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Parties Involved:
Commissioner of Internal Revenue Service
Appellee
Peter M. Haver
Appellant

Document Text:

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Submitted on the Briefs on March 13, 2006

Decided April 11, 2006

No. 05-1269

PETER M. HAVER,

APPELLANT

v.

COMMISSIONER OF INTERNAL REVENUE SERVICE,

APPELLEE

Appeal from the United States Tax Court

(No. IRS-15706-03)

Peter M. Haver was on the briefs for appellant.

Frank P. Cihlar and Kenneth W. Rosenberg, Attorneys,

U.S. Department of Justice, were on the brief for appellee.

Before: HENDERSON and GARLAND, Circuit Judges, and

EDWARDS, Senior Circuit Judge.

Opinion for the Court filed by Senior Circuit Judge

Edwards.

Edwards, Senior Circuit Judge: Peter Haver is a United

States citizen who spent several years living and working in

Germany. The question in this case is whether a Treaty between

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the United States and Germany relieved Haver of all obligations

to pay income tax to the U.S. for the time when he was in

Germany. Because Haver’s German tax payments exceeded his

tax liability under U.S. law, he argues that the Treaty relieves

him of any obligation to the U.S. Treasury. The Government, in

turn, relies on 26 U.S.C. § 59(a)(2)(A) (2000), which provides

that foreign tax credits may only extinguish up to 90% of a U.S.

citizen’s minimum tax burden. Haver claims that the statute and

the Treaty are inconsistent, and that the Treaty should control

because it was ratified subsequent to the statute’s promulgation.

The Government insists that the Treaty and statute coexist

harmoniously, because the Treaty explicitly contemplates

modifying the foreign tax credit to conform to the “limitations

of the law of the United States.” The Tax Court rejected

Haver’s position, holding that the Treaty’s reference to the

limitations of U.S. law eliminates any potential conflict with the

statute. Haver v. CIR, 89 T.C.M. (CCH) 1428 (2005). We

affirm the judgment of the Tax Court.

I. BACKGROUND

Haver lived and worked in Germany from 1997 through

2000. During those years, he received all of his income from

sources outside the United States. Normally, U.S. citizens are

subject to taxation on all of their income no matter where they

live, see 26 C.F.R. § 1.1-1(a)-(b) (2005) (interpreting 26 U.S.C.

§ 1 (2000)), with possible offsets for foreign tax credits. In

2003, Haver and his wife filed joint federal income tax returns

for their four years in Germany, claiming that their entire United

States tax liability was offset by foreign tax credits. In claiming

offsets, Haver relied on Article 23(1) of the Convention

Between the United States of America and the Federal Republic

of Germany for the Avoidance of Double Taxation of August

29, 1989, 2 Tax Treaties (CCH) 77,021. This Treaty provision

states: 

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Tax shall be determined in the case of a resident of the

United States or a citizen thereof as follows: In accordance

with the provisions and subject to the limitations of the law

of the United States (as it may be amended from time to

time without changing the general principles hereof), the

United States shall allow to a resident or citizen of the

United States as a credit against the United States tax on

income

(a) the income tax paid to the Federal Republic of

Germany by or on behalf of such citizen or

resident . . . . 

In Haver’s view, since the amount of tax he paid to

Germany exceeded his tax liability under U.S. law, he owed

nothing to the United States in income tax. He reported no

alternative minimum tax (“AMT”), although under the law

applicable at the time, U.S. citizens could offset no more than

90% of their AMT through foreign tax credits. 26 U.S.C.

§ 59(a)(2)(A) (2000). (This provision was repealed, effective in

taxable years beginning after December 31, 2004, by the

American Jobs Creation Act of 2004, Pub. L. No. 108-357,

§ 421, 118 Stat. 1418, 1514 (2004).)

In reviewing Haver’s submission, the Internal Revenue

Service (“IRS”) determined that Haver owed an AMT for the

years he resided in Germany. Although the amount he paid in

German taxes exceeded the amount he would owe in U.S. taxes,

IRS concluded that under § 59(a) Haver still owed 10% of his

AMT burden. His failure to pay U.S. income tax during his four

years in Germany thus resulted in a $9,749 deficiency. There is

no dispute over how much Haver paid in German taxes or what

his AMT would be if § 59(a) applies. The only question in this

case is whether Article 23(1) of the Treaty allows IRS to

demand payment under the statute. 

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Haver sought review of IRS’s determination in Tax Court,

arguing that Article 23(1) superseded § 59(a). He urged the Tax

Court to find § 59(a) inapplicable because it was originally

enacted in 1986, see Tax Reform Act of 1986, Pub L. No. 99-

514, § 701(a), 100 Stat. 2085, 2320 (1986), while the Treaty was

ratified five years later, on August 21, 1991. Invoking the lastin-time doctrine, see Whitney v. Robertson, 124 U.S. 190 (1888),

Haver argued that the two sources of law were in conflict and

thus only the more recent enactment could have effect. The Tax

Court rejected his position. 

In its brief memorandum opinion, the Tax Court rested its

analysis on two previous cases that had confronted the same

issue. In Pekar v. CIR, 113 T.C. 158 (1999), the Tax Court

found the statute compatible with the Treaty, holding that the

language of Article 23(1) contemplates the tax credits

interacting with limiting provisions of U.S. law. Id. at 163-64.

Since it concluded that the two authorities existed harmoniously,

the court did not need to address the last-in-time issue. Id.

Similarly, in Brooke v. CIR, 79 T.C.M. (CCH) 2206 (2000),

aff’d 13 Fed. Appx. 7 (D.C. Cir. 2001) (unpublished), the Tax

Court again rejected the contention that the AMT clashes with

Article 23(1). Citing Pekar, the Tax Court held that, “[b]ecause

the treaty provision may be read in harmony with the AMT

provision, petitioner is not excused from liability for the AMT.”

Id. at 2208. Accordingly, when Haver raised the same issue, the

Tax Court said little beyond invoking those earlier cases: “We

find no reason to depart from these holdings to follow petitioner

down a twisting path of legal analysis whose ultimate

destination would require us to reverse two prior holdings and

find a provision of U.S. law in conflict with the U.S.-Germany

treaty.” Haver, 89 T.C.M. (CCH) at 1429. 

II. ANALYSIS

Haver seeks review of the Tax Court’s decision, renewing

his argument that § 59(a) cannot operate against him in light of

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Article 23(1). The Tax Court’s judgment rests solely on a

question of law, so we review the decision of that court de novo.

Kappus v. CIR, 337 F.3d 1053, 1055 (D.C. Cir. 2003). 

Haver’s invocation of the last-in-time doctrine bears no fruit

in this case. “When [a statute and treaty] relate to the same

subject, the courts will always endeavor to construe them so as

to give effect to both, if that can be done without violating the

language of either; but if the two are inconsistent, the one last in

date will control the other. . . .” Whitney, 124 U.S. at 194. In

this case, there is simply no conflict between the two authorities.

As noted above, Article 23(1) conditions the tax credits U.S.

citizens receive on “the limitations of the law of the United

States (as it may be amended from time to time without

changing the general principles hereof).” The Treaty thus

contemplates that the tax credit is not unlimited, because it

expressly defers to other provisions of U.S. law. Thus, we are

faced with no conflict.

Guided by this very clear Treaty language, we find that the

statute’s chronological precedence actually strengthens the

Government’s position, not Haver’s. Section 59(a) was an

existing “limitation” of U.S. law when the Treaty was negotiated

and executed. The negotiating parties thus had every reason to

know that the Treaty would not afford a 100% tax credit and that

an AMT of at least 10% would be charged by the United States.

This interpretation also comports with the Treasury

Department’s Technical Explanation of the Treaty. 2 CCH Tax

Treaties 77,235 (“[A]lthough the Convention provides for a

foreign tax credit, the terms of the credit are determined by the

provisions, at the time a credit is given, of the U.S. statutory

credit.”). To support Haver’s position, the Treaty would have to

indicate that the contracting parties intended to override

inconsistent portions of U.S. law. In fact, it does just the

opposite. We find the harmony between the Treaty and the

statute dispositive.

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In Kappus, we faced an interpretive dilemma posed by

§ 59(a)’s interplay with the anti-double tax provision in a U.S.-

Canada Treaty, but left unresolved the question of whether the

two were inconsistent. In that case, we found that the “question

of whether the Treaty and statute can be harmonized as the

government suggests is an extremely close one.” Kappus, 337

F.3d at 1056. But Kappus raised interpretive difficulties that are

not present here. The U.S.-Canada Treaty provision we

examined contained a clause subjecting its tax credit to

limitations of U.S. law, but it also explicitly conditioned the tax

credit and arguably the limitation itself on subsequent

paragraphs of the treaty. Id. at 1055. The parties thus wrangled

over the relationship between two limiting provisions. Id. at

1056. No analogous difficulty is raised by this case. 

 Haver argues that the Government’s position would allow

the United States to deny the foreign tax credit to an unlimited

extent, and thus effectively eviscerate the benefits of Article

23(1). Whether or not a more substantial AMT would conflict

with the Treaty is a question that we need not answer here. As

we have explained, § 59(a) was in place when the Treaty was

adopted, so the parties to the Treaty had reason to know that the

United States surely would impose a 10% minimum tax.

Therefore, it is unnecessary for us to decide what more might

have been contemplated by the provision in Article 23(1) that

conditions the tax credit on limitations of U.S. law “as it may be

amended from time to time without changing the general

principles” of the Treaty. Nor need we ponder whether the

United States may effectively abrogate the Treaty by enacting

legislation that cannot be reconciled with the Treaty.

III. CONCLUSION

For the foregoing reasons, the judgment of the Tax Court is

affirmed.

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