July 2019
In a recent status report on a case in US Tax Court, Eshel v. Commissioner of Internal Revenue (Docket 8055-12), the IRS acknowledged that the French Contribution Sociale Généralisée (CSG) and the Contribution pour le Remboursement de la Dette Sociale (CRDS) should be considered income taxes. This means that these taxes would be either deductible or creditable on the US tax returns of US citizens and green card holders (lawful permanent residents).
Previously, the IRS held that these taxes were considered a social levy and could not be claimed as a deduction for foreign taxes paid or included in the calculation of the foreign tax credit on a US return. The US Tax Court initially agreed with the IRS in its 2014 decision on the case; however, under appeal by the taxpayers, the case was remanded to the court with instructions that it consider French law and the views of the US and French governments regarding the Totalization Agreement. On 13 June 2019, documents filed in US Tax Court indicate that the IRS concedes that these taxes are income taxes and should be deductible or creditable on US tax returns.
As a result, US citizens and green card holders may now claim a deduction or credit for these taxes on their US tax returns for the current (2018) year and previous ten years. For taxpayers who claim the Foreign Tax Credit, they may find that claiming these taxes on their previously-filed returns, through amendments, will increase foreign tax credit carryovers applied to 2018. This may create an available credit to offset US taxes due on foreign source income (income earned in a foreign country or countries), which otherwise might not have been available due to the 2018 French “White Year,” where no French income tax was due on “non-exceptional” income.
This IRS change in position with respect to claiming a deduction or credit of CSG and CRDS taxes may create opportunities not only for the US citizens and green card holders living and working in France, but also for their employers who may have equalized the taxpayers during their assignment in France and paid the French income, CSG and CRDS tax liabilities.
Donna Chmberlain
dchamberlain@bdo.com