.
Amounts that may be credited against only the tax imposed by chapter
1 of the [Internal Revenue] Code may not be credited against the
section 1411 tax imposed by chapter 2A of the Code unless specifically
provided in the Code. For example, the foreign income, war profits, and
excess profits taxes that are allowed as a foreign tax credit by section
27(a), section 642(a), and section 901, respectively, are not allowed as
a credit against the section 1411 tax.
Treas. Reg. § 1.1411-1(e) (2022) (emphasis in original; alteration added).
The regulation at Treasury Regulation § 1.1411-2(a) provides, in relevant part, that
“[s]ection 1411 applies to an individual who is a citizen or resident of the United States
(within the meaning of section 7701(a)(30)(A)). Section 1411 does not apply to
nonresident alien individuals (within the meaning of section 7701(b)(1)(B)).” Treas. Reg.
§ 1.1411-2(a)(1) (alteration added). The regulation at the same section, Treasury
Regulation § 1.1411-2, at paragraph (b), provides, in relevant part:
In the case of an individual described in paragraph (a)(1) of this section, the
tax imposed by [I.R.C.] section 1411(a)(1) for each taxable year is equal to
3.8 percent of the lesser of—
(i)
Net investment income for such taxable year; or
(ii)
The excess (if any) of—
(A) The modified adjusted gross income (as defined in paragraph (c)
of this section) for such taxable year; over
(B) The threshold amount (as defined in paragraph (d) of this section).
Treas. Reg. § 1.1411-2(b)(1) (alteration added). The regulation at the same section,
Treasury Regulation § 1.1411-2, at paragraph (c), provides, in relevant part:
For purposes of [I.R.C.] section 1411, the term modified adjusted gross
income means adjusted gross income increased by the excess of—
(i) The amount excluded from gross income under [I.R.C.] section 911(a)(1);
over
(ii) The amount of any deductions (taken into account in computing adjusted
gross income) or exclusions disallowed under [I.R.C.] section
911(d)(6) with respect to the amounts described in paragraph (c)(1)(i)
of this section.

28

Treas. Reg. § 1.1411-2(c)(1) (alterations added).
The regulation at Treasury Regulation § 1.1411-4(a) defines net investment
income in relevant part:
For purposes of [I.R.C.] section 1411 and the regulations thereunder, net
investment income means the excess (if any) of—
(1) The sum of—
(i) Gross income from interest, dividends, annuities, royalties, and rents,
except to the extent excluded by the ordinary course of a trade or
business exception described in paragraph (b) of this section;
(ii) Other gross income derived from a trade or business described in §
1.1411–5; and
(iii) Net gain (to the extent taken into account in computing taxable
income) attributable to the disposition of property, except to the
extent excluded by the exception described in paragraph (d)(4)(i)(A)
of this section for gain or loss attributable to property held in a trade
or business not described in § 1.1411–5; over
(2) The deductions allowed by subtitle A that are properly allocable to such
gross income or net gain (as determined in paragraph (f) of this section).
Treas. Reg. § 1.1411-4(a) (alteration added).
Plaintiffs characterize the net investment income tax imposed by I.R.C. § 1411 as
“an income tax, imposed using concepts identical to those already contained in Chapter
1 [of the I.R.C.] of the normal income tax provisions, and meets the definition in the Code
for a tax on income as that concept is understood in the foreign tax credit provisions.”
(alterations added) (citing Treas. Reg. §§ 1.901-2(b)(4) (2022), 1.1411-1(a)). Plaintiffs
further state that the net investment income tax “did not yet exist at the time of the
ratification of the French Treaty” and that the net investment income tax “is a U.S. income
tax applied on items of income on which a French resident U.S. citizen would also pay
French taxes.”
Defendant characterizes the net investment income tax as “a separate levy that is
‘in addition to’ the regular income tax imposed under Chapter 1” of the I.R.C. Defendant
further states:
Each of those two levies has its own tax base, and each its own applicable
deductions. For certain taxpayers, the NIIT [net investment income tax] may
impose a second levy on investment income that is already subject to the
Chapter 1 income tax. However, depending on the circumstances,
investment income may be taxed under Chapter 1 but not be subject to the
NIIT, and investment income may sometimes be subject to the NIIT but be
exempt from regular income tax.

29

(alteration added).
The IRS website provides the following description of the net investment income
tax:
If an individual has income from investments, the individual may be subject
to net investment income tax. Effective Jan. 1, 2013, individual taxpayers
are liable for a 3.8 percent Net Investment Income Tax on the lesser of their
net investment income, or the amount by which their modified adjusted
gross income exceeds the statutory threshold amount based on their filing
status.
The statutory threshold amounts are:
• Married filing jointly — $250,000,
• Married filing separately — $125,000,
• Single or head of household — $200,000, or
• Qualifying widow(er) with a child — $250,000.
In general, net investment income includes, but is not limited to: interest,
dividends, capital gains, rental and royalty income, and non-qualified
annuities.
Net investment income generally does not include wages, unemployment
compensation, Social Security Benefits, alimony, and most selfemployment income.
Additionally, net investment income does not include any gain on the sale
of a personal residence that is excluded from gross income for regular
income tax purposes. To the extent the gain is excluded from gross income
for regular income tax purposes, it is not subject to the Net Investment
Income Tax.
If an individual owes the net investment income tax, the individual must file
Form 8960. Form 8960 Instructions provides details on how to figure the
amount of investment income subject to the tax.
Net
Investment
Income
Tax,
INTERNAL
REVENUE
SERV.,
https://www.irs.gov/individuals/net-investment-income-tax (last visited Oct. 23, 2023).
The IRS website also contains a “Questions and Answers” page with respect to
the net investment income tax. See Questions and Answers on the Net Investment
Income Tax, INTERNAL REVENUE SERV., https://www.irs.gov/newsroom/questions-andanswers-on-the-net-investment-income-tax (last visited Oct. 23, 2023). The “Questions
and Answers” page provides:
4. What is modified adjusted gross income for purposes of the Net
Investment Income Tax?
For the Net Investment Income Tax, modified adjusted gross income is
adjusted gross income (Form 1040, Line 37) increased by the difference
between amounts excluded from gross income under [I.R.C.] section
911(a)(1) and the amount of any deductions (taken into account in

30

computing adjusted gross income) or exclusions disallowed under section
911(d)(6) for amounts described in section 911(a)(1). In the case of
taxpayers with income from controlled foreign corporations (CFCs) and
passive foreign investment companies (PFICs), they may have additional
adjustments to their AGI [adjusted gross income]. See section 1.1411-10(e)
of the final regulations.
Id. (emphasis in original; alterations added). The “Questions and Answers” page further
provides:
8. What is included in Net Investment Income?
In general, investment income includes, but is not limited to: interest,
dividends, capital gains, rental and royalty income, non-qualified annuities,
income from businesses involved in trading of financial instruments or
commodities and businesses that are passive activities to the taxpayer
(within the meaning of section 469). To calculate your Net Investment
Income, your investment income is reduced by certain expenses properly
allocable to the income (see #13 below).
Id. (emphasis in original). The “Questions and Answers” page additionally provides:
10. What kinds of gains are included in Net Investment Income?
To the extent that gains are not otherwise offset by capital losses, the
following gains are common examples of items taken into account in
computing Net Investment Income:
A. Gains from the sale of stocks, bonds, and mutual funds.
B. Capital gain distributions from mutual funds.
C. Gain from the sale of investment real estate (including gain from the sale
of a second home that is not a primary residence).
D. Gains from the sale of interests in partnerships and S corporations (to
the extent the partner or shareholder was a passive owner). See section
1.1411-7 of the 2013 proposed regulations.
Id. (emphasis in original). The “Questions and Answers” page also provides:
13. What investment expenses are deductible in computing NII [Net
Investment Income]?
In order to arrive at Net Investment Income, Gross Investment Income
(items described in items 7-11 above) is reduced by deductions that are
properly allocable to items of Gross Investment Income. Examples of
deductions, a portion of which may be properly allocable to Gross
Investment Income, include investment interest expense, investment
advisory and brokerage fees, expenses related to rental and royalty income,
tax preparation fees, fiduciary expenses (in the case of an estate or trust)
and state and local income taxes.

31

Id. (emphasis in original; alteration added). Moreover, the “Questions and Answers” page
provides:
17. Can tax credits reduce my NIIT liability?
Any federal income tax credit that may be used to offset a tax liability
imposed by subtitle A of the Code may be used to offset the NII. However,
if the tax credit is allowed only against the tax imposed by chapter 1 of the
Code (regular income tax), those credits may not reduce the NIIT. For
example, foreign income tax credits (sections 27(a) and 901(a)) and the
general business credit (section 38) are allowed as credits only against the
tax imposed by chapter 1 of the Code, and therefore may not be used to
reduce your NIIT liability. If you take foreign income taxes as an income tax
deduction (versus a tax credit), some (or all) of the deduction amount may
[sic] deducted against NII.
Id. (emphasis in original; alteration added).
A committee print from the United States Senate Committee on the Budget titled
“Tax Expenditures: Compendium of Background Material on Individual Provisions,”
prepared by the Congressional Research Service, provides information on the net
investment income tax enacted in I.R.C. § 1411, under the title “SURTAX ON
UNEARNED INCOME.” CONG. RSCH. SERV., 111TH CONG., TAX EXPENDITURES:
COMPENDIUM OF BACKGROUND MATERIAL ON INDIVIDUAL PROVISIONS 413 (Comm. Print
2010) (capitalization and emphasis in original). The Senate Budget Committee print
states:
This provision imposes a 3.8-percent unearned income Medicare
contribution tax on the lesser of net investment income or the excess of
modified adjusted gross income over the threshold amount of an individual.
The threshold amount is $250,000 in the case of a joint return or surviving
spouse, $125,000 in the case of a married individual filing a separate return,
and $200,000 in any other case. In the case of an estate or trust, the tax is
3.8 percent of the lesser of undistributed net investment income or the
excess of adjusted gross income over the dollar amount at which the
highest income tax bracket applicable to an estate or trust begins. As the
provision raises revenue, this special rate of tax represents a negative tax
expenditure over the 2010-2014 time period.
Id. The Senate Budget Committee print describes the “Impact” of the net investment
income tax: “This provision raises the Medicare taxes paid by high-income individuals and
estates and trusts.” Id. (capitalization and emphasis in original).
Plaintiffs’ 2015 Tax Returns
As indicated above, plaintiffs Matthew and Katherine Kaess Christensen, a married
couple, are United States citizens who currently reside in Paris, France and who resided

32

in France during the tax year at issue in this case, tax year 2015. According to plaintiffs’
complaint, “[o]n or about December 15, 2016, plaintiffs filed a timely joint federal income
return for the year 2010 [sic17] with the Internal Revenue Service Center at Charlotte,
North Carolina. Plaintiffs timely paid income taxes in the amount of $4,672.00 on account
of this return.” (alterations and footnote added). Plaintiffs attached to their complaint their
original tax return for tax year 2015, filed in 2016, and their complete amended tax return
for tax year 2015 which, as noted above, was filed in January 2020. Plaintiffs’ original tax
return includes plaintiffs’ original Form 1040, original Form 1116, and original Form 8960,
as well as other documents not relevant to the issues currently before the court. Plaintiffs’
amended tax return includes plaintiffs’ Form 1040X, filed in January 2020, as well as
amended versions of forms filed with plaintiffs’ original tax return for tax year 2015, such
as an amended Form 1040, Form 1116, and Form 8960. Plaintiffs’ amended tax return
also includes a Form 8833 and a Form 8275, which do not appear previously to have
been included in plaintiffs’ original tax return as it is included in the record before the
court, and other documents not relevant to the issues currently before the court.
In their motion for partial summary judgment in this court, plaintiffs summarize the
income they reported to the IRS in both their original and their amended tax returns for
2015:
(i) earned income of $369,373; (ii) U.S. source passive income of $7,976;
and (iii) foreign source passive income of $101,353. Before taking into
account any foreign tax credits, Plaintiffs had a $76,376 U.S. federal income
tax liability on this income arising under Chapter 1 of the Internal Revenue
Code of 1986 (26 U.S.C.) (the “Code”).
(footnote added). Plaintiffs further state in their motion for partial summary judgment that
they paid a net investment income tax of 3.8 percent on the $7,976.00 of United States
source passive income and also on the $101,353.00 foreign source passive income, for
a total of $4,155.00 in net investment income tax. According to plaintiffs’ motion for partial
summary judgment, “[o]f that $4,155 NIIT liability, $3,851 related to the $101,342 of
foreign source investment income.” (alteration added). Plaintiffs further state in their
motion for partial summary judgment that they “also incurred French income tax equal to
$140,398 on their earned income and non-U.S. source investment income, of which
$113,745 was attributable to the earned income and $26,635 was attributable to their
passive foreign source investment income.”
Attached to plaintiffs’ complaint is plaintiffs’ original IRS Form 1040 “U.S.
Individual Income Tax Return” for the 2015 tax year, which bears the signature of
plaintiffs’ tax preparer, Steven R. Horton, CPA, the date December 15, 2016, and is
stamped “AS ORIGINALLY FILED.” (capitalization and emphasis in original). According
to plaintiffs’ original Form 1040 for tax year 2015, plaintiffs claimed an exclusion of
After inquiry by the court, plaintiffs confirmed in a joint status report “that the reference
in paragraph 4 of the initial complaint to ‘federal income tax [sic] return for 2010’ [sic] was
mistaken and that the applicable tax year is 2015.” (alterations added).
17

33

$148,172.00, as well as a deduction of $12,600.00 and an exemption of $16,400.00, all
of which reduced plaintiffs’ taxable income to $301,530.00, on which plaintiffs reported a
United States income tax of $76,287.00 and an alternative minimum tax of $89.00. As
documented by plaintiffs’ original Form 1040, plaintiffs claimed a foreign tax credit of
$75,859.00 against their reported United States income tax of $76,287.00. Plaintiffs’
original Form 1040 for 2015 indicates that plaintiffs originally paid $4,155.00 in net
investment income tax.
Plaintiffs allege that “[o]n or about January 8, 2020, plaintiffs filed a Form 1040X
claim with the Internal Revenue Service Center in Austin, Texas for refund of the federal
income tax and interest paid for 2015 in the amount of $3,851.00 together with interest
as allowed by law.” (alteration added). Plaintiffs’ IRS Form 1040X “Amended U.S.
Individual Income Tax Return,” (capitalization and emphasis in original), for tax year
2015, is included in the record before the court and is signed by plaintiffs jointly and by
their tax preparer, Mr. Horton, on December 9, 2019. Plaintiffs’ Form 1040X for the year
2015 indicates that originally plaintiffs had claimed a “[t]otal tax” of $4,672.00 for tax year
2015, and that plaintiffs claimed on their amended tax return a “[t]otal tax” of $821.00 for
tax year 2015, a difference of $3,851.00. (alterations added). On their Form 1040X for tax
year 2015, plaintiffs claim a refund of $3,851.00. On the second page of plaintiffs’ Form
1040X for tax year 2015, plaintiffs state, in a typewritten-in addition under the header
“Part III” “Explanation of changes:” “THIS RETURN CLAIMS A REFUND OF NET
INVESTMENT INCOME TAX (NIIT) FOR $3,851 AS EXPLAINED ON FORM 8833. SEE
AMENDED FORM 8833 ATTACHED ALONG WITH AMENDED FORMS 8960 AND
FORMS 1116.” (capitalization and emphasis in original).
Included in plaintiffs’ amended tax return, attached to plaintiffs’ complaint, is an
IRS Form 8833 “Treaty-Based Return position Disclosure Under Section 6114 or
7701(b),” (capitalization and emphasis in original), which does not have a signature or
date portion as it appears in the record before the court.18 Plaintiffs’ Form 8833 states
that “[t]he taxpayer is disclosing a treaty-based return position as required by [I.R.C.]
section 6114,” (alterations added), and indicates, with respect to “the specific treaty
position relied on,” the country “FRANCE” and the articles “2 & 24.” (capitalization in
original). Plaintiffs’ Form 8833 provides that plaintiffs claim that I.R.C. § 1411 is “overruled
or modified by the treaty-based return position” in the 1994 Treaty, as amended.
Moreover, in their Form 8833, plaintiffs provide the following typewritten-in explanation
for their claimed treaty-based return:
A number of plaintiffs’ tax documents, which are attached to plaintiffs’ complaint, do not
bear plaintiffs’ signatures, or the signature of plaintiffs’ tax preparer, or the date of any
signatures, as they are included in the record before the court. Moreover, some of
plaintiffs’ tax documents do not include signature and date portions. Some of these
records appear be duplicates of documents previously submitted to the IRS. Defendant
has not challenged the veracity of the information included on plaintiffs’ tax forms, without
regard to the lack of signatures and dates on certain forms, although defendant has raised
the computational issue of whether plaintiffs have correctly applied the rule of tax
calculation referred to as the “three-bite rule,” which is discussed further below.
18

34

TAXPAYER IS FILING THIS CLAIM FOR REFUND TO SEEK A FOREIGN
TAX CREDIT TO REDUCE THE NET INVESTMENT INCOME TAX (THE
“NIIT”, CODIFIED IN CODE SEC. 1411). TAXPAYER BELIEVES THAT
EITHER THE NIIT IS A COVERED TAX UNDER THE TERMS OF THE
UNITED STATES / FRANCE INCOME TAX TREATY (THE “FRENCH
TREATY”, [sic] IN WHICH CASE A FOREIGN TAX CREDIT SHOULD BE
ALLOWED UNDER ARTICLES 2 & 24 OF THE FRENCH TREATY, OR
THAT THE NIIT FALLS WITHIN THE DEFINITION OF A COVERED TAX
UNDER THE UNITED STATES / FRANCE TOTALIZATION AGREEMENT
(THE “TOTALIZATION AGREEMENT”) IN WHICH CASE THE TAXPAYER
IS EXEMPT FROM THE NIIT AS A FRENCH RESIDENT.
ON THE ASSUMPTION THAT THE FRENCH TREATY APPLIES, THE
TAXPAYER HAS ADJUSTED THE FOREIGN TAX CREDIT FORMS (THE
FORMS 1116) TO REFLECT THE USE OF THE CREDIT (THE “FORM
1116 ADJUSTMENT”) AND HAS ELIMINATED THE TAX ON THE FORM
8960 BASED UPON THE FORM 1116 ADJUSTMENT. IN THE EVENT
THE TOTALIZATION AGREEMENT POSITION APPLIES, THE SAME
REFUND AMOUNT WOULD OCCUR, ALTHOUGH NO FOREIGN TAX
CREDIT ADJUSTMENT WOULD BE REQUIRED.
(capitalization in original).19
Also included in plaintiffs’ amended tax return, attached to plaintiffs’ complaint, is
an IRS Form 8960, “Net Investment Income Tax – Individuals, Estates, and Trusts,”
for plaintiffs for tax year 2015, which does not include a signature and date portion and is
stamped “AS AMENDED” as it appears in the record before the court. (capitalization and
emphasis in original). Plaintiffs’ amended Form 8960 indicates that in tax year 2015,
plaintiffs had “[t]otal investment income” of $109,329.00. (alteration added). Plaintiffs’
amended Form 8960 includes the instructions for calculation of the “[n]et investment
income tax for individuals,” according to which instructions plaintiffs would “[m]ultiply” their
$109,329.00 “by 3.8% (.038).” (alterations added). Plaintiffs’ amended Form 8960
indicates for the net investment income tax that plaintiffs owe $304.00, and plaintiffs also
Also included in plaintiffs’ amended tax return, attached to plaintiffs’ complaint, is a
Form 1116 “Foreign Tax Credit” for plaintiffs for tax year 2015, which does not include
a signature and date portion and is stamped “AS AMENDED” as it appears in the record
before the court. (capitalization and emphasis in original). Plaintiffs’ amended Form 1116
for tax year 2015 indicates that plaintiffs accrued $113,745.00 in “[o]ther foreign taxes,”
and $26,653.00 in foreign taxes withheld on dividends and interest, for a foreign tax credit
of $75,859.00. (alteration added). Also on the amended Form 1116, plaintiffs indicate on
the line “[t]axes reclassified under high tax kickout,” $22,802.00 in taxes, and plaintiffs
state in a handwritten explanation: “High tax kickout, $26,653, less foreign taxes claimed
as credit against Net Investment Income Tax on Form 8960, $3851.” (capitalization in
original; alteration added).
19

35

include the following unexplained handwritten notation on the Form 8960: “A Net
investment income tax before foreign tax credit $4155 Less Foreign Tax credit on foreign
(3851)
source investment income –(carried from general limitation Form 1116) $304 .”
(capitalization in original).
In addition, included in plaintiffs’ amended tax return, attached to plaintiffs’
complaint, is an IRS Form 8275, “Disclosure Statement” for tax year 2015, which does
not include a portion for signatures and dates as it appears in the record before the court.
(capitalization and emphasis in original). On the Form 8275, under “Part I” “General
Information,” plaintiffs list the “Rev. Rul., Rev. Proc., etc.,” as “T.D.9644 [sic], FED REG
72393,” the “Item or Group of Items” as “SEC. 1411,” the “Detailed Description of Items”
as “FOREIGN TAX CREDIT FOR NET INVESTMENT INCOME TAX PURSUANT TO
FRENCH/U.S. TREATY OR TOTALIZATION AGREEMNT [sic],” the “Form or Schedule”
as 8960, and the “Amount” as $3,851.00. (capitalization and emphasis in original;
alterations added). Plaintiffs provide the following “Detailed Explanation” on the Form
8275:
TAXPAYERS BELIEVE THAT ARITCLES 2&24 [sic] OF THE FRENCH/US
TAX TREATY PROVIDE AN INDEPENDENT BASIS FOR CLAIMING A
FOREIGN TAX CREDIT TO REDUCE NET INVESTMENT INCOME TAX
(NIIT) OR THAT THE FRENCH/US TOTALIZATION AGREEMENT
WOULD EXEMPTS [sic] TAXPAYERS FORM [sic] PAYING THIS TAX.
THIS IS CONTRARY TO THE POSITION ANNOUNCED BY THE IRS
(WITHOUT ANY
(SEE NEXT)
(capitalization in original; alterations added). Plaintiffs’ detailed explanation continues in
a separate section on the following page of the Form 8275: “ANALYSIS) IN THE ABOVE
CITED PREAMBLE TO THE REGULATIONS PROMULGATED UNDER CODE SEC.
1411. THE IRS 1040 FORMS AND RELATED SCHEDULES DO NOT ALLOW FOR A
FOREIGN TAX CREDIT CLAIM AND HAVE BEEN OVERRIDDEN TO ACHIEVE THAT
RESULT.” (capitalization in original).
Included in the record before the court is a letter dated February 20, 2020, from
the IRS to plaintiffs, in which the IRS denied plaintiffs’ claim for a foreign tax credit-based
refund of the net investment income tax paid for tax year 2015. The IRS’ denial letter
states:
WE CAN’T ALLOW YOUR CLAIM
We disallowed your claim for credit for the tax period listed at the top of this
letter.
WHY WE CAN’T ALLOW YOUR CLAIM
The postmark date on your tax return’s envelope is Jan. 08, 2020. The last
day to file a claim for tax year 2015 was Oct. 15, 2019. We can’t allow your
claim because the postmark is after the deadline.
WHAT TO DO IF YOU DISAGREE

36

You can appeal our decision with the Office of Appeals (which is an
independent organization within the IRS) if we disallowed your claim
because our records show that you filed your claim late. Generally, a claim
is late if you filed it after the later of:
- 3 years from the due date of a timely-filed return without an extension
- 3 years from the date we received a late return or a timely filed return
with an approved extension
- 2 years after you paid the tax
In addition, for a claim filed within three years of the date you filed your tax
return, we can only refund or credit the amount you paid during the threeyear period before the date you file the claim (plus any approved extension
of time to file). If you file your claim more than three years after the date you
filed your return, we can only credit or refund the amount you paid during
the two-year period before the date you file the claim. The Appeals Office
can’t change the amount of time the law allows you to file a claim for refund
or credit.
If you decide to appeal our decision, send us an explanation of why you
believe you filed your claim on time; for example, you had an extension of
time to file your original tax return. We will consider your explanation before
forwarding your request to the Office of Appeals.
(capitalization in original).
Plaintiffs state in their motion for partial summary judgment, however, that
“Defendant now agrees that the refund suit has been timely filed as it relates to whether
Plaintiffs are eligible for a foreign tax credit under the provisions of the French Treaty.”
Defendant indicated in a joint status report that it “agrees that the refund suit has been
timely filed under I.R.C. Sec [sic] 6511(d)(3).” (alteration added). There is no dispute with
respect to the timeliness of plaintiffs’ claim in the case currently before the court.
PROCEDURAL HISTORY
The record before the court indicates that plaintiffs did not appeal the IRS’ denial
of their refund claim in administrative proceedings before the IRS, and that plaintiffs
instead opted to commence litigation in this court. Plaintiffs filed suit in this court on July
31, 2020, seeking a refund of the net investment income tax paid by plaintiffs for tax year
2015. After the defendant filed an answer to plaintiffs’ complaint, the parties engaged in
lengthy fact discovery, offering different views of what should be disclosed. During fact
discovery, despite extensive discussions as to how to proceed, the parties did not
produce documents which offered an interpretation by the French Government of the
1994 Treaty as originally entered into or as amended by the 2004 and 2009 Protocols
with respect to the issue of the availability of a foreign tax credit against the United States
net investment income tax.

37

Discovery and the Three-Bite Rule as Related to Plaintiffs’ Tax Refund Claim
In their briefing and at oral argument on the cross-motions for partial summary
judgment, the parties contested the relevance and application of the “three-bite rule” in
the above captioned case. In its cross-motion for partial summary judgment, defendant
indicates that the three-bite rule is implemented in part by paragraph (2)(b) of Article 24
of the 1994 Treaty, as amended, and defendant states: “Article 24(2)(b) is an integral part
of an ordering rule established by the Treaty (colloquially referred to as a ‘three-bite rule’)
governing the application of foreign tax credits to both French and U.S. taxes on income
earned by U.S. citizens residing in France.” Defendant explains the three-bite rule, in
which each “bite” is a tax by either the United States Government or the French
Government assessed against the taxpayer, as follows:
The three pertinent taxes, or “bites,” are: (1) the Treaty-authorized U.S. tax
on certain U.S.-source income earned by the French resident; (2) the
French tax on income earned by the French residents; and (3) the U.S. tax
on worldwide income imposed on the basis of U.S. citizenship that is
preserved by the Treaty’s saving clause. Under the three-bite rule, the
imposition of U.S. tax on certain U.S.-source income (principally investment
income) has primacy (the first bite), followed by the French income tax on
its residents (the second bite), and then by the U.S. income tax on its
citizens (the third bite). Under this framework, when France takes the
second bite, it provides the U.S. citizen with foreign tax credits for the firstbite U.S. tax applied to U.S.-source passive income. And, when the United
States takes the third bite, it provides its citizens with foreign tax credits for
the second-bite income tax imposed by France on the basis of French
residence (but the U.S. foreign tax credits may not reduce the first-bite U.S.
tax claimed as a credit against the French second bite).
(emphasis in original; footnotes omitted).
Defendant further explains its view of how certain provisions of the 1994 Treaty,
as amended, including paragraph 2(b) of Article 24, one of the provisions at issue in the
above captioned case, implement the three-bite rule:
The Treaty incorporates the three-bite rule in the following manner. To
implement the second bite, article 24(1)(a)(iii) requires France to grant a
foreign tax credit for “the amount of tax paid in the United States” on certain
“income arising in the United States,” including dividends, interest, and
certain capital gains, among other things. To implement the third bite, article
24(2)(b)(i) requires the United States to “allow as a credit against the United
States income tax the French income tax paid after the credit [for the first
bite] referred to in subparagraph (a)(iii) of paragraph 2,” but clarifies that the
credit for French taxes paid would not affect “that portion of the United
States income tax” imposed by the first bite. Then, to properly account for
the second-bite French income tax when computing the § 904 limitation for

38

the foreign tax credit allowed by the United States against its third-bite,
article 24(2)(b)(ii) provides that such income “shall be considered income
from sources within France.”
(alteration in original; footnote omitted). In a footnote to the above-quoted text, defendant
also asserts that “[t]he technical explanation to the 1994 convention explains the
operation of the three-bite rule under these provisions of the Treaty.” (alteration added).
The 1994 Treaty Treasury Department Technical Explanation states, at the portion cited
by defendant:
Subparagraph 1(b) [of Article 2420] provides special rules to avoid the
double taxation of U.S. citizens who are residents of France. Under
subparagraph 2(a)(iii), France agrees to credit the U.S. tax paid, but only
for the amount of tax that the United States could impose under the
Convention on a resident of France who is not a citizen of the United States.
Under subparagraph 1(b), the United States agrees that, where additional
U.S. tax is due solely by reason of citizenship, it will credit the French tax
imposed on the basis of residence to the extent that the French tax exceeds
the tax that the United States may impose on the basis of source (i.e., net
of the credit allowed by France). Under subparagraph 2(b), France shares
the burden of avoiding double taxation of U.S. citizens resident in France
by exempting from French tax certain items of U.S. source income of such
citizens that would otherwise be subject to French tax.
Subparagraph 1(b) also provides that certain U.S. source income will be
treated as French source income to permit the additional credit to fit within
the foreign tax credit limitation of [Internal Revenue] Code Section 904. This
resourcing provision applies only to items of income that are included in
gross income for French tax purposes, and it cannot be used in determining
the foreign tax credit limitation applicable to income taxes paid to any other
country.
(alterations and footnote added).21
20

As explained above, the order of the paragraphs of Article 24 of the 1994 Treaty were
reversed by the 2009 Protocol, such that paragraph 1 of Article 24 of the 1994 Treaty was
renumbered paragraph 2 of Article 24 of the 1994 Treaty, as amended.
The 1994 Treaty Treasury Department Technical Explanation offers a “simplified
example” to illustrate the operation of paragraph 1(b) of Article 24, which would be
paragraph 2(b) of Article 24 in the 1994 Treaty, as amended:
21

The U.S. tax on a dividend paid by a U.S. corporation to a portfolio investor
resident in France is limited by Article 10 (Dividends) of the Convention to
15 percent. The United States, therefore, will impose a tax of 15 on a
dividend of 100, and France will allow a tax credit of 15. Suppose that the
French individual income tax due is 22 percent. In that case, the net tax
39

Plaintiffs provide their explanation of the three-bite rule and its implementation by
provisions of the 1994 Treaty, as amended, specifically paragraph 2(b) of Article 24,
which plaintiffs indicate aligns with defendant’s explanation:
Article 24(2)(b)(i) [of the 1994 Treaty, as amended,] provides that, in the
case of a U.S. citizen living in France, the United States retains the same
primary taxing rights regardless of the French resident’s citizenship. Thus,
for example, a dividend paid by a U.S. corporation to a French resident is
subject to a 15 percent withholding tax (in the case of a non-U.S. citizen)
and, hence, the United States retains the right to levy a 15 percent tax on
the French resident U.S. citizen (referred to by the Defendant as the first
bite of the three-bite rule). France, in turn, has the right to levy tax on any
amount in excess of 15 percent (referred to as the second bite of the threebite rule). Finally, any such French tax shall be allowed as a credit against
U.S. tax (other than the first 15 percent allowed to the United States under
the first bite), but if the French tax is less than any additional U.S. tax, the
United States may top up the 15 percent collected in the first bite by such
shortfall (the third bite). The parties do not disagree as to any of this.
(alteration added). As plaintiffs indicate in the foregoing quotation, plaintiffs and defendant
appear to agree in principle on how the three-bite rule is implemented by the 1994 Treaty,
as amended, however, as discussed further below, the parties disagree with respect to
how to calculate any taxes due under the three-bite rule, with respect to plaintiffs’ French
and United States income taxes.
In its cross-motion for partial summary judgment, defendant challenges plaintiffs’
calculations and states that “[w]hen plaintiffs computed their French income-tax liability,
they applied ‘foreign income tax credits,’” but that “the three-bite rule required plaintiffs to
take foreign tax credits for the first-bite U.S. tax applied to their U.S. source passive
income. Plaintiffs have not provided evidence that they performed this calculation
properly.” (alteration added). Defendant continues to dispute how plaintiffs’ French and
United States income tax were calculated, as represented in plaintiffs’ amended tax return
forms filed with the IRS.
payable to France will be 7. However, assume that this individual is a U.S.
citizen and, therefore, liable to U.S. tax of 22 percent. In the absence of a
special relief provision, the individuals [sic] total tax would be 35: 28 to the
United States, with no foreign tax credit because the dividend is from U.S.
sources, and 7 to France. Under subparagraph 1(b), the 7 of French tax is
credited against the 28 of U.S. tax, reducing the combined burden to 28, the
higher of the two taxes. In this example, in order to credit the French tax of
7 at a U.S. rate of 28, 25 of the dividend would be treated as from French
sources so that the 7 of French tax could be claimed as a foreign tax credit
(7/28 x 100).
(alteration added).
40

After multiple discussions between plaintiffs’ and defendant’s attorneys about how
to calculate the dollar impact of the three-bite rule and what documents defendant’s
attorney requested to verify that plaintiffs had properly accounted for the three-bite rule in
their claims in this court, at oral argument, plaintiffs, after once again stating that the
government had all it needed to confirm plaintiffs’ calculations, stated:
The Government takes issue with whether or not there should be a remand
because we have not demonstrated that we complied with what they call
the three-bite rule. That position is, again, simply wrong.
I have submitted affidavits. I have submitted French tax returns or French
avis d’impot, which is the -- effectively the receipt, and I’ve submitted U.S.
tax returns. All of those show we did not try to claim a credit for any U.S. -a credit -- a French tax credit for any U.S. source income tax.
I will go further and say that I have asked the Government from the very
outset of this case, what do you need? What documents do you want from
me? And they’ve repeatedly said none. It’s only at the last minute that they
came up and said we need a remand[22] because you haven’t established
it.
(footnote added). As plaintiffs’ attorney emphasized, and as defendant had indicated in
its cross-motion for partial summary judgment, the dispute between the parties with
respect to the application of the three-bite rule is whether sufficient evidence exists that
the three-bite rule was properly accounted for in plaintiffs’ calculations of their French and
United States income taxes.
Defendant’s attorney responded during oral argument and confirmed that the issue
of the three-bite rule concerned whether the three-bite rule taxes had been properly
calculated by plaintiffs:
The Government’s issue here with respect to the computations in this case
is not one that is based upon needing documents from the Plaintiff [sic] that
they have not provided. What we asked for is for the Plaintiff [sic] to
demonstrate that when they computed the foreign tax credits, when they
computed their French tax, that they properly took account of U.S. tax on
the first bite that applies to U.S. source investment income, and so it is
essential for a taxpayer, when properly applying the three-bite rule, when
they pay French tax in step two, to make sure that they account for the U.S.
tax that was due in step one.
And we asked the Plaintiff [sic] to -- really as part of their burden of proof in
their summary judgment motion -- where we said, yeah, we agree you paid
the tax. You’ve given us sufficient evidence to show your returns, but you
Plaintiffs’ new and only reference to requiring a “remand” at oral argument was not
discussed in the parties’ briefs on the cross-motions for partial summary judgment
currently under consideration.
22

41

haven’t showed us that when you computed the amount of French tax that
you paid, that you properly took account of the first bite of U.S. income tax,
and that’s an issue that we believe is part of their burden of proof.
(alterations added). Defendant’s attorney further stated:
We’re not saying that, because they failed to meet this burden of proof, that
if Your Honor agreed with them as a matter of law, that they should
somehow lose. We’re just saying that if the Court were to agree with them
as a matter of law, that we have some work to do which might just involve
the Plaintiff [sic] showing us how they specifically computed the dollar
amounts of foreign tax credits that were claimed on both their U.S. foreign
-- on their U.S. income tax returns and their French income tax returns.
(alteration added).
At oral argument, plaintiffs’ attorney ultimately agreed to give plaintiffs’ 2015
French income tax return to defendant in order for defendant’s counsel to try to verify the
calculation of the three-bite rule. In a subsequent status report submitted to the court,
defendant stated:
Defendant’s counsel has reviewed that return [plaintiffs’ French tax return],
along with the “taxpayers’ annual statement issued by the French
Government, the Avis d’Impot,” that plaintiffs submitted in support of their
motion for summary judgment. Dkt. 29-3 at 1, 6-13. Unfortunately, these
documents do not themselves reveal how plaintiffs arrived at the numbers
recorded thereon. Among other things, it is not possible, from review of the
documents alone, to reconcile the income reported on plaintiffs’ United
States tax return with the income reported on their French return, or to
determine whether the foreign tax credits reported on the French return
properly include United States tax on U.S.-sourced passive income.
More specifically, it is not possible to determine, from review of those
documents, whether plaintiffs properly applied the “three-bite rule” when
they claimed foreign tax credits on their French income-tax return for tax
they owed to the United States under the “first bite.”
(emphasis in original; alteration added). Defendant’s status report further stated that
during the course of the colloquy at oral argument on the parties’ summary
judgment motions, defendant’s counsel may have been unclear in
describing with particularity the information that the United States needed
to review to determine whether plaintiffs properly applied the three-bite rule,
leaving the erroneous impression that a review of plaintiffs’ French tax
return would be sufficient.

42

Defendant’s status report indicated that defendant had asked plaintiffs’ counsel a series
of detailed questions related to plaintiffs’ 2015 French and United States taxes, which
“plaintiffs’ counsel declined to answer,” and defendant reiterated its position that
“defendant has been unable to determine whether plaintiffs properly applied the threebite rule in preparing their 2015 French return because defendant does not know how
various sums appearing on the French return and on the Avis d’Impot were computed.”
(emphasis in original; footnote omitted). In a footnote to the foregoing quote from
defendant’s status report, however, defendant stated:
If the Court is willing to defer the resolution of computational issues until
after it resolves the disputed legal issues in this case, then this issue can
be tabled at this time. However, if the Court would prefer that defendant
state a definitive position as to whether plaintiffs properly applied the threebite rule when preparing their 2015 returns, defendant will need to obtain
additional information from plaintiffs.
In response, plaintiffs argued in another status report that,
by email dated September 2, 2022, Plaintiffs reiterated to Defendant that
the three-bite rule did not apply. Specifically, Plaintiffs explained that they
did not claim a foreign tax credit against U.S. income taxes for French taxes
paid on U.S. source income. Had Plaintiffs made any such claims, these
would have been listed on a separate Form 1116 for the category “certain
income re-sourced by treaty.” As Defendant knows, no such Form 1116 was
filed.
(footnote omitted). In a footnote to the foregoing quote in plaintiffs’ status report, plaintiffs
further stated:
The September 2, 2022 email [from plaintiffs’ counsel] to Defendant states
“[y]ou have indicated an interest in how the “three-bite” rule has been
applied. You are fundamentally mistaken in this inquiry as in their U.S. tax
return, my clients did not claim any foreign tax credits on U.S. source
income (there is no Form 1116 seeking to re-source U.S. source income for
purposes of the ‘three-bite’ rule) and therefore the “three-bite” rule has not
been applied and does not apply.”
(second alteration in original). Also in plaintiffs’ status report, plaintiffs argued that
defendant’s detailed “questions make no sense, do not reflect Plaintiffs’ attempts to
resolve the issue, or can be readily answered by reference to the materials provided,”
and that
Defendant ignores that the amount of French tax imposed on Plaintiffs’
French-source passive income exceeded the U.S. tax on that same income
by over $10,000. (Horton Affidavit, Dkt 29-3.) The total U.S. source income
shown on Plaintiffs’ U.S. tax return was less than $8,000. As such, even if

43

the entire amount of U.S. income gave rise to a tax liability in France (it did
not), a disallowance of that hypothetical tax would not preclude the Plaintiffs
from the $3,851 refund in this case. Simply put, Defendant has not and
cannot demonstrate that its concerns, even if well founded (they are not),
would have any impact on Plaintiffs’ entitlement to the claimed refund
amount and thus, these concerns do not rise to a material issue of fact
sufficient to defeat a summary judgment motion.
Finally, plaintiffs stated in their status report:
Despite Defendant’s approach, Plaintiffs remain convinced that it is in the
interests of both the Government and all U.S. citizens living in France that
there be a clear and timely resolution of this legal issue. To that end,
Plaintiffs do not object to Defendant’s proposed delay in resolution of the
computational question until after the substantive issue – the proper
interpretation of the French Treaty – is resolved (Def. Status Report fn. 1),
[sic]
(alteration added).
As referred to above, because of the ongoing debate and the inability of the parties
to resolve the issues regarding the three-bite rule, the court indicated, with the agreement
of the parties, that the factual question of whether plaintiffs had properly calculated their
United States and French income taxes with respect to the three-bite rule would be
deferred until after a decision on the pending motions for partial summary judgment first
to resolve the legal issue of whether foreign tax credits may be taken against the net
investment income tax based on the 1994 Treaty, as amended. Therefore, as indicated
above, the court issued an order converting the parties’ cross-motions for summary
judgment to cross-motions for partial summary judgment. This Opinion, therefore, only
evaluates the parties’ cross-motions for partial summary judgment with respect to the
issue of whether the 1994 Treaty, as amended, provides a foreign tax credit against the
net investment income tax imposed by I.R.C. § 1411.
DISCUSSION
Subject Matter Jurisdiction
The court ordered additional briefing to address jurisdictional concerns presented
by plaintiffs’ reliance solely on the terms of the 1994 Treaty, as amended, to provide
plaintiffs a foreign tax credit. The statute at 28 U.S.C. § 1502 provides: “Except as
otherwise provided by Act of Congress, the United States Court of Federal Claims shall
not have jurisdiction of any claim against the United States growing out of or dependent
upon any treaty entered into with foreign nations.” 28 U.S.C. § 1502 (2018). In
supplemental briefing, the court ordered the parties to address whether the statute at 28
U.S.C. § 1502 resulted in plaintiffs’ claims as beyond the jurisdiction of the United States
Court of Federal Claims.

44

In the case of United States v. Weld, 127 U.S. 51 (1888), the United States
Supreme Court considered the application of a predecessor to the modern version of 28
U.S.C. § 1502, identified as “section 1066, Rev. St. U. S.,” which deprived the earlier
United States Court of Claims of jurisdiction over any “case growing out of, and dependent
upon,” a treaty of the United States. See United States v. Weld, 127 U.S. at 54. The
Supreme Court in Weld explained that jurisdiction was barred under the statute only when
“the right itself, which the petition makes to be the foundation of the claim, must have its
origin—derive its life and existence— from some treaty stipulation.” Id. at 57; Societe
Anonyme Des Ateliers Brillie Freres v. United States, 160 Ct. Cl. 192, 197 (1963)
(explaining that “[t]he Supreme Court of the United States provided us with an objective
standard when it defined section 1066 of the Revised Statutes, the forerunner of the
present section [1502]” (alterations added)); see also Wood v. United States, 961 F.2d
195, 200 (Fed. Cir. 1992) (“Section 1502 has been given a narrow interpretation; its
applicability is limited to those cases relying so heavily on a treaty that, but for the treaty,
the plaintiff’s claim would not exist.” (citing Hughes Aircraft Co. v. United States, 209 Ct.
Cl. 446, 534 F.2d 889, 904 (1976))); Kuwait Pearls Catering Co., WLL v. United States,
145 Fed. Cl. 357, 369 (2019) (quoting United States v. Weld, 127 U.S. at 57; Wood v.
United States, 961 F.2d at 199; Hughes Aircraft Co. v. United States, 534 F.2d at 90304).
Plaintiffs, in their supplemental brief, argue that a provision of the Internal Revenue
Code, I.R.C. § 7422, creates an exception to 28 U.S.C. § 1502 and “provides this Court
jurisdiction to hear the tax refund suit based upon the proper interpretation of the French
Treaty.” (alteration added). In its supplemental brief, defendant agrees that I.R.C. § 7422
provides a statutory exception to the jurisdictional bar imposed by 28 U.S.C. § 1502, and,
therefore, “the jurisdictional bar does not apply.” (citing McManus v. United States, 130
Fed. Cl. 613, 620 n.16 (2017); De Archibold v. United States, 57 Fed. Cl. 29, 32 n.6
(2003); Sarkisov v. United States, 95 A.F.T.R.2d 2005-738 (Fed. Cl. 1994)). The statute
at I.R.C. § 7422 provides, in relevant part, that a tax refund “suit or proceeding may be
maintained against the United States notwithstanding the provisions of section 2502 of
title 28 of the United States Code (relating to aliens’ privilege to sue) and notwithstanding
the provisions of section 1502 of such title 28 (relating to certain treaty cases).” I.R.C.
§ 7422(f)(1) (2018) (emphasis added). Because the statute at I.R.C. § 7422(f)(1)
expressly provides an exception to the jurisdictional bar on treaty-based claims “by Act of
Congress,” see 28 U.S.C. § 1502, which is applicable to this case as also agreed to by
the parties, jurisdiction for this court exists to hear plaintiffs’ treaty-based claim.
The Parties’ Cross-Motions for Partial Summary Judgment
Before the court are the parties’ cross-motions for partial summary judgment
pursuant to Rule 56 of the Rules of the United States Court of Federal Claims (RCFC)
(2021). RCFC 56 is similar to Rule 56 of the Federal Rules of Civil Procedure in language
and effect. Both rules provide that “[t]he court shall grant summary judgment if the movant
shows that there is no genuine dispute as to any material fact and the movant is entitled
to judgment as a matter of law.” RCFC 56(a) (alteration added); Fed. R. Civ. P. 56(a)

45

(2023); see also Young v. United Parcel Serv., Inc., 575 U.S. 206, 231 (2015); Alabama
v. North Carolina, 560 U.S. 330, 344 (2010); Hunt v. Cromartie, 526 U.S. 541, 549 (1999);
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986); Anderson v. United States,
23 F.4th 1357, 1361 (Fed. Cir. 2022); Shell Oil Co. v. United States, 7 F.4th 1165, 1171
(Fed. Cir. 2021); Authentic Apparel Grp., LLC v. United States, 989 F.3d 1008, 1014 (Fed.
Cir. 2021); Biery v. United States, 753 F.3d 1279, 1286 (Fed. Cir.), reh’g and reh’g en
banc denied (Fed. Cir. 2014); Ladd v. United States, 713 F.3d 648, 651 (Fed. Cir. 2013);
Minkin v. Gibbons, P.C., 680 F.3d 1341, 1349 (Fed. Cir. 2012); Consol. Coal Co. v. United
States, 615 F.3d 1378, 1380 (Fed. Cir.), reh’g and reh’g en banc denied (Fed. Cir. 2010),
cert. denied, 564 U.S. 1004 (2011); 1st Home Liquidating Trust v. United States, 581 F.3d
1350, 1355 (Fed. Cir. 2009); Arko Exec. Servs., Inc. v. United States, 553 F.3d 1375,
1378 (Fed. Cir. 2009); Casitas Mun. Water Dist. v. United States, 543 F.3d 1276, 1283
(Fed. Cir. 2008), reh’g and reh’g en banc denied, 556 F.3d 1329 (Fed. Cir. 2009); Moden
v. United States, 404 F.3d 1335, 1342 (Fed. Cir.), reh’g and reh’g en banc denied (Fed.
Cir. 2005); Am. Pelagic Fishing Co., L.P. v. United States, 379 F.3d 1363, 1370-71 (Fed.
Cir.), reh’g en banc denied (Fed. Cir. 2004), cert. denied, 545 U.S. 1139 (2005); Capitol
Indem. Corp. v. United States, 162 Fed. Cl. 388, 397 (2022); King v. United States, 159
Fed. Cl. 450, 461 (2022); Desert Sunlight 250, LLC v. United States, 157 Fed. Cl. 209,
222 (2021).
A fact is material if it will make a difference in the result of a case under the
governing law. See Anderson v. Liberty Lobby, Inc., 477 U.S. at 248; see also Marriott
Int’l Resorts, L.P. v. United States, 586 F.3d 962, 968 (Fed. Cir. 2009) (quoting Anderson
v. Liberty Lobby, Inc., 477 U.S. at 248); Mata v. United States, 114 Fed. Cl. 736, 744
(2014); Arranaga v. United States, 103 Fed. Cl. 465, 467-68 (2012); Thompson v. United
States, 101 Fed. Cl. 416, 426 (2011); Cohen v. United States, 100 Fed. Cl. 461, 469
(2011). Irrelevant or unnecessary factual disputes do not preclude the entry of summary
judgment. See Anderson v. Liberty Lobby, Inc., 477 U.S. at 247-48; see also Scott v.
Harris, 550 U.S. 372, 380 (2007); Monon Corp. v. Stoughton Trailers, Inc., 239 F.3d 1253,
1257 (Fed. Cir. 2001); Gorski v. United States, 104 Fed. Cl. 605, 609 (2012); Walker v.
United States, 79 Fed. Cl. 685, 692 (2008); Curtis v. United States, 144 Ct. Cl. 194, 199,
168 F. Supp. 213, 216 (1958), cert. denied, 361 U.S. 843 (1959), reh’g denied, 361 U.S.
941 (1960).
When reaching a summary judgment determination, the judge’s function is not to
weigh the evidence and determine the truth of the case presented, but to determine
whether there is a genuine issue for trial. See Anderson v. Liberty Lobby, Inc., 477 U.S.
at 249; see, e.g., Schlup v. Delo, 513 U.S. 298, 332 (1995); BASF Corp. v. SNF Holding
Co., 955 F.3d 958, 963 (Fed. Cir. 2020); TigerSwan, Inc. v. United States, 118 Fed. Cl.
447, 451 (2014); Dana R. Hodges Trust v. United States, 111 Fed. Cl. 452, 455 (2013);
Cohen v. United States, 100 Fed. Cl. at 469-70; Boensel v. United States, 99 Fed. Cl.
607, 611 (2011); Macy Elevator, Inc. v. United States, 97 Fed. Cl. 708, 717 (2011); Dick
Pacific/GHEMM, JV ex rel. W.A. Botting Co. v. United States, 87 Fed. Cl. 113, 126 (2009);
Johnson v. United States, 49 Fed. Cl. 648, 651 (2001), aff’d, 52 F. App’x 507 (Fed. Cir.
2002), published at 317 F.3d 1331 (Fed. Cir. 2003). The judge must determine whether
the evidence presents a disagreement sufficient to require submission to fact finding, or

46

whether the issues presented are so one-sided that one party must prevail as a matter of
law. See Anderson v. Liberty Lobby, Inc., 477 U.S. at 250-52; Jay v. Sec’y of Dep’t of
Health & Human Servs., 998 F.2d 979, 982 (Fed. Cir.), reh’g denied and en banc
suggestion declined (Fed. Cir. 1993); Leggitte v. United States, 104 Fed. Cl. 315, 316
(2012). When the record could not lead a rational trier of fact to find for the nonmoving
party, there is no genuine issue for trial, and the motion must be granted. See, e.g.,
Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986); Marriott
Int’l Resorts, L.P. v. United States, 586 F.3d at 968; 3rd Eye Surveillance, LLC v. United
States, 151 Fed. Cl. 49, 54 (2020) (quoting Matsushita Elec. Indus. Co., Ltd. v. Zenith
Radio Corp., 475 U.S. at 587); Pfizer Inc. v. United States, 149 Fed. Cl. 711, 715 (2020)
(quoting Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. at 587). In such
cases, there is no need for the parties to undertake the time and expense of a trial, and
the moving party should prevail without further proceedings.
Summary judgment, however, will not be granted “if the dispute about a material
fact is ‘genuine,’ that is, if the evidence is such that a reasonable [trier of fact] could return
a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. at 248
(alteration added); see also Long Island Sav. Bank, FSB v. United States, 503 F.3d 1234,
1244 (Fed. Cir.), reh’g and reh’g en banc denied (Fed. Cir. 2007), cert. denied, 555 U.S.
812 (2008); Eli Lilly & Co. v. Barr Lab’ys., Inc., 251 F.3d 955, 971 (Fed. Cir.), reh’g and
reh’g en banc denied (Fed. Cir. 2001), cert. denied, 534 U.S. 1109 (2002); Gen. Elec. Co.
v. Nintendo Co., 179 F.3d 1350, 1353 (Fed. Cir. 1999); TigerSwan, Inc. v. United States,
118 Fed. Cl. at 451; Stephan v. United States, 117 Fed. Cl. 68, 70 (2014); GonzalesMcCaulley Inv. Grp., Inc. v. United States, 101 Fed. Cl. 623, 629 (2011). In other words,
if the nonmoving party produces sufficient evidence to raise a question as to the outcome
of the case, then the motion for summary judgment should be denied. Any doubt over
factual issues must be resolved in favor of the party opposing summary judgment, to
whom the benefit of all presumptions and inferences runs. See Ricci v. DeStefano, 557
U.S. 557, 586 (2009); Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S.
at 587-88; Dethmers Mfg. Co., Inc. v. Automatic Equip. Mfg. Co., 272 F.3d 1365, 1369
(Fed. Cir. 2001), reh’g and reh’g en banc denied, 293 F.3d 1364 (Fed. Cir. 2002), cert.
denied, 539 U.S. 957 (2003); Monon Corp. v. Stoughton Trailers, Inc., 239 F.3d at 1257;
Wanlass v. Fedders Corp., 145 F.3d 1461, 1463 (Fed. Cir.), reh’g denied and en banc
suggestion declined (Fed. Cir. 1998); see also Am. Pelagic Co. v. United States, 379 F.3d
at 1371 (citing Helifix Ltd. v. Blok-Lok, Ltd., 208 F.3d 1339, 1345-46 (Fed. Cir. 2000));
Dana R. Hodges Trust v. United States, 111 Fed. Cl. at 455; Boensel v. United States,
99 Fed. Cl. at 611 (“‘The evidence of the nonmovant is to be believed, and all justifiable
inferences are to be drawn in his favor.’” (quoting Anderson v. Liberty Lobby, Inc., 477
U.S. at 255) (citing Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. at
587-88; Casitas Mun. Water Dist. v. United States, 543 F.3d at 1283; and Lathan Co.,
Inc. v. United States, 20 Cl. Ct. 122, 125 (1990))); see also Am. Seating Co. v. USSC
Grp., Inc., 514 F.3d 1262, 1266-67 (Fed. Cir. 2008); Vivid Techs., Inc. v. Am. Sci. & Eng’g,
Inc., 200 F.3d 795, 807 (Fed. Cir. 1999). “However, once a moving party satisfies its initial
burden, mere allegations of a genuine issue of material fact without supporting evidence
will not prevent entry of summary judgment.” Republic Sav. Bank, F.S.B. v. United States,

47

584 F.3d 1369, 1374 (Fed. Cir. 2009); see also Anderson v. Liberty Lobby, Inc., 477 U.S.
at 247-48; Univ. South Florida v. United States, 146 Fed. Cl. 274, 280 (2019).
Even if both parties argue in favor of summary judgment and allege an absence of
genuine issues of material fact, the court is not relieved of its responsibility to determine
the appropriateness of summary disposition in a particular case, and it does not follow
that summary judgment should be granted to one side or the other. See Prineville Sawmill
Co., Inc. v. United States, 859 F.2d 905, 911 (Fed. Cir. 1988) (citing Mingus Constructors,
Inc. v. United States, 812 F.2d 1387, 1391 (Fed. Cir. 1987)); see also Marriott Int’l
Resorts, L.P. v. United States, 586 F.3d at 968-69; Bubble Room, Inc. v. United States,
159 F.3d 553, 561 (Fed. Cir. 1998) (“The fact that both the parties have moved for
summary judgment does not mean that the court must grant summary judgment to one
party or the other.”), reh’g denied and en banc suggestion declined (Fed. Cir. 1999);
Massey v. Del Lab’ys., Inc., 118 F.3d 1568, 1573 (Fed. Cir. 1997); B.F. Goodrich Co. v.
U.S. Filter Corp., 245 F.3d 587, 593 (6th Cir. 2001); Atl. Richfield Co. v. Farm Credit Bank
of Wichita, 226 F.3d 1138, 1148 (10th Cir. 2000); Chevron USA, Inc. v. Cayetano, 224
F.3d 1030, 1037 n.5 (9th Cir. 2000), cert. denied, 532 U.S. 942 (2001); Allstate Ins. Co.
v. Occidental Int’l, Inc., 140 F.3d 1, 2 (1st Cir. 1998); LewRon Television, Inc. v. D.H.
Overmyer Leasing Co., 401 F.2d 689, 692 (4th Cir. 1968), cert. denied, 393 U.S. 1083
(1969); Rogers v. United States, 90 Fed. Cl. 418, 427 (2009), subsequent determination,
93 Fed. Cl. 607 (2010), aff’d, 814 F.3d 1299 (Fed. Cir. 2015); Consol. Coal Co. v. United
States, 86 Fed. Cl. 384, 387 (2009), aff’d, 615 F.3d 1378 (Fed. Cir.), and reh’g and reh’g
en banc denied (Fed. Cir. 2010), cert. denied, 564 U.S. 1004 (2011); St. Christopher
Assocs., L.P. v. United States, 75 Fed. Cl. 1, 8 (2006), aff’d, 511 F.3d 1376 (Fed. Cir.
2008); Reading & Bates Corp. v. United States, 40 Fed. Cl. 737, 748 (1998). The court
must evaluate each party’s motion on its own merits, taking care to draw all reasonable
inferences against the party whose motion is under consideration, or, otherwise stated,
in favor of the non-moving party. See First Commerce Corp. v. United States, 335 F.3d
1373, 1379 (Fed. Cir.), reh’g and reh’g en banc denied (Fed. Cir. 2003); Beard v. United
States, 125 Fed. Cl. 148, 156 (2016); Two Shields v. United States, 119 Fed. Cl. 762,
775 (2015), aff’d sub nom. Ramona Two Shields v. United States, 820 F.3d 1324 (Fed.
Cir. 2016).
The parties’ dispute in the current case concerns whether plaintiffs are allowed
under the terms of certain provisions of the I.R.C. and the 1994 Treaty, as amended, a
foreign tax credit against the United States net investment income tax. As explained
above, both I.R.C. §§ 27 and 901(a) restrict foreign tax credits to apply only against taxes
imposed by Chapter 1 of the I.R.C., the statute at I.R.C. § 27 provides that “[t]he amount
of taxes imposed by foreign countries and possessions of the United States shall be
allowed as a credit against the tax imposed by this chapter,” Chapter 1 of the I.R.C., see
I.R.C. § 27 (alteration added), and the statute at I.R.C. § 901(a) also provides that “the
tax imposed by this chapter,” Chapter 1 of the I.R.C., shall “be credited” with foreign tax
credits. See I.R.C. § 901(a). The net investment income tax, however, is imposed by the
statute at I.R.C. § 1411, which, as explained above, is located in Chapter 2A of the I.R.C.
and is the sole statutory section in Chapter 2A. As a result, by their terms, I.R.C. §§ 27
and 901(a) do not provide for foreign income taxes from applying against the net

48

investment income tax, because I.R.C. §§ 27 and 901(a) restrict foreign tax credits to
apply only against taxes imposed by Chapter 1 of the I.R.C., which is not the case for the
net investment income tax imposed by I.R.C. § 1411.
In their motion for partial summary judgment, plaintiffs argue that the net
investment income tax at issue in this case “is an income tax, imposed using concepts
identical to those already contained in Chapter 1 of the normal income tax provisions, and
meets the definition in the Code for a tax on income as that concept is understood in the
foreign tax credit provisions.” (citing Treas. Reg. §§ 1.901-2(b)(4), 1.1411-1(a)). Plaintiffs
argue that, because the net investment income tax is a United States income tax, it is
covered by the 1994 Treaty, as amended. Plaintiffs contend that
Article 2(1)(a) of the French Treaty defines the types of U.S. taxes to which
it [the 1994 Treaty, as amended] applies. This article provides that, in the
case of the United States, the treaty covers, inter alia “(i) the Federal income
taxes imposed by the Internal Revenue Code (but excluding social security
taxes) * * *.” Although the NIIT [net investment income tax] did not yet exist
at the time of the ratification of the French Treaty, Article 2(2) contemplates
the eventuality of new taxes by providing that “[t]he Convention shall apply
also to any identical or substantially similar taxes that are imposed after the
date of the signature of the Convention in addition to, or in place of, the
existing taxes.” As a result, the NIIT is a covered income tax under the
French Treaty.
(third alteration and ellipsis in original). Plaintiffs, therefore, claim that the 1994 Treaty, as
amended, provides a foreign tax credit against the net investment income tax imposed by
I.R.C. § 1411, in Chapter 2A of the I.R.C., notwithstanding the restrictions in I.R.C. §§ 27
and 901(a) to apply foreign tax credits only against taxes imposed by Chapter 1 of the
I.R.C. In their motion for partial summary judgment, plaintiffs agree that “absent
application of the French Treaty, the Code would not provide for a foreign tax credit to
offset the NIIT and instead would result in double taxation of the same income.”
Defendant argues that the net investment income tax is imposed by the statute at
I.R.C. § 1411, which is “in Chapter 2A [of the I.R.C.], a newly-created chapter entitled
‘Unearned Income Medicare Contribution’” and that “[b]ecause 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.” (alterations added). Defendant
states that “as they must, plaintiffs concede here that the ‘U.S. domestic provisions of the
Code . . . preclude a foreign tax credit for the NIIT.’” (ellipsis in original).
In order to avoid the restrictions of I.R.C. §§ 27 and 901(a) to apply foreign tax
credits only against taxes imposed by Chapter 1 of the I.R.C., plaintiffs, however, argue
that “two separate provisions of the French Treaty,” paragraphs 2(a) and 2(b) of Article
24 of the 1994 Treaty, as amended, each allow for a foreign tax credit against the net
investment income tax. As described above, the renumbered paragraph 2(a) of Article 24
of the 1994 Treaty, as amended, provides:

49

2.(a) 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 without
changing the general principle hereof), the United States shall allow to
a citizen or a resident of the United States as a credit against the United
States income tax:
(i) the French income tax paid by or on behalf of such citizen or resident;
and
(ii) in the case of a United States company owning at least 10 percent of
the voting power of a company that is a resident of France and from
which the United States company receives dividends, the French
income tax paid by or on behalf of the distributing corporation with
respect to the profits out of which the dividends are paid.
Plaintiffs refer to the language in paragraph 2(a) of Article 24 of the 1994 Treaty, as
amended, “the provisions and . . . the limitations of the law of the United States,” (ellipsis
added), which plaintiffs argue “refers to [I.R.C.] Section 904[23] principles regarding the
amount of the foreign tax credit and not something broader.” (alteration and footnote
added).
The second provision relied on by plaintiffs, paragraph 2(b) of Article 24 of the
1994 Treaty, as amended, provides, in relevant part:
(b) In the case of an individual who is both a resident of France and a citizen
of the United States:
(i) the United States shall allow as a credit against the United States
income tax the French income tax paid after the credit referred to in
subparagraph (a)(iii) of paragraph 2.[24] However, the credit so
As explained above, the statute at I.R.C. § 904 is titled “Limitation on credit” and
provides detailed limitations on the application of foreign tax credits under the I.R.C.,
which limitations are not at issue in the above captioned case. See I.R.C. § 904.
23

24

Plaintiffs quote paragraph 2(b)(i) of Article 24 of the 1994 Treaty, as amended, as
including a reference to “subparagraph (a)(iii) of paragraph 1” of Article 24 of the 1994
Treaty, as amended, as opposed to the reference to “subparagraph (a)(iii) of paragraph
2” included in the court’s quotation above. The 1994 Treaty as originally agreed-to by the
United States and France contains the language “subparagraph (a)(iii) of paragraph 2” of
the 1994 Treaty, as amended. See 1994 Treaty, art. 24, ¶ 1(b)(i). As noted above, the
2009 Protocol amended Article 24 of the 1994 Treaty such that “paragraph 1 shall be
renumbered paragraph 2, and paragraph 2 shall be renumbered paragraph 1,” in effect
reversing the order of paragraphs 1 and 2 of Article 24 of the 1994 Treaty. See 2009
Protocol, art. VIII, ¶ 1. Accordingly, after the 2009 Protocol, the text of the renumbered
paragraph 2(b)(i) of Article 24 of the 1994 Treaty, as amended, should have referred to
“subparagraph (a)(iii) of paragraph 1,” which is how plaintiffs quote that provision. The
“consolidated” 1994 Treaty, as amended, reverses the order of paragraphs 1 and 2 of the
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allowed against United States income tax shall not reduce that
portion of the United States income tax that is creditable against
French income tax in accordance with subparagraph (a)(iii) of
paragraph 2;
(ii) income referred to in paragraph 2 and income that, but for the
citizenship of the taxpayer, would be exempt from United States
income tax under the Convention, shall be considered income from
sources within France to the extent necessary to give effect to the
provisions of subparagraph (b)(i). The provisions of this
subparagraph (b)(ii) shall apply only to the extent that an item of
income is included in gross income for purposes of determining
French tax. No provision of this subparagraph (b) relating to source
of income shall apply in determining credits against United States
income tax for foreign taxes other than French income tax as defined
in subparagraph (e).[25]
(footnotes added). Drawing a distinction between the wordings of the two treaty provisions
upon which they rely, plaintiffs point out that “Article 24(2)(b) neither contains nor refers
to the Article 24(2)(a) limitations.”
Defendant argues that neither paragraph 2(a) nor paragraph 2(b) of Article 24 of
the 1994 Treaty, as amended, provides a foreign tax credit against the net investment
income tax. With respect to paragraph 2(a) of Article 24 of the 1994 Treaty, as amended,
defendant argues that “the [1994] Treaty[, as amended,] provides for relief from double
taxation in the form of a foreign tax credit, and the extent of a taxpayer’s eligibility for that
foreign tax credit is determined in accordance with the Code,” (alterations added),
including the restriction of I.R.C. §§ 27 and 901(a) to applying foreign tax credits only
against taxes “imposed by this chapter,” Chapter 1 of the I.R.C. See I.R.C. §§ 27, 901(a).
With respect to paragraph 2(b) of Article 24 of the 1994 Treaty, as amended, defendant
1994 Treaty, consistent with the 2009 Protocol, however, the “consolidated” version
erroneously retains the language “subparagraph (a)(iii) of paragraph 2” from the
unamended 1994 Treaty. There is no “subparagraph (a)(iii) of paragraph 2” in Article 24
of the 1994 Treaty, as amended.
In the “consolidated” version of the 1994 Treaty, as amended, which, as noted above,
came from the website of the Embassy of France in the United States, although it is no
longer available at that website, subparagraph 2(b)(ii) of Article 24 ends with the words
“subparagraph (e). And[.]” (capitalization in original; alteration added). The inclusion of a
period and the capitalized word “And” appears to be a typographical error in the
“consolidated” version of the 1994 Treaty, as amended. In the original 1994 Treaty the
corresponding paragraph ends “subparagraph (e); and[.]” See 1994 Treaty, art. 24,
¶ 1(b)(ii) (alteration added). The differences are that the “consolidated” version of the
1994 Treaty, as amended, capitalized “And” and replaced the semicolon after “(e)” with a
period. These changes in the “consolidated” version are in error and are not a product of
the amendments to the 1994 Treaty made by the 2004 and 2009 Protocols.
25

51

argues that “[t]o construe subsection 2(b) to sanction such bold departures from the
foreign-tax-credit framework under U.S. law would frustrate the policy foundation on
which the framework was built.” (alteration added). This court, therefore, must consider
whether, by the terms of the 1994 Treaty, as amended, plaintiffs are entitled to take a
foreign tax credit for their French income taxes against the net investment income tax
imposed by I.R.C. § 1411. Also at issue are which provisions of the 1994 Treaty, as
amended, namely paragraphs 2(a) and 2(b) of Article 24, could provide such a foreign
tax credit, and whether the language of paragraphs 2(a) and 2(b) of Article 24 of the 1994
Treaty, as amended, potentially conflict with two provisions of the I.R.C., I.R.C. §§ 27 and
901(a), which allow United States taxpayers to take foreign tax credits on their United
States tax returns only against the taxes imposed by Chapter 1 of the I.R.C., given that
the net investment income tax is imposed by I.R.C. § 1411, located in Chapter 2A of the
I.R.C.
Defendant argues that, rather than this court conducting an independent
interpretation of the 1994 Treaty, as amended, the court should afford deference to the
United States’ interpretation of the 1994 Treaty, as amended. According to defendant,
“[t]he Treasury Department has consistently interpreted both article 24(2)(a) of the Treaty,
and the model U.S. treaty[26] on which it was based, to provide for foreign tax credits
against U.S. income taxes only to the extent that the Internal Revenue Code allows such
credits.” (alteration and footnote added). Defendant quotes the United States Supreme
Court’s decision in Sumitomo Shoji America, Inc. v. Avagliano, 457 U.S. 176, 184-85
In support of the United States’ interpretation of the 1994 Treaty, as amended,
defendant cites to three United States model tax treaties produced by the United States
Treasury Department which are “dated 1981, 1996, and 2006,” as well as technical
explanations of the model treaties, also produced by the United States Treasury
Department, which documents defendant claims “informed treaty negotiations between
the United States and France.” Defendant provides no evidence for its claim that the
model treaties and their accompanying technical explanations, which set forth the United
States’ interpretations of the model treaties, “informed” the negotiations of the 1994
Treaty, the 2004 Protocol, or the 2009 Protocol when those agreements were negotiated
by the United States and France. Defendant argues that because the most recent protocol
between the Government of the United States and the Government of the French
Republic, the 2009 Protocol, postdates the United States’ creation and interpretation of
the 2006 model treaty, the court should infer that the French Government assented to the
United States’ interpretation of the 2006 model treaty as controlling on the meaning of the
1994 Treaty, as amended. The model treaties relied on by defendant, however, were
produced by only one government, the United States, and therefore represent only the
United States’ view of the language contained in the 2006 model treaty. As the court
explains in this Opinion, the interpretation of treaties involves giving effect to the shared
expectations of the sovereign authorities which have entered into agreement with one
another. See, e.g., Air France v. Saks, 470 U.S. 392, 399 (1985). Defendant provides no
citation to any authority by which the United States Department of the Treasury may
unilaterally determine the meaning of treaties with foreign governments by interpreting
the terms of a model treaty, however similarly worded the model treaty may be to a treaty
under consideration.
26

52

(1982), for the proposition that “‘[a]lthough not conclusive, the meaning attributed to treaty
provisions by the Government agencies charged with their negotiation and enforcement
is entitled to great weight.’” (alteration in original) (citing Kolovrat v. Oregon, 366 U.S. 187,
194 (1961)). Defendant further argues that “when the U.S. and France executed two
protocols [the 2004 and 2009 Protocols] amending the original 1994 convention, they left
undisturbed the requirement [in paragraph 2(a) of Article 24 of the 1994 Treaty, as
amended,] that U.S. foreign tax credits be given ‘in accordance with the provisions of U.S.
law,’ demonstrating an acquiescence by France in the Treasury Department’s prior
explanation of the function of article 24(2)(a).” (alterations added) (citing Adams
Challenge (UK) Ltd. v. Comm’r, 156 T.C. 16, 53-54 (2021)). Defendant relies upon the
United States Treasury Department’s Technical Explanation of the 1994 Treaty to
demonstrate the United States’ interpretation, and defendant argues that “[w]hile courts
sometimes decline to follow treaty interpretations reflected in technical explanations
prepared by Treasury, they generally do so only when there is reason to doubt whether
the documents reflect official U.S. policy.” (alteration added) (citing Snap-On Tools, Inc.
v. United States, 26 Cl. Ct. 1045, 1070 (1992), aff’d, 26 F.3d 137 (Fed. Cir. 1994)). In
addition, defendant cites the Federal Circuit’s opinion in Xerox Corp. v. United States to
argue that the Federal Circuit “disregarded ‘a position taken by Treasury’ in the technical
explanation, where the Senate executive report had criticized it,” (alteration added),
however, according to defendant, “the Federal Circuit recognized that ‘extrinsic material
is often helpful in understanding the treaty and its purposes.’” (quoting Xerox Corp. v.
United States, 41 F.3d 647, 652 (Fed. Cir. 1994)).
Plaintiffs, however, argue that the court should not defer to the United States’
interpretation of the 1994 Treaty, as amended. Plaintiffs argue that courts do not afford
deference “when the Executive Branch’s interpretation is not supported by negotiating
history, diplomatic communications or the method by which the other sovereign has
interpreted the treaty.” (citing Nat’l Westminster Bank, PLC v. United States, 512 F.3d
1347 (Fed. Cir.), reh’g en banc denied (Fed. Cir. 2008); Eshel v. Comm’r, 831 F.3d 512,
521 (D.C. Cir. 2016); Iceland S.S. Co., Ltd.-Eimskip v. United States Dep’t of Army, 201
F.3d 451 (D.C. Cir. 2000); North West Life Assur. Co. of Canada v. Comm’r, 107 T.C.
363, 379 (1996)). Plaintiffs additionally argue that “‘where a provision of a treaty fairly
admits of two constructions, one restricting, the other enlarging, rights that may be
claimed under it, the more liberal interpretation is to be preferred.’” (quoting United States
v. Stuart, 489 U.S. 353, 368 (1989) (internal quotations omitted), and citing Jordan v.
Tashiro, 278 U.S. 123, 128 (1928)). Therefore, plaintiffs argue, because the 1994 Treaty,
as amended, “has as one of its principal purposes to avoid” double taxation of citizens of
one signatory country residing in the other, “the French Treaty should be read in a way to
avoid that evil, not to perpetuate it.”
The Supreme Court has held that “[a]lthough not conclusive, the meaning
attributed to treaty provisions by the Government agencies charged with their negotiation
and enforcement is entitled to great weight.” Sumitomo Shoji Am., Inc. v. Avagliano, 457
U.S. at 184-85 (alteration added). The Supreme Court guidance, however, did not
indicate that absolute deference is required to the position taken by the United States, but

53

rather that appropriate deference should be considered on a case-by-case basis,
including in the current case. According to the Supreme Court:
“It is our ‘responsibility to read the treaty in a manner “consistent with the
shared expectations of the contracting parties.”’ . . . Even if a background
principle is relevant to the interpretation of federal statutes, it has no proper
role in the interpretation of treaties unless that principle is shared by the
parties to ‘an agreement among sovereign powers[.]’”
Lozano v. Montoya Alvarez, 572 U.S. 1, 12 (2014) (emphasis in original; alteration and
ellipsis added) (quoting Olympic Airways v. Husain, 540 U.S. 644, 650 (2004) (quoting
Air France v. Saks, 470 U.S. 392, 399 (1985)); Zicherman v. Korean Air Lines Co., Ltd.,
516 U.S. 217, 226 (1996)); see also Sumitomo Shoji Am., Inc. v. Avagliano, 457 U.S. at
185 (“When the parties to a treaty both agree as to the meaning of a treaty provision, and
that interpretation follows from the clear treaty language, we must, absent extraordinarily
strong contrary evidence, defer to that interpretation.”). Therefore, “an agency’s position
merits less deference ‘where an agency and another country disagree on the meaning of
a treaty.’” See Nat’l Westminster Bank, PLC v. United States, 512 F.3d at 1358 (quoting
Iceland S.S. Co., Ltd.-Eimskip v. United States Dep’t of Army, 201 F.3d at 458). The
United States Court of Appeals for the Federal Circuit also has explained that “effect must
be given to the intent of both signatories” to a treaty. See id. at 1353 (citing Xerox Corp.
v. United States, 41 F.3d at 656).
In the above captioned case, defendant has tried to rely on interpretations issued
by the United States Treasury Department of the 1994 Treaty, as amended, as indicating
that the 1994 Treaty, as amended, does not provide a foreign tax credit against the net
investment income tax. Defendant has not, however, presented evidence regarding the
interpretation held by the Government of the French Republic with respect to this issue
regarding a foreign tax credit against the net investment income tax. Moreover, the parties
agree that no evidence has been produced regarding the Government of the French
Republic’s interpretation of the 1994 Treaty, as amended, in relation to the foreign tax
credit issue presented by plaintiffs’ claims.
Without evidence as to the Government of the French Republic’s interpretation of
the 1994 Treaty, as amended, with respect to the foreign tax credit issue currently before
the court, this court cannot afford total deference to the United States’ interpretation,
because the United States cannot demonstrate that defendant’s interpretation is shared
by the Government of the French Republic. As the Federal Circuit explained in National
Westminster Bank, “when the language of a treaty provision ‘only imperfectly manifests
its purpose,’” the court is “required to give effect to its underlying purpose,” and “[t]o this
end,” the court “must ‘examine not only the language, but the entire context of
agreement.’” Nat’l Westminster Bank, PLC v. United States, 512 F.3d at 1353 (quoting
Great-West Life Assur. Co. v. United States, 230 Ct. Cl. 477, 481, 678 F.2d 180, 183
(1982) (citing In re Ross, 140 U.S. 453, 475 (1891))). The United States Supreme Court
has addressed what may be considered within “the entire context of agreement,” see
Great West Life Assur. Co. v. United States, 230 Ct. Cl. at 481, including the public acts

54

of signatory governments. See United States v. Reynes, 50 U.S. (9 How.) 127, 147-148
(1850) (considering “the public acts and proclamations of the Spanish and French
governments, and those of their publicly recognized agents, in carrying into effect those
treaties” to which Spain and France were signatories). The Supreme Court also has held
that negotiations and diplomatic correspondence, both prior to and after, a treaty or
international agreement was executed, may be considered. See Sumitomo Shoji Am.,
Inc. v. Avagliano, 457 U.S. at 183-84 and n.9 (considering a diplomatic cable “relaying
the position of the Ministry of Foreign Affairs of Japan” and a later communication in which
“‘[t]he Government of Japan reconfirms its view’” (alteration added)); Factor v.
Laubenheimer, 290 U.S. 276, 294-95 (1933) (“In ascertaining the meaning of a treaty we
may look beyond its written words to the negotiations and diplomatic correspondence of
the contracting parties relating to the subject-matter, and to their own practical
construction of it.” (citing Nielsen v. Johnson, 279 U.S. 47, 52 (1929); Terrace v.
Thompson, 263 U.S. 197, 223 (1923); United States v. Texas, 162 U.S. 1, 23 (1896);
Kinkead v. United States, 150 U.S. 483, 486 (1893); In re Ross, 140 U.S. at 467)); Cook
v. United States, 288 U.S. 102, 109, 112-15 nn.6-7, nn. 10-15 (1933) (explaining that “[i]n
construing the Treaty its history should be consulted” including “note[s]” between
diplomatic officials, “repl[ies] to “question[s],” “statement[s] of the American position,” and
“letter[s]” and other communications from the British Government (alterations added));
Todok v. Union State Bank of Harvard, Neb., 281 U.S. 449, 454 (1930) (considering “a
note addressed by the Swedish Minister at Washington to the Department of State” in
which “the Swedish Minister stated his understanding that the authorities in Sweden had
always held that the words ‘goods and effects’ in article 6 of the treaty of 1783 include
real estate”); Nielsen v. Johnson, 279 U.S. at 52 (“When their [treaties’] meaning is
uncertain, recourse may be had to the negotiations and diplomatic correspondence of the
contracting parties relating to the subject-matter and to their own practical construction of
it.” (alteration added) (citing Terrace v. Thompson, 263 U.S. at 223; United States v.
Texas, 162 U.S. at 23; Kinkead v. United States, 150 U.S. at 486; In re Ross, 140 U.S. at
467)); Terrace v. Thompson, 263 U.S. at 223 (“But if the language left the meaning of its
provisions doubtful or obscure, the circumstances of the making of the treaty . . . would
resolve all doubts against the appellants’ contention.” (ellipsis added)); United States v.
Texas, 162 U.S. at 23 (“Before examining those articles [of the treaty], it will be useful to
refer to the diplomatic correspondence that preceded the making of the treaty.” (alteration
added)).
Reliance by a court on evidence of the shared expectations of the signatory
governments to a treaty or international agreement is exemplified by the Coplin cases
and the decisions of the United States Claims Court, United States Court of Appeals for
the Federal Circuit, and United States Supreme Court. See Coplin v. United States, 6 Cl.
Ct. 115 (1984), rev’d, 761 F.2d 688 (Fed. Cir. 1985), aff’d on other grounds sub nom.,
O’Connor v. United States, 479 U.S. 27 (1986). In Coplin, the United States Claims Court,
a predecessor court to this court, addressed the interpretation of an “Implementation
Agreement” to the Panama Canal Treaty and negotiated in parallel with the Panama
Canal Treaty between the United States and the Republic of Panama. See Coplin v.
United States, 6 Cl. Ct. at 119. At issue in Coplin, similar to the above captioned case,
was taxation of United States citizens in a foreign country pursuant to an international

55

agreement or treaty which addressed such taxation. See id. at 120 (considering the
language in the Implementation Agreement to the Panama Canal Treaty which read:
“United States citizen employees and dependents shall be exempt from any taxes, fees,
or other charges on income received as a result of their work for the Commission”
(emphasis in original)). While the United States Claims Court in Coplin explained that a
court should not “give literal effect to treaty language if it is persuaded that such language
does not reflect the intention of the high contracting parties,” the court noted that “[w]here
the language is reasonably clear, the party proffering a contrary interpretation must
persuade the court that its construction comports with the view of both parties” to the
treaty. See id. at 128 (emphasis in original; alteration added) (citing Sumitomo Shoji Am.,
Inc. v. Avagliano, 457 U.S. at 180; United States v. Texas, 162 U.S. at 36). The United
States Claims Court in Coplin emphasized that “there is no evidence whatsoever as to
the interpretation given this language by Panama” and that “[w]hile the record provides
valuable insights as to the interests and motivations of the parties, the court is left largely
to surmise and conjecture as to how they resolved their differences and what might have
motivated each side to agree to the language finally adopted.” Id. at 128-29 (emphasis in
original; alteration added). The Claims Court in Coplin did not afford deference to the
United States’ interpretation, stating that “nothing presented by defendant supports the
finding that Panama and the United States ‘intended to agree on something different from
that appearing on the face of’ Article XV of the Implementation Agreement” and that
“‘[w]ithout such a finding the agreement must be interpreted according to its unambiguous
language.’” Id. at 145 (alteration added) (quoting Choctaw Nation of Indians v. United
States, 318 U.S. 423, 432 (1943)).
A panel of five judges of the United States Court of Appeals for the Federal Circuit
reversed the Claims Court’s decision in Coplin on narrow grounds. See Coplin v. United
States, 761 F.2d 688, 691-92 (Fed. Cir. 1985), aff’d on other grounds sub nom., O’Connor
v. United States, 479 U.S. 27 (1986). The Federal Circuit explained that, immediately prior
to hearing oral argument in the appeal to the Federal Circuit of Coplin, the United States
provided the Federal Circuit with a diplomatic note from the Panamanian Foreign Minister,
containing “letters from the Panamanian team that negotiated the Implementation
Agreement,” which “confirmed” that Panama shared the United States’ interpretation of
the Implementation Agreement provisions at issue. See id. at 691. The Panamanian
Foreign Minister’s diplomatic note was dated after the United States Claims Court’s earlier
decision in Coplin had been issued, and, therefore, the diplomatic note was not available
to the Claims Court at the time of the Claims Court’s decision. See id. The Federal Circuit
cited to the Supreme Court’s decisions in United States v. Reynes, 50 U.S. (9 How.) at
147-48, Jones v. United States, 137 U.S. 202, 214-16 (1890), Factor v. Laubenheimer,
290 U.S. at 295, and Sumitomo Shoji America, Inc. v. Avagliano, 457 U.S. at 184 n.9,
considering diplomatic correspondences and public acts of signatory governments to
international agreements and treaties, and held that the Panamanian diplomatic note
should be considered. See Coplin v. United States, 761 F.2d at 691. Relying on the
Panamanian Foreign Minister’s diplomatic note’s expression of the Panamanian
Government’s interpretation of the Implementation Agreement, the Federal Circuit held
that “the record now reveals the intent of each government,” and because the

56

governments’ interpretations of the Implementation Agreement were aligned, the
judgment of the Claims Court was reversed. See id. at 692.
The United States Supreme Court affirmed the United States Court of Appeals for
the Federal Circuit’s Coplin decision on other grounds in O’Connor v. United States, 479
U.S. 27 (1986). As the Supreme Court explained, while “[t]here is some purely textual
evidence, albeit subtle” in support of the United States’ interpretation of the
Implementation Agreement, “[m]ore persuasive than the textual evidence, and in our view
overwhelmingly convincing, is the contextual case” for the United States’ interpretation.
See id. at 31 (alterations added). The Supreme Court further held that the United States’
interpretation was
in accord with the consistent application of the Agreement by the Executive
Branch—a factor which alone is entitled to great weight, see Sumitomo
Shoji America, Inc. v. Avagliano, 457 U.S. 176, 184-85, 102 S. Ct. 2374,
2379, 72 L. Ed. 2d 765 (1982)—but that application has gone unchallenged
by Panama.
O’Connor v. United States, 479 U.S. at 33. According to the Supreme Court, Panama “did
not object” to the United States’ interpretation. See id. The Supreme Court in O’Connor
explained that “[t]he course of conduct of parties to an international agreement, like the
course of conduct of parties to any contract, is evidence of its meaning.” Id. (alteration
added) (citing Trans World Airlines, Inc. v. Franklin Mint Corp., 466 U.S. 243, 259-60
(1984); Pigeon River Imp., Slide & Boom Co. v. Charles W. Cox, Ltd., 291 U.S. 138, 15861 (1934)). In a footnote to its decision in O’Connor, the Supreme Court addressed the
Panamanian Foreign Minister’s diplomatic note and described the parties’ views of the
note, but the Supreme Court concluded, “[s]ince we would sustain the Government’s
position without reference to the note, we need not resolve these disputes.” See id. at 33
n.2 (alteration added).
The various precedential cases of the United States Supreme Court and the United
States Court of Appeals for the Federal Circuit direct that, in the above captioned case,
for the United States’ interpretation of the 1994 Treaty, as amended, to be afforded
deference by this court, the United States’ interpretation should be a shared interpretation
by the French Government, because the court must give effect to the “shared
expectations” of the signatory governments. As discussed by several cases above,
including Air France v. Saks, “it is our responsibility to give the specific words of the treaty
a meaning consistent with the shared expectations of the contracting parties.” Air France
v. Saks, 470 U.S. at 399 (citing Reed v. Wiser, 555 F.2d 1079, 1090 (2d Cir. 1977); Day
v. Trans World Airlines, Inc., 528 F.2d 31 (2d Cir. 1975)). As described above, neither
party has produced any materials from the Government of the French Republic offering
France’s interpretation of the terms of the 1994 Treaty, as amended, with respect to the
application of foreign tax credits against the United States net investment income tax.
Moreover, there is no evidence before the court which indicates that the United States
and France have engaged in diplomatic consultation with respect to the taxation issues
presented by plaintiffs’ claim for a foreign tax credit against the net investment income

57

tax imposed by I.R.C. § 1411, or that France was notified of the post-1994 Treaty, as
amended, enactment of the net investment income tax at I.R.C. § 1411.27
While defendant argues that the Government of the French Republic has
acquiesced to the United States’ interpretation that foreign tax credits are exempted from
the foreign tax credits allowed by the 1994 Treaty, as amended, no such inference can
be drawn from the lack of evidence in the current case before the court. See O’Connor v.
United States, 479 U.S. at 33. The Supreme Court in O’Connor observed that the
Panamanian Government had not objected to the United States subjecting Panamanian
citizens to United States income tax, which failure to object the Supreme Court
understood as evidence of the Implementation Agreement’s “meaning” consistent with
the United States’ interpretation. See id. In O’Connor, there was an opportunity for
Panama to object, if Panama disagreed with the United States’ interpretation. See id. In
the above captioned case, however, there is no such certainty that France had an
opportunity to object, or did object, to the United States’ interpretation of the 1994 Treaty,
as amended, with respect to the net investment income tax question at issue in the case
before this court. This is, in part, because, as noted above, there is no evidence in the
record before this court that the United States “notified” the Government of the French
Republic of the enactment of the net investment income tax, as contemplated by the 1994
Treaty, as amended, and, as indicated above, I.R.C. § 1411 was enacted after the 1994
Treaty, as amended, was agreed to by the respective governments. Therefore, the court
should not infer from the absence of an indication of the Government of the French
Republic’s interpretation that France agrees with the interpretation offered by the United
States of the 1994 Treaty, as amended. The court does not assume that the interpretation
of the 1994 Treaty, as amended, by the United States represents “the shared
expectations of the contracting parties,” see Air France v. Saks, 470 U.S. at 399, and the
court does not give deference to the United States’ interpretation that the 1994 Treaty, as
amended, should exclude the net investment income taxes from the foreign tax credits
available. The court does not afford deference to the United States’ interpretation based
on the non-binding interpretative documents which defendant cites to this court, namely
the United States Treasury Department Technical Explanations of the 1994 Treaty, 2004
Protocol, and 2009 Protocol, and the United States Treasury Department’s model treaties
and accompanying technical explanations, because the technical explanations and model
treaties represent only the United States’ interpretation, and not the interpretation of the
French Government.

27

Plaintiffs allege, without further support in the record before the court, in their motion
for partial summary judgment that they submitted “a Freedom of Information Act request,”
to which defendant responded and “confirmed that no discussions took place between
the U.S. and French Governments at the time the NIIT was enacted and, after exhaustive
discovery, Defendant has produced no evidence of any communications with the French
Government that accords with the Defendant’s treaty interpretation.” (capitalization in
original).
58

The Parties’ Arguments With Respect to Treaty Interpretation Standards
The court ordered specific briefing from the parties in this case on the issue of
determining whether a potential conflict might exist between the relevant treaty provisions
and United States statutory sections, and if so, how the court should resolve that potential
conflict. Plaintiffs state that they are “not aware of any case law that provides a
comprehensive definition of when such a conflict exists, but there are clear standards as
to when such a conflict does not exist,” namely that “[a] conflict may arise only when it is
not possible to harmonize inconsistent statutory and treaty provisions.” (alteration added).
Plaintiffs argue that “[w]hen provisions of a treaty and of a statute appear inconsistent,
the Supreme Court has repeatedly held that, if possible, the two provisions should be
harmonized to the maximum extent possible to avoid an actual conflict.” (alteration added)
(citing Weinberger v. Rossi, 456 U.S. 25, 32 (1982); Moser v. United States, 341 U.S. 41,
45 (1951); United States v. Lee Yen Tai, 185 U.S. 213, 221-22 (1902); Murray v.
Schooner Charming Betsy, 6 U.S. (2 Cranch) 64, 118 (1804)). Moreover, plaintiffs quote
from the United States Claims Court’s decision in Snap-On Tools, Inc. v. United States,
26 Cl. Ct. 1045, to state that “‘when the two [the treaty and the statute] are inconsistent,
or irreconcilable, the last in time should take precedence.’” (alteration added) (quoting
Snap-On Tools, Inc. v. United States, 26 Cl. Ct. at 1067). Plaintiffs argue that “there is no
language in either the NIIT statutory provisions or any legislative history suggesting that
the enactment of the NIIT was intended to modify any United States’ treaty obligations.”
According to plaintiffs, “when a treaty obligation applies, reciprocal rights that can be
harmonized with the Code are created” under which “the United States must allow a
foreign tax credit to offset the NIIT based upon which country has primary taxing rights
under the French Treaty on the income giving rise to the NIIT.” Plaintiffs further argue that
“[a]llowing for a foreign tax credit under the French Treaty gives full effect to both the
Code (because no statutory-based credit is given) and the treaty (because a treaty-based
credit is given).” (alteration added).
In response, defendant cites to Breard v. Greene, 523 U.S. 371, 376 (1998), and
Kappus v. Commissioner of Internal Revenue, 337 F.3d 1053, 1058-60 (D.C. Cir. 2003),
and quotes the Supreme Court’s decision in Whitney v. Robertson, 124 U.S. 190, 194-95
(1888), to argue that “the Supreme Court established a last-in-date rule to resolve
conflicts between statutes and treaties,” such that “‘[t]he duty of the courts is to construe
and give effect to the latest expression of the sovereign will.’” (emphasis in original;
alteration added). Defendant argues, however, that “the last-in-date rule applies only
when a statute and a treaty conflict—i.e., when courts are not able to ‘construe them to
give effect to both’ without ‘violating the language of either.’” (quoting Whitney v.
Robertson, 124 U.S. at 194). Defendant quotes the decision of the United States Tax
Court in Adams Challenge (UK) Ltd. v. Commissioner to argue that “‘[t]o carry out the
process of harmonization, courts construe earlier and later provisions in a way that is
consistent with the intent of each and that results in an absence of conflict between the
two.’” (alteration added) (quoting Adams Challenge (UK) Ltd. v. Comm’r, 156 T.C. at 45
(internal quotations omitted)). Moreover, defendant argues that “plaintiffs’ contention that
the Internal Revenue Code cannot override a tax treaty absent an express statement of
Congressional intent to do so has already been rejected by Congress,” and defendant

59

quotes I.R.C. § 7852, “Other applicable rules,” which states at paragraph (d), “Treaty
obligations” (emphasis in original), in relevant part, “‘[f]or purposes of determining the
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 a treaty or law.’” (alteration
in original) (quoting I.R.C. § 7852(d)(1)). Defendant contends that “[w]hen Congress
enacts a statute whose terms are inconsistent with a prior treaty, the text of the statute is
sufficient to demonstrate the intent of Congress to override the treaty.” (alteration added).
According to defendant, “[h]armonization does not put a thumb on the scale in favor of
the Treaty [in this case the 1994 Treaty, as amended,] or the Code, or in favor of the more
lenient or the more restrictive,” but rather, harmonization “examines the language and the
intent of the statute and the treaty and considers whether they may be fairly construed in
a way that results in an ‘absence of conflict.’” (alterations added) (quoting Adams
Challenge (UK) Ltd. v. Comm’r, 156 T.C. at 45). Defendant argues, based on the
supposed principle that tax credits “‘are a matter of legislative grace,’” (quoting Phila.
Energy Sols. Refin. & Mktg., LLC v. United States, 159 Fed. Cl. 230, 236, appeal filed,
No. 2022-1834 (Fed. Cir. May 27, 2022)), that “if it ever became necessary for the Court
to apply a tie breaker to decide between two equally plausible interpretations of the
Treaty—one allowing a tax credit and the other disallowing a credit—the tax credit should
be denied consistent with domestic-law tax-credit principles.” Defendant argues that, in
the above captioned case, “the Treaty and the Code work in harmony” and that
interpreting the 1994 Treaty, as amended, to allow a foreign tax credit against the net
investment income tax “would conflict directly with [I.R.C.] §§ 27 and 901(a), which
explicitly provide that foreign tax credits may reduce only taxes imposed ‘by this chapter,’”
i.e., Chapter 1 of the I.R.C. (emphasis in original; alteration added).
In their briefs and at oral argument on the cross-motions for partial summary
judgment, the parties have made numerous further arguments concerning the potential
conflict and overlap of the terms of the 1994 Treaty, as amended, and the statutory
provisions at issue in this case, I.R.C. §§ 27 and 901(a), which restrict foreign tax credits
to apply only against “the tax imposed by this chapter,” Chapter 1 of the I.R.C., see I.R.C.
§§ 27, 901(a), and whether foreign tax credits may be claimed against the net investment
income tax imposed by I.R.C. § 1411, which is in Chapter 2A of the I.R.C.
Regarding the statute at I.R.C. § 1411, at issue in the current case, the United
States Department of the Treasury issued Treasury Decision 9644, interpreting I.R.C.
§ 1411 on December 2, 2013. See T.D. 9644, 2013-51 I.R.B. 676.28 Treasury Decision
28

Treasury Decision 9644 was first published in the Federal Register at Net Investment
Income Tax, 78 Fed. Reg. 72,393 (Dec. 2, 2013), and corrections to Treasury Decision
9644 were published in the Federal Register on April 1, 2014. See Net Investment Income
Tax; Correction, 79 Fed. Reg. 18159 (Apr. 1, 2014). To explain the corrections to Treasury
Decision 9644, the United States Treasury Department states in the corrective Federal
Register document that “[a]s published, the final regulations (TD 9644) contain errors that
may prove to be misleading and are in need of clarification.” Net Investment Income Tax;
Correction, 79 Fed. Reg. at 18159 (alteration added). The corrections provided by the
Treasury Department at 79 Federal Register 18159 do not restate the entire Treasury
60

9644 addresses whether the net investment income tax imposed by I.R.C. § 1411 is
subject to foreign tax credits, including based on tax treaties between the United States
and other governments. Treasury Decision 9644 states, in relevant part:
The Treasury Department and the IRS received comments asking whether
foreign income, war profits, and excess profits taxes (“foreign income
taxes”) are allowed under sections 27(a) and 901 as a credit against the
section 1411 tax. Under the express language of sections 27(a) and 901(a),
foreign income taxes are not creditable against United States taxes other
than those imposed by chapter 1 of the Code. Section 1.1411–1(e) of the
final regulations clarifies that amounts that are allowed as credits only
against the tax imposed by chapter 1 of the Code, including credits for
foreign income taxes, may not be credited against the section 1411 tax,
which is imposed by chapter 2A of the Code. This limitation is similar to the
limitation applicable to a number of other credits that are allowed only
against the tax imposed by chapter 1 of the Code. See, for example, section
38. 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. If, however, a United States income tax
treaty contains language similar to that in paragraph 2 of Article 23 (Relief
from Double Taxation) of the 2006 United States Model Income Tax
Convention, which refers to the limitations of United States law (which
include sections 27(a) and 901), then such treaty would not provide an
independent basis for a credit against the section 1411 tax.
T.D. 9644, 2013-51 I.R.B. at 679.
Defendant relies on Treasury Decision 9644 to interpret the statute at I.R.C. § 1411
as excluding the net investment income tax from foreign tax credits. Defendant argues
that Treasury Decision 9644 “determined that such [foreign] tax credits were not available,
because the NIIT ‘is imposed by Chapter 2A of the Code.’” (alteration added) (quoting
Net Investment Income Tax, 78 Fed. Reg. at 72,396). Defendant further argues that
Treasury Decision 9644 addressed “‘whether United States income tax treaties may
provide an independent basis to credit foreign income taxes against the section 1411
tax,’” and that, with respect to treaties containing the language found in the 1994 Treaty,
Decision 9644, but only the changes made thereto, and the changes made at 79 Federal
Register 18159 are not relevant to the above captioned case. See Net Investment Income
Tax; Correction, 79 Fed. Reg. at 18159. Accordingly, the court cites to Treasury Decision
9644 as published at Internal Revenue Bulletin No. 2013-51.
61

as amended, “‘such treaty would not provide an independent basis for a credit against the
section 1411 tax.’” (quoting Net Investment Income Tax, 78 Fed. Reg. at 72,396).
In its cross-motion for partial summary judgment, defendant argues that “the
enactment of the NIIT [at I.R.C. § 1411 by the Health Care and Education Reconciliation
Act of 2010] after the Treaty was signed in a new Chapter 2A of the Code confirms the
intent of Congress to exempt the NIIT from the allowance of a foreign tax credit, and
would override any potentially inconsistent relief under the Treaty.” (emphasis in original;
alteration added). Defendant further argues, citing Whitney v. Robertson, 124 U.S. at 19495, that “harmonization is self-evident here, as [I.R.C.] § 1411 and the [1994] Treaty[, as
amended,] are fully consistent with each another,” (alterations added), because the I.R.C.
“does not allow a foreign tax credit against the NIIT because it is not a Chapter 1 tax,” a
reference to the restriction of I.R.C. §§ 27 and 901(a) to apply foreign tax credits only
against “the tax imposed by this chapter,” Chapter 1 of the I.R.C. See I.R.C. §§ 27, 901(a).
Plaintiffs dispute the United States Treasury Department’s analysis in Treasury
Decision 9644 as applicable to the case currently before the court, arguing that the
Treasury Department’s
interpretation [in Treasury Decision 9644] ignores the purpose of the French
Treaty to eliminate double taxation, renders a series of inter-related treaty
provisions moot, fails to harmonize the treaty with the Code provisions, and
ignores the general principle established by Congress that treaty foreign tax
credit entitlement is wider than that contained in the Code, unless subject
to a specifically legislated treaty override.
(alteration added). Plaintiffs argue that “[t]he ‘shared expectations’ of the sovereigns
govern the interpretation of the treaty as evidenced by the text used in the agreement,
unless the result does not accord with the literal language used.” (alteration added)
(quoting Great-West Life Assur. Co. v. United States, 230 Ct. Cl. at 481).29
Plaintiffs quote from the 1994 Treaty Treasury Department Technical Explanation,
described above, to support their interpretation:
The Technical Explanation provides the rationale of the language used by
Article 24(2)(a): “[t]he credits provided under the Convention are allowed in
accordance with the provisions and subject to the limitations of U.S. law, as
that law may be amended over time, so long as the general principle of this
Article, i.e., the allowance of a credit, is retained.” (Emphasis added.) This
Technical Explanation then provides that “the terms of the credit are
determined by the provisions of the U.S. statutory credit at the time the
Plaintiffs’ citation to Great-West Life Assurance misidentifies that decision issued by
the United States Court of Claims, as a decision issued by the United States Court of
Appeals for the Federal Circuit.
29

62

credit is given. The limitation of law generally limits the credit against U.S.
tax to the amount of U.S. tax due with respect to net foreign source
income within the relevant foreign tax credit limitation category (see Code
Section 904(a)).”
(emphasis and alteration in original; footnote omitted). Moreover, plaintiffs argue:
“Enactment of the NIIT in 2010 is precisely the type of amendment contemplated by the
provisions of Article 2(2) [of the 1994 Treaty, as amended,30] and the essential and
meaningful parenthetical text of Article 24(2)(a) ensures that the general principle – that
a credit is allowed for a subsequently enacted U.S. income tax – is guaranteed.”31
(footnote added).

30

As described above, paragraph 2 of Article 2 of the 1994 Treaty, as amended, provides:
2. The Convention shall apply also to any identical or substantially similar
taxes that are imposed after the date of signature of the Convention in
addition to, or in place of, the existing taxes. The competent authorities of
the Contracting States shall notify each other of any significant changes
which have been made in their respective taxation laws and of any official
published material concerning the application of the Convention, including
explanations, regulations, rulings, or judicial decisions.

As also stated above, no “notification” as contemplated by paragraph 2 of Article 2 of the
1994 Treaty, as amended, is included in the record currently before the court. Although
the relation of paragraph 2 of Article 2 of the 1994 Treaty, as amended, to paragraph 2 of
Article 24 of the 1994 Treaty, as amended, is not fully explained by plaintiffs, plaintiffs
state at a different point in their motion for partial summary judgment:
Although the NIIT did not yet exist at the time of the ratification of the French
Treaty, Article 2(2) contemplates the eventuality of new taxes by providing
that “[t]he Convention shall apply also to any identical or substantially similar
taxes that are imposed after the date of the signature of the Convention in
addition to, or in place of, the existing taxes.” As a result, the NIIT is a
covered income tax under the French Treaty.
(alteration in plaintiffs’ brief).
31

In a footnote to its cross-motion for partial summary judgment, defendant states that it
does not disagree with plaintiffs’ claim (at 10-11) that the NIIT is a “covered
tax” under article 2(2) of the Treaty. However, the Treaty does not by its
terms require the United States to allow foreign tax credits against all
covered U.S. taxes, but merely requires the United States to allow foreign
tax credits in accordance with the provisions and subject to the limitations
of U.S. law.
63

Plaintiffs also try to rely on paragraphs 2(a) and 2(b) of Article 24 of the 1994
Treaty, as amended, to contest defendant’s interpretation of the net investment income
tax, set forth in Treasury Decision 9644, as ineligible for foreign tax credits. As noted
above, plaintiffs argue that the reference to “the provisions and . . . the limitations of the
law of the United States” in paragraph 2(a) of Article 24 of the 1994 Treaty, as amended,
“refers to [I.R.C.] Section 904 principles regarding the amount of the foreign tax credit and
not something broader.” (alteration and ellipsis added). Plaintiffs contend that the
limitations on foreign tax credits imposed by I.R.C. § 904, described above, are the only
“limitations” contemplated by paragraph 2(a) of Article 24 of the 1994 Treaty, as
amended, and that the other restrictions on foreign tax credit availability, namely the
restriction in I.R.C. §§ 27 and 901(a) to apply foreign tax credits only against “the tax
imposed by this chapter,” Chapter 1 of the I.R.C., see I.R.C. §§ 27, 901(a), are not
incorporated into the language of paragraph 2(a) of Article 24 of the 1994 Treaty, as
amended. As noted above, the limitations set forth in I.R.C. § 904 are not relevant to the
above captioned case.
As described above, paragraph 2(a) of Article 24 of the 1994 Treaty, as amended,
includes a parenthetical reference to “the law of the United States (as it may be amended
from time to time without changing the general principle hereof) . . . .” (ellipsis added).
Plaintiffs argue that “[t]he ‘general principle’ referred to in Article 24(2)(a) [of the 1994
Treaty, as amended,] is that a credit is allowed for French income taxes against U.S.
income taxes.” (alterations added). Plaintiffs claim that “[t]he passage into law of a new
‘United States income tax’ [after the 1994 Treaty, as amended,] cannot be said to have
any bearing under the treaty on whether an amount of French tax paid is a foreign income
tax that is creditable per se,” because “Plaintiffs’ French income taxes equal to $140,398
remain eligible for a foreign tax credit against their substantive U.S. tax liability.”
(alterations added). Plaintiffs also claim, “[n]or does a new ‘United States income tax’ alter
the amount of the Code Section 904 limitation – Plaintiffs did not, and could not, argue
that French income taxes are creditable against, for example, U.S. source income.”
(alteration added). Plaintiffs further argue that if the court did not adopt plaintiffs’
interpretation, that “would result in it [paragraph 2(a) of Article 24 of the 1994 Treaty, as
amended,] having no independent purpose if its language is limited by the Code,
rendering the position superfluous.” (alteration added). According to plaintiff, “[f]or Article
24(2)(a) [of the 1994 Treaty, as amended,] to have any purpose and effect, it must be
that it ensures that a foreign tax credit will be allowed against any subsequently enacted
United States income tax that is covered by the French Treaty, which would include the
NIIT.” (alterations added).
According to plaintiffs, “the [Internal Revenue] Code need not expressly provide
for a foreign tax credit if the foreign levy in question falls within the treaty definition of a
creditable tax” because “what constitutes a United States income tax for purposes of the
application of a treaty derives from the treaty’s definition and not from domestic law.”32
Plaintiffs argue that “[w]hat constitutes a creditable foreign tax under a treaty may be
broader than the Code Section 901 definition . . . .” (ellipsis added). In support of this
contention, plaintiffs argue that “[t]here are numerous instances where the terms of a
32

64

(emphasis in original; alteration added). Plaintiffs argue that “[d]omestic law therefore
does not constitute an absolute limitation on the rights and entitlements that may be
granted to treaty beneficiaries under the terms of a U.S. tax treaty.” (alteration added).
Plaintiffs state that “[t]he parties agree that the NIIT constitutes a United States income
tax as defined in Article 2(1) and 2(2) of the French Treaty,” and, therefore, “that when a
treaty provides a definition of a covered tax, it is that definition, and not the more limited
definition under United States or foreign law, that is applied.” (alteration added).
In addition to paragraph 2(a) of Article 24 of the 1994 Treaty, as amended, plaintiffs
also argue that paragraph 2(b) of Article 24 of the 1994 Treaty, as amended, “allows a
foreign tax credit for the NIIT.” Plaintiffs contrast paragraph 2(b) of Article 24 of the 1994
Treaty, as amended, with the above-discussed paragraph 2(a) of Article 24 of the 1994
Treaty, as amended, stating that “Article 24(2)(b) neither contains nor refers to the Article
24(2)(a) limitations.” Plaintiffs disagree with defendant’s claim that paragraph 2(b) of
Article 24 of the 1994 Treaty, as amended, in plaintiffs’ language, “incorporates” the
limitations language of paragraph 2(a) of the same article, arguing that “Defendant
confuses the question of what French taxes are creditable with the question of what
United States income taxes can be offset by creditable French taxes, which, not
surprisingly, gives an illogical outcome.” Plaintiffs further argue, because paragraph 2(b)
of Article 24 of the 1994 Treaty, as amended, “allows as a credit against U.S. income tax,
which by definition includes the NIIT, any French income taxes ‘after the credit referred
to in subparagraph (a)(iii) of paragraph 1 [of Article 24 of the 1994 Treaty, as
amended],’”33 that “the Article 24(1)(a)(iii) [of the 1994 Treaty, as amended,] credit is zero
bilateral treaty give a different result than would be achieved exclusively under domestic
law,” (alterations added), citing to a treaty between the United States and Denmark, a
treaty between the United States and Italy, and a treaty between the United States and
Mexico, all of which concern, among other issues, the availability of foreign tax credits
against taxes imposed by the United States’ respective treaty partners. Although plaintiffs
may be correct that the definition of a “creditable foreign tax,” to use plaintiffs’ language,
may have been found to be “broader” when the terms of a relevant treaty so provide, the
treaties and taxes plaintiffs cite in support of this point are not presently before this court
and are not determinative of the interpretation of the 1994 Treaty, as amended, between
the United States and France.
Plaintiff’s quotation of paragraph 2(b) of Article 24 of the 1994 Treaty, as amended,
contains a reference to “subparagraph (a)(iii) of paragraph 1” of the same Article 24 of
the 1994 Treaty, as amended. As explained above, the “consolidated” version of the 1994
Treaty, as amended, the version in the record before the court, refers instead to
“subparagraph (a)(iii) of paragraph 2” of Article 24 of the 1994 Treaty, as amended. As
also explained above, the “consolidated” version’s reference to paragraph 2 in this
quotation is an error, as there is no subparagraph (a)(iii) of paragraph 2 of Article 24 of
the 1994 Treaty, as amended. Plaintiff’s quotation, referring to “subparagraph (a)(iii) of
paragraph 1,” accurately reflects how Article 24 of the 1994 Treaty, as amended, should
read after the re-ordering of the paragraphs of Article 24 by the 2009 Protocol.
33

65

as Plaintiffs did not incur French tax on any U.S. source income,” and, therefore, “the
language of Article 24(2)(b) [of the 1994 Treaty, as amended,] provides that a foreign tax
credit is allowed.” (alterations added).
As explained above, plaintiffs agree with defendant’s characterization that
paragraph 2(b) of Article 24 of the 1994 Treaty, as amended, implements the second bite
of the three-bite rule.34 Plaintiffs, in a passage which also is quoted above setting forth
plaintiffs’ understanding of the three bite rule, indicate that “the United States retains the
right to levy a 15 percent tax on the French resident U.S. citizen,” which is the first bite,
while France may “levy tax on any amount in excess of 15 percent,” which French income
tax is the second bite. As a result of the second bite French tax, according to plaintiffs,
“any such French tax shall be allowed as a credit against U.S. tax” in excess of the 15
percent United States income tax assessed in the first bite. It is this allowance of a credit
for French taxes against United States taxes that plaintiffs argue, in agreement with
defendant, is implemented by paragraph 2(b) of Article 24 of the 1994 Treaty, as
amended. Plaintiffs also state that “Article 24(2)(b)(ii) further provides that U.S. source
income is considered French source ‘to the extent necessary to give effect to the
provisions of subparagraph (b)(i),’” which “ensures that a foreign tax credit is allowed for
U.S. source income to avoid the French taxing that income (the second bite) and the U.S.
taxing that same amount (the third bite).”35
In response to plaintiffs’ argument that paragraph 2(a) of Article 24 of the 1994
Treaty, as amended, incorporates only the limitations set forth in I.R.C. § 904, defendant
argues that the restrictions of I.R.C. §§ 27 and 901(a) to apply foreign tax credits only
against “the tax imposed by this chapter,” Chapter 1 of the I.R.C., see I.R.C. §§ 27, 901(a),
applies because the “provisions” and “limitations” language of paragraph 2(a) of Article
24 of the 1994 Treaty, as amended, “expressly defers to the provisions of the statute in
determining when foreign tax credits may be allowed.” (alteration added). According to
defendant, “there are numerous provisions of the [Internal Revenue] Code and
regulations that regulate the boundaries of the foreign-tax-credit framework under U.S.
law,” and that “[i]f the two countries had intended for [I.R.C.] § 904 to be the only relevant
limitation, the [1994] Treaty[, as amended,] would have said so explicitly.” (alterations
added). According to defendant, “Congress intentionally placed the NIIT [in I.R.C. § 1411,
in Chapter 2A] outside of Chapter 1 [of the I.R.C.], demonstrating unequivocally the intent

As also explained above, plaintiffs and defendant disagree as to whether plaintiffs’
calculations of their French income tax and United States income tax were properly
conducted in light of the three-bite rule, but the parties do not appear to contest the
framework of the three-bite rule.
34

35

As explained above, the third bite of the three-bite rule represents the tax assessed by
the United States against the taxpayer’s income, after the United States’ initial 15 percent
tax on that income (the first bite) and France’s tax on the taxpayer’s income (the second
bite). A tax credit is available against the third bite United States tax based on the amount
of French income taxes paid in the second bite.
66

of Congress that the new levy be ineligible for foreign tax credits under [I.R.C.] §§ 27 and
901(a).” (alterations added).
In its briefs, defendant acknowledges that there are no documents in the record
which indicate the interpretation of the 1994 Treaty, as amended, held by the Government
of the French Republic regarding the tax issues relevant to plaintiffs’ complaint in this
court. Defendant nevertheless argues that in this case there is “no evidence that either
the United States or France had any expectation that the United States would
automatically apply foreign-tax credits against any and all income taxes subsequently
enacted under the Code.” With respect to France’s understanding, defendant argues that
“there is no evidence of French expectations regarding that provision [paragraph 2 of
Article 24 of the 1994 Treaty, as amended] (other than the inference noted below), and
nothing to suggest any disagreement by France with the interpretation of article 24(2) [of
the 1994 Treaty, as amended,] expressed in the U.S. executive materials,” by which
defendant appears to mean the United States Treasury Department Technical
Explanations of the 1994 Treaty, the 2004 Protocol, and the 2009 Protocol, as well as the
model treaties and accompanying technical explanations, all prepared by the United
States Treasury Department. (alterations added). Defendant urges a possible inference,
however, without evidence, in the above quoted language, because “when the United
States and France executed protocols amending the original 1994 convention, they left
undisturbed the requirement that U.S. foreign tax credits be given ‘in accordance with the
provisions of U.S. law,’” which, according to defendant, demonstrated “an acquiescence
by France in the Treasury Department’s prior explanation of the function of article
24(2)(a).” (citing Adams Challenge (UK) Ltd. v. Comm’r, 156 T.C. at 53-54).
Defendant also argues that because paragraph 2 of Article 3 of the 1994 Treaty,
as amended, provides that the United States “may apply to the Treaty’s undefined terms
‘the meaning . . . under [its own] taxation laws,’” (alteration and ellipsis in original), that
“[w]hen U.S. taxation is at issue, the expectations of the United States have primacy, even
if those expectations may not be ‘shared’ by the treaty partner.” (alteration added) (citing
Baturin v. Comm’r, 31 F.4th 170, 174 (4th Cir. 2022);36 Adams Challenge (UK) Ltd. v.
Defendant cites to the United States Court of Appeals for the Fourth Circuit’s decision
in Baturin v. Commissioner, which defendant characterizes as “applying U.S. tax law to
determine whether particular payments were ‘grants’ or ‘allowances’ under article 18 of
that treaty” between the United States and Russia. Baturin is a Fourth Circuit case
concerning a treaty between the United States and Russia which provided that an
undefined term in that treaty “‘have the meaning which it has under the laws of that State
concerning the taxes to which this Convention applies.’” See Baturin v. Comm’r, 31 F.4th
at 174 (emphasis in original). Contrary to defendant’s reason for citing Baturin, the Fourth
Circuit in Baturin supported its interpretation of the United States-Russia treaty by
reference to “the intent of the parties to the Treaty” and “the actual intent of the Treaty.”
See id. at 176. The Fourth Circuit in Baturin expressly states that “courts construe treaties
liberally to effectuate the intent of the parties, not simply in favor of the party invoking the
treaty,” see id. (citing Nielsen v. Johnson, 279 U.S. at 51), therefore, not concluding
support of defendant’s argument that Baturin stands for the “primacy” of the United States’
36

67

Comm’r, 154 T.C. at 37, 58 (2020)).
Defendant further claims that plaintiffs “misinterpret the parenthetical,” referring to
“(as it may be amended from time to time without changing the general principle hereof)”
in paragraph 2(a) of Article 24 of the 1994 Treaty, as amended. Defendant argues that
“[t]he parenthetical does not, as plaintiffs claim, ‘guarantee[]’ a ‘general principle allowing
a credit of French income taxes against U.S. income taxes’ for any possible levy that
could conceivably be made by the United States.” (first alteration added; internal
reference omitted). Quoting the 1994 Treaty Treasury Department Technical Explanation,
defendant argues that the parenthetical language of paragraph 2(a) of Article 24 of the
1994 Treaty, as amended, “merely recognizes a general principle that, ‘although the
Convention provides for a foreign tax credit, the terms of the credit are determined by the
provisions of the U.S. statutory credit at the time a credit is given.’” Defendant further
argues: “Thus, while the United States may not outright repeal the foreign-tax-credit
framework from its domestic law, it has wide leeway to decide the extent to which to allow
the credit and any conditions to attach to it.” Defendant’s caution that “the United States
may not outright repeal the foreign-tax-credit framework” appears to be the only caution
to defendant’s otherwise broad conception of the United States’ “leeway to decide the
extent to which to allow the credit and any conditions to attach to it.”
Defendant further argues, although the purpose of the 1994 Treaty, as amended,
is “to reduce, or even eliminate where appropriate, double taxation of citizens and
residents of the United States and France,” that “nothing suggests that the two countries
expected or even intended to tailor the reduction or elimination of double taxation to any
individual case.” Additionally, defendant contends that
to the extent that double-taxation relief is targeted through article 24 of the
Treaty (rather than through the allocation of taxing rights), the Treaty is
explicit that double-taxation relief has meaningful limits. The Treaty, like any
other, must be applied according to its terms; if a treaty’s operative
provisions provide no specific relief for a particular instance of double
taxation, courts may not override the treaty to effect a more absolute
conception of that goal than the treaty negotiators themselves intended and
drafted.
As explained above, like plaintiffs, defendant makes the argument that paragraph
2(b) of Article 24 of the 1994 Treaty, as amended, interacts with the saving clause of
Article 29 of the same treaty to implement the three-bite rule:
Article 29(3), which plaintiffs refer to as the “carve out to the savings clause,”
ensures that the saving clause does not undo the portions of article 24 that
implement the three-bite rule (and alter U.S. law to do so). Article 24(2)(b)(ii)
expectations of a treaty, even when they “may not be ‘shared’ by the treaty partner,”
Baturin actually seems better to support interpreting treaties consistent with the shared
intent of the signatory governments.
68

modifies U.S. tax law by allowing U.S. taxpayers to treat the portion of U.S.source income on which France may impose a residency-based tax under
the Treaty as foreign-source income. By modifying the source rules in the
[Internal Revenue] Code, article 24(2)(b)(ii) increases the [I.R.C.] § 904
limitation that would otherwise cap the taxpayers’ foreign tax credits at the
pre-credit U.S. tax on their foreign source income. Together, Articles 24 and
29 of the Treaty implement the three-bite rule for U.S. citizens residing in
France. They do not expand U.S. law to provide a foreign tax credit against
the NIIT that the Code does not allow.
(alterations added; footnote and internal reference omitted). Defendant argues that,
because paragraph 2(b) of Article 24 of the 1994 Treaty, as amended, implements the
second bite of the three-bite rule,37
[i]f the Court were to credit plaintiffs’ claim that subsection (2)(b) authorizes
a separate foreign tax credit for U.S. citizens residing in France that is not
subject to limitations in the Internal Revenue Code, it would render
meaningless the resourcing rule in subsection (2)(b)(ii), which is premised
on the application of the foreign-tax-credit limitation in [I.R.C.] § 904.
(alterations added).
Defendant also argues that a ruling for plaintiffs in the current case “would frustrate
the policy foundation” of the foreign tax credit system and “would provide U.S. citizens
residing in France with a far more generous foreign tax credit than would be available to
U.S. citizens residing in the United States.” Defendant argues that, if the court were to
accept plaintiffs’ interpretation of paragraph 2(b) of Article 24 of the 1994 Treaty, as
amended,
then such taxpayers theoretically could, among other things:
• Claim foreign tax credits against U.S. tax on U.S.-sourced income,
despite the policy behind the foreign-tax-credit limitation under
[I.R.C.] § 904;
37

Defendant offers various versions of its contention that paragraph 2(b) of Article 24 of
the 1994 Treaty, as amended, implements the second bite of the three-bite rule: “Article
24(2)(b) is an integral part of an ordering rule established by the Treaty (colloquially
referred to as a ‘three-bite rule’);” “the saving clause does not undo the portions of article
24 that implement the three-bite rule;” “Articles 24 and 29 of the Treaty implement the
three-bite rule;” “article 24(2)(b) is an integral part of the ‘three-bite rule’ established by
the Treaty, the ordering rule that governs the application of foreign tax credits to French
and U.S. taxes on income earned by U.S. citizens residing in France.” Defendant’s full
explanation of its contention that paragraph 2(b) of Article 24 of the 1994 Treaty, as
amended, implements the second bite of the three-bite rule, is set forth above in the
discussion of the three-bite rule, in which defendant clarifies the operation of paragraph
2(b) in the calculation of United States and French taxes under the three-bite rule.
69

•
•

Evade the [I.R.C.] § 904 limitation by cross-crediting foreign tax on
general basket income against U.S. tax on passive basket income;
or,
Obtain a double benefit by claiming credits for foreign taxes paid on
income excluded from U.S. tax by the foreign-earned income
exclusion, contrary to [I.R.C.] § 911(d)(6).

(alterations added). None of the scenarios which defendant poses directly above,
however, appear to be before this court based on the facts presented to this court by
plaintiffs’ case. Moreover, defendant appears to acknowledge by its reference to the
“policy foundation” of foreign tax credits, that defendant is relying in large part on policybased arguments against interpreting paragraph 2(b) of Article 24 of the 1994 Treaty, as
amended, to provide a foreign tax credit against the net investment income tax imposed
by I.R.C. § 1411, and does not cite to any statute or regulation that prevent plaintiffs from
entitlement to a foreign tax credit under paragraph 2(b) of Article 24 of the 1994 Treaty,
as amended.
Treaty Interpretation Standards and Principles for Resolving Potential Conflict
Between Treaties and Domestic Statutes
The United States Supreme Court and the United States Court of Appeals for the
Federal Circuit have established precedential standards by which interpretation of treaties
and international agreements should occur. The United States Supreme Court stated in
Medellin v. Texas that “[t]he interpretation of a treaty, like the interpretation of a statute,
begins with its text,” Medellin v. Texas, 552 U.S. 491, 506-07 (2008) (alteration added)
(citing Air France v. Saks, 470 U.S. at 396–97), but that “[b]ecause a treaty ratified by the
United States is ‘an agreement among sovereign powers,’ we have also considered as
‘aids to its interpretation’ the negotiation and drafting history of the treaty as well as ‘the
postratification understanding’ of signatory nations.” Id. (alteration added) (quoting
Zicherman v. Korean Air Lines Co., Ltd., 516 U.S. at 226, and citing United States v.
Stuart, 489 U.S. at 365–66; Choctaw Nation of Indians v. United States, 318 U.S. at 431–
32); see also 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.” (citing Air
France v. Saks, 470 U.S. at 399; Sullivan v. Kidd, 254 U.S. 433, 439 (1921); Wright v.
Henkel, 190 U.S. 40, 57 (1903)); Lozano v. Montoya Alvarez, 572 U.S. at 11 (citing
Medellin v. Texas, 552 U.S. at 505; United States v. Choctaw Nation, 179 U.S. 494, 535
(1900)); United States v. Alvarez-Machain, 504 U.S. 655, 663 (1992) (“In construing a
treaty, as in construing a statute, we first look to its terms to determine its meaning.” (citing
Air France v. Saks, 470 U.S. at 397; Valentine v. United States ex rel. Neidecker, 299
U.S. 5, 11 (1936))). In the case of Air France v. Saks, the United States Supreme Court
stated that interpretation of an international agreement “must begin, however, with the
text of the treaty and the context in which the written words are used.” Air France v. Saks,
470 U.S. at 397 (citing Maximov v. United States, 373 U.S. 49, 53–54 (1963)). Moreover,
the Supreme Court explained that “[i]t is a familiar rule that the obligations of treaties
should be liberally construed so as to give effect to the apparent intention of the parties.”

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Valentine v. United States ex rel. Neidecker, 299 U.S. at 10 (alteration added) (citing
Factor v. Laubenheimer, 290 U.S. at 293; Jordan v. Tashiro, 278 U.S. at 127; Tucker v.
Alexandroff, 183 U.S. 424, 437 (1902)); see also Factor v. Laubenheimer, 290 U.S. at
294-95 (“In ascertaining the meaning of a treaty we may look beyond its written words to
the negotiations and diplomatic correspondence of the contracting parties relating to the
subject-matter, and to their own practical construction of it.”); Cook v. United States, 288
U.S. at 112 (“In construing the Treaty its history should be consulted.”); Jordan v. Tashiro,
278 U.S. at 127; Tucker v. Alexandroff, 183 U.S. at 437; In re Ross, 140 U.S. at 475 (“It
is a canon of interpretation to so construe a law or treaty as to give effect to the object
designed, and for that purpose all of its provisions must be examined in the light of
attendant and surrounding circumstances.”).
Similarly, the Supreme Court in Eastern Airlines, Inc. v. Floyd stated that “‘[w]hen
interpreting a treaty, we “begin ‘with the text of the treaty and the context in which the
written words are used,’”’” E. Airlines, Inc. v. Floyd, 499 U.S. 530, 534 (1991) (alteration
added) (quoting Volkswagenwerk Aktiengesellschaft v. Schlunk, 486 U.S. 694, 699
(1988) (quoting Société Nationale Industrielle Aérospatiale v. United States Dist. Ct. for
the S. Dist. of Iowa, 482 U.S. 522, 534 (1987) (quoting Air France v. Saks, 470 U.S. at
397))), but also that “‘[o]ther general rules of construction may be brought to bear on
difficult or ambiguous passages.’” Id. at 535 (alteration added) (quoting Volkswagenwerk
Aktiengesellschaft v. Schlunk, 486 U.S. at 700); see also Water Splash, Inc. v. Menon,
581 U.S. 271, 276 (2017) (quoting Volkswagenwerk Aktiengesellschaft v. Schlunk, 486
U.S. at 699); Chan v. Korean Air Lines, Ltd., 490 U.S. 122, 133-35 (1989) (explaining that
“[w]e must thus be governed by the text,” although “intricate drafting history” might “be
consulted to elucidate a text that is ambiguous” (citing Air France v. Saks, 470 U.S. 392));
Sumitomo Shoji Am., Inc. v. Avagliano, 457 U.S. at 180 (“The 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 Maximov v. United States, 373 U.S. at 54)); Nat’l Westminster Bank, PLC v.
United States, 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,”’”
(alteration in original) (quoting Sumitomo Shoji Am., Inc. v. Avagliano, 457 U.S. at 180
(quoting Maximov v. United States, 373 U.S. at 54)), and also holding that “effect must
be given to the intent of both signatories” (citing Xerox Corp. v. United States, 41 F.3d at
656 (citing Valentine v. United States ex rel. Neidecker, 299 U.S. at 11)), but “when the
language of a treaty provision ‘only imperfectly manifests its purpose,’ we are required to
give effect to its underlying purpose,” and “[t]o this end, we must ‘examine not only the
language, but the entire context of agreement.’” (alteration added) (quoting Great-West
Life Assur. Co. v. United States, 230 Ct. Cl. at 481 (internal quotations omitted)))); 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. v. United States,
41 F.3d at 652)); Great-West Life Assur. Co. v. United States, 230 Ct. Cl. at 481 (citing
Factor v. Laubenheimer, 290 U.S. at 294-95, and In re Ross, 140 U.S. at 475, as
“requir[ing] that the underlying purpose [of the treaty] be given effect” (alterations added)).

71

In particular, “[t]he course of conduct of parties to an international agreement, like the
course of conduct of parties to any contract, is evidence of its meaning.” O’Connor v.
United States, 479 U.S. at 33 (alteration added) (citing Trans World Airlines, Inc. v.
Franklin Mint Corp., 466 U.S. at 259-60; Pigeon River Imp., Slide & Boom Co. v. Charles
W. Cox, Ltd., 291 U.S. at 158-61). Moreover, the Supreme Court has emphasized that
“[i]t is our ‘responsibility to read the treaty in a manner consistent with the shared
expectations of the contracting parties.’” Lozano v. Montoya Alvarez, 572 U.S. at 12
(emphasis in original; alteration added) (quoting Olympic Airways v. Husain, 540 U.S. at
650 (internal quotations omitted)).
The United States Court of Appeals for the Federal Circuit succinctly summarized
the Supreme Court’s approach to treaty interpretation in Xerox Corp. v. United States:
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. See United
States v. Stuart, 489 U.S. 353, 365–66, 109 S. Ct. 1183, 1190–91, 103 L.
Ed. 2d 388 (1989) (interpreting a treaty to carry out the intent or
expectations of the signatories); Kolovrat v. Oregon, 366 U.S. 187, 193–94,
81 S. Ct. 922, 925–26, 6 L. Ed. 2d 218 (1961) (a treaty should be interpreted
to carry out its purpose). As discussed in Sumitomo Shoji America, Inc. v.
Avagliano, 457 U.S. 176, 185, 102 S. Ct. 2374, 2379, 72 L. Ed. 2d 765
(1982), the court’s role is “limited to giving effect to the intent of the Treaty
parties.” See generally Restatement (Third) of Foreign Relations Law of the
United States, Part III, Introductory Note at 144–145 (1987). The judicial
obligation is to satisfy the intention of both of the signatory parties, in
construing the terms of a treaty. Valentine v. United States, 299 U.S. 5, 11,
57 S. Ct. 100, 103, 81 L. Ed. 5 (1936) (“it is our duty to interpret [the treaty]
according to its terms. These must be fairly construed, but we cannot add
or detract from them.”)
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. See Air France v. Saks, 470 U.S. 392, 400, 105 S. Ct.
1338, 1343, 84 L. Ed. 2d 289 (1985) (“In interpreting a treaty it is proper, of
course, to refer to the records of its drafting and negotiation.”) 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 at 652 (alteration and ellipsis in original).

72

While both parties have provided the court with their view as to the “harmonization”
of treaties and statutes in the event of a potential conflict, as is presented in this case, the
precedents of the United States Supreme Court and the United States Court of Appeals
for the Federal Circuit provide more complicated analyses for the court to use to resolve
such potential conflict than the parties have indicated. The Constitution of the United
States provides that “[t]his Constitution, and the Laws of the United States which shall be
made in Pursuance thereof; and all Treaties made, or which shall be made, under the
Authority of the United States, shall be the supreme Law of the Land.” U.S. CONST. art.
VI. (alteration added). In Weinberger v. Rossi, 456 U.S. 25, the Supreme Court explained,
with respect to potential conflict between statutes and treaties of the United States:
It has been a maxim of statutory construction since the decision in Murray
v. The [Schooner] Charming Betsy, [6 U.S.] 2 Cranch 64, 118, 2 L. Ed. 208
(1804), that “an act of congress ought never to be construed to violate the
law of nations, if any other possible construction remains . . . .” In McCulloch
v. Sociedad Nacional de Marineros de Honduras, 372 U.S. 10, 20–21, 83
S. Ct. 671, 677–678, 9 L. Ed. 2d 547 (1963), this principle was applied to
avoid construing the National Labor Relations Act in a manner contrary to
State Department regulations, for such a construction would have had
foreign policy implications. The McCulloch Court also relied on the fact that
the proposed construction would have been contrary to a “well-established
rule of international law.” Id., at 21, 83 S. Ct., at 677–678.
Weinberger v. Rossi, 456 U.S. at 32 (ellipsis in original; alterations added). In the case of
Murray v. Schooner Charming Betsy, 6 U.S. (2 Cranch) 64, which was cited in Weinberger
as quoted above, the Supreme Court stated:
It has also been observed that an act of Congress ought never to be
construed to violate the law of nations if any other possible construction
remains, and consequently can never be construed to violate neutral rights,
or to affect neutral commerce, further than is warranted by the law of nations
as understood in this country.
Murray v. Schooner Charming Betsy, 6 U.S. (2 Cranch) at 118. In Whitney v. Robertson,
124 U.S. 190, cited above, the Supreme Court further explained:
By the constitution, a treaty is placed on the same footing, and made of like
obligation, with an act of legislation. Both are declared by that instrument to
be the supreme law of the land, and no superior efficacy is given to either
over the other. When the two 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; but, if the two are inconsistent,
the one last in date will control the other: provided, always, the stipulation
of the treaty on the subject is self-executing.

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Id. at 194; see also MacLeod v. United States, 229 U.S. 416, 434 (1913) (“[I]t should not
be assumed that Congress proposed to violate the obligations of this country to other
nations, which it was the manifest purpose of the President to scrupulously observe, and
which were founded upon the principles of international law.” (alteration added)). The
Supreme Court also has stated that “[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.” Cook v. United States, 288 U.S. at 120 (alteration added) (citing
United States v. Payne, 264 U.S. 446, 448 (1924); Chew Heong v. United States, 112
U.S. 536 (1884)); see also Trans World Airlines, Inc. v. Franklin Mint Corp., 466 U.S. at
252 (“There is, first, a firm and obviously sound canon of construction against finding
implicit repeal of a treaty in ambiguous congressional action. ‘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.’” (quoting Cook v. United States, 288 U.S. at 120));
Clark v. Allen, 331 U.S. 503, 507, 512 (1947) (“We will not readily assume that when
Congress enacted § 5(b) [of the Trading with the Enemy Act] and authorized the vesting
of property, it had a purpose to abrogate all such treaty clauses” as the provisions of a
treaty with Germany “governing the testamentary disposition of realty and personalty”
(alteration added) (citing Cook v. United States, 288 U.S. at 120)); United States v. Lee
Yen Tai, 185 U.S. at 221 (“[T]he purpose by statute to abrogate a treaty or any designated
part of a treaty, or the purpose by treaty to supersede the whole or a part of an act of
Congress, must not be lightly assumed, but must appear clearly and distinctly from the
words used in the statute or in the treaty.” (alteration added)).
In 2013, in the case of In re City of Houston, the United States Court of Appeals
for the Federal Circuit restated the longstanding principle from the Supreme Court’s
decision in Charming Betsy as “that ‘an act of Congress ought never to be construed to
violate the law of nations, if any other possible construction remains.’” In re City of
Houston, 731 F.3d 1326, 1334 (Fed. Cir. 2013) (quoting Murray v. Schooner Charming
Betsy, 6 U.S. (2 Cranch) at 118); see also In re Rath, 402 F.3d 1207, 1211 (Fed. Cir.
2005) (“In cases of ambiguity, we interpret a statute such as section 44(e) of the Lanham
Act as being consistent with international obligations.” (citing Murray v. Schooner
Charming Betsy, 6 U.S. (2 Cranch) at 118; Allegheny Ludlum Corp. v. United States, 367
F.3d 1339, 1348 (Fed. Cir. 2004); Luigi Bormioli Corp., Inc. v. United States, 304 F.3d
1362, 1368 (Fed. Cir. 2002))); Corus Staal BV v. Dep’t of Commerce, 395 F.3d 1343,
1347 (Fed. Cir. 2005) (referring to “the Charming Betsy doctrine of claim construction,
which states that courts should interpret U.S. law, whenever possible, in a manner
consistent with international obligations” (citing Murray v. Schooner Charming Betsy, 6
U.S. (2 Cranch) 64)); Allegheny Ludlum Corp. v. United States, 367 F.3d at 1345 (“[T]his
court’s interpretation of [19 U.S.C.] § 1677(5) avoids unnecessary conflict between
domestic law and the international obligations of this country.” (alterations added));
Timken Co. v. United States, 354 F.3d 1334, 1343-44 (Fed. Cir. 2004) (“The crux of its
argument hinges on the Charming Betsy canon of claim construction, according to which
courts should interpret U.S. law, whenever possible, in a manner consistent with U.S.
international obligations.” (citing Murray v. Schooner Charming Betsy, 6 U.S. (2 Cranch)
at 118; Luigi Bormioli Corp., Inc. v. United States, 304 F.3d at 1368; Fed.-Mogul Corp. v.
United States, 63 F.3d 1572, 1581 (Fed. Cir. 1995))). The Federal Circuit has recognized

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the Supreme Court’s rule set forth in Charming Betsy as a “two-century-old canon of
construction” that a statute “‘must be interpreted to be consistent with [international]
obligations, absent contrary indications in the statutory language or its legislative history.’”
Allegheny Ludlum Corp. v. United States, 367 F.3d at 1348 (alteration in original) (quoting
Luigi Bormioli Corp., Inc. v. United States, 304 F.3d at 1368, and citing Fed.-Mogul Corp.
v. United States, 63 F.3d at 1581); see also Fed.-Mogul Corp. v. United States, 63 F.3d
at 1581 (“GATT [General Agreement on Tariffs and Trade] agreements are international
obligations, and absent express Congressional language to the contrary, statutes should
not be interpreted to conflict with international obligations.” (alteration added)); Abbott
Lab’ys v. United States, 84 Fed. Cl. 96, 107 and n.17 (2008) (describing a “canon of
construction—that statutes and regulations should be construed consistently with
international treaty obligations” (citing Sale v. Haitian Ctrs. Council, Inc., 509 U.S. 155,
178-79 n. 35 (1993); MacLeod v. United States, 229 U.S. at 434; Murray v. Schooner
Charming Betsy, 6 U.S. (2 Cranch) at 118; Cannon v. United States Dep’t of Justice,
United States Parole Comm’n, 973 F.2d 1190, 1193 (5th Cir. 1992))). The Federal Circuit,
moreover, explained in Xerox Corp.:
A treaty, when ratified, supersedes prior domestic law to the contrary,
United States v. Lee Yen Tai, 185 U.S. 213, 220–22, 22 S. Ct. 629, 632–
33, 46 L. Ed. 878 (1902), and is equivalent to an act of Congress. However,
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.
Xerox Corp. v. United States, 41 F.3d at 658.
In addition to the principle articulated by the Supreme Court in the Charming Betsy
case, other rules announced by the United States Supreme Court in the context of treaty
interpretation bear on this court’s interpretation of the 1994 Treaty, as amended.
Particularly relevant to the above captioned case, the Supreme Court has instructed
courts to afford a liberal interpretation to treaties, including treaties concerning the taxing
power. In the case of United States v. Stuart, 489 U.S. 353, the Supreme Court explained
that a treaty should generally be “construe[d] . . . liberally to give effect to
the purpose which animates it” and that “[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[.]”
Id. at 368 (alterations and ellipsis in original) (quoting Bacardi Corp. of Am. v. Domenech,
311 U.S. 150, 163 (1940) (internal citations omitted)). In United States v. Stuart, the
Supreme Court ruled against an attempt to restrict the sending of information from the
United States to Canada under the Convention between the United States and Canada
Respecting Double Taxation. See id.
The Supreme Court in Bacardi Corp. of America v. Domenech, which was cited in
Stuart, addressed a conflict between a statute of the United States territory of Puerto Rico

75

and a multilateral treaty, “the General Inter-American Convention for Trade Mark and
Commercial Protection signed at Washington on February 20, 1929.” See Bacardi Corp.
of Am. v. Domenech, 311 U.S. at 157. The Supreme Court in Bacardi explained “the
accepted canon” that “we should construe the treaty liberally to give effect to the purpose
which animates it. Even 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.” Id. at 163 (citing Factor v. Laubenheimer, 290 U.S. at
293-94; Nielsen v. Johnson, 279 U.S. at 52; Jordan v. Tashiro, 278 U.S. at 127). In the
United States Supreme Court’s decision in Kolovrat v. Oregon, 366 U.S. 187, the
Supreme Court cited the Bacardi decision to consider a conflict between the succession
laws of Oregon, which limited the ability of aliens to take under testate or intestate
succession, and “an 1881 Treaty between the United States and Serbia, which country is
now [in 1961] a part of Yugoslavia.” See Kolovrat v. Oregon, 366 U.S. at 190 (alteration
added). In Kolovrat, the United States Supreme Court rejected the “more restrictive
interpretation” of the 1881 Treaty favored by the Supreme Court of Oregon, explaining
that “[t]his Court has many times set its face against treaty interpretations that unduly
restrict rights a treaty is adopted to protect.” See id. at 193 and n.7 (alteration added)
(citing Bacardi Corp. of Am. v. Domenech, 311 U.S. at 163; Jordan v. Tashiro, 278 U.S.
at 128-29). The United States Supreme Court also addressed the rule that treaties should
be afforded a “liberal interpretation” in Jordan v. Tashiro, 278 U.S. 123, a case cited by
the United States Supreme Court in both Bacardi and Kolovrat. In Jordan, the Supreme
Court explained:
The principles which should control the diplomatic relations of nations, and
the good faith of treaties as well, require that their obligations should be
liberally construed so as to effect the apparent intention of the parties to
secure equality and reciprocity between them. See [De] Geofroy v. Riggs,
[133 U.S. 258, 267 (1890)38]; Tucker v. Alexandroff, 183 U.S. 424, 437, 22
S. Ct. 195, 46 L. Ed. 264; Wright v. Henkel, 190 U.S. 40, 57, 23 S. Ct. 781,
47 L. Ed. 948; In re Ross, 140 U.S. 453, 475, 11 S. Ct. 897, 35 L. Ed. 581.
Upon like ground, where a treaty fairly admits of two constructions, one
restricting the rights that may be claimed under it and the other enlarging
them, the more liberal construction is to be preferred. Asakura v. Seattle,
265 U.S. 332, 44 S. Ct. 515, 68 L. Ed. 1041 [(1924)]; Tucker v. Alexandroff,
supra; [De] Geofroy v. Riggs, supra.
Jordan v. Tashiro, 278 U.S. at 127 (alterations and footnote added).
In addition to these precedential cases of the United States Supreme Court,
decisions issued by the United States Court of Appeals for the Federal Circuit and by the
United States Court of Federal Claims have applied the rule that treaties should be
The Supreme Court in Jordan cites to the case of “Geofroy v. Riggs,” see Jordan v.
Tashiro, 278 U.S. at 126, 127, however, that case is originally captioned “De Geofroy v.
Riggs” and the petitioner is identified by the name “Louis de Geofroy.” See De Geofroy v.
Riggs, 133 U.S. at 258.
38

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liberally interpreted when interpreting tax treaties. See, e.g., Xerox Corp. v. United States,
41 F.3d at 652 (citing United States v. Stuart, 489 U.S. at 365-66, in the context of a treaty
with the purpose of “the elimination of double taxation” between the United States and
the United Kingdom); McManus v. United States, 130 Fed. Cl. at 616, 620 (citing United
States v. Stuart, 489 U.S. at 365-66, in the context of a treaty for “the avoidance of double
taxation” between the United States and Ireland); Nat’l Westminster Bank, PLC v. United
States, 58 Fed. Cl. 491, 497 (2003) (citing United States v. Stuart, 489 U.S. at 368, in the
context of a treaty for the avoidance of double taxation between the United States and
the United Kingdom), aff’d, 512 F.3d 1347 (Fed. Cir.), reh’g en banc denied (Fed. Cir.
2008).
In addition to the precedents of the United States Supreme Court and the United
States Court of Appeals for the Federal Circuit which establish the rules of treaty
interpretation, including the cases in which the terms of a treaty and a statute potentially
conflict, initially the parties and the court in the above captioned case also identified a
non-precedential decision issued by the United States Tax Court, Toulouse v.
Commissioner, 157 T.C. 49 (2021), which addressed, in part, the 1994 Treaty, as
amended, between the United States and France. The Toulouse decision addressed
whether the 1994 Treaty, as amended, with France provides for a foreign tax credit
against the net investment income tax imposed by I.R.C. § 1411, in Chapter 2A of the
I.R.C. The Toulouse case concerned “whether petitioner is entitled to a credit against the
net investment income tax (foreign tax credit) on the basis of certain provisions of the
United States’ income tax treaties with France and Italy.” Toulouse v. Comm’r, 157 T.C.
at 50. The petitioner in the Toulouse case relied on paragraph 2(a) of Article 24 of the
1994 Treaty, as amended, between the United States and France, as well as
article 23(2)(a) of U.S. income tax treaty with Italy, the Convention for
Avoidance of Double Taxation With Respect to Taxes on Income and
Prevention of Fraud or Fiscal Evasion, Aug. 25, 1999, It.-U.S., Aug.
1999, T.I.A.S. No. 09-1216, as supplemented by Protocol dated Aug.
1999 (U.S.-Italy Treaty)

the
the
25,
25,

to argue that the two treaties “permit a foreign tax credit against the net investment income
tax.” Toulouse v. Comm’r, 157 T.C. at 52. As described by the Tax Court, the petitioner
in Toulouse made a similar argument to the argument made by the current plaintiffs in
this court with respect to paragraph 2(a) of Article 24 of the 1994 Treaty, as amended.
The United States Tax Court in Toulouse explained:
Petitioner concedes that the [Internal Revenue] Code does not provide a
foreign tax credit against the net investment income tax. Instead, she
argues that article 24(2)(a) of the U.S.-France Treaty[39] and article 23(2)(a)
of the U.S.-Italy Treaty provide a foreign tax credit independent of the
[Internal Revenue] Code. Under the Constitution, treaties are given the
The Tax Court in Toulouse referred to the 1994 Treaty, as amended, as the “U.S.France Treaty.”
39

77

same force and effect as legislation enacted by Congress. U.S. Const. art.
VI, cl. 2; see [I.R.C.] sec. 7852(d)(1) (“For 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[.]”).
Toulouse v. Comm’r, 157 T.C. at 57 (fourth alteration in original). The Tax Court decision
briefly articulated the basic standards of treaty interpretation, including that “[w]here a
treaty and a statute relate to the same subject, courts attempt to construe them to give
effect to both.” Id. at 58 (alteration added) (citing Whitney v. Robertson, 124 U.S. at 194).
The Tax Court in Toulouse explained that “[t]he U.S.-France and U.S.-Italy Treaties are
intended to limit the effects of double taxation between the treaty partners and contain
specific provisions that provide each country’s obligations to grant a foreign tax credit as
part of the treaties’ general goal of reducing the amount of double taxation.” Id. (alteration
added). The Tax Court in Toulouse reasoned that “[u]nder the express terms of the
articles of the Treaties that petitioner relies on, any allowable foreign tax credit must be
determined in accordance with the [Internal Revenue] Code and is limited by the Code’s
provision of a credit.” Id. (alterations added). In a footnote, the Tax Court further stated:
“Petitioner does not argue that she is entitled to relief under any other treaty provisions.
Accordingly, we express no view on the potential application of other provisions.” Id. at
58 n.4. The Tax Court in Toulouse considered the petitioner’s arguments “that the
Treaties do not conflict with the [Internal Revenue] Code because the Code is silent as to
whether there is a foreign tax credit against the net investment income tax,” and “that
there is no explanation in the legislative history for Congress’ decision to impose the net
investment income tax under chapter 2A [of the I.R.C.] or any indication that Congress
considered whether to provide a foreign tax credit against the net investment income tax.”
Toulouse v. Comm’r, 157 T.C. at 59 (alterations added).
With respect to the net investment income tax imposed by I.R.C. § 1411, the Tax
Court explained that “[t]he fact that section 1411 was enacted after the execution of the
Treaties is not determinative,” because the 1994 Treaty, as amended, “covers all ‘Federal
income taxes imposed by the Internal Revenue Code’ and further states that its terms are
subject to identical or substantially similar tax imposed after the effective date of the
Treaty.” Toulouse v. Comm’r, 157 T.C. at 59. The Tax Court reasoned that “[t]he
placement of section 1411 in a newly created chapter was not happenstance. An
enumerated chapter of the [Internal Revenue] Code to impose a distinct and separate tax
is part of the Code’s fundamental structure.” Toulouse v. Comm’r, 157 T.C. at 59
(alterations added). The Tax Court also stated that “[t]here is no provision for any credits
against the section 1411 tax. The enactment of a 3.8% net investment income tax as part
of chapter 2A [of the I.R.C.] is a clear expression of congressional intent that credits
against section 1 not apply against the section 1411 tax.” Toulouse v. Comm’r, 157 T.C.
at 60 (alterations added).
The Tax Court further considered the petitioner’s argument “that the enactment of
the net investment income tax in chapter 2A is not a ‘limitation’ as that term is used in the
Treaties,” and that such limitation “should not be imposed on the basis of Congress’

78

silence on the issue.” Toulouse v. Comm’r, 157 T.C. at 59-60. The Tax Court in Toulouse
rejected the petitioner’s argument, stating:
It is immaterial that the [Internal Revenue] Code does not affirmatively state
that a foreign tax credit against the net investment income tax is disallowed.
Section 1411(c)(1)(B) expressly provides for deductions allowed by subtitle
A in the computation of net investment income. There is no provision for
any credits against the section 1411 tax. The enactment of a 3.8% net
investment income tax as part of chapter 2A [of the I.R.C.] is a clear
expression of congressional intent that credits against section 1 not apply
against the section 1411 tax.
Toulouse v. Comm’r, 157 T.C. at 60 (alterations added). The Tax Court reasoned that
“[t]here is nothing in either article 24(2)(a) of the U.S.-France Treaty or article 23(2)(a) of
the U.S.-Italy Treaty that entitles U.S. taxpayers to an elimination of all double taxation”
and, with respect to the 1994 Treaty, as amended, between the United States and France,
that the Tax Court’s interpretation was “confirmed by the contemporary explanation
provided by the Treasury Department, the Government agency charged with the Treaty’s
negotiation and enforcement.” Toulouse v. Comm’r, 157 T.C. at 61 (alteration added).
The Tax Court concluded that “petitioner is not entitled to a foreign tax credit against her
net investment income tax” because “Congress has allowed a foreign tax credit only
against taxes imposed under chapter 1. There is no [Internal Revenue] Code provision
for a foreign tax credit against the net investment income tax.” Toulouse v. Comm’r, 157
T.C. at 62 (alteration added). The Tax Court, however, also stated:
Petitioner questions the purpose of the Treaties if there is no independent,
treaty-based credit and a credit is allowable only if it is provided in the
[Internal Revenue] Code. But we do not so hold. Other provisions of the
Treaties may well provide for credits that are unavailable under the Code.
Petitioner, however, relies on provisions that by their express terms do not.
Id. at 61-62 (alteration added).
In addition to plaintiffs’ arguments with respect to paragraph 2(a) of Article 24 of
the 1994 Treaty, as amended, plaintiffs argue that the Tax Court’s decision in Toulouse
support’s plaintiffs’ interpretation of paragraph 2(b) of Article 24 of the 1994 Treaty, as
amended, to allow a foreign tax credit against the net investment income tax, because,
when denying the Toulouse petitioner’s argument, which had been limited to paragraph
2(a) of Article 24 of the 1994 Treaty, as amended, the Tax Court “referr[ed] to a possible
other credit provision that would be available,” which plaintiffs in this court argue “appears
to agree that a plain reading of Article 24(2)(b) [of the 1994 Treaty, as amended,] would
provide for a foreign tax credit even if the restrictions of Article 24(2)(a) [of the 1994
Treaty, as amended,] would otherwise apply.” (alterations added). Plaintiffs, however, do
not provide a citation from the Toulouse decision for their claim that the Toulouse decision
“appears to agree” that paragraph 2(b) of Article 24 of the 1994 Treaty, as amended,
“would provide for a foreign tax credit” independent of paragraph 2(a) of Article 24 of the

79

1994 Treaty, as amended. As noted above, the Toulouse court did not address paragraph
2(b) of Article 24 of the 1994 Treaty, as amended. Plaintiffs argue that “without any
reference to the ‘[i]n accordance with the provisions and subject to the limitations of the
law of the United States’ Article 24(2)(a) language, Article 24(2)(b) [of the 1994 Treaty,
as amended] allows a U.S. citizen living in France a credit for French taxes paid against
that U.S. citizen’s U.S. income tax liability.” (first alteration in original). The Toulouse
decision, however, explicitly did not interpret whether other provisions of the 1994 Treaty,
as amended, provide a foreign tax credit against the net investment income tax imposed
by I.R.C. § 1411, as the Tax Court solely analyzed paragraph 2(a) of Article 24 of the
1994 Treaty, as amended. See Toulouse v. Comm’r, 157 T.C. at 58 n.4. Therefore, the
Tax Court in the Toulouse decision left open the issue of whether paragraph 2(b) of Article
24 of the 1994 Treaty, as amended, provides a tax credit against the net investment
income tax imposed by I.R.C. § 1411. See Toulouse v. Comm’r, 157 T.C. at 61-62 (“Other
provisions of the Treaties may well provide for credits that are unavailable under the
Code. Petitioner, however, relies on provisions that by their express terms do not.”).
After briefing was complete and oral argument was held on the cross-motions for
partial summary judgment in the above captioned case, the United States District Court
for the Central District of California issued a decision in Kim v. United States, No. 5:22cv-00691-SPG-SP, 2023 WL 3213547 (C.D. Cal. Mar. 28, 2023), which considered, but
was not limited to, the issue of whether an income tax treaty between the United States
and the Republic of Korea provided a foreign tax credit against the net investment income
tax imposed by I.R.C. § 1411. See Kim v. United States, 2023 WL 3213547, at *10. The
Kim decision addressed the inclusion in the United States-South Korea treaty of language
which is “identical to the treaty language” of paragraph 2(a) of Article 24 of the 1994
Treaty, as amended, between the United States and France, which also was at issue in
Toulouse and is at issue in the above captioned case. See Kim v. United States, 2023
WL 3213547, at *11. The District Court quoted the language of the United States-South
Korea treaty as follows:
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 without changing
the principles hereof), the United States shall allow a citizen or resident of
the United States as a credit against the United States tax the appropriate
amount of Korean tax . . . .
Id. at *14 (ellipsis added). The District Court in Kim deferred to the United States’
interpretation of I.R.C. § 1411 as set forth in Treasury Regulation § 1.1411-1(e) and
agreed with the Tax Court’s decision in Toulouse: “As the Toulouse Tax Court found, and
as this Court also finds, this language [in the United States-South Korea treaty]
unambiguously mandates that any allowed foreign tax credit must conform to the statutory
foreign-tax-credit framework already in place.” See Kim v. United States, 2023 WL
3213547, at *14 (alteration added). While the Kim court analogized the United StatesSouth Korea treaty to the 1994 Treaty, as amended, between the United States and
France, the Kim court did so only to consider language which is identical to paragraph
2(a) of Article 24 of the 1994 Treaty, as amended, and, therefore, the Kim decision is not

80

relevant to this court’s interpretation of paragraph 2(b) of Article 24 of the 1994 Treaty, as
amended, which was not addressed by the Kim court. Moreover, the Kim court interpreted
the text of a treaty between the United States and South Korea, which is not determinative
of the intent of the United States and France as to the meaning of the 1994 Treaty, as
amended, in the above captioned case before this court.
Plaintiffs further argue that certain other “[f]ederal courts have already had the
opportunity to consider the meaning of the Article 24(2)(a) phrase ‘as it may be amended
from time to time without changing the general principle thereof [sic]’.” (alteration added).
The cases cited by plaintiffs, however, do not concern the 1994 Treaty, as amended,
between the United States and France, but rather concern other treaties which use
language similar to that used in Article 24 of the 1994 Treaty between the United States
and France, as amended. In particular, plaintiffs cite to Eshel v. Commissioner of Internal
Revenue Service,40 831 F.3d 512 (concerning a “totalization agreement” with respect to
Social Security taxes between the United States and France and the statute at I.R.C.
§ 1401 note),41 Jamieson v. Commissioner of Internal Revenue Service, 584 F.3d 1074,
1076 (D.C. Cir. 2009) (concerning a treaty for the prevention of double taxation between
the United States and Canada and foreign tax credits against the alternative minimum tax
at I.R.C. § 59), Haver v. Commissioner of Internal Revenue Service, 444 F.3d 656 (D.C.
Cir. 2006) (concerning a treaty for the avoidance of double taxation between the United
States and Germany and foreign tax credits against the alternative minimum tax at I.R.C.
§ 59), and Kappus v. Commissioner of Internal Revenue Service, 337 F.3d 1053, 1058
(D.C. Cir. 2003) (concerning a treaty for the avoidance of double taxation between the
United States and Canada and foreign tax credits against the alternative minimum tax at
I.R.C. § 59).
Because this court is concerned with interpreting the 1994 Treaty, as amended,
between the United States and France, in light of the shared expectations of the signatory
governments to that treaty, and because plaintiffs cite to cases interpreting treaties other
than the 1994 Treaty, the 2004 Protocol, and the 2009 Protocol, but rather concerned
different provisions of the I.R.C. than are at issue in the current case before the court,
plaintiffs’ cited cases do not lead to a resolution of plaintiffs’ case. See Lozano v. Montoya
Alvarez, 572 U.S. at 12 (quoting Olympic Airways v. Husain, 540 U.S. at 650 (quoting Air
France v. Saks, 470 U.S. at 399); Zicherman v. Korean Air Lines Co., Ltd., 516 U.S. at
226).
In response to plaintiffs’ arguments regarding the impact of the Tax Court’s
decision in Toulouse on the above captioned case, defendant quotes the Tax Court’s
decision argue that “‘[u]nder the express terms’ of article 24(2)(a), ‘any allowable foreign
tax credit must be determined in accordance with the Code and is limited by the Code’s
Plaintiffs’ counsel in the above captioned case was also counsel for the appellants in
Eshel.
40

The “note” from I.R.C. § 1401 is not visible on the commercial Westlaw database but
appears in the statutory notes in the official published version of I.R.C. § 1401.
41

81

provision of a credit.’” (alteration added) (quoting Toulouse v. Comm’r, 157 T.C. at 58).
Therefore, according to defendant, “the Treaty provides for relief from double taxation in
the form of a foreign tax credit, and the extent of a taxpayer’s eligibility for that foreign tax
credit is determined in accordance with the Code.” Quoting Toulouse, defendant argues:
“The ‘require[ment] [that] any foreign tax credit . . . be “in accordance with the Code”’
necessarily means that, for plaintiff [sic] ‘to prevail,’ the ‘Code must provide the credit if
one exists.’” (ellipsis in original; last alteration added) (quoting Toulouse v. Comm’r, 157
T.C. at 60).
As described above, one of the treaty interpretation rules relevant to the court’s
analysis in the above captioned case is the rule, announced in United States v. Stuart,
that a court should interpret a treaty “liberally.” See United States v. Stuart, 489 U.S. at
369. Defendant, however, challenges the application of the liberal interpretation rule as
announced in the United States Supreme Court’s decision in United States v. Stuart,
arguing that Stuart is the only case “in the last fifty years in which the Supreme Court
suggested that that a tax treaty should generally be interpreted ‘liberally.’” (emphasis in
original) (quoting United States v. Stuart, 489 U.S. at 369). Defendant proposes that
treaties relating to taxation should be interpreted differently than other treaties. According
to defendant:
While some courts have applied a general canon that treaties should be
construed liberally to achieve their purpose, e.g., Bacardi Corp. of America
v. Domenech, 311 U.S. 150, 163 (1940), commentators have criticized
application of the canon “in the tax treaty context.” See [Rebecca M.] Kysar,
[Interpreting Tax Treaties,] 101 IOWA L. REV. [1387,] 1441 [(2016)].
“[S]pecialized meanings in the tax context abound, as do express and
implicit references to domestic law, thus constraining the interpreters.” Id.
“A liberal presumption is also at odds with the notion of sovereignty . . . in
the tax context. Given the tie between taxation and the fisc, the relinquishing
of taxing jurisdiction is not something that a sovereign would likely do
implicitly or lightly.” Id. Finally, because tax credits and exemptions are
matters of legislative grace, they are narrowly construed in favor of the
government, a factor weighing against a liberal construction of the Treaty
here. Schumacher [v. United States], 931 F.2d [650,] 652 [(10th Cir. 1991)];
[United States v.] McFerrin, 570 F.3d [672,] 675 [(5th Cir. 2009)].
(fifth alteration and ellipsis in original). The cases cited by defendant, however, do not
concern treaty interpretation, but rather address the interpretation of the I.R.C. See United
States v. McFerrin, 570 F.3d at 675; Schumacher v. United States, 931 F.2d at 652.
Defendant’s sole cited source for the proposition that “commentators have
criticized application of the [liberal interpretation] canon ‘in the tax treaty context,’” which
is the Interpreting Tax Treaties article by Professor Kysar, appears, however, to take a
more nuanced view than defendant represents. (alteration added) (quoting Kysar, 101
IOWA L. REV. at 1441). While Professor Kysar argues that “[l]iberal interpretation is a poor
fit in the tax treaty context” and “is also at odds with the notion of sovereignty,” Professor
Kysar also states a “recommendation for the presumption against double taxation,”

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reasoning that “[a] presumption against double taxation is a softer version of the liberal
presumption rule and more successfully navigates between the interests of sovereignty
and harmonization.” Kysar, 101 IOWA L. REV. at 1442 (alterations added). While a law
review article may provoke thinking on difficult and unsettled questions of law, a law
review article, even if well-reasoned, is not binding on any court, including the United
States Court of Federal Claims. Moreover, as discussed above, the Supreme Court’s
decision in Stuart and its articulation of the liberal interpretation rule has been relied on
by the Federal Circuit and Judges of the Court of Federal Claims to interpret tax treaties.
See, e.g., Xerox Corp. v. United States, 41 F.3d at 652; McManus v. United States, 130
Fed. Cl. at 620. Defendant’s argument that the liberal interpretation rule should not be
applied in the context of tax treaties, relying only on a single law review article, is not
persuasive. Therefore, without deference to defendant’s interpretation, as determined
above, the court applies the liberal interpretation of treaties rule announced in United
States v. Stuart, as well as the principle announced in the Charming Betsy case,
described above, to inform the court’s determination of the shared expectations of the
United States and French Governments with respect to paragraphs 2(a) and 2(b) of
Article 24 of the 1994 Treaty, as amended.
Mindful of the principles set forth above, including the Supreme Court’s
observation in Charming Betsy “that an act of Congress ought never to be construed to
violate the law of nations if any other possible construction remains,” see Murray v.
Schooner Charming Betsy, 6 U.S. (2 Cranch) at 118, the court interprets paragraphs 2(a)
and 2(b) of Article 24 of the 1994 Treaty, as amended, in light of the restriction of I.R.C.
§§ 27 and 901(a) to apply foreign tax credits only against “the tax imposed by this
chapter,” Chapter 1 of the I.R.C. See I.R.C. §§ 27, 901(a). As discussed above, a potential
conflict exists because, if paragraphs 2(a) of Article 24 of the 1994 Treaty, as amended,
is interpreted to provide a foreign tax credit without restriction, that would allow a foreign
tax credit against the net investment income tax imposed by I.R.C. § 1411, which is in
Chapter 2A of the I.R.C., not in Chapter 1 of the I.R.C., and prohibited from the application
of foreign tax credits by I.R.C. §§ 27 and 901(a). As quoted above, paragraph 2(a) of
Article 24 of the 1994 Treaty, as amended, provides, in relevant part, that the United
States shall allow a foreign tax credit against “the United States income tax” for French
income tax paid by United States citizens living in France, “[i]n 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 without changing the general principle hereof) . . . .” This
“provisions” and “limitations” language is key to this court’s interpretation of paragraph
2(a), just as it had been for the United States Tax Court in the Toulouse decision. The
Tax Court in Toulouse, as discussed above, interpreted the “provisions” and “limitations”
language of paragraph 2(a) of Article 24 of the 1994 Treaty, as amended, as “subject[ing]
the terms of the Treaties, and thus any allowable credit, to the provisions and limitations
of the [Internal Revenue] Code.” Toulouse v. Comm’r, 157 T.C. at 58 (alterations added).
The Tax Court decision, which although not precedential for this court, states that under
paragraph 2(a) of Article 24 of the 1994 Treaty, as amended, “any allowable foreign tax
credit must be determined in accordance with the [Internal Revenue] Code and is limited
by the Code’s provision of a credit.” Toulouse v. Comm’r, 157 T.C. at 58 (alteration
added). The reasoning of the Tax Court in Toulouse is consistent with this court’s view of

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the ”provisions” and “limitations” language of paragraph 2(a) of Article 24 of the 1994
Treaty, as amended.
As explained above, the parties disagree about the meaning of the “[i]n accordance
with the provisions and subject to the limitations of the law of the United States” language,
(alteration added), in paragraph 2(a) of Article 24 of the 1994 Treaty, as amended.
Plaintiffs argue that the “provisions” and “limitations” language of paragraph 2(a) makes
foreign tax credits under that paragraph subject to one statute, the statute at I.R.C. § 904,
“Limitation on credit.” Defendant argues in response that the “provisions” and “limitations”
language in paragraph 2(a) of Article 24 of the 1994 Treaty, as amended, includes the
other provisions of the I.R.C. which affect the availability of foreign tax credits, as relevant
here, I.R.C. §§ 27 and 901(a).
As described above, both I.R.C. §§ 27 and 901(a) restrict foreign tax credits only
to apply against taxes imposed by Chapter 1 of the I.R.C. The statute at I.R.C. § 27 allows
a foreign tax credit “against the tax imposed by this chapter,” Chapter 1 of the I.R.C. See
I.R.C. § 27. The statute at I.R.C. § 901(a) similarly provides that “the tax imposed by this
chapter [Chapter 1 of the I.R.C.] shall, subject to the limitation of section 904, be credited”
with a foreign tax credit. See I.R.C. § 901(a) (alteration added). By their terms, I.R.C.
§§ 27 and 901(a) prohibit foreign tax credits from applying against the net investment
income tax imposed by I.R.C. § 1411 because I.R.C. § 1411 is in Chapter 2A, and not
Chapter 1, of the I.R.C. In addition, the statute at I.R.C. § 904, as explained above, sets
forth a number of limitations on foreign tax credits, which, however, are not relevant to
the issues raised by plaintiffs’ complaint in this court. See generally I.R.C. § 904.
Moreover, the use of the broad language of “provisions” and “limitations” in
paragraph 2(a) of Article 24 of the 1994 Treaty, as amended, is instructive. Paragraph
2(a) of Article 24 of the 1994 Treaty, as amended, does not refer to a specific United
States tax statute, but rather states explicitly that it allows a foreign tax credit “[i]n
accordance with the provisions and subject to the limitations of the law of the United
States . . . .” (alteration and ellipsis added). The only qualification of this language is the
clarification in paragraph 2(a) of Article 24 of the 1994 Treaty, as amended, that it refers
to United States law “as it may be amended from time to time without changing the
general principle” of the 1994 Treaty, as amended.
The plaintiffs have argued, as described above, that this “general principle”
language refers to the “general principle” of the 1994 Treaty, as amended, to provide
foreign tax credits for citizens of the signatory governments in order to avoid double
taxation, and that an amendment to United States tax law denying a foreign tax credit that
would otherwise be allowed would “chang[e] the general principle” of the 1994 Treaty, as
amended. (alteration added). Such a change, including the enactment of an income tax
not statutorily subject to foreign tax credits, as is the case for the net investment income
tax imposed by I.R.C. § 1411, and one which adds a new type of United States taxation
provision not envisioned at the time of the 1994 Treaty or its subsequent amendatory
protocols, and, therefore, does not “chang[e] the general principle” of the 1994 Treaty, as
amended. (alteration added).

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Furthermore, plaintiffs’ claim that the “provisions” and “limitations” of United States
tax law incorporated by paragraph 2(a) of Article 24 of the 1994 Treaty, as amended, are
exclusively the “limitations” set forth in the statute at I.R.C. § 904, is belied first by the fact
that paragraph 2(a) of Article 24 of the 1994 Treaty, as amended, does not expressly refer
to I.R.C. § 904. Nor can a reference only to I.R.C. § 904 be inferred from the use of
“limitations.” Although I.R.C. § 904 is titled “Limitation on credit” and sets forth statutory
limitations on foreign tax credits, paragraph 2(a) of Article 24 of the 1994 Treaty, as
amended, speaks not only of “limitations,” but also of “provisions.” The use of both
“limitations” and “provisions” in paragraph 2(a) of Article 24 of the 1994 Treaty, as
amended, is sufficiently broad to indicate that foreign tax credits allowed by paragraph
2(a) of Article 24 of the 1994 Treaty, as amended, are subject not only to the “limitations”
of I.R.C. § 904, but also to other “provisions” and “limitations” set forth in other provisions
of the I.R.C., including I.R.C. §§ 27 and 901(a). The statutory sections at I.R.C. §§ 27 and
901(a), which both restrict foreign tax credits to apply against taxes imposed by Chapter
1 of the I.R.C., are both “provisions” of the I.R.C., and, therefore, “of the law of the United
States,” in the language of paragraph 2(a) of Article 24 of the 1994 Treaty, as amended.
The foreign tax credits allowed by paragraph 2(a), therefore, must be “[i]n accordance
with” the restrictions of I.R.C. §§ 27 and 901(a) to apply foreign tax credits only against
taxes imposed by Chapter 1 of the I.R.C. (alteration added). Both I.R.C. §§ 27 and 901(a)
“limit” foreign tax credits to apply only against taxes imposed by Chapter 1 of the I.R.C.,
and in that sense, I.R.C. §§ 27 and 901(a) are “limitations” to which foreign tax credits are
“subject” under the plain text of paragraph 2(a) of Article 24 of the 1994 Treaty, as
amended.
Furthermore, the record before the court, including following supplemental briefing
ordered by the court, produced no evidence of congressional intent when placing I.R.C.
§ 1411 in Chapter 2A of the I.R.C. The statute at I.R.C. § 1411 is in Chapter 2A of the
I.R.C., and the placement of I.R.C. § 1411 in Chapter 2A of the I.R.C. is significant.
Because paragraph 2(a) of Article 24 of the 1994 Treaty, as amended, incorporates I.R.C.
§§ 27 and 901(a), the net investment income tax is excluded from a foreign tax credit
under paragraph 2(a) of Article 24 of the 1994 Treaty, as amended. In this respect, this
court finds that paragraph 2(a) of Article 24 of the 1994 Treaty, as amended, provides
foreign tax credits against taxes imposed by Chapter 1 of the I.R.C., but does not provide
a foreign tax credit against the net investment income tax imposed by I.R.C. § 1411, in
Chapter 2A of the I.R.C., enacted subsequent to the 1994 Treaty, as amended. This
court’s conclusion is consistent with the United States Tax Court’s decision in Toulouse
v. Comm’r, 157 T.C. at 58 (“[A]ny allowable foreign tax credit must be determined in
accordance with the [Internal Revenue] Code and is limited by the Code’s provision of a
credit.” (alterations added)).
Plaintiffs’ reading of the “general principle” language of paragraph 2(a) of Article
24 of the 1994 Treaty, as amended, is overbroad. The enactment of a tax which is
excluded from the I.R.C.’s provision of foreign tax credits, as is the case with the net
investment income tax imposed by I.R.C. § 1411 in Chapter 2A, does not violate the
“general principle” of the 1994 Treaty, as amended. Plaintiffs’ argument would require

85

that any new United States income tax be eligible for a foreign tax credit on the same
terms and to the same extent as all other income taxes previously enacted in spite of the
statutory requirements incorporated by paragraph 2(a) of Article 24 of the 1994 Treaty,
as amended. The “provisions” and “limitations” language incorporates I.R.C. statutory
restrictions on the availability of foreign tax credits, and the “general principle” language,
although modifying this incorporation, does not nullify the immediately preceding
incorporation of the “provisions” and “limitations” of United States law.
Plaintiffs acknowledge in their motion for partial summary judgment that the 1994
Treaty Treasury Department Technical Explanation, quoted at length above, describes
the “general principle” of Article 24 in particular: “The credits provided under the
Convention are allowed in accordance with the provisions and subject to the limitations
of U.S. law, as that law may be amended over time, so long as the general principle of
this Article [24], i.e., the allowance of a credit, is retained.” (alteration added). The 1994
Treaty Treasury Department Technical Explanation articulates the “general principle” of
Article 24 of the 1994 Treaty, as amended, although it is generally self-serving insofar as
it represents only the United States’ interpretation, without anything in the record before
this court to establish the Government of the French Republic’s understanding of the 1994
Treaty, as amended. The “general principle” of the 1994 Treaty, as amended, even based
on its formal title, is to avoid double taxation of each signatory government’s citizens who
reside in the other signatory country. As the court has explained, however, paragraph
2(a) of Article 24 of the 1994 Treaty, as amended, conditions the allowance of foreign tax
credits in service of that “general principle” upon compliance with the “provisions” and
“limitations” of United States tax laws.
For these reasons, the court concludes that paragraph 2(a) of Article 24 of the
1994 Treaty, as amended, subjects its allowance of foreign tax credits to the “provisions”
and “limitations” of the I.R.C. relating to foreign tax credits, including the restrictions of
I.R.C. §§ 27 and 901(a) that foreign tax credits apply only against “the tax imposed by
this chapter,” Chapter 1 of the I.R.C. See I.R.C. §§ 27, 901(a). The statute at I.R.C. §§ 27
and 901(a) foreclose the availability of foreign credits against the net investment income
tax, which is imposed by I.R.C. § 1411, in Chapter 2A of the I.R.C. under paragraph 2(a)
of Article 24 of the 1994 Treaty, as amended. The enactment of the net investment income
tax subsequent to the 1994 Treaty, as amended, in I.R.C. § 1411, was established subject
to the restriction of foreign tax credits to Chapter 1 of the I.R.C. and does not “chang[e]
the general principle” of the 1994 Treaty, as amended, (alteration added), which is
consistent with the plain text of paragraph 2(a) of Article 24 of the 1994 Treaty, as
amended. Accordingly, the court holds that paragraph 2(a) of Article 24 of the 1994
Treaty, as amended, does not provide a foreign tax credit against the net investment
income tax imposed by I.R.C. § 1411.
As discussed above, plaintiffs also argue that paragraph 2(b) of Article 24 of the
1994 Treaty, as amended, independently provides a foreign tax credit against the net
investment income tax. Paragraph 2(b) of Article 24 of the 1994 Treaty, as amended,
states that “the United States shall allow as a credit against the United States income tax
the French income tax paid,” but, according to plaintiffs, only after calculation of the credit

86

due against French tax on account of income tax due to the United States. 42 Defendant
disagrees and argues that paragraph 2(b) of Article 24 of the 1994 Treaty, as amended,
implements the second bite of the three-bite rule, in particular by providing a foreign tax
credit against United States income tax corresponding to the amount of the French
income tax assessed in the second bite. Defendant indicates, therefore, that paragraph
2(b) of Article 24 of the 1994 Treaty, as amended, does not provide a foreign tax credit
against the net investment income tax independent of the I.R.C. Defendant’s explanation
is difficult to understand, given defendant’s own description of the three-bite rule and the
role that paragraph 2(b) of Article 24 of the 1994 Treaty, as amended, fulfills within the
three-bite rule. Defendant indicates that paragraph 2(b) of Article 24 of the 1994 Treaty,
as amended, allows a foreign tax credit, and that the foreign tax credit is to be assessed
against United States income tax to account for the second bite income tax paid to
France, above the 15 percent tax assessed by the United States in the first bite. This
foreign tax credit against United States income tax is set forth by the text of paragraph
2(b) of Article 24 of the 1994 Treaty, as amended, and not by a statute, according to
defendant’s own description of the three-bite rule. Plaintiffs, according to their argument,
agree with respect to the mechanics of the three-bite rule. Therefore, by the plain text of
paragraph 2(b) of Article 24 of the 1994 Treaty, as amended, and by defendant’s
description, paragraph 2(b) of Article 24 of the 1994 Treaty, as amended, provides for a
treaty-based foreign tax credit against United States income tax commensurate with
French income tax paid.
As relevant to the case brought by plaintiffs, the difference between paragraph 2(a)
of Article 24 of the 1994 Treaty, as amended, and paragraph 2(b) of Article 24 of the 1994
Treaty, as amended, is that while paragraph 2(a) expressly conditions the availability of
a foreign tax credit on the “provisions” and “limitations” of the United States tax laws,
paragraph 2(b) does not contain such “provisions” and “limitations” language. As
discussed above, the “provisions” and “limitations” language of paragraph 2(a) of Article
24 of the 1994 Treaty, as amended, is the reason that the restrictions of I.R.C. §§ 27 and
901(a) to apply foreign tax credits only against taxes imposed by Chapter 1 of the I.R.C.,
prohibits foreign tax credits pursuant to paragraph 2(a) of Article 24 of the 1994 Treaty,
as amended, against the net investment income tax imposed by I.R.C. § 1411, which is
in Chapter 2A of the I.R.C. Because paragraph 2(b) of Article 24 of the 1994 Treaty, as
42

Paragraph 2(b) of Article 24 of the 1994 Treaty, as amended, refers to another provision
in paragraph 1(a) of the same Article 24 of the 1994 Treaty, as amended, which provides
for a credit against French income tax which shall equal,
[i]n the case of income referred to in Article 10 (Dividends), Article 11
(Interest), paragraph 1 of Article 13 (Capital Gains), Article 16 (Director’s
Fees), and Article 17 (Artistes and Sportsmen), to the amount of tax paid in
the United States in accordance with the provisions of the Convention;
however, such credit shall not exceed the amount of French tax attributable
to such income.
(alteration added).
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amended, lacks such restraining language incorporating the restriction of I.R.C. §§ 27
and 901(a) to apply foreign tax credits only against taxes imposed by Chapter 1 of the
I.R.C., a potential conflict exists between the text of paragraph 2(b) and the I.R.C., unless
the treaty or statutory provisions can be interpreted to avoid or resolve such potential
conflict. If paragraph 2(b) of Article 24 of the 1994 Treaty, as amended, and I.R.C. §§ 27
and 901(a) can be interpreted to allow a foreign tax credit against the net investment
income imposed by I.R.C. § 1411, plaintiffs would succeed in establishing legal
entitlement to a foreign tax credit in the above captioned case.
In light of the potential conflict between paragraph 2(b) of Article 24 of the 1994
Treaty, as amended, and I.R.C. §§ 27 and 901(a), the court relies on the principles of
treaty interpretation, outlined above, concerning when potential conflict occurs between
treaty and statutory language. The court recognizes that paragraph 2(b) of Article 24 of
the 1994 Treaty, as amended, is a separate paragraph from paragraph 2(a) of Article 24
of the 1994 Treaty, as amended, and the two paragraphs in each iteration of the treaty,
the original 1994 Treaty, the 2004 Protocol, and the 2009 Protocol, have existed as
independent provisions. Paragraph 2(b) of Article 24 of the 1994 Treaty, as amended, in
each iteration of the 1994 Treaty, as amended, has followed paragraph 2(a) of Article 24
of the 1994 Treaty, as amended. As explained above, the record before the court contains
no evidence of the interpretation held by the French Government with respect to either
paragraph 2(a) or paragraph 2(b) of Article 24 of the 1994 Treaty, as amended, or the
intent of either party regarding why the net investment income tax was placed in Chapter
2A of the I.R.C., rather than in Chapter 1 of the I.R.C. Therefore, in order to interpret
paragraph 2(b) of Article 24 of the 1994 Treaty, as amended, independently from
paragraph 2(a) of Article 24 of the 1994 Treaty, as amended, the court relies on the
precedents of the United States Supreme Court and the United States Court of Appeals
for the Federal Circuit which concern treaty interpretation, including in instances of
potential conflict between treaty and statutory provisions, giving effect to the shared
expectations of both signatory governments to the treaty, here, the United States and
France. See Lozano v. Montoya Alvarez, 572 U.S. at 12; Sumitomo Shoji Am., Inc. v.
Avagliano, 457 U.S. at 185. In so doing, as the United States Supreme Court and the
United States Court of Appeals for the Federal Circuit have explained, the court must
interpret 1994 Treaty, as amended, and I.R.C. §§ 27 and 901(a) to avoid conflict between
the 1994 Treaty, as amended, and I.R.C. §§ 27 and 901(a). See, e.g., Weinberger v.
Rossi, 456 U.S. at 32; Whitney v. Robertson, 124 U.S. at 194; In re City of Houston, 731
F.3d at 1334; Xerox Corp. v. United States, 41 F.3d at 658. The Supreme Court held in
Charming Betsy that “an act of Congress ought never to be construed to violate the law
of nations if any other possible construction remains,” Murray v. Schooner Charming
Betsy, 6 U.S. (2 Cranch) at 118; see also Weinberger v. Rossi, 456 U.S. at 32, and the
Federal Circuit similarly has held that a statute “‘must be interpreted to be consistent with
[international] obligations, absent contrary indications in the statutory language or its
legislative history.’” Allegheny Ludlum Corp. v. United States, 367 F.3d at 1348 (alteration
in original) (quoting Luigi Bormioli Corp., Inc. v. United States, 304 F.3d at 1368, and
citing Fed.-Mogul Corp. v. United States, 63 F.3d at 1581). Therefore, when determining
whether a treaty and a statute “stand together in harmony,” see Xerox Corp. v. United
States, 41 F.3d at 658, the statute in question must be construed not to violate the treaty,

88

unless no other interpretation is possible. See, e.g., Allegheny Ludlum Corp. v. United
States, 367 F.3d at 1348; Fed.-Mogul Corp. v. United States, 63 F.3d at 1581. Moreover,
the court is required to afford a liberal interpretation to the terms of the 1994 Treaty, as
amended. See United States v. Stuart, 489 U.S. at 365-66; Xerox Corp. v. United States,
41 F.3d at 652; McManus v. United States, 130 Fed. Cl. at 620. By applying this guidance
on treaty interpretation, the court may give effect to the shared expectations of the United
States and France with respect to paragraph 2(b) of Article 24 of the 1994 Treaty, as
amended.43
Also as discussed above, the statutes at I.R.C. §§ 27 and 901(a) restrict foreign
tax credits to apply only against “the tax imposed by this chapter,” Chapter 1 of the I.R.C.
See I.R.C. §§ 27, 901(a). The text of I.R.C. §§ 27 and 901(a), however, does not indicate
any intent that the restriction on foreign tax credits only against taxes imposed by Chapter
1 of the I.R.C. should be interpreted to conflict with another international treaty obligation
of the United States. See Fed.-Mogul Corp. v. United States, 63 F.3d at 1581 (“GATT
agreements are international obligations, and absent express Congressional language to
the contrary, statutes should not be interpreted to conflict with international obligations.”).
The statute at I.R.C. § 1411, which imposes the net investment income tax, does not
mention foreign tax credits, or tax credits at all, although it does refer to “deductions” when
defining the terms “net investment income,” I.R.C. § 1411(c)(1)(B), and “modified adjusted
gross income.” Id. § 1411(d)(2). Moreover, as the parties stated in their briefs, 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 1994 Treaty, as
amended, when Congress enacted the net investment income tax in I.R.C. § 1411 in
Chapter 2A of the I.R.C., and the record contains no information regarding France’s intent
beyond the words of the 1994 Treaty, as amended.
Defendant, as discussed above, asks this court to assume from the words of I.R.C.
§ 1411, and its placement in Chapter 2A of the I.R.C., rather than Chapter 1, that
Congress intended to exclude the net investment income tax from all foreign tax credits.
Absent additional information, however, the court should not make such assumptions.
See MacLeod v. United States, 229 U.S. at 434 (“[I]t should not be assumed that
Congress proposed to violate the obligations of this country to other nations, which it was
the manifest purpose of the President to scrupulously observe, and which were founded
upon the principles of international law.” (alteration added)); see also Clark v. Allen, 331
U.S. at 512. Because the court can point to no “contrary indications in the statutory
language or its legislative history,” see Allegheny Ludlum Corp. v. United States, 367 F.3d
at 1348 (internal quotations omitted), neither the Chapter 1 restriction of I.R.C. §§ 27 and
901(a) nor the text of I.R.C. § 1411 should be interpreted contrary to the international

43

As explained above and for the same reasons as the court elaborated with respect to
paragraph 2(a) of Article 24 of the 1994 Treaty, as amended, the court does not afford
deference to defendant’s interpretation of paragraph 2(b) of Article 24 of the 1994 Treaty,
as amended, in the absence of evidence of the interpretation held by the French
Government.
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obligations imposed by paragraph 2(b) of Article 24 of the 1994 Treaty, as amended, to
allow foreign tax credits against United States income taxes.
Therefore, the court interprets the terms of paragraph 2(b) of Article 24 of the 1994
Treaty, as amended, which provide that “the United States shall allow as a credit against
the United States income tax the French income tax paid,” to allow for foreign tax credits
independent of the restrictions of I.R.C. §§ 27 and 901(a). See Corus Staal BV v. Dep’t
of Commerce, 395 F.3d at 1347 (citing Murray v. Schooner Charming Betsy, 6 U.S. (2
Cranch) 64). The statute at I.R.C. § 27 provides for “taxes imposed by foreign countries”
to “be allowed as a credit against the tax imposed by this chapter to the extent provided
in section 901[.]” See I.R.C. § 27 (alteration added). The statute at I.R.C. § 27, based on
its text, may be read to impose a Chapter 1 restriction on foreign tax credits, but only “to
the extent provided in section 901,” which is to say, only insofar as I.R.C. § 901 imposes
the restriction of foreign tax credits to Chapter 1 of the I.R.C. This reading of I.R.C. § 27
would contemplate the existence of foreign tax credits not subject to the Chapter 1
restriction, in particular credits not based on the I.R.C. itself, but originating outside the
I.R.C. The statute at I.R.C. § 904 may be read to support this reading of I.R.C. § 27. The
statute at I.R.C. § 904 refers to “the credit taken under section 901(a),” which can be read
to refer only to foreign tax credits under I.R.C. § 901(a), rather than to all possible foreign
tax credits which a taxpayer could claim. See I.R.C. § 904(a). This reading, like the abovedescribed reading of I.R.C. § 27, would indicate the existence of foreign tax credits that
are not restricted to those taken against taxes imposed by Chapter 1 of the I.R.C.,
because those credits arise from sources other than the I.R.C. § 901(a) provision for
foreign tax credits.
Reading I.R.C. §§ 27 and 904 in this way avoids a potential conflict between the
restriction of I.R.C. §§ 27 and 901(a) to apply foreign tax credits only against taxes
imposed by Chapter 1 of the I.R.C., and the unqualified foreign tax credit allowed by
paragraph 2(b) of Article 24 of the 1994 Treaty, as amended. This acknowledges the
existence of two distinct groups of foreign tax credits under United States law: “statutory”
foreign tax credits, which are provided under the statute at I.R.C. § 901(a) and which only
may be asserted against taxes imposed by Chapter 1 of the I.R.C., and “treaty” foreign
tax credits, as in the context of the current case under review, which are provided by
treaties concerning taxation, like the 1994 Treaty, as amended, and which are not bound
by the restrictions on foreign tax credit availability set forth in the I.R.C. unless the terms
of those treaties so provide. Under this reading, a foreign tax credit under paragraph 2(b)
of Article 24 of the 1994 Treaty, as amended, is not a credit “taken under section 901(a),”
see I.R.C. § 904(a), and, therefore, may be asserted against United States income taxes
outside of Chapter 1, including the net investment income tax imposed by I.R.C. § 1411
in Chapter 2A at issue here.
The distinction between statutory and treaty based foreign tax credits is supported
by another provision of the I.R.C., at I.R.C. § 6511, which concerns the period of
limitations for claims by taxpayers of refunds or credits. Subparagraph (d)(3) of I.R.C.
§ 6511 is titled “Special rules relating to foreign tax credit,” and provides:

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If the claim for credit or refund relates to an overpayment attributable to any
taxes paid or accrued to any foreign country or to any possession of the
United States for which credit is allowed against the tax imposed by subtitle
A in accordance with the provisions of section 901 or the provisions of any
treaty to which the United States is a party, in lieu of the 3-year period of
limitation prescribed in subsection (a), the period shall be 10 years from the
date prescribed by law for filing the return for the year in which such taxes
were actually paid or accrued.
I.R.C. § 6511(d)(3)(A) (2018) (emphasis added). The text of I.R.C. § 6511(d)(3)(A) makes
an explicit distinction between a foreign tax credit allowed “in accordance with the
provisions of section 901,” and a foreign tax credit allowed by “the provisions of any treaty
to which the United States is a party . . . .” See I.R.C. § 6511(d)(3)(A) (ellipsis added).
While the statute applies the same limitation period to both forms of foreign tax credit, the
statute uses the disjunctive “or” to differentiate between statutory foreign tax credits under
section 901 and treaty foreign tax credits. The distinction between the two indicates 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.
In adopting this reading of the 1994 Treaty, as amended, and the I.R.C., the court
has followed the direction, first set forth by the Supreme Court in Charming Betsy, to
interpret I.R.C. §§ 27 and 901(a) not to conflict with the provision of a foreign tax credit
under paragraph 2(b) of Article 24 of the 1994 Treaty, as amended, when doing so is
“possible.” See Murray v. Schooner Charming Betsy, 6 U.S. (2 Cranch) at 118; In re City
of Houston, 731 F.3d at 1334; Corus Staal BV v. Dep’t of Commerce, 395 F.3d at 1347;
Timken Co. v. United States, 354 F.3d at 1343-44. Moreover, this court’s reading is
consistent with the Supreme Court’s decision in Stuart to give a “liberal interpretation” to
the terms of the 1994 Treaty, as amended. See United States v. Stuart, 489 U.S. at 368.
This liberal interpretation would “enlarge” the availability of foreign tax credits “which may
be claimed thereunder,” and, as demonstrated above, is applicable to the interpretation
of tax treaties, including the 1994 Treaty, as amended. See id.; Xerox Corp. v. United
States, 41 F.3d at 652; McManus v. United States, 130 Fed. Cl. at 620. Moreover, this
liberal interpretation would be consistent with the general principle in the 1994 Treaty, as
amended, to avoid double taxation of each signatory government’s citizens who reside in
the other signatory country. Accordingly, the court interprets paragraph 2(b) of Article 24
of the 1994 Treaty, as amended, to allow a foreign tax credit to be taken by a United
States citizen residing in France against United States income tax without restricting that
foreign tax credit to apply only against taxes imposed by Chapter 1 of the I.R.C. Based
on the foregoing analysis, the provision of a foreign tax credit under paragraph 2(b) of
Article 24 of the 1994 Treaty, as amended, to United States citizens living in France,
which is distinct from the limitation in paragraph 2(a) of Article 24 of the 1994 Treaty, as
amended, best gives effect to the apparent shared intent of the United States and France
with respect to paragraph 2(b) of Article 24 of the 1994 Treaty, as amended, within the
principles of treaty interpretation law and does not conflict with the relevant provisions of
the I.R.C. For these reasons, the court concludes that, pursuant to paragraph 2(b) of
Article 24 of the 1994 Treaty, as amended, between the United States and France,

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plaintiffs may assert a foreign tax credit against the net investment income tax imposed
by I.R.C. § 1411.

CONCLUSION
Having resolved the legal question regarding the availability of foreign tax credits
against the net investment income tax under the 1994 Treaty, as amended, there remains
an outstanding matter which the parties agree prevents the court from entering judgment
in this case at this time. The parties have not agreed on how to resolve the applicability
and calculation of the three-bite rule to plaintiffs’ tax refund in this case. Consistent with
the foregoing analysis, plaintiffs’ motion for partial summary judgment is GRANTED IN
PART AND DENIED IN PART, and defendant’s cross-motion for partial summary
judgment is GRANTED IN PART AND DENIED IN PART. For the reasons stated above,
the court concludes that paragraph 2(a) of Article 24 of the 1994 Treaty, as amended,
does not provide a foreign tax credit against the net investment income tax for the French
income taxes paid by plaintiffs. The court also concludes, however, that paragraph 2(b)
of Article 24 of the 1994 Treaty, as amended, can provide a foreign tax credit against the
net investment income tax imposed by I.R.C. § 1411 for the French income taxes paid by
plaintiffs. Further proceedings regarding the three-bite rule calculation will be scheduled
in a separate Order.
IT IS SO ORDERED.
s/Marian Blank Horn
MARIAN BLANK HORN
Judge

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