To make this more complicated, the IRS has made numerous tax treaties with other countries. These treaties override our tax code and the partner country's tax code, unless our Congress has updated our tax code, which then takes priority.

There is even a tax form for the Arab boycott of Israel. If you get caught in their boycott issue, it can cost you in  taxes.

Tax havens (jurisdictions imposing no taxes) have a growing attraction to some small business owners. These places typically offer a wider variety of company organization than is available in the US, exemption from taxation (the Turks & Cacaos Islands royal governor is currently offering a 20 year guarantee against taxation, even if their law changes!), and strict secrecy laws that make it illegal for the IRS or anyone else to find out who owns or operates the company and what profits or assets it may own. The IRS gets at these things by constantly searching for offshore activity, and by requiring you to flag such activity in several places on your domestic tax returns. Failure to do so can result in penalties and prison sentences.

When you conduct international commerce - especially with a low or no tax jurisdiction - the IRS will be extremely interested in something called Transfer Pricing. Essentially the concern is about you setting prices between your offshore and on-shore subsidiaries to shift profits into lower or tax-free countries where the IRS may have difficulty getting its full take. To avoid the harsh audit approach that the IRS takes on this issue, you can request an Advance Transfer Pricing Agreement. Once the IRS signs off, you can safely charge inter-company pricing at the rate or using the approach the IRS approves. But you must keep the supporting documentation updated. This documentation, which provides the rationale for the price, is often neglected by most companies, large and small. But if it is not updated annually, the IRS can impose large penalties and reclassify substantial portions of offshore income. If the offshore entity does not remit what the IRS wants, then the IRS will take it from the domestic company and its owners.

We strongly suggest that you consult an international tax specialist in both the US and the country you are going to do business in to make sure that you do not accidentally run afoul of the tax laws.