Continuing our series on Famous Tax Quotes (quotes from court opinions and rulings with language that is colorful or that concisely states an important tax principle) today's tax quote is:
[T]he basic structure of the Internal Revenue Code * * * may be summarized as follows. The tax imposed is based upon jurisdiction over either the person of the taxpayer or the income taxed. Citizens (including domestic corporations) and resident aliens are taxed on all of their net income, regardless of its source. Non-resident aliens and foreign corporations are taxed only on income from sources within the jurisdiction -- upon net income from such sources if the non-resident alien or foreign corporation is engaged in business within the jurisdiction, or upon gross income from sources within the jurisdiction if the non-resident alien or foreign corporation is not engaged in business within the jurisdiction. The fact that all or part of the income subject to tax under this scheme is also taxed by another taxing jurisdiction does not relieve the taxpayer of liability except as the code itself may provide.
Sayre & Co. v. Riddell, 395 F.2d 407 (9th Cir. 1968)
In summary, U.S. tax is generally imposed as follows:
U.S. persons are taxed on their worldwide net income at graduated rates;
Non-U.S. persons who are engaged in a U.S. trade or business are taxed on their U.S. source net income at graduated rates; and
Non-U.S. persons who are not engaged in a U.S. trade or business are taxed on their U.S. source gross income at a flat rate of 30%.