SCOTUS Reports

Tag: Tax Treaties

  • J.E. Ryckman v. Commissioner, 163 T.C. No. 3 (2024): Jurisdiction and Procedural Rights under Tax Treaties

    J. E. Ryckman v. Commissioner, 163 T. C. No. 3 (United States Tax Court 2024)

    In a case of first impression, the U. S. Tax Court ruled it lacks jurisdiction to review the IRS’s denial of a Collection Due Process (CDP) hearing for a taxpayer’s Canadian tax liability under the Canada-U. S. Income Tax Treaty. The court interpreted the Treaty to require the U. S. to treat Canadian claims as U. S. claims with exhausted rights, thus precluding additional U. S. procedural protections. This decision highlights the interplay between treaties and domestic law, affirming that later-enacted statutes do not conflict with treaty obligations if properly harmonized.

    Parties

    J. E. Ryckman, the petitioner, sought to challenge the IRS’s denial of her request for a Collection Due Process (CDP) hearing. The Commissioner of Internal Revenue, the respondent, moved to dismiss her petition for lack of jurisdiction. Throughout the proceedings, Ms. Ryckman was represented by David R. Jojola, Derek W. Kaczmarek, Nicholas Michaud, and Paul J. Vaporean, while the Commissioner was represented by Ping Chang and Derek S. Pratt.

    Facts

    Ms. Ryckman, a resident of Arizona, owed approximately $200,000 in Canadian taxes for the tax years 1993 and 1994. In 2017, the Canada Revenue Agency (CRA) sent a mutual collection assistance request (MCAR) to the IRS under the Canada-U. S. Income Tax Treaty. The MCAR stated that Ms. Ryckman’s tax liabilities were “finally determined” under Canadian law, meaning all administrative and judicial rights to restrain collection had lapsed or been exhausted. The U. S. Competent Authority granted the MCAR, and the IRS subsequently filed a notice of federal tax lien (NFTL) against Ms. Ryckman. Despite being informed that she had no right to a CDP hearing, Ms. Ryckman requested one, which the IRS denied. She then petitioned the Tax Court for review of the denial.

    Procedural History

    The IRS filed a notice of federal tax lien (NFTL) against Ms. Ryckman on December 7, 2020, and notified her on January 25, 2021, that she was not entitled to a CDP hearing. Ms. Ryckman requested a CDP hearing on February 4, 2021, which the IRS denied on February 8, 2021. Ms. Ryckman filed her petition with the Tax Court on February 18, 2021, challenging the IRS’s denial. The Commissioner moved to dismiss the petition for lack of jurisdiction, arguing that the Tax Court did not have authority to review the denial of a CDP hearing related to a Canadian tax liability under the Treaty.

    Issue(s)

    Whether the U. S. Tax Court has jurisdiction under I. R. C. § 6330(d)(1) to review the IRS’s denial of a Collection Due Process (CDP) hearing request regarding the collection of Canadian taxes pursuant to a mutual collection assistance request (MCAR) under the Canada-U. S. Income Tax Treaty?

    Rule(s) of Law

    The Tax Court has jurisdiction under I. R. C. § 6330(d)(1) to review a determination only if the IRS was subject to obligations imposed by I. R. C. § 6320 or § 6330 in making that determination. Under the Canada-U. S. Income Tax Treaty, Article XXVI A(2) defines a revenue claim as “finally determined” when all administrative and judicial rights of the taxpayer to restrain collection in the applicant State have lapsed or been exhausted. Article XXVI A(3) requires the requested State to collect the accepted revenue claim “as though such revenue claim were the requested State’s own revenue claim finally determined in accordance with the laws applicable to the collection of the requested State’s own taxes. ” Article XXVI A(5) states that nothing in the article shall be construed as creating or providing any rights of administrative or judicial review of the applicant State’s finally determined revenue claim by the requested State.

    Holding

    The Tax Court held that it lacked jurisdiction under I. R. C. § 6330(d)(1) to review the IRS’s denial of Ms. Ryckman’s request for a CDP hearing because the IRS was not subject to any obligations imposed by I. R. C. § 6320 or § 6330 with respect to her hearing request. The Court interpreted the Canada-U. S. Income Tax Treaty to require the U. S. to treat Ms. Ryckman’s Canadian tax liability as a U. S. tax assessment for which all rights to restrain collection, including CDP rights, had lapsed or been exhausted.

    Reasoning

    The Court’s reasoning was based on a detailed analysis of the Treaty provisions and their interaction with the CDP statutes. The Court noted that the Treaty’s requirement that a Canadian revenue claim be treated as “finally determined” under U. S. law meant that Ms. Ryckman had no additional rights to a CDP hearing in the U. S. The Court emphasized that the Treaty’s language precluded the creation of any new administrative or judicial rights in the U. S. for finally determined Canadian claims. The Court also considered the IRS’s post-ratification conduct, which initially suggested that CDP rights applied to treaty levies but later shifted to offering alternative administrative processes. The Court rejected the dissent’s argument that the Treaty should be read to allow for CDP rights, as this would create a conflict with the later-enacted CDP statutes, which the Court found could be harmonized with the Treaty’s provisions. The Court also addressed policy considerations, noting that allowing additional procedural rights in the U. S. would undermine the Treaty’s purpose of ensuring that collection assistance requests are made only after all remedies in the applicant State are exhausted.

    Disposition

    The Tax Court dismissed Ms. Ryckman’s petition for lack of jurisdiction, as the IRS’s denial of her CDP hearing request was not a determination subject to judicial review under I. R. C. § 6330(d)(1).

    Significance/Impact

    This case is significant for its interpretation of the interaction between tax treaties and domestic law, particularly in the context of procedural rights. It clarifies that the U. S. must treat Canadian revenue claims accepted under the Treaty as U. S. tax assessments with exhausted rights, thereby foreclosing additional U. S. procedural protections. This ruling may impact future cases involving tax treaties and collection assistance requests, emphasizing the importance of harmonizing treaty obligations with domestic statutes. It also underscores the limited jurisdiction of the Tax Court and the need for taxpayers to exhaust all remedies in the applicant State before seeking relief in the U. S. under a treaty.

  • Smith v. Commissioner, 159 T.C. No. 3 (2022): Validity and Enforceability of Closing Agreements under I.R.C. § 7121

    Smith v. Commissioner, 159 T. C. No. 3 (2022)

    In a significant ruling, the U. S. Tax Court upheld the validity and enforceability of a closing agreement under I. R. C. § 7121, affirming that such agreements are final and conclusive unless fraud, malfeasance, or misrepresentation of material fact is shown. Cory H. Smith, a U. S. citizen employed at Pine Gap in Australia, challenged the agreement which required him to waive his right to exclude foreign earned income. The court’s decision clarifies the authority of IRS officials to execute such agreements and the strict conditions under which they can be set aside, impacting future tax treaty interpretations and the finality of closing agreements in tax law.

    Parties

    Cory H. Smith, as the Petitioner, challenged the notice of deficiency issued by the Commissioner of Internal Revenue, as the Respondent, in the U. S. Tax Court. The case proceeded through the Tax Court’s jurisdiction, with both parties filing competing motions for partial summary judgment.

    Facts

    Cory H. Smith, a U. S. citizen and engineer, was employed by Raytheon at the Joint Defense Facility at Pine Gap in Australia. As part of his employment, he entered into a closing agreement with the IRS under I. R. C. § 7121, waiving his right to elect the foreign earned income exclusion under I. R. C. § 911(a) for the tax years 2016-2018. Despite the agreement, Smith filed amended returns claiming the exclusion for 2016 and 2017 and made the same election on his 2018 return. The Commissioner issued a notice of deficiency disallowing these elections, leading Smith to petition the U. S. Tax Court for a redetermination of the deficiencies.

    Procedural History

    The case originated with Smith’s challenge to the notice of deficiency in the U. S. Tax Court. Both parties filed motions for partial summary judgment. The Commissioner argued that the closing agreement was valid and enforceable, while Smith contended that it was invalid due to lack of authority of the IRS official who signed it and alleged malfeasance and misrepresentation by the IRS. The Tax Court, after hearing arguments, ruled on the motions, applying a de novo standard of review.

    Issue(s)

    Whether the closing agreement entered into by Cory H. Smith with the Commissioner under I. R. C. § 7121 was valid and enforceable?

    Whether the Director, Treaty Administration, had the authority to execute the closing agreement on behalf of the Commissioner?

    Whether the closing agreement could be set aside under I. R. C. § 7121(b) due to malfeasance or misrepresentation of fact?

    Rule(s) of Law

    I. R. C. § 7121 authorizes the Secretary to enter into closing agreements with taxpayers, which are “final and conclusive” once approved by the Secretary, unless set aside for fraud, malfeasance, or misrepresentation of material fact. I. R. C. § 7121(b) specifies that closing agreements cannot be annulled, modified, set aside, or disregarded in any proceeding, and any determination made in accordance with such agreements is similarly protected. The authority to enter into closing agreements has been delegated by the Secretary to the Commissioner, and further delegated within the IRS, including to the Director, Treaty Administration, under Delegation Order 4-12.

    Holding

    The U. S. Tax Court held that the closing agreement between Cory H. Smith and the Commissioner was valid and enforceable. The court found that the Director, Treaty Administration, had the requisite authority to execute the agreement on behalf of the Commissioner. Additionally, the court determined that the agreement could not be set aside under I. R. C. § 7121(b) as Smith failed to show malfeasance or misrepresentation of material fact.

    Reasoning

    The court’s reasoning centered on the interpretation of the statutory framework governing closing agreements and the delegation of authority within the IRS. The court applied principles of statutory construction to Delegation Order 4-12, concluding that the Director, Treaty Administration, had the authority to act as the competent authority under tax treaties and execute closing agreements related to specific treaty applications. The court rejected Smith’s arguments regarding the lack of authority of the IRS official, the necessity of a formal competent authority request, and the exclusivity of delegation orders. Regarding malfeasance, the court found no violation of I. R. C. § 6103 in the IRS’s handling of the closing agreement process. The court also distinguished between misrepresentations of fact and law, holding that the recitals in the agreement were legal conclusions and not misrepresentations of material fact. The court emphasized the finality intended by Congress in enacting I. R. C. § 7121, which supports the strict enforcement of closing agreements unless the statutory exceptions are met.

    Disposition

    The U. S. Tax Court granted the Commissioner’s Motion for Partial Summary Judgment and denied Smith’s competing motion. The court upheld the validity and enforceability of the closing agreement, affirming the notice of deficiency issued by the Commissioner.

    Significance/Impact

    The decision in Smith v. Commissioner reinforces the finality and conclusiveness of closing agreements under I. R. C. § 7121, impacting how such agreements are viewed in tax litigation. It clarifies the delegation of authority within the IRS for executing closing agreements, particularly in the context of international tax treaties. The ruling underscores the stringent conditions under which closing agreements can be set aside, emphasizing the need for clear evidence of fraud, malfeasance, or misrepresentation of material fact. This case has broader implications for U. S. citizens working abroad and the application of tax treaties, particularly those involving the waiver of domestic tax rights to avoid double taxation. It may influence future negotiations and interpretations of tax treaties between the U. S. and other countries, ensuring that closing agreements remain a reliable tool for resolving tax liabilities.

  • Crow v. Commissioner, 85 T.C. 376 (1985): When Tax Treaties Override Domestic Tax Laws

    Crow v. Commissioner, 85 T. C. 376 (1985)

    Tax treaties can override domestic tax laws, specifically when a saving clause does not explicitly reserve the right to tax former citizens under domestic expatriation tax rules.

    Summary

    Tedd N. Crow, after expatriating to Canada to avoid U. S. taxes, sold his U. S. corporation stock in exchange for a non-interest-bearing note. The U. S. sought to tax the capital gain and imputed interest under IRC Section 877, which targets expatriation to avoid taxes. The court held that the 1942 U. S. -Canada tax treaty exempted Crow’s capital gain from U. S. taxation due to the treaty’s lack of a specific saving clause for former citizens. However, the court upheld the U. S. ‘s right to tax imputed interest at a reduced treaty rate, as such income was not explicitly covered by the treaty’s capital gains exemption.

    Facts

    Tedd N. Crow, a U. S. citizen, moved to Canada in November 1978 and renounced his U. S. citizenship shortly thereafter, primarily to avoid U. S. taxes. He owned all the stock of a U. S. corporation and sold it on December 1, 1978, in exchange for a $6,366,000 note payable over 20 years with no interest. Crow did not report any income from this transaction on his U. S. tax returns. The IRS asserted that Crow was taxable on the long-term capital gain from the stock sale and on the imputed interest income from the note under IRC Section 877 and Section 483, respectively.

    Procedural History

    Crow filed a motion for summary judgment in the U. S. Tax Court, arguing that the 1942 U. S. -Canada tax treaty exempted his income from U. S. taxation. The Commissioner opposed, citing IRC Section 877 and Revenue Ruling 79-152, which interpreted the treaty’s saving clause to allow U. S. taxation of expatriates. The Tax Court granted Crow’s motion regarding the capital gain but denied it regarding the imputed interest.

    Issue(s)

    1. Whether the 1942 U. S. -Canada tax treaty precludes the U. S. from taxing Crow’s capital gain income under IRC Section 877.
    2. Whether the income realized by Crow in connection with the transactions, including imputed interest, is exempt from U. S. taxation under the U. S. -Canada treaty.

    Holding

    1. Yes, because the treaty’s saving clause does not explicitly reserve the right to tax former U. S. citizens under IRC Section 877, thereby overriding the domestic law.
    2. No, because the treaty does not preclude the U. S. from taxing imputed interest income under IRC Section 483, as such income is not specifically exempted by the treaty.

    Court’s Reasoning

    The court interpreted the 1942 U. S. -Canada treaty, focusing on the saving clause (Article XVII) and the capital gains provision (Article VIII). The court found that the saving clause’s purpose was to preserve U. S. taxation of its citizens, not former citizens, based on the treaty’s text, history, and contemporaneous interpretations. The court rejected the Commissioner’s broad interpretation of “citizens” to include former citizens, as it conflicted with the treaty’s clear language and the intent of the contracting parties. The court also noted that Congress, in enacting IRC Section 877, did not intend to override the treaty’s provisions, as evidenced by the Foreign Investors Tax Act’s treaty override provision (Section 110). Regarding imputed interest, the court ruled that the treaty’s Article XI(1), which limits tax rates on certain income, applied to such income, even though it was not explicitly mentioned in the treaty’s interest definition.

    Practical Implications

    This decision underscores the importance of specific language in tax treaties, particularly in saving clauses, when determining the tax treatment of expatriates. Practitioners should carefully analyze treaty provisions and their historical context when advising clients on the tax implications of expatriation. The ruling may encourage the U. S. to negotiate more explicit treaty language regarding the taxation of former citizens. For taxpayers, this case highlights the potential for tax treaties to provide relief from domestic tax laws, especially in the absence of clear treaty provisions allowing for such taxation. Subsequent cases, such as Rust v. Commissioner, have followed this reasoning, further solidifying the principle that treaties can override domestic laws absent specific treaty language to the contrary.

  • Boulez v. Commissioner, 83 T.C. 584 (1984): Distinguishing Royalties from Compensation for Personal Services Under Tax Treaties

    Boulez v. Commissioner, 83 T. C. 584 (1984)

    Payments labeled as royalties in a contract may be considered compensation for personal services if they lack a property interest transfer, especially under international tax treaties.

    Summary

    In Boulez v. Commissioner, the U. S. Tax Court held that payments to Pierre Boulez, a nonresident alien conductor, from CBS Records were not royalties exempt from U. S. tax under the U. S. -Germany tax treaty but were taxable as compensation for personal services. Boulez, a resident of Germany, contracted with CBS to produce recordings, receiving payments based on sales, termed royalties. The court found that these payments were for Boulez’s personal services, not for any property right he could license or sell, thus taxable in the U. S. This ruling underscores the importance of examining the true nature of payments under tax treaties and the concept of “works for hire” in copyright law.

    Facts

    Pierre Boulez, a world-renowned orchestra conductor and a nonresident alien residing in Germany, contracted with CBS Records in 1969 to produce recordings. The contract, amended in 1971 and 1974, stipulated that CBS would pay Boulez based on a percentage of sales, described as royalties. Boulez conducted orchestras for these recordings, which were owned entirely by CBS. In 1975, CBS paid Boulez $39,461. 47, which Boulez reported as exempt from U. S. tax, claiming it as royalties under the U. S. -Germany tax treaty. The IRS disagreed, asserting that the payments were taxable as compensation for personal services.

    Procedural History

    The IRS determined a deficiency in Boulez’s 1975 U. S. income tax, leading to a dispute over whether the payments were royalties or personal service income. After unsuccessful competent authority proceedings between the U. S. and Germany, Boulez petitioned the U. S. Tax Court. The case was submitted under Rule 122, based on stipulated facts and exhibits.

    Issue(s)

    1. Whether the payments received by Boulez from CBS Records in 1975 were royalties exempt from U. S. tax under the U. S. -Germany tax treaty.
    2. Whether Boulez had a licensable or transferable property interest in the recordings that would qualify the payments as royalties.

    Holding

    1. No, because the payments were compensation for personal services performed by Boulez in the U. S. , not royalties as defined by the treaty.
    2. No, because Boulez had no licensable or transferable property interest in the recordings, which were considered works for hire owned by CBS.

    Court’s Reasoning

    The court focused on the intent of the contract and the legal concept of royalties. It found that the contract’s language and structure indicated an agreement for personal services, not a conveyance of property rights. The court emphasized that for payments to be royalties, Boulez must have had a property interest in the recordings, which he did not. The court applied the “works for hire” doctrine from copyright law, noting that Boulez’s recordings were created under a contract that did not reserve any property rights to him. The court also cited the U. S. -Germany tax treaty, which defines royalties as payments for the use of property rights, not merely labeled as such in a contract. The court rejected Boulez’s argument that the 1971 Sound Recording Amendment to the Copyright Act granted him a property interest, as the contract did not reflect such a change in rights.

    Practical Implications

    This decision clarifies the distinction between royalties and compensation for personal services under tax treaties, emphasizing the need to look beyond contractual labels to the substance of the transaction. It impacts how international entertainers and artists should structure their contracts to ensure proper tax treatment. The ruling also reinforces the “works for hire” doctrine in copyright law, affecting how creators and employers negotiate ownership rights in creative works. Subsequent cases have cited Boulez for its analysis of the tax treatment of payments under international treaties and the application of copyright law to service agreements. Legal practitioners advising clients on international tax issues must carefully review the nature of payments and the applicable tax treaties to avoid similar disputes.

  • Budhwani v. Commissioner, 70 T.C. 287 (1978): Determining Tax Residency for Foreign Students Under Tax Treaties

    Budhwani v. Commissioner, 70 T. C. 287 (1978)

    A foreign student’s tax residency status for treaty exemption purposes depends on whether they are considered a resident for U. S. tax purposes.

    Summary

    In Budhwani v. Commissioner, the Tax Court ruled that a Pakistani student, who entered the U. S. on a student visa to study architecture, was a U. S. resident for tax purposes and thus not eligible for a tax exemption under the U. S. -Pakistan income tax treaty. The student, who worked for 14 months during his stay, was deemed to have established residency in the U. S. due to the extended nature and purpose of his stay. The court’s decision hinged on the interpretation of residency under U. S. tax law and the treaty, emphasizing the importance of the student’s intentions and the duration of their stay in determining tax obligations.

    Facts

    The petitioner, a Pakistani citizen, entered the U. S. in 1973 on a student visa to study architecture. He initially attended the University of Oregon, receiving a bachelor’s degree in 1975. After graduation, he worked for an architectural firm in California for 14 months before resuming his studies at the University of Washington. In 1975, he reported $5,503. 45 in income from his employment, claiming it was exempt from U. S. tax under the U. S. -Pakistan income tax treaty. The IRS determined he was not eligible for the exemption, leading to this dispute.

    Procedural History

    The IRS issued a notice of deficiency for the 1975 tax year, asserting that the petitioner’s income was not exempt under the treaty. The petitioner filed a petition with the U. S. Tax Court challenging this determination. The Tax Court, after reviewing the case, ruled in favor of the Commissioner.

    Issue(s)

    1. Whether the petitioner was a “resident of Pakistan” within the meaning of the U. S. -Pakistan income tax treaty, thus qualifying for an exemption from U. S. tax on his 1975 income.

    Holding

    1. No, because the petitioner was considered a resident of the U. S. for tax purposes in 1975, which disqualified him from being a “resident of Pakistan” under the treaty’s definition.

    Court’s Reasoning

    The court focused on the treaty’s definition of “resident of Pakistan,” which excludes individuals resident in the U. S. for U. S. tax purposes. The court applied U. S. tax regulations, particularly section 1. 871-2(b), to determine that the petitioner was a U. S. resident. The court noted that the petitioner’s stay in the U. S. was not limited to a definite period by immigration laws and was necessary for achieving his broader educational and professional objectives. The court distinguished the petitioner’s case from Revenue Ruling 72-301, which involved a shorter stay and direct connection between work and education. The court emphasized that the petitioner’s extended stay and economic activities in the U. S. indicated he was more than a transient or sojourner, thus establishing U. S. residency for tax purposes.

    Practical Implications

    This decision underscores the importance of determining tax residency status for foreign students under tax treaties. It highlights that the duration and purpose of a student’s stay in the U. S. , along with their economic activities, can impact their eligibility for treaty exemptions. Legal practitioners advising foreign students should carefully assess their clients’ residency status under U. S. tax law, as it can affect their tax obligations. The ruling may influence how similar cases are analyzed, particularly in distinguishing between students who are transients and those who establish residency. This case has been cited in subsequent rulings to clarify the application of tax treaties to foreign students and professionals.

  • Crerar v. Commissioner, 26 T.C. 702 (1956): US Citizens Residing Abroad and Tax Treaty Interpretation

    Crerar v. Commissioner, 26 T.C. 702 (1956)

    Under the 1942 US-Canada Tax Convention, the United States retained the right to tax its citizens residing in Canada under the provisions of the Internal Revenue Code, using the standard tax rates.

    Summary

    Marie G. Crerar, a US citizen residing in Canada, disputed the Commissioner of Internal Revenue’s determination that her US income tax should be calculated using the standard rates under the Internal Revenue Code (IRC) rather than a 15% rate stipulated in the US-Canada Tax Convention. The Tax Court held for the Commissioner, ruling that Article XVII of the Convention allowed the US to tax its citizens as if the Convention did not exist, thus applying the IRC rates. This case clarifies the interplay between tax treaties and domestic tax laws, specifically for US citizens with foreign residency, emphasizing the primacy of the IRC when explicitly reserved by the US within the treaty framework.

    Facts

    Marie G. Crerar, a US citizen, resided in Canada during 1952. Her income was derived solely from US sources. She sought to have her US income tax computed under the US-Canada Tax Convention, claiming a 15% tax rate on gross income. The Commissioner determined that the rates under Sections 11 and 12 of the 1939 Internal Revenue Code applied, resulting in a larger tax liability due to her net income being taxed at the standard progressive rates. The facts were stipulated, involving income from US trusts and capital gains. Crerar’s return had been prepared by a bank and showed that the 15% was the amount paid under the tax treaty. She had paid Canadian income tax. The issue was the proper interpretation of the tax convention.

    Procedural History

    The Commissioner determined a tax deficiency based on the application of the IRC rates. Crerar petitioned the United States Tax Court, contesting the Commissioner’s assessment. The Tax Court reviewed the stipulated facts, the US-Canada Tax Convention, and relevant regulations and case law. The Tax Court upheld the Commissioner’s determination, leading to the present decision.

    Issue(s)

    1. Whether the rate of income tax imposed upon a US citizen residing in Canada, with all income derived from US sources, is determined by the US-Canada Tax Convention or the Internal Revenue Code.

    Holding

    1. No, because Article XVII of the US-Canada Tax Convention allows the United States to tax its citizens, even if residing abroad, under the Internal Revenue Code as though the convention had not come into effect.

    Court’s Reasoning

    The Court based its decision primarily on the interpretation of the US-Canada Tax Convention. The Court focused on Article XVII of the Convention, which states that “the United States of America in determining the income and excess profits taxes, including all surtaxes, of its citizens or residents or corporations, may include in the basis upon which such taxes are imposed all items of income taxable under the revenue laws of the United States of America as though this convention had not come into effect.” The court emphasized that this reservation allowed the US to apply its standard tax rates, as set forth in the IRC, to US citizens residing in Canada, despite any conflicting provisions in the Convention. The court also referenced a Treasury Decision and legislative history supporting this interpretation. It noted that the Commissioner’s interpretation, along with over a decade of administrative practice, carried significant weight. The Court found that the Commissioner correctly applied the law and allowed a credit for Canadian taxes paid, thereby avoiding double taxation, as designed by treaty.

    Practical Implications

    This case is crucial for understanding how tax treaties interact with domestic tax laws, especially for US citizens with international connections. It reinforces the principle that the US can, through treaty language, reserve the right to tax its citizens under its own laws. Attorneys should carefully examine the specific language of tax treaties to understand the limits of their application. Taxpayers with foreign residency and US income should consider the implications of such treaties and consult tax professionals to ensure compliance with both US and foreign tax regulations. This case supports the IRS’s position on taxing US citizens, even when residing abroad, unless a treaty explicitly states otherwise.