McManus v. United States
130 Fed. Cl. 613
| Fed. Cl. | 2017Background
- Plaintiff John P. McManus (Irish national, Swiss resident) reported $17.4M in U.S. gambling winnings for 2012; $5.22M was withheld by the U.S.
- McManus paid a €200,000 Irish "domicile levy" for 2012 but did not file Irish income or capital gains returns and paid no Irish income tax.
- McManus claimed a refund from the IRS, asserting under the U.S.–Ireland Tax Treaty that he was an Irish "resident" (Art. 4) and thus exempt from U.S. tax on the winnings (Art. 22); he filed Form 8833 but did not raise a treaty nondiscrimination (Art. 25) claim.
- The IRS sought assistance from Ireland’s competent authority; Ireland Revenue replied that the domicile levy is not a "covered tax" under the Treaty and payment does not entitle McManus to treaty resident benefits.
- McManus sued in the Court of Federal Claims seeking refund of the $5.22M; parties filed cross-motions for summary judgment and agreed there were no material factual disputes.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether payment of Ireland's domicile levy made McManus a "resident" of Ireland under Art. 4 for Treaty purposes, so Art. 22 exempts his U.S. gambling winnings | McManus: domicile levy is a tax tied to domicile and worldwide income and therefore makes him "liable to tax" in Ireland under Art. 4 | Government: domicile levy is a capped wealth/levy (not comprehensive income taxation); Ireland Revenue confirmed it is not a "covered tax" and does not confer Treaty resident status | Held for government: payment of the domicile levy did not make McManus a resident under Art. 4; no refund under Art. 22 |
| Admissibility/control of Ireland Revenue's competent-authority response under Arts. 26–27 | McManus: Ireland Revenue’s statement is outside Treaty scope because the domicile levy is not a "covered tax" and thus its declaration is irrelevant | Government: Arts. 26–27 expressly permit competent authorities to resolve interpretation/applicability questions and exchange information; Ireland’s response reflects Parties’ shared understanding | Held for government: the IRS properly sought and Ireland properly provided guidance; the parties’ shared understanding is relevant and dispositive |
| Whether McManus may assert a Treaty nondiscrimination claim (Art. 25) not raised administratively | McManus: (first raised at oral argument) Art. 25 could bar U.S. tax as discriminatory against Irish nationals regardless of residence | Government: barred by the Federal Circuit's "substantial variance" rule because McManus did not present nondiscrimination claim to IRS; Treasury regs require disclosure of treaty nondiscrimination positions | Held for government: Art. 25 claim barred for substantial variance; untimely and not before IRS |
| If nondiscrimination claim barred, whether court should reach its merits | McManus: asked court to consider claim | Government: alternative merits briefing but contends tax does not violate nondiscrimination | Held: Court did not reach merits because claim is procedurally barred |
Key Cases Cited
- Sumitomo Shoji Am., Inc. v. Avagliano, 457 U.S. 176 (treaty interpretation must effect parties' intent)
- Lozano v. Montoya Alvarez, 134 S. Ct. 1224 (treaty construed consistent with shared expectations)
- United States v. Stuart, 489 U.S. 353 (plain treaty language controls absent inconsistent signatory intent)
- Nat’l Westminster Bank, PLC v. United States, 512 F.3d 1347 (use entire context and relevant models/commentary in tax treaty interpretation)
- Lua v. United States, 843 F.3d 950 (substantial variance doctrine bars new theories not presented administratively)
- Lockheed Martin Corp. v. United States, 210 F.3d 1366 (substantial variance rationale: notice and opportunity to consider)
- Coplin v. United States, 761 F.2d 688 (reliance on diplomatic correspondence in treaty interpretation)