Previously, I’ve joked, in a casual manner, which is stylish for our times, about what Universal Tax Jurisdiction is.

But how did it start?

Seriously, what gives the IRS the authority to tax US citizens on income earned outside of the United States? Or anywhere else in the Universe for that matter?

The case is Cook v. Tait 265 US 47 (1924). And I will joke as I explain it, in the manner customary for our times.

Here are the quick facts: Mr. Cook was a US citizen living in Mexico City. He made what appears to be rental income, on property located in Mexico City. The IRS said he owed taxes. Mr. Cook said he didn’t, as the property was located outside the United States so the IRS had nothing to do with it.

So how would the Supreme Court decide this issue? In a manner that respected the rights of the individual and other countries? Or rather, in a self-serving, kind of ego-centric manner that made the US Treasury (the entity that writes the check for the Supreme Court justices) the center of the universe?

Hmmm.

Now, bear in mind, that writing in the passive voice was as popular as other contemporaneous fads of the 1920′s such as the Charleston and pole-sitting, so indeed, this opinion could have really used some help from the Elements of Style. So, with that being said, let’s ask the Supreme Court whether or not the IRS should get their mitts on income US citizens earn anywhere in the world. Shall we? Yes we shall:

In other words, the principle was declared that the government, by its very nature, benefits the citizen and his property wherever found, and therefore has the power to make the benefit complete. Or, to express it another way, the basis of the power to tax was not and cannot be made dependent upon the situs of the property in all cases, it being in or out of the United States, nor was not and cannot be made dependent upon the domicile of the citizen, that being in or out of the United States, but upon his relation as citizen to the United States and the relation of the latter to him as citizen.

Yep. That’s our Supreme Court talking there. Amazing, uplifting stuff, huh? And hopefully, you actually skimmed over that dreadfully written passage, and just scanned down to this current paragraph, trusting that I will explain what that all that gibberish above means. And so I will.

The Supreme Court claimed (and still does) that for every US citizen, the US government is working hard. So hard that regardless of where those citizens  are or those citizen’s property is located, the US government is doing what it take to make it possible for its citizens to make money around the globe. So if the IRS wants to “wet its beak” on everything that one of its citizens touches, well, as it’s only fair, as without the US government, those off-shore profits would be impossible.

And this reasoning (or my interpretation of it) is complete crap (yes, you can say that on the internet).

Let me explain why.

Let’s say that Mr. Cook did not own the rental property in Mexico. What would happen? An educated guess is that let’s say instead a hypothetical Mr. Sanchez, a Mexican native, would own the property. And, with market conditions being the same regardless of who owns the property, Mr. Sanchez, would have had the same rental income as our apple-pie eating Mr. Cook.

So in both cases,  the same income and the same property is involved. Yet, in our hypothetical Mr. Sanchez’ case, the IRS gets nothing — as he is a Mexican citizen in Mexico. But in the actual case of Mr. Cook, the IRS gets it $1,193.38 (yes that was the amount of taxes the IRS fought for — and won).

We are left with a query. If the results between Mr. Cook and our hypothetical Mr. Sanchez are the same, then what benefit did Mr. Cook receive by being a citizen of the United States in Mexico from the US government?

I’m coming up with little. The only benefit conferred, that I can conjure, is that the  US government didn’t kill Mr. Cook. But not killing Mr. Cook doesn’t require an expenditure of tax dollars (well, at least we can hope).

And perhaps you don’t like this hypothetical. So let’s try another one. Maybe something a little more recent.

Let us suppose Mr. Cook, during the 30′s, while working as a prison guard on Death Row, had one of those Green Mile moments, his kidney stones heeled, and the aging process slowed. While he is now 154 years old, he looks and acts a spry 82.

And in 2003, Mr. Cook (yeah, now you’re thinking of Mr. Cook as Dabbs Greer playing the Reverend Alden…good)  opened up a securities account at UBS in Zurich and funded it with $50,000,000 (let us suppose that his prison pension money, and whatever he embezzled from the First Congregational Church of Walnut Grove, wisely reinvested, did very well). He directs his account manager to only invest in non-US stocks. And so it is done.

The stocks pays handsomely, earning a nice $10,000,000. And of course, under established law, as a US citizen, Mr. Cook would not only have to report the existence of that account to on the FBAR form, so that the IRS, Department of Homeland Security, the FBI, the CIA, well so any government agency knows full well of the account. And Mr Cook also has to pay taxes at the ordinary income rate (being a short-term gain).

Yet, what Mr. Cook traded and profited on, were stocks, securities. And securities trading cares nothing of the race, gender, nationality of the traders, but only whether or not the money of the traders is good.  So the stock trading earned no less nor no more because Mr. Cook was a US citizen. The account would have earned him the same if Mr. Cook were Mexican. So then, isn’t it fair to conclude that the US government had nothing to do with the gain? (this question is rhetorical, it’s a literary device, don’t you know? Because the answer is yes).

Yeah, so anyway, how can the IRS claim it has a right to part of those off-shore earnings when we just proved the US government  had nothing to do with? What expense did the US government incur for those profits to occur, if the profits would have occurred anyway?

It’s like there’s some implication here, or otherwise, yes, dare I say shenanigans (yes, I allege shenanigans). It’s like a  passive-aggressive shot heard around that world. My ever more radicalized mind hears it loud and clear:  “Look, losers, but for us, the magnificent United States government, everything in the world is kind of useless. If it wasn’t for the Congress, the Supreme Court and the Prez of the  US of A,  little value could ever be created any where in the world  by you rinky-dink nobodies. But we’re here, and we made all this marvel of modernity all happen. Individuals had nothing to do with it!   And we’d tax everyone if we could, but these freakin’ international tax treaties get in the way so we can only tax our own citizens. Curses to that. But that really, ain’t going to stop us from trying.”

And anyway, well, that’s the law. At least as I see it.

So let’s review:

Mr. Sanchez. No taxes for you.

With:

Oh yeah, taxes for you, Mr. Apple Pie.

Man. Well I’m kind of bummed out. I just trashed the government of my country. And now…now I feel this need to defend my imperial, arrogant government. And I just may be able to do it.

The Manhattan Project. How’s that for an expensive government program that defended Americans around the globe? Damn right it did. And that sure-as-shoe-polish didn’t happen in Mexico (or Manhattan, for that matter, either). It wasn’t piñatas that paid for the bomb. It was tax dollars from patriotic citizens of the US of A.

So take that, hippies!

And so I stopped worrying and learned to love Universal Tax Jurisdiction.

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