The 8th Circuit ruled against the IRS in Estate of Christiansen 586 F.3d 1061 (8th Cir. 2009).

The court held: “It is the IRS Commissioner’s role to enforce the tax laws and not merely maximize receipts.”

The U.S. imposes annual income tax on U.S. Taxpayers world-wide (i.e. U.S. Citizens, U.S. Tax Residents) and Foreign Persons who are either “Green Card Holders” or are in the U.S. under the “Substantial Presence Test”.

The U.S. imposes an annual flat 30% tax on U.S. source income (with no deductions) paid to Non-Resident Aliens (“NRA”).

For U.S. income that is effectively connected with the conduct of a U.S. trade or business the NRA does not have 30% tax withholding but pays tax at graduated U.S. tax rates, unless the income is classified as FDAP Income (Fixed on Determinable Annual or Periodical Income) which is subject to 30% flat tax, withheld at the source.

U.S. Estate & Gift taxes are imposed on U.S. Citizens and U.S. Domiciles (i.e. Foreign Persons who intend to reside in the U.S. indefinitely).

In 2013 U.S. Estate & Gift Tax residents are exempt from tax for assets up to $5,250,000 (individuals), $10,500,000 (husband and wife). The U.S. Estate & Gift Tax is imposed on their inter vivos gifts and their world-wide estate.

U.S. non-tax residents (i.e. NRAs who do not have a U.S. Domicile) are subject to U. S. Estate & Gift Tax on their U. S. real estate, tangible personal property (cash, art, jewelry and cars) with U.S. Estate Tax (only) imposed on stock in U. S. corporations and debt obligations from U.S. persons. NRAs have no exemption from U.S. Gift Tax, and a $60,000 exemption from U.S. Estate Tax.

For more information please see the following articles:

1)  U.S. Tax Planning for Passive Investments

2)  Tax Compliance – CFC/PFIC

3)  International Tax Compliance – Foreign Assets

4) Form W-8 Tax Withholding

5)  IRS Form W-9

and topics:

Asset Protection

Expatriation

FATCA/FBAR

Offshore Tax Evasion