A $1,000,000 foreign capital gain can now leave a U.S. citizen in Canada or France with up to $38,000 of U.S. Net Investment Income Tax (“NIIT”) that foreign tax credits cannot erase after the Federal Circuit’s August 31, 2026 companion decisions in Bruyea and Christensen.¹ ² The rulings reverse two taxpayer victories and restore the government’s position: treaty language aimed at avoiding double taxation does not override the Internal Revenue Code’s limits on foreign tax credits for NIIT purposes.

The baseline matters because NIIT is structurally awkward for Americans abroad. Section 1411 imposes a 3.8% tax on the lesser of net investment income or modified adjusted gross income above $250,000 for joint filers, $125,000 for married separate filers, and $200,000 for single or head-of-household filers.³ Net investment income generally includes interest, dividends, rents, royalties, and capital gains. For a U.S. citizen living in Toronto or Paris, that can mean local tax and U.S. NIIT on the same foreign-source sale, even when regular U.S. income tax is fully absorbed by foreign tax credits.

In Bruyea, a U.S. citizen resident in Canada sold Canadian real estate, paid Canadian tax, and sought a $263,523 NIIT refund under Article XXIV of the U.S.-Canada treaty. The Federal Circuit held that the treaty credit was subject to U.S. law and that Internal Revenue Code §§ 27 and 901 limit foreign tax credits to Chapter 1 taxes; NIIT sits in Chapter 2A.¹ In Christensen, U.S. citizens resident in France sought a $3,851 NIIT refund after selling shares of a French company. The court reached the same result under Article 24 of the U.S.-France treaty, holding that the treaty’s U.S.-law limitation also governed the taxpayer-favorable France-resident clause.²

Tax Implications for Cross-Border Taxpayers

The immediate cohort is narrow but important: U.S. citizens and lawful permanent residents (“LPRs”) living in Canada or France with passive income or capital gains large enough to trigger NIIT. Because the Federal Circuit rejected an independent treaty-based foreign tax credit (“FTC”) against NIIT, taxpayers in that cohort should assume Form 8960 liability survives even where Form 1116 eliminates regular U.S. income tax.³ ⁴ Protective refund claims premised solely on Bruyea or Christensen are now materially impaired unless preserved for possible further appeal or distinguishable treaty language.

The planning file should separate three items that clients often blur. First, Chapter 1 FTCs remain available under §§ 27, 901, and 904, subject to the usual limitation by income category, sourcing, and separate Form 1116 computations. The decision does not weaken ordinary FTC relief against regular income tax. Second, excess foreign taxes still may be carried back one year and forward ten years on Form 1116, Schedule B, but that carryover is useful only against creditable Chapter 1 tax, not NIIT.⁴ Third, treaty re-sourcing may still help overcome the § 904 foreign-source income limitation for regular tax, but it does not convert NIIT into a creditable Chapter 1 tax.²

For taxpayers who already filed Form 1040-X refund claims, the next step is triage. A timely refund claim generally must be filed within three years after the original return was filed or two years after the tax was paid, whichever is later.⁵ If the claim included a treaty-based return position, the file should include Form 8833, Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b); failure to disclose can carry a $1,000 penalty for individuals and $10,000 for C corporations.⁶ If a prior amended return removed NIIT entirely, taxpayers should evaluate whether to wait for IRS action, supplement the administrative record, or amend again before interest and accuracy-related exposure grow.

LPRs need a separate warning. Form 8960 instructions provide that the NIIT does not apply to nonresident alien (“NRA”) individuals and that certain dual-resident individuals may be treated as NRAs for NIIT purposes if they claim treaty residence abroad and file Form 1040-NR with Form 8833.³ But a long-term LPR who uses a treaty tie-breaker to be treated as a foreign resident can be deemed to have expatriated under § 877A, potentially triggering the covered-expatriate regime. That is not a casual NIIT planning technique; it is an exit-tax event.

Operationally, the decision pushes more weight onto timing, character, and entity-level planning. Realization events in Canada and France should be modeled before closing, not after local tax is assessed. Installment sales, charitable planning, loss harvesting, entity classification, and the choice between foreign earned income exclusion and FTC positions may change the NIIT result even when they do not change the foreign tax bill.

The practical message is blunt: for U.S. taxpayers abroad, “the treaty prevents double tax” is no longer a sufficient answer for NIIT. Reach out to Global Taxes LLC to review open refund claims, Form 8960 exposure, and Canada- or France-resident investment exits before filing or amending a return affected by Bruyea or Christensen. This article is informational only and does not constitute professional tax, legal, or accounting advice.

Works Cited

1. U.S. Court of Appeals for the Federal Circuit. “Estate of Paul Bruyea v. United States, No. 2025-1563.” 31 Aug. 2026, https://www.cafc.uscourts.gov/opinions-orders/25-1563.OPINION.8-31-2026_2747795.pdf

2. U.S. Court of Appeals for the Federal Circuit. “Matthew Christensen and Katherine Kaess Christensen v. United States, No. 2024-1284.” 31 Aug. 2026, https://www.cafc.uscourts.gov/opinions-orders/24-1284.OPINION.8-31-2026_2747783.pdf

3. IRS. “Net Investment Income Tax.” https://www.irs.gov/individuals/net-investment-income-tax

4. IRS. “Instructions for Form 1116 (2025).” https://www.irs.gov/instructions/i1116

5. IRS. “Amended Returns & Form 1040-X.” https://www.irs.gov/faqs/irs-procedures/amended-returns-form-1040x/amended-returns-form-1040x

6. IRS. “Form 8833, Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b).” Dec. 2022, https://www.irs.gov/pub/irs-pdf/f8833.pdf

Please note: This content is intended for informational purposes only and is not a replacement for professional accounting or tax preparatory services. Consult your own accounting, tax, and legal professionals for advice related to your individual situation. Any copy or reproduction of our presentation is expressly prohibited. Any names or situations have been made up for illustrative purposes — any similarities found in real life are purely coincidental.

Alicea Castellanos is the CEO and Founder of Global Taxes LLC. Alicea provides personalized U.S. tax advisory and compliance services to high-net-worth families and their advisors. Alicea has more than 20 years of experience. Prior to forming Global Taxes, Alicea founded and oversaw operations at a boutique tax firm, worked at a prestigious global law firm and CPA firm. Alicea specializes in U.S. tax planning and compliance for non-U.S. families with global wealth and asset protection structures which include non-U.S. trusts, estates, and foundations that have a U.S. connection.

Alicea also specializes in foreign investment in U.S. real estate property and other U.S. assets, pre-immigration tax planning, U.S. expatriation matters, U.S. persons in receipt of foreign gifts and inheritances, foreign accounts and assets compliance, offshore voluntary disclosures/tax amnesties, and foreign companies wanting to do business in the U.S. Alicea is fluent in Spanish and has a working knowledge of Portuguese.

Alicea is an active member of the Society of Trusts & Estates Practitioners (STEP), the New York State Society of Certified Public Accountants (NYSSCPA), the American Institute of Certified Public Accountants (AICPA), the International Fiscal Association (IFA), a member of Clarkson Hyde Global, a world-wide association of accountants, auditors, tax specialists and business advisors and the Global Referral Network (GRN).

Distinctly, in 2020, Alicea was awarded with a prestigious NYSSCPA Forty Under 40 Award. She was selected as someone that has notable skills and is visibly making a difference in the accounting profession. Alicea has also been recognized as a leading expert for tax advice and she has been invited to join Advisory Excellence, as their exclusively recommended tax expert in the USA.

In 2021 and 2022, Alicea won Gold and Silver in Citywealth's Powerwomen Awards for USA - Woman of the Year - Business Growth (Boutique). In 2023, she received Gold for Company of the Year - Female Leadership (Boutique) and was listed in the Global Elite Directory, an exclusive directory of top wealth advisors.

In 2024, Alicea was named to Citywealth's Top 50 Tax Professionals, shortlisted for the Magic Circle Awards, peer-nominated as a Non-Legal Adviser, and appointed as a judge for the Citywealth Powerwomen Awards USA. She is also certified as an International Business Advisory Firm by AuditTrust International and a proud STEP member for 2024/2025.