The US Tax Court has held that the 90% foreign tax credit (FTC) limitation on the alternative minimum tax (AMT) contained in Section 59 of the US Internal Revenue Code (IRC) prevails over the requirement in the 1980 US_Canada tax treaty to eliminate double taxation. William D. and Judith A. Jamieson v. Commissioner of Internal Revenue, Docket No. 16421-05 (29 April 2008).

The taxpayers were US citizens who resided in Canada in 2003. In filing their US income tax return, they took the position that their liability for the US AMT was fully offset by a credit for income taxes paid to Canada. The taxpayers argued that this outcome was required by Art. XXIV (Elimination of Double Taxation) and Art. XXIX (Saving Clause) of the treaty.

The US Tax Court determined, however, that the 90% FTC limitation in IRC Section 59, which provides that the FTC cannot offset more than 90% of the AMT liability, prevailed under the "later-in-time" rule used by the United States to resolve conflicts between US tax treaties and US domestic law.

The 90% limitation was adopted by Congress in 1986, subsequent to entry into force of the treaty, and was thus adopted later in time to the treaty. The US Tax Court determined that this result was not changed by the Third and Fourth Protocols to the treaty, which entered into force after enactment of the 90% FTC limitation in 1986, since the protocols did not change the relevant provision of the treaty.

The US Tax Court noted that it was obligated to reach this result since the same issue under the treaty had been resolved in favour of the IRS by the US Court of Appeals for the DC Circuit in Kappus v. Commissioner, 337 F.3d 1053 (2003), and an appeal in the present case would have to be made to that same court. For a report on the Kappus case..

The US Tax Court also rejected the argument of the taxpayers that the adoption of the 90% FTC limitation violated the saving clause provisions in Art. XXIX(2) and (3) of the treaty.

Note. The Jamieson case will be mainly of historic interest as the 90% FTC limitation that applies to the AMT was repealed by the American Jobs Creation Act of 2004, effective for taxable years beginning after 31 December 2004.