Lars, a German national, and Claire, a U.S. citizen, are husband and wife. They and their two children live in Germany, where Claire works as an executive of a German manufacturing company. They live in a house near Claire's work, and they have no home in the United States. Claire's income consists of a salary in excess of E200,000 annually from her German employer. Lars's annual income consists of dividends on shares of German companies and interest on bonds of German companies. How is their U.S. income tax liability determined?