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NIIT Relief and Income Tax Treaties: Recent Court Ruling in Christensen v. U.S., Foreign Tax Credit, Reporting

Recording of a 90-minute premium CLE/CPE video webinar with Q&A

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Conducted on Tuesday, June 11, 2024

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This CLE/CPE webinar will provide tax professionals with an in-depth analysis of the net investment income tax (NIIT) relief under current U.S. tax law and the interplay with income tax treaties. The panel will discuss the recent court ruling in Christensen v. United States and the IRS' appeal of such ruling, and the potential for U.S. citizens to use foreign tax credits (FTC) to offset NIIT. The panel will also discuss key considerations and tax treaty provisions that tax counsel must master in structuring cross-border ownership structures and transactions.

Description

The NIIT, also known as the 3.8 percent Medicare tax, applies to the net investment income of individuals in upper-income brackets and is generally viewed as an alternative to employment taxes on earned income. However, the application of income tax treaty provisions as a mechanism to allow taxpayers certain tax savings is uncertain amid the recent court ruling in Christensen v. United States which significantly impacts the NIIT.

U.S. tax law imposes a 3.8 percent NIIT on the "net investment income" of certain U.S. taxpayers with income above certain thresholds. The NIIT applies to U.S. citizens or residents, trusts, and estates that have net investment income and income above those thresholds. The NIIT for individuals is 3.8 percent of the lesser of net investment income for the taxable year or the excess of the individual's modified adjusted gross income, over the threshold amount.

On Oct. 23, 2023, the U.S. Court of Federal Claims ruled in Christensen v. United States, that U.S. citizens are permitted to use the FTC arising from foreign income tax liability to offset their NIIT liability. The court's ruling is based on the premise that although the FTCs can't offset NIIT under U.S. tax law, the income tax treaty between France and the U.S. should override such rule in order to avoid double taxation. Recently, the IRS has appealed this ruling which is likely to suspend the processing of refund claims filed on this basis.

Listen as our panel discusses the recent ruling in Christensen v. United States and the IRS' appeal of such ruling, and the potential for U.S. citizens to use FTCs to offset NIIT.

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Outline

  1. NIIT basics
  2. Understanding FTCs, NIIT, and tax treaties
  3. Christensen v. United States; analysis and impact to taxpayers
  4. Guidance for seeking NIIT relief under treaty terms
  5. Best practices and pitfalls to avoid for taxpayers

Benefits

The panel will discuss these and other key issues:

  • What are the basics of NIIT and its application to certain income?
  • What is the interplay of NIIT with FTC and income tax treaties?
  • What are the key issues and opportunities stemming from Christensen v. United States?
  • How can you obtain NIIT relief under treaty terms and potential challenges?

Faculty

McCormick, Patrick
Patrick J. McCormick, J.D., LL.M.
Partner
Rimon Law

Mr. McCormick specializes in the areas of international taxation and multinational trusts and estates. He has...  |  Read More

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Strafford will process CLE credit for one person on each recording. CPE credit is not available on recordings. All formats include course handouts.

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