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United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued March 21, 2003 Decided August 8, 2003
No. 02-1145
TOM KAPPUS AND LOUISE KAPPUS,
APPELLANTS
v.
COMMISSIONER OF INTERNAL REVENUE,
APPELLEE
Appeal from the United States Tax Court
(No. IRS–16512–99)
Lawrence P. Postol argued the cause and filed the briefs
for appellants.
Frank P. Cihlar, Attorney, U.S. Department of Justice,
argued the cause for appellee. With him on the brief was
Robert J. Branman, Attorney. John A. Nolet, Attorney,
entered an appearance.
Bills of costs must be filed within 14 days after entry of judgment.
The court looks with disfavor upon motions to file bills of costs out
of time.
2
Before: GINSBURG, Chief Judge, and EDWARDS and GARLAND,
Circuit Judges.
Opinion for the court filed by Circuit Judge GARLAND.
GARLAND, Circuit Judge: Tom and Louise Kappus, United
States citizens living in Canada, appeal from a decision of the
United States Tax Court denying their challenge to a notice
of deficiency in their federal income tax issued by the Com-
missioner of Internal Revenue. The Kappuses claimed a
credit against their U.S. tax for all of the taxes they paid to
Canada on their Canadian-source income, leaving them with
no U.S. tax liability. The Commissioner argues that section
59(a)(2) of the Internal Revenue Code, 26 U.S.C. § 59(a)(2),
limits the allowable foreign tax credit to 90% of a taxpayer’s
alternative minimum tax liability. The Kappuses counter
that this section violates the terms of a tax treaty between
the United States and Canada. We conclude that, even if the
appellants are correct that the treaty and statute are in
conflict, the statute must prevail under the ‘‘last-in-time’’ rule.
We therefore affirm the judgment of the Tax Court.
I
The parties have stipulated to the relevant facts. Tom and
Louise Kappus are United States citizens who resided and
worked in Canada during 1997. On their 1997 joint federal
income tax return, they reported taxable income of $244,211
and a ‘‘regular’’ income tax liability of $69,410. They then
reduced that liability to zero by applying a foreign tax credit
of $69,410 based on their payment of Canadian income taxes.
See 26 U.S.C. §§ 27(a), 901. In addition to the regular tax,
the Kappuses were subject to the alternative minimum tax
(AMT) imposed by 26 U.S.C. § 55(a).1 They reported a pre-
1 The AMT is ‘‘intended to prevent a taxpayer with substantial
income from avoiding significant tax liability through the use of
exemptions, deductions, and credits.’’ Pekar v. Comm’r of Internal
Revenue, 113 T.C. 158, 160 (1999). ‘‘[T]he ‘alternative minimum
tax’ provision requires the recalculation of a taxpayer’s income
under a different set of rules. A tax is then imposed [on that
income] at a graduated rateTTTT’’ United States v. Hill, 506 U.S.
3
credit tentative minimum tax of $61,556. However, they
claimed an AMT foreign tax credit of $61,556, see id.
§§ 55(b)(1), 59(a)(1), reducing their alternative minimum tax
to zero as well. The Kappuses attached a statement to their
joint return in which they claimed that they were not subject
to 26 U.S.C. § 59(a)(2), which provides that the AMT foreign
tax credit may not exceed 90% of a taxpayer’s pre-credit
tentative minimum tax. They claimed that exemption on the
basis of a tax treaty between the United States and Canada.
See Convention Between Canada and the United States of
America with Respect to Taxes on Income and on Capital,
Sept. 26, 1980, U.S.-Can., T.I.A.S. No. 11,087 [hereinafter
‘‘U.S.-Canada Tax Treaty’’ or ‘‘Treaty’’].
On May 28, 1999, the Commissioner sent the Kappuses a
notice of deficiency in their 1997 tax, stating that they should
have paid $6,152. That amount was equal to 10% of their
pre-credit tentative minimum tax as recalculated by the Com-
missioner,2 who applied § 59(a)(2)’s 90% cap on the AMT
foreign tax credit. The Kappuses filed a petition with the
Tax Court contesting the Commissioner’s determination.
They argued that § 59(a)(2) was in direct conflict with the
U.S.-Canada Tax Treaty, and that in such a circumstance the
most recent provision must govern under the last-in-time
rule. Although the Treaty went into effect in 1984, two years
before the enactment of § 59(a)(2), the Kappuses contended
that protocols (amendments) to the Treaty ratified in 1995
and 1997 implicitly repealed § 59(a)(2) and represented the
most recent relevant enactments. In response, the govern-
ment argued that the Treaty and § 59(a)(2) were not in
conflict, and that even if they were, § 59(a)(2) would prevail
as the last in time because nothing in the subsequent proto-
cols conflicted with the statute. The parties stipulated that, if
546, 551 n.3 (1993) (citing 26 U.S.C. § 55). In this case, the parties
agree that the Kappuses’ regular tax was zero and that the AMT
was the only tax owed.
2 The Commissioner determined that the Kappuses’ pre-credit
tentative minimum tax was $61,519, slightly less than the $61,556
reported by the appellants.
4
the legal questions were decided in the Commissioner’s favor,
the Kappuses’ 1997 tax deficiency would amount to $6,152.
On February 13, 2002, the Tax Court issued a final decision
in favor of the Commissioner, holding the Kappuses liable for
income tax in the amount of $6,152. The Kappuses now
appeal to this court. We review the Tax Court’s judgment de
novo because it rests solely on a determination of law. See
Flynn v. Comm’r of Internal Revenue, 269 F.3d 1064, 1068
(D.C. Cir. 2001).3
II
All American citizens are subject to U.S. taxes, regardless
of where they live or earn their income. See 26 C.F.R. § 1.1-
1(b); see also Cook v. Tait, 265 U.S. 47, 56 (1924). Citizens
living and working abroad must therefore report their for-
eign-source income to the Internal Revenue Service. Taxes
on such income, however, may often be offset under U.S. law
by credits for taxes paid to foreign governments, and are also
subject to limitations imposed by bilateral tax conventions,
such as the U.S.-Canada Tax Treaty.
Article XXIV of that treaty, entitled ‘‘Elimination of Double
Taxation,’’ reads in relevant part:
3 In ruling for the Commissioner, the Tax Court did not rely on
any of the grounds pressed by the parties. Instead, the court ruled
that certain language in one of the protocols to the Treaty ex-
pressed the intent of the contracting states to accept amendments
to the Internal Revenue Code made in 1986, including § 59(a)(2).
As a consequence, the court concluded that § 59(a)(2) was not in
conflict with the Treaty and could properly be applied to the
Kappuses. The appellants argue that the language relied on by the
court, which added the words ‘‘of 1986’’ after ‘‘Internal Revenue
Code’’ in Article II of the Treaty, did not have that consequence.
Article II, they maintain, simply identifies the taxes that are subject
to the Treaty; it is Article XXIV that governs the tax credits that
each government must provide. The Commissioner does not de-
fend the Tax Court’s rationale here, and given our resolution of the
case, we need not pass on it.
5
1. In the case of the United States, subject to the
provisions of paragraphs 4, 5, and 6, double taxation
shall be avoided 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 principle hereof), the Unit-
ed States shall allow to a citizen or resident of the United
States TTT as a credit against the United States tax on
income the appropriate amount of income tax paid or
accrued to CanadaTTTT
TTT
4. Where a United States citizen is a resident of Cana-
da, the following rules shall apply:
(a) Canada shall allow a deduction from the Canadian
tax in respect of income tax paid or accrued to the
United States in respect of profits, income or gains
which arise TTT in the United States, except that such
deduction need not exceed the amount of the tax that
would be paid to the United States if the resident were
not a United States citizen; and
(b) for the purposes of computing the United States
tax, the United States shall allow as a credit against
United States tax the income tax paid or accrued to
Canada after the deduction referred to in subpara-
graph (a). The credit so allowed shall not reduce that
portion of the United States tax that is deductible from
Canadian tax in accordance with subparagraph (a).
U.S.-Canada Tax Treaty art. XXIV (italics and underlining
added). The Kappuses contend that under paragraph 4(b),
the United States is required to grant a credit for the entire
amount of the Canadian tax that they paid on the income they
earned in Canada while residing there.
The Commissioner counters that paragraph 1 of Article
XXIV subjects the required credit to ‘‘the limitations of the
law of the United States,’’ and that the law applicable to the
appellants’ situation, 26 U.S.C. § 59(a)(2), caps their AMT
foreign tax credit at 90% of their pre-credit tentative mini-
mum tax liability. Section 59(a)(2) states, in relevant part:
6
(2) Limitation to 90 percent of tax.—
(A) In general.—The alternative minimum tax foreign
tax credit for any taxable year shall not exceed the
excess (if any) of—
(i) the pre-credit tentative minimum tax for the
taxable year, over
(ii) 10 percent of the amount which would be the
pre-credit tentative minimum taxTTTT
26 U.S.C. § 59(a)(2). The Kappuses agree that, but for the
Treaty, this provision would have obligated them to pay an
alternative minimum tax equal to 10% of their pre-credit
tentative minimum tax liability, and they acknowledged as
much in the statement they attached to their 1997 return.
Where a treaty and a statute ‘‘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.’’ Whitney v. Robertson, 124 U.S. 190, 194
(1888); see Xerox Corp. v. United States, 41 F.3d 647, 658
(Fed. Cir. 1994). The Kappuses contend that harmonization
is not possible here because the Treaty flatly bars the appli-
cation of § 59(a)(2). As a consequence, they argue that the
Treaty—as the provision that is the last in time—must gov-
ern. See infra Part III. The Commissioner contends that
the two can be read in harmony, but that even if they cannot,
it is the statute that is the last in time.
The parties’ dispute over the meaning of the Treaty centers
on Article XXIV. According to the Commissioner’s interpre-
tation, the general obligation imposed by paragraph 1 of that
article, that the United States allow its citizens a credit for
income taxes paid to Canada, is ‘‘subject to the limitations of
the law of the United States’’—the phrase that we have
underlined in the excerpt from the Treaty set out above.
And because § 59(a)(2) is just such a limitation, the Commis-
sioner continues, the Treaty permits its application. The
Kappuses respond that the underlined proviso is itself ‘‘sub-
ject to the provisions of paragraphs 4, 5, and 6’’—the phrase
that we have italicized above—because that limitation pre-
cedes the underlined proviso and therefore modifies it. And
7
paragraph 4(b), they continue, requires that U.S. citizens who
reside in Canada be fully credited for their Canadian taxes.
In reply, the Commissioner disagrees that the order of the
phrases is controlling, but argues that even if it is, paragraph
4 does not bar the application of § 59(a)(2). In his view, that
paragraph does not impose a substantive obligation on the
United States to grant a tax credit, but rather ‘‘merely
provides rules for determining the order in which deductions
or credits for taxes paid to the other jurisdiction are to be
applied when the same income is subject to tax by both.’’
Appellee’s Br. at 17–18.
The question of whether the Treaty and statute can be
harmonized as the government suggests is an extremely close
one. It is not, however, a question that we need resolve.
The Kappuses concede that, even if their reading of the
Treaty is correct and the Treaty and § 59(a)(2) are in irrecon-
cilable conflict, the statute nonetheless would control their tax
liability if it were the most recent relevant provision. Accord-
ingly, because we conclude in Part III that the statute is in
fact the last relevant provision, we need not further pursue
the search for harmony. See South African Airways v. Dole,
817 F.2d 119, 125–26 (D.C. Cir. 1987) (assuming arguendo the
existence of a conflict between a treaty and a statute, and
resolving the case on the basis of the last-in-time principle);
Jamieson v. Comm’r of Internal Revenue, 70 T.C.M. (CCH)
1372, 1373–74 (Tax Ct. 1995) (holding, in a case prior to the
amending protocols, that § 59(a)(2) prevailed over the U.S.-
Canada Tax Treaty under the last-in-time principle without
determining whether they were in conflict), aff’d, 132 F.3d
1481 (D.C. Cir. 1997).
III
When a statute conflicts with a treaty, the later of the two
enactments prevails over the earlier under the last-in-time
rule. The rule and its rationale were articulated by the
Supreme Court in Whitney v. Robertson:
By the constitution, a treaty is placed on the same
footing, and made of like obligation, with an act of
8
legislation. Both are declared by that instrument to be
the supreme law of the land, and no superior efficacy is
given to either over the otherTTTT [I]f the two are
inconsistent, the one last in date will control the oth-
erTTTT If the country with which the treaty is made is
dissatisfied with the action of the legislative department,
it may present its complaint to the executive head of the
government, and take other measures as it may deem
essential for the protection of its interestsTTTT The duty
of the courts is to construe and give effect to the latest
expression of the sovereign will.
124 U.S. at 194–95 (emphasis added); see Breard v. Greene,
523 U.S. 371, 376 (1998) (‘‘[A]n Act of Congress TTT is on a
full parity with a treaty, and TTT when a statute which is
subsequent in time is inconsistent with a treaty, the statute to
the extent of conflict renders the treaty null.’’ (internal quota-
tion marks omitted)). The question for us, therefore, is which
of the two—the Treaty or the statute—is the ‘‘latest expres-
sion of the sovereign will.’’ Whitney, 124 U.S. at 195.
At first glance, this is not a difficult question to answer.
The Treaty was signed by the United States and Canada on
September 26, 1980, and entered into force on August 16,
1984, when it—along with its first two protocols—was ratified
by the U.S. Senate. Section 59(a)(2), on the other hand, did
not go into effect until two years later, as part of the Tax
Reform Act of 1986, Pub. L. No. 99-514, 100 Stat. 2085, 2336–
37.
Although § 59(a)(2) did not specifically address the rela-
tionship between its requirements and those of applicable tax
treaties, Congress clarified that relationship shortly thereaf-
ter. As part of the Technical and Miscellaneous Revenue Act
of 1988 (TAMRA), Pub. L. No. 100-647, 102 Stat. 3342,
Congress passed the following provision, now codified as 26
U.S.C. § 7852(d)(1):
(d) Treaty Obligations.—
(1) In general.—For purposes of determining the rela-
tionship between a provision of a treaty and any law of
the United States affecting revenue, neither the treaty
9
nor the law shall have preferential status by reason of
its being a treaty or law.
The Senate report on TAMRA made clear that this provision
was intended to codify the last-in-time principle as applied to
tax treaties and statutes. See S. REP. NO. 100-445, at 316–28
(1988). And another section of TAMRA expressly stated that
specified amendments made by the Tax Reform Act, includ-
ing § 59(a)(2), were intended to apply notwithstanding any
inconsistent treaty obligations:
(2) Certain Amendments to Apply Notwithstanding
Treaties.—The following amendments made by the [Tax]
Reform Act [of 1986] shall apply notwithstanding any
treaty obligation of the United States in effect on the
date of the enactment of the Reform Act:
TTT
(B) The amendments made by title VII of the Reform
Act [of which § 59(a)(2) was a part] to the extent such
amendments relate to the alternative minimum tax
foreign tax credit.
TAMRA, § 1012(aa)(2) (codified at 26 U.S.C. § 861 note); see
S. REP. NO. 100-45, at 319. TAMRA thus made it crystal clear
that Congress intended the 90% cap on the AMT foreign tax
credit to supercede any preexisting treaty obligation with
which it conflicted.
As the Kappuses conceded at oral argument, had the
matter ended with TAMRA, § 59(a)(2) would plainly have
prevailed over the Treaty. Cf. Jamieson, 70 T.C.M. at 1373–
74 (holding that, as of the 1987 tax year, § 59(a)(2) superced-
ed the U.S.-Canada Tax Treaty under the last-in-time princi-
ple). The appellants argue, however, that the ratification of
two subsequent protocols to the Treaty in 1995 and 1997 had
the effect of re-establishing the Treaty (as amended) as the
latest expression of the sovereign will. See Protocol Amend-
ing the Convention Between the United States of America
and Canada with Respect to Taxes on Income and on Capital,
Mar. 17, 1995, S. TREATY DOC. NO. 104-4 (1995) [hereinafter
‘‘Third Protocol’’]; Protocol Amending the Convention Be-
tween the United States of America and Canada with Respect
10
to Taxes on Income and on Capital, July 29, 1997, S. TREATY
DOC. NO. 105-29 (1997) [hereinafter ‘‘Fourth Protocol’’].
The Third and Fourth Protocols, which consisted of
amendments to specific provisions of the original treaty, did
not address § 59(a)(2) at all. Nor did they amend para-
graphs 1 or 4 of Article XXIV, the provisions at issue in this
case. Nonetheless, the Kappuses argue that the protocols ef-
fectively supercede § 59(a)(2) because any protocol to an in-
ternational convention, regardless of the protocol’s content,
implicitly reaffirms the signatories’ commitment to the entire
underlying treaty. Thus, the appellants contend that we
should regard the entire U.S.-Canada Tax Treaty as having
been re-adopted in full when the Third and Fourth Protocols
were ratified, and that the re-adopted treaty trumps
§ 59(a)(2) under the last-in-time rule.4
This argument, which the appellants characterize as ‘‘the
doctrine of implied repeal,’’ Appellants’ Br. at 33; see Reply
Br. at 26, runs headlong into a contrary canon of construction:
that ‘‘repeals by implication are not favored, and are never
admitted where the former can stand with the new act.’’
4 In their opening brief, the Kappuses did not contend that either
protocol explicitly amended any relevant paragraph of the Treaty,
instead relying solely on their theory of implied reaffirmation.
Appellants’ Br. at 39. In their reply brief, however, the appellants
additionally relied on the Third Protocol’s amendments to other
paragraphs that they deemed ‘‘closely linked’’ to the relevant para-
graphs, paragraphs 1 and 4. But the Kappuses did not explain how
the amended provisions affected their tax liability, and because the
argument was not raised until their reply brief, the Commissioner
did not have an opportunity to offer his views on these issues.
‘‘Considering an argument advanced for the first time in a reply
brief TTT is not only unfair to an appellee, but also entails the risk of
an improvident or ill-advised opinion on the legal issues tendered.’’
McBride v. Merrell Dow & Pharms., Inc., 800 F.2d 1208, 1211 (D.C.
Cir. 1986) (citation omitted). Accordingly, ‘‘we generally will not
entertain arguments omitted from an appellant’s opening brief and
raised initially in his reply brief,’’ and we will not diverge from that
general rule today. Id. at 1210; see City of Waukesha v. EPA, 320
F.3d 228, 241 n.10 (D.C. Cir. 2003).
11
South African Airways, 817 F.2d at 126 (internal quotation
marks omitted).5 In Johnson v. Browne, the Supreme Court
expressly applied this canon to the interpretation of treaties:
‘‘[A] later treaty will not be regarded as repealing an earlier
statute by implication, unless the two are absolutely incompa-
tible and the statute cannot be enforced without antagonizing
the treaty.’’ 205 U.S. 309, 321 (1907) (citation omitted).6 In
this case, the protocols plainly are not ‘‘absolutely incompati-
ble’’ with § 59(a)(2) because their text neither bars its appli-
cation nor modifies any treaty provision that bars it. We
therefore cannot read the protocols as implicitly reviving
original treaty provisions that the Kappuses agree had, for
purposes of U.S. law, been superceded by § 59(a)(2).7
Finding nothing in U.S. law to support their claim that the
protocols implicitly repeal the intervening statute, the Kap-
puses insist that it is based on a well-settled principle of
international law. But they cite no such principle. Instead,
the appellants point to Article 40(5) of the Vienna Convention
on the Law of Treaties, May 23, 1969, 1155 U.N.T.S. 331,
which, they contend, stands for what they regard as an
analogous proposition, namely ‘‘that a nation not previously a
party to [a] treaty, but which ratifies a subsequent protocol,
5 See Chew Heong v. United States, 112 U.S. 536, 549 (1884)
(holding that one statute will never be read to repeal another absent
‘‘positive repugnancy TTT, and even then the old law is repealed by
implication only pro tanto, to the extent of the repugnancy’’ (inter-
nal quotation marks omitted)).
6 See Xerox Corp., 41 F.3d at 658 (‘‘[T]acit abrogation of prior law
will not be presumed and, unless it is impossible to do so, treaty and
law must stand together in harmony.’’).
7 The canon disfavoring repeals by implication may be viewed as a
special application of the rule discussed in Part II—that statutes
and treaties should be harmonized if possible. See Whitney, 124
U.S. at 194; Xerox Corp., 41 F.3d at 658. The best way to
harmonize § 59(a)(2) with the protocols is to assume that the latter
were not intended to repeal the former. That means reading the
protocols as doing nothing more than amending the provisions of
the original treaty that they specifically address.
12
automatically becomes TTT a party to the entire treaty as
amended by such protocol.’’ Appellants’ Br. at 36.8
There are a number of problems with this contention.
First, the language of the Vienna Convention does not state
the proposition put forward by the appellants: that a nation
that ratifies a protocol becomes party to the original treaty.
Rather, it states the converse: that a nation that ratifies the
original treaty after a protocol has gone into effect is bound
by the protocol as well as the treaty.9 Second, Article 40 of
the Convention applies only to multilateral treaties, not to
bilateral treaties like the U.S.-Canada Tax Treaty. Id. art.
40(1). Finally, the proposition proffered by the appellants at
8 The United States has signed but not ratified the Vienna
Convention. See United Nations Treaty Collection, Multilateral
Treaties Deposited With the Secretary-General, http://untreaty.un.
org/english/bible/englishinternetbible/partI/chapter23/chapter23.asp.
9 See Vienna Convention, art. 40(5) (‘‘Any State which becomes a
party to the treaty after the entry into force of the amending
agreement shall, failing an expression of a different intention by
that State: (a) be considered a party to the treaty as amended; and
(b) be considered as a party to the unamended treaty in relation to
any party to the treaty not bound by the amending agreement.’’).
In the Korean Air Lines Disaster case, the court did hold that the
Republic of Korea had in effect joined a treaty that it had never
signed, the Warsaw Convention, by signing its Hague Protocol. In
re Korean Air Lines Disaster of September 1, 1983, 664 F. Supp.
1463, 1469 (D.D.C. 1985), opinion adopted, 829 F.2d 1171, 1173
(D.C. Cir. 1987), aff’d sub nom. Chan v. Korean Air Lines, Ltd., 490
U.S. 122 (1989). The court did not rely on the Vienna Convention
or on general principles of international law, however, but rather on
the history of the Hague Protocol and the language of its Article
XXIII, which read: ‘‘Adherence to this Protocol by any State which
is not a Party to the Convention shall have the effect of adherence
to the Convention as amended by this Protocol.’’ Id. The protocols
at issue in the instant case do not contain such language, nor do
their ratification histories indicate an intent to reaffirm the un-
amended provisions of the Treaty. See, e.g., S. EXEC. REP. NO. 104-
19 (Aug. 10, 1995) (discussing the Third Protocol); S. EXEC. REP. NO.
105-12 (Oct. 30, 1997) (discussing the Fourth Protocol).
13
best concerns the obligations of states that have joined a
protocol without joining the underlying treaty. But it says
nothing about the situation at issue here—where both states
were parties to the original treaty, where a subsequent
legislative enactment superceded a provision of that treaty,
and where thereafter the same two parties entered into a
protocol amending different provisions of the original treaty.
Whatever merits the proffered proposition may have for
situations that fall within its terms, it does not apply to this
case, and it certainly cannot overcome the Supreme Court’s
instruction that ‘‘[r]epeals by implication are never favored.’’
Johnson, 205 U.S. at 321.
We do not mean to suggest that a protocol may never
effectively reenact an underlying treaty, but only that we may
not construe one as implicitly doing so when the effect is to
abrogate an intervening statute. Of course, in a particular
case, the language and drafting history of a protocol may
evidence the parties’ intention to recommit themselves to
their preexisting treaty obligations. But there is no such
evidence here. Accordingly, because the latest expression of
the United States’ sovereign will on the subject of the Kap-
puses’ foreign tax credit is 26 U.S.C. § 59(a)(2), that statute
prevails over the Treaty, and we are obligated to enforce it.
IV
We conclude that, to the extent they are in conflict, section
59(a)(2) of the Internal Revenue Code prevails over the
provisions of the U.S.-Canada Tax Treaty. The judgment of
the Tax Court upholding the Commissioner’s notice of defi-
ciency in the appellants’ 1997 income tax is therefore
Affirmed.