American expats in France have won a seven-year legal battle as the US tax authority has accepted that French-resident US citizens can deduct certain previously disallowed income levies paid to France, against their US income tax bills.
The Internal Revenue Service (IRS) in the United States has now admitted in US tax court that it had "wrongly collected millions of dollars" of US tax from Americans living in France due to its "improper interpretation" of a bilateral treaty.
The change could save France-based Americans thousands of dollars each year, and lead to back-tax claims against the US of up to $100m (£79.7m), Stuart Horwich of Horwich Law, who represented two US taxpayers who took a legal case against the Internal Revenue Service (IRS), said.
I am relieved that the IRS has finally admitted its error"
A statement on the website of the US embassy in France back in 2008 stated that certain French taxes could not be credited against the US tax liabilities of all Americans. Following that the IRS campaigned to force US taxpayers living in France to comply.
American citizens living in France have to pay US tax on their French income but are able to offset the amount of tax paid to France against their US tax liability. Originally the IRS had prevailed, arguing that the CSG and CDRS were "social charges" not taxes.
"I am relieved that the IRS has finally admitted its error," said Fabien Lehagre, head of the Association des Americains Accidentels (Association of Accidental Americans), a campaign group devoted to defending the rights of those affected in France. CSG and CRDS are indeed taxes, not social charges."
The Tax Court initially ruled in 2014 that CSG were non-deductible social charges. The Court of Appeals for the District of Columbia reversed that decision in 2016 and sent the case back to Tax Court.