P, a U.S. citizen, resided and worked in Geneva, Switzerland. P received foreign source income on which he paid income tax to Switzerland. On his U.S. Federal income tax return, P offset his entire tax liability with a foreign tax credit with respect to the tax he paid to Switzerland. R determined that P was liable for the alternative minimum tax and that, by virtue of
98 T.C. 672">*673 OPINION
Nims,
This case was assigned to and heard by Special Trial Judge Stanley J. Goldberg pursuant to the provisions of section 7443A and Rules 180, 181, and 183. Unless otherwise indicated, section references are to the Internal Revenue Code as in effect for the year in issue. Rule references are to the Tax Court Rules of Practice and Procedure. The Court agrees with and adopts the Special Trial Judge's opinion, which is set forth below.
OPINION OF THE SPECIAL TRIAL JUDGE
Goldberg,
This case was submitted fully stipulated. The stipulation of facts and attached exhibits are incorporated herein by this reference. Petitioner is a U.S. citizen who resided in Geneva, Switzerland, 1992 U.S. Tax Ct. LEXIS 50">*52 when he filed his petition.
For the year 1988, petitioner timely filed Form 1040, and claimed the status of married filing separately. He has lived and worked in Geneva, Switzerland, since 1949. Presently retired, petitioner worked for the International Telecommunication Union, now a specialized agency of the United Nations, 98 T.C. 672">*674 and received only foreign source income. Petitioner's income consisted of his $ 62,355 pension and $ 1,264 of interest, all taxable in Switzerland. He paid the equivalent of $ 24,831 in Swiss cantonal and municipal taxes.
Petitioner reported a liability of $ 14,732 on his Federal income tax return before the application of the foreign tax credit. Petitioner claimed a foreign tax credit of $ 14,732, thereby offsetting his entire Federal income tax liability.
Respondent determined a deficiency of $ 916 on the following basis: petitioner has an alternative minimum tax liability of $ 9,156; for purposes of the alternative minimum tax liability,
Petitioner argues that the imposition of the alternative minimum tax constitutes double taxation and thus violates Article XV(1)(a) of the treaty. This article provides in part that while the United States may determine taxable income of its citizens domiciled in Switzerland under its revenue laws, nevertheless --
The United States shall, however, subject to the provisions of
Petitioner points out that
We must resolve this conflict between the provision of the treaty, which proscribes the double taxation of income, and
Section 55(a) imposes an alternative minimum tax on noncorporate taxpayers. The determination of an individual's alternative minimum tax requires a recomputation of the taxable income leading to a new tax base, the alternative minimum taxable income. Sec. 55(b)(2).
The legislative history of
The committee believes that the minimum tax should serve one overriding objective: to ensure that no taxpayer with substantial economic income can avoid significant tax liability by using exclusions, deductions, and credits. * * * [S. Rept. 99-313, at 518 (1986), 1986-3 C.B. (Vol. 3) 518.]
The Senate report goes on to explain that:
A * * * further change that the committee believes is necessary relates to the use of foreign tax credits by U.S. taxpayers to avoid all U.S. tax liability. Absent a special rule, a U.S. taxpayer with substantial economic income would be able to avoid all U.S. tax liability so long as all of its income was foreign source income and it paid foreign tax at the U.S. regular tax rate or above. While allowance of the foreign tax credit for minimum tax purposes generally is appropriate, the committee believes that taxpayers should not be permitted to use the credit to avoid
Section 7852(d), dealing with treaty obligations, provides:
SEC. 7852(d). Treaty Obligations. -- (1) In general. -- For purposes of determining the relationship between a provision of a treaty and any law of the United States affecting revenue, 98 T.C. 672">*676 neither the treaty nor the law shall have preferential status by reason of its being a treaty or law. (2) Savings clause for 1954 treaties. -- No provision of this title (as in effect without regard to any amendment thereto enacted after August 16, 1954) shall apply in any case where its application would be contrary to any treaty obligation of the United States in effect on August 16, 1954.
Section 7852(d)(1) reiterates the principle of the
so far as a treaty made by the United States with any foreign nation can become the subject of judicial cognizance in the courts of this country, it is subject to such acts as Congress may pass for its enforcement, modification, or repeal. [
The principle has long been established that when a treaty and an act of Congress conflict "the last expression of the sovereign will must control".
The relevant legislative history states that "treaty provisions that were in effect in 1954 and that conflict with the 1954 Code as originally enacted are to prevail over then-existing Code provisions
In TAMRA, Congress specifically addressed the conflict between the 90-percent limitation on the alternative minimum 98 T.C. 672">*677 tax foreign tax credit under
(2) Certain amendments to apply notwithstanding treaties. -- The following amendments made by the Reform Act shall apply notwithstanding any treaty obligation of the United States1992 U.S. Tax Ct. LEXIS 50">*59 in effect on the date of the enactment of the Reform Act:
* * *
(B) The amendments made by title VII of the Reform Act to the extent such amendments relate to the alternative minimum tax foreign tax credit.
[TAMRA, 102 Stat. 3531.]
Section 1012(aa)(3) of TAMRA provides that certain amendments of TAMRA shall not apply to the extent they are inconsistent with treaties. None of the enumerated amendments, however, are relevant to the present case.
Congress explained section 1012(aa)(2)(B) as follows:
The bill codifies application of the later-in-time rule with respect to the following provisions of the 1986 Act, notwithstanding any treaty provision in effect on the date of enactment of the 1986 Act (October 22, 1986): section 1201 of the Act, amending the foreign tax credit limitation, and
In short, Congress has dealt directly with the conflict presently before us, requiring that in the context of a treaty conflict with the 90-percent limitation on the availability of the alternative minimum tax foreign tax credit 1992 U.S. Tax Ct. LEXIS 50">*60 under
To reflect the foregoing,
