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 last-
in-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.