The Commissioner of the IRS, Congress, the President and the US courts are to thank for the “Last in Time Rule”, which essentially enables the United States to dishonour every tax treaty that it has ever made. Senior Circuit Judge WILLIAMS wrote this summary of the case (William David JAMIESON and Judith A. Jamieson, Appellants v. COMMISSIONER of INTERNAL REVENUE Service, Appellee):
William David and Judith A. Jamieson are United States citizens who lived in Canada in 2003, earned Canadian income and paid Canadian taxes on that income. On their U.S. income tax return for that year, they claimed foreign tax credits of $95,132 against their reported U.S. tax liability of $96,429, resulting in a net U.S. liability of $1297. They did not compute any alternative minimum tax (“AMT”) liability under 26 U.S.C. § 55, noting on their return their position that a tax treaty between the United States and Canada precluded any such liability. The Commissioner of Internal Revenue rejected this position and, applying 26 U.S.C. § 59(a)(2)’s limit on foreign tax credits for AMT purposes, calculated that the Jamiesons owed $6078 in alternative minimum tax.
The case, as far as I can read, does not dispute the Jamisons’ interpretation of the tax treaty, the main purpose of which is to avoid double taxation, or so we hear time and again. Yet the Commissioner, in forcing the issue of the Alternate Minimum Tax, essentially creates two principles of tax law out of which he operates: (1) The Last in Time Rule: since the AMT became law later than the tax treaty with Canada, the AMT supersedes the treaty; (2) thus, revenue generating supersedes any other principle of law, such as keeping one’s contracts with other nations. The United States DC Circuit court, affirmed the “Last in Time Rule” (before ROGERS and KAVANAUGH, Circuit Judges, and WILLIAMS, Senior Circuit Judge).
Thus, Brian Dooley aptly titles his blog post on the subject, “Last in Time” Rule Voids Most of US Tax Treaties, saying, “The ‘Last in Time Rule’ makes many treaties worthless” (hat tip Just Me). Judge William says as much (emphasis mine):
Moreover, to the extent that there might be any ambiguity about whether Congress intended § 59(a)(2) to apply to taxpayers in countries with which the United States has “double taxation” treaties, Congress resolved that ambiguity with the Technical and Miscellaneous Revenue Act of 1988 (“TAMRA”), Pub.L. No. 100-647, 102 Stat. 3342. There it provided that certain amendments made by the Tax Reform Act of 1986, including those made by its title VII (of which § 59(a)(2) was a part), “shall apply notwithstanding any treaty obligation of the United States in effect on the date of the enactment of the [1986 Tax] Reform Act.” Id. § 1012(aa)(2) (codified at 26 U.S.C. § 861 note) (emphasis added).
I have maintained that the actions of the United States government in recent years, reaching across borders to exact tribute from subjects who live within the jurisdiction of other sovereign countries, are hostile acts; this extra-territorial tax crack-down is potentially a casus belli. In earlier epochs, nations went to war in order to exact tribute. We are witnessing the United States presiding over the destruction of the world order which it was instrumental in creating after the end of World War II. It is only a matter of time before the nations realize that the United States has attacked them on several fronts in this financial war. Perhaps journalists will be the last to know, as most of them still seem to have a man crush on President Obama.
The violation of a tax convention, however, is a serious matter. The IRS Commissioner could have accepted the arguments of the the Jamiesons but did not. Ultimately, most of the responsibility for this dishonorable behaviour also belongs to the President, the Congress and the Courts.
What is a treaty? Chief Justice Marshall said in 1829 (see onecle; emphasis mine):
A treaty is, in its nature, a contract between two nations, not a legislative act. It does not generally effect, of itself, the object to be accomplished; especially, so far as its operation is intraterritorial; but is carried into execution by the sovereign power of the respective parties to the instrument.” “In the United States, a different principle is established. Our constitution declares a treaty to be the law of the land. It is, consequently, to be regarded in courts of justice as equivalent to an act of the legislature, whenever it operates of itself, without the aid of any legislative provision. But when the terms of the stipulation import a contract—when either of the parties engages to perform a particular act, the treaty addresses itself to the political, not the judicial department; and the legislature must execute the contract, before it can become a rule for the Court.
The Onecle article continues by citing Justice Miller, who wrote 50 years later (emphasis mine):
A treaty is primarily a compact between independent nations. It depends for the enforcement of its provisions on the interest and the honor of the governments which are parties of it.... But a treaty may also contain provisions which confer certain rights upon the citizens or subjects of one of the nations residing in the territorial limits of the other, which partake of the nature of municipal law, and which are capable of enforcement as between private parties in the courts of the country.
A country which does not keep its side of treaties but casually nullifies them through legislation is essentially a nation without honour.