Bruyea Estate – US Federal-Circuit Court of Appeals finds that Art. XXIV of the Canada-US treaty did not create a right to an FTC independent of the Code provisions

In 2015, a U.S. citizen residing in Canada (Bruyea) sold Canadian real estate and paid both Canadian income tax and U.S. net investment income tax (NIIT) on his gain from the sale of Canadian real estate. The IRS denied his foreign tax credit (FTC) to eliminate his NIIT liability.

Bruyea acknowledged no entitlement to the FTC under the Code; and Judge Stark further agreed with the government that Art. XXIV of the Canada-U.S. Income Tax Convention did not independently provide Bruyea with an entitlement to claim an FTC for the Canadian tax.

In this regard he noted inter alia:

• “any credit created by Article XXIV … is, by its own terms, subject to the very Code provisions that foreclose the credit in the first place”
• the re-sourcing provisions in Art. XXIV (deeming certain U.S. source income to arise in Canada rather than the U.S, thereby overcoming Code s. 904(a) limitations) would have been unnecessary if the Convention's drafters had shared Bruyea's view that the Treaty generated an FTC independent of the Code
• Bruyea's interpretation would lead to an anomalous result - for example, a U.S. citizen residing in Toronto could claim an NIIT credit against the individual’s U.S. tax liability for income tax paid in Canada on income generated in Canada, while a similarly situated U.S. citizen living in Buffalo, New York, could not.

Neal Armstrong. Summary of Bruyea Estate v. US (U.S. Court of Appeals for the Federal Circuit, 31 August 2026) under Treaties – Income Tax Conventions – Art. 24. (See also Christensen v. US (U.S. Court of Appeals for the Federal Circuit, 31 August 2026).)