Frequently Asked Question #23

Dear Friend,

Thank you for giving so much of your time/life to put the information about the IRS on the Internet.  Slowly, I think it is sinking into my skull.  One place I have difficulty is that I have been told that unless I live or was born in Washington, D.C. or a "federal territory" I am NOT a U.S. citizen. That to claim I am a U.S. citizen makes me a slave of the federal government.  That "within the US" means federal areas [DOMESTIC] and "without the US" means the 50 states [is FOREIGN to federal areas].  I have not found anything yet on your site to help me with this.  Or is there?  I think this confuses many others too.

Baxter

And here is the response I received.... that leaves me confused!!!


Subject:    Answer
Date:     Fri, 4 Apr 2003 17:51:24 -0600
From:  "Tom" <Tom@taxableincome.net>
To:    "newlife" <newlife@train.missouri.org>

Baxter:

There is an incredible amount of misinformation out there that has nothing to do with the federal income tax law. It is knowing what is BS and what is not that is hard when first learning about the federal income tax deception.

You are required to obey the law as written, and you are finally discovering what the law actually says about who has "taxable income" and who does not. It is this that you MUST study until you understand it properly, so that you can do it in your sleep. Then whatever decisions you make will be based only in the law.  I would watch the video, read the report, and read the essays on the www.taxableincome.net website.

The citizenship stuff is simply wrong.  If you were born in the United States or were naturalized, then you are a US citizen, pure and simple.  As such, you are NOT a slave of the federal government or any of  that other garbage.  There are THREE geographic locales for purposes of the tax law.  WITHIN the United States,  meaning in the 50 states, including Washington D.C.. WITHOUT the United States, meaning in a foreign country. WITHOUT the United States, meaning in one of the US possessions, which are technically outside the United States, but if you are a US citizen, then income from a possession of the United States does not mean that you have taxable income, the law having been changed in 1986.

You work, and you have income. Your income is either domestic or foreign.  So, the question is whether or not you have TAXABLE INCOME within the legal meaning of the law or not.  According to 26 USC 861(b) and the regulations beginning at 26 CFR 1.861-8, if you have domestic income from within the United States, you do NOT owe federal income taxes.

Here is the correct pathway in the law:

TITLE 26, Subtitle A, Chapter 1 (Income tax):
Subchapter A. Determination Of Tax Liability

Subchapter B. Computation Of Taxable Income

Subchapter N. Tax Based On Income From Sources Within Or Without The United States

  1.26 USC 1 imposes the income tax on “taxable income.”
  2.26 USC 63 defines “taxable income” as “gross income” minus deductions.
  3.26 USC 61 defines “gross income” as “all income from whatever source derived.”
  4.26 USC 61 cross-reference (under notes at the bottom, which directs the reader to
     where the law treats income from “sources”):
Income from sources -
Within the United States, see section 861 of this title.
Without the United States, see section 862 of this title.
 5.26 USC 861 and 26 CFR 1.861 determine the taxable “sources of income.”
 6.26 CFR 1.861-8 shows that the taxable “sources of income” from within the
 United States apply only to those engaged in international or foreign commerce
 (including commerce within federal possessions).

While there are some complicated rules about various foreign tax credits, various federal
possessions, etc., the statutes and regulations, past and present, show that there are only
three situations in which there can be “taxable income” subject to the federal income tax:
1.     Nonresident aliens and foreign corporations receiving income from within the United
States.
2.     Citizens of the United States receiving foreign income.
3.     Domestic corporations receiving a large percentage of income from within federal
possessions (which are technically foreign to the 50 states).
The specific list of taxable sources is found in 26 CFR 1.861-8(f)(1), which are the
“specific sources” subject to the income tax:

“The operative sections of the Code which require the determination of taxable income of the
taxpayer from specific sources or activities and which gives rise to statutory groupings to
which this section is applicable include the sections described below.
   (i) Overall limitation to the foreign tax credit…
   (ii)  [Reserved]
   (iii) DISC and FSC taxable income… [international and foreign sales corporations]
   (iv) Effectively connected taxable income. Nonresident alien individuals and foreign
corporations engaged in trade or business within the United States…
   (v) Foreign base company income…

   (vi) Other operative sections. The rules provided in this section also apply in determining--
      (A) The amount of foreign source items…
      (B) The amount of foreign mineral income…
      (C) [Reserved]
      (D) The amount of foreign oil and gas extraction income…
      (E) (deals with Puerto Rico tax credits)
      (F) (deals with Puerto Rico tax credits)
      (G) (deals with Virgin Islands tax credits)
      (H) The income derived from Guam by an individual…
      (I) (deals with China Trade Act corporations)
      (J) (deals with foreign corporations)
      (K) (deals with insurance income of foreign corporations)
      (L) (deals with countries subject to international boycott)
      (M) (deals with the Merchant Marine Act of 1936)” [26 CFR 1.861-8(f)(1)]

None of these “sources” apply to United States citizens who live and work exclusively within
the United States.  (Federal “possessions,” such as Guam, Puerto Rico, etc., are considered
foreign under the law.)  This is the only list of “sources” in Part I of Subchapter N, or the
regulations thereunder, which (as the regulations say) “determine the sources of income for
purposes of the income tax.”

Is your income listed here?

Tom Clayton, MD

Larken Rose's partner

Copyright Family Guardian Fellowship

Last revision: July 12, 2006 07:30 AM
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