The Tax Code as Nationality Law

Abstract:     
This article questions the frequently-asserted axiom that Congress's taxing power knows no bounds. It does so in the context of recently-enacted legislation that creates a special definition of citizenship that applies only for tax purposes. Historically, a person was treated as a citizen for tax purposes (and therefore taxed on her worldwide income and estate) if, and only if, she was a citizen under the nationality law. As a result of the new statute, in certain circumstances a person might be treated as a citizen for tax purposes (and therefore taxed on her worldwide income and estate) for years or even decades after she is no longer a real citizen under the nationality law.

The analysis first looks at international law principles, concluding that in certain circumstances the new statute exceeds the prescriptive jurisdictional limits of customary international law. It then examines the constitutional implications, arguing that the statute, at least in certain circumstances, reflects a rare occasion where Congress might have exceeded its Article I taxing powers. Moreover, even to the extent the statute is within Congress's powers, certain aspects of it violate the due process limitations of the Fifth Amendment. These conclusions highlight the importance of Congress taking constitutional and international law considerations more seriously with respect to future legislation in the increasingly important area of international taxation.

Keywords: Tax, international tax, customary international law, citizenship, nationality, expatriation, extraterritorial, prescriptive jurisdiction, due process, equal protection, Fifth Amendment, enumerated powers, treaties

JEL Classifications: K34, K33

Accepted Paper Series