Mission Impossible: Extraterritorial Taxation and the IRS

Snyder, Laura; Alpert, Karen; and Richardson, John, "Mission Impossible: Extraterritorial Taxation and the IRS," 170 Tax Notes Federal 1827 (2021)

32 Pages Posted: 19 Apr 2021

See all articles by Laura Snyder

Laura Snyder

Taxpayer Advocacy Panel (TAP); Association of Americans Resident Overseas (AARO)

Karen Alpert

University of Queensland - Business School; Financial Research Network (FIRN)

John Richardson

Citizenship Solutions; Stop Extraterritorial American Taxation (SEAT)

Date Written: March 22, 2021

Abstract

The uniquely American definition of “tax residency,” which includes the imposition of worldwide taxation on the tax residents of other countries, has delegated to the IRS the job of implementing three separate and distinct tax systems: residence, source, and extraterritorial. Through its system of extraterritorial taxation, the United States taxes the worldwide (including non-U.S. source) income of persons who are tax residents of other countries. This requires the IRS to do the impossible: to administer not only a domestic tax system for U.S. residents and a system of source taxation for nonresident aliens, but also an extraterritorial one. All three of these tax systems must be administered while adhering to the Taxpayer Bill of Rights.

Given the considerable challenges, it is little surprise that the IRS denies and/or rejects its responsibility to administer an extraterritorial tax system. This is evidenced, yet again, in its January 2021 Taxpayer First Act Report to Congress. International taxpayers, who are subject to the U.S. extraterritorial tax regime, suffer considerably as a result. Given the impossibility of the IRS’s mandate – both the position in which it is placed and the position in which it, in turn, places international taxpayers – it is imperative that the Department of the Treasury act. In the absence of legislative change, Treasury can and must make the needed regulatory modifications to relieve both the IRS and international taxpayers of the impossible burdens the United States extraterritorial tax system places on them – a system that violates the Taxpayer Bill of Rights, multiple international human rights instruments, and the U.S. Constitution.

Keywords: Extraterritorial Taxation, Citizenship-Based Taxation, Residency-Based Taxation, Department of Treasury, Internal Revenue Service, IRS, Regulatory Authority, Citizenship, Taxpayer First Act, International Taxation, Taxpayer Bill of Rights, Human Rights,

JEL Classification: H20, H22, H24, H25, H30, K33, K34

Suggested Citation

Snyder, Laura and Alpert, Karen and Richardson, John, Mission Impossible: Extraterritorial Taxation and the IRS (March 22, 2021). Snyder, Laura; Alpert, Karen; and Richardson, John, "Mission Impossible: Extraterritorial Taxation and the IRS," 170 Tax Notes Federal 1827 (2021), Available at SSRN: https://ssrn.com/abstract=3828673

Laura Snyder (Contact Author)

Taxpayer Advocacy Panel (TAP)

1111 Constitution Avenue
Washington, DC 20224
United States

Association of Americans Resident Overseas (AARO) ( email )

4 rue de Chevreuse
Paris, 75006
France

Karen Alpert

University of Queensland - Business School ( email )

Brisbane, Queensland 4072
Australia

Financial Research Network (FIRN) ( email )

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

John Richardson

Citizenship Solutions ( email )

Box 19602, Manulife P.O.
55 Bloor St. W.
Toronto, Ontario M4W 3T9
Canada
6478607737 (Phone)

HOME PAGE: http://www.citizenshipsolutions.ca

Stop Extraterritorial American Taxation (SEAT) ( email )

Box 19602, Manulife P.O.
55 Bloor St. W.
Toronto, Ontario M4W 3T9
Canada

HOME PAGE: http://www.SEATNow.org

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