US Citizens Residing in Canada Liable for AMT

U.S. Citizens Residing in Canada Liable for AMT Based on Foreign Tax Credit Limitation (Jamieson, CA-DC)

Married U.S. citizens residing in Canada were liable for the alternative minimum tax (AMT) because the amount of foreign tax credits they could claim was limited by Code Sec. 59(a)(2) (prior to repeal by the American Jobs Creation Act of 2004 (P.L. 108-357)) and was not offset by additional credits under the U.S.-Canada Convention With Respect to Taxes on Income and on Capital. Applying the last-in-time rule, the AMT foreign tax credit limitation under Code Sec. 59(a)(2) was the last expression of sovereign will and took precedence over the treaty, to the extent of any conflict between them.

The couple’s argument that the government could reconcile the treaty and the statute by allowing taxpayers to claim foreign tax credits after calculating the entire U.S. tax liability, including AMT, was rejected. This interpretation restricted the scope of Code Sec. 59(a)(2) to taxpayers who worked in a foreign country that did not have a treaty with the U.S. limiting double taxation. To the extent that there was any ambiguity as to whether Code Sec. 59(a)(2) applied to taxpayers in countries with which the Unites States has double taxation treaties, the Technical and Miscellaneous Revenue Act of 1988 (P.L. 100-647) clarified that Congress intended for Code Sec. 59(a)(2) to supersede existing treaty provisions prohibiting double taxation.


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