Extraterritorial Jurisdiction

A. The U.S. Jurisdiction to Tax

The limitations on the U.S. government's power to tax are contained in the Internal Revenue Code, which reflects the policy decisions of the U.S. Congress. These decisions are influenced by the need for revenue, administrative convenience, international politics, and macroeconomic policies.

Article I, § 8 of the Constitution of the United States delegates to Congress the “power to lay and collect taxes.” The extent of Congress's power is “exhaustive,” embracing “every conceivable power of taxation.”

Under the broad taxation powers of Congress, the U.S. Supreme Court has confirmed congressional authority to tax on various grounds, including citizenship, residence, situs of property, and source of income.

For instance, the U.S. Internal Revenue Code imposes tax on the foreign source income of a U.S. citizen, even if he or she has resided in a foreign country for the last ten or fifteen years and only receives dividends and interest from foreign income.

The United States asserts jurisdiction to tax the income of a foreign person only if there is some reasonable connection between the United States and that foreign taxpayer's source of income or his or her status. In this regard, citizens, resident aliens, and domestic corporations are subject to tax on their worldwide income, I.R.C. §§ 1 and 11(a). In addition, I.R.C. §§ 1(c), (d), and 11(a) impose an income tax on “every” individual and “every” corporation, respectively. I.R.C. §§ 2(d) and 11(d) exempt nonresident aliens and foreign corporations from that tax except to the extent of the tax imposed on U.S. source income by I.R.C. §§ 871, 877, and 882.

a. Cook v. Tait, 265 U.S. 47, 53 (1924)

The question in the case, and which was presented by the demurrer to the declaration is, as expressed by plaintiff, whether Congress has power to impose a tax upon income received by a native citizen of the United States who, at the time the income was received, was permanently resident and domiciled in the city of Mexico, the income being from real and personal property located in Mexico.