Ory Eshel v. Commissioner of IRS
831 F.3d 512
D.C. Cir.2016Background
- The U.S. and France entered a 1987 Social Security "Totalization Agreement" that lists French laws covered and extends coverage to "legislation which amends or supplements the laws specified."
- In 1990 and 1996 France enacted two levies: CSG (Contribution Sociale Généralisée) and CRDS (Contribution pour le Remboursement de la Dette Sociale), collected like social contributions and partly allocated to social-security-related funds and debt repayment.
- Ory and Linda Coryell Eshel, U.S.–France dual citizens, paid CSG and CRDS while working in France (2008–09) and claimed those amounts as foreign tax credits on U.S. returns.
- IRS disallowed credits for CSG and CRDS, asserting they fall "in accordance with" the Totalization Agreement and thus are noncreditable under 26 U.S.C. §1401 note; the Tax Court granted summary judgment for the Commissioner.
- The Tax Court construed "amend or supplement" using American dictionary definitions and assessed whether the levies "extend or strengthen the French social security system as a whole," finding they do and are covered by the Agreement.
- The D.C. Circuit reversed and remanded, holding the Tax Court erred by relying on domestic dictionaries instead of the Agreement’s text and the shared expectations of the parties (including French law and official positions).
Issues
| Issue | Plaintiff's Argument (Eshel) | Defendant's Argument (Commissioner) | Held |
|---|---|---|---|
| Whether CSG/CRDS "amend or supplement" the French laws enumerated in Article 2(1)(b) of the Totalization Agreement | CSG/CRDS are not within Article 2(1)(b); therefore they are creditable as foreign taxes | Any levy that funds or is administered with social-security mechanisms (even de minimis) amends or supplements the listed French laws and falls under the Agreement | Reversed Tax Court: determination must begin with the Agreement’s text and the content of the Article 2 laws; domestic dictionary definitions and consideration of the social-security system as a whole were improper; remand required for proper inquiry into French law and signatories’ shared understanding |
| Proper interpretive methodology for an international executive agreement | Agreement should be read in light of shared expectations and relevant foreign law where the Agreement points to that law | Reliance on domestic interpretive aids and agency declarations is sufficient | Held that international agreements are interpreted by their text and context and by shared expectations; undefined terms may require reference to the laws specified in the Agreement (here, French law) |
| Adequacy of government submissions relied on below to establish the Agreement’s meaning | Eshels pointed to French ministerial statements and an expert report suggesting the levies are not covered | Commissioner relied on an SSA official’s declaration and a U.S. embassy letter asserting coverage | Court held the submissions below were inadequate: the SSA declaration did not state an official U.S. position and the embassy letter did not establish a shared, authoritative understanding; remand necessary to develop authoritative positions and foreign-law materials |
| Whether Tax Court properly treated foreign-law questions as legal issues without further development | Eshels argued record and expert evidence supported their position on foreign law | Commissioner argued Tax Court’s reliance on dictionary meaning sufficed and foreign-law development unnecessary | Court held that when foreign law and the parties’ shared expectations are central, the court must seek complete presentations, and may request additional evidence, agency positions, or amicus views; remand directed for fuller development |
Key Cases Cited
- Flemming v. Nestor, 363 U.S. 603 (1960) (background on U.S. social security system)
- Lozano v. Montoya Alvarez, 134 S. Ct. 1224 (2014) (treaties interpreted in light of shared expectations of contracting parties)
- Medellín v. Texas, 552 U.S. 491 (2008) (treaty interpretation begins with text)
- Sumitomo Shoji America v. Avagliano, 457 U.S. 176 (1982) (government agencies’ treaty interpretations entitled to weight)
- Kolovrat v. Oregon, 366 U.S. 187 (1961) (use of diplomatic communications to interpret treaty meaning)
- Zicherman v. Korean Air Lines Co., 516 U.S. 217 (1996) (interpretive canons for treaties limited to principles shared by parties)
- Byers v. Commissioner, 740 F.3d 668 (D.C. Cir. 2014) (standard of review for Tax Court summary judgment)