TAX DEPOSITION QUESTIONS: 11. TAXABLE SOURCES

11.  TAXABLE SOURCES

Introduction

As written, the statutes in the U.S. Codes (U.S.C.) say to use regulations connected to 26 U.S.C. Section 861 to determine if income is taxable.  Per the plain language of the regulations, "Items" of income can only be taxed if they come from taxable "sources."  The list of "sources", which is the same word as found in the 16th Amendment, is found in Section 861.

The list of these "sources" found at Section 861 is limited to foreign source income and foreign taxpayers.  Again, per the plain language of the regulations, "wages", salaries and even capital gains earned by Americans Nationals (but not "citizens") domiciled within the fifty states are not taxable.

The IRS does not want you to look at Section 861, which is why the regulations that implement it are so badly obfuscated to confuse people.

NOTE:  These questions were not asked at the Hearing due to time limitations.  No video testimony or transcript is available.  We also do not suggest using these arguments in your own tax litigation. 

Findings and Conclusions

With the following series of questions, we intend to prove that the average American has no "income" as constitutionally defined, no income from taxable sources within the "United States", and therefore no liability to file a return.  We will also show that:

  • As written, the statutes in the U.S. Codes (U.S.C.) instruct tax payers to use regulation Section 861 to determine if their income is taxable.
  • Deletions and alterations of key phrases and references since 1954 have deliberately induced confusion in this portion of the tax code which determines what income is taxable.
  • Per the plain language of the regulations, "Items" of income can only be taxed if they come from taxable "sources."
  • The list of "sources", which uses the same word "source" as found in the 16th Amendment, is found in Section 861.
  • The list of "sources" found at Section 861 is limited to foreign source income and foreign taxpayers/corporations.
  • Per the plain language of the regulations, wages, salaries and even capital gains earned by ordinary Americans within the fifty states are not taxable.

Bottom Line: The IRS does not want you to look at Section 861.

Section Summary

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11.1.  Admit that the term "from whatever source derived" as used in the Sixteenth Amendment does not mean that the source of income or the situs for taxation is irrelevant or inconsequential in determining taxable income.   (WTP #442)

11.2.  Admit that interpreting the phrase "from whatever source derived" to mean that the source or situs is irrelevant, makes the federal income tax applicable to any country or location in the world and renders 26 U.S.C. 861 and 26 U.S.C. 862 irrelevant and unnecessary, which clearly is an irrational and nonsensical conclusion to reach.   (WTP #443)

11.3.  Admit that the federal income tax under I.R.C. Subtitle A applies only to taxable income, which, generally speaking, is “gross income” minus allowable deductions.   (WTP #444)

TITLE 26 > Subtitle A > CHAPTER 1 > Subchapter N > PART I > 863

863. Special rules for determining source

(a) Allocation under regulations Items of gross income, expenses, losses, and deductions, other than those specified in sections 861 (a) and 862 (a), shall be allocated or apportioned to sources within or without the United States, under regulations prescribed by the Secretary. Where items of gross income are separately allocated to sources within the United States, there shall be deducted (for the purpose of computing the taxable income therefrom) the expenses, losses, and other deductions properly apportioned or allocated thereto and a ratable part of other expenses, losses, or other deductions which cannot definitely be allocated to some item or class of gross income. The remainder, if any, shall be included in full as taxable income from sources within the United States.

11.4.  Admit that the federal income tax regulations 26 C.F.R. Part 1, generally define “gross income” to mean “all income from whatever source derived, unless excluded by law.” as follows:   (WTP #445)

26 C.F.R. 1.61-1(a):

(a) General definition. Gross income means all income from whatever source derived, unless excluded by law. Gross income includes income realized in any form, whether in money, property, or services. Income may be realized, therefore, in the form of services, meals, accommodations, stock, or other property, as well as in cash. Section 61 lists the more common items of gross income for purposes of illustration. For purposes of further illustration, Sec. 1.61-14 mentions several miscellaneous items of gross income not listed specifically in section 61. Gross income, however, is not limited to the items so enumerated.

11.5.  Admit that there are certain types of income which Congress has exempted by statute as identified in 26 C.F.R. 1.61-1(a).   (WTP #446)

11.6.  Admit that there are other types of income not enumerated above which are not exempted by statute, but are nonetheless "excluded by law", for income tax purposes, because they are excluded from taxation by the Constitution itself or because not specifically identified as "gross income" somewhere in the Internal Revenue Code.   (WTP #447)

26 C.F.R. 39.21-1 (1956):

(a) The tax imposed by chapter 1 is upon income.  Neither income exempted by statute or fundamental law, nor expenses incurred in connection therewith, other than interest, enter into the computation of net income as defined by section 21.

_____________________________________________________________________________

26 C.F.R. 39.22(b)-1 (1956):

Certain items of income specified in section 22(b) are exempt from tax and may be excluded from gross income.  These items, however, are exempt only to the extent and in the amount specified.  No other items may be excluded from gross income except (a) those items of income which are, under the Constitution, not taxable by the Federal Government; (b) those items of income which are exempt from tax on income under the provisions of any act of Congress still in effect; and (c ) the income excluded under the provisions of the Internal Revenue Code (see particularly section 116).

11.7.  Admit that the phrase "fundamental law" indicated above in the older regulations means the U.S. Constitution.   (WTP #448)

Federalist Paper #78, Alexander Hamilton

The interpretation of the laws is the proper and peculiar province of the courts. A constitution is, in fact, and must be regarded by the judges, as a fundamental law. It therefore belongs to them to ascertain its meaning, as well as the meaning of any particular act proceeding from the legislative body. If there should happen to be an irreconcilable variance between the two, that which has the superior obligation and validity ought, of course, to be preferred; or, in other words, the Constitution ought to be preferred to the statute, the intention of the people to the intention of their agents.

11.8.  Admit that the above older regulation, 26 C.F.R. 39.21-1 (1956)  and 26 C.F.R. 39.22(b)-1 (1956) has never been explicitly repealed or superseded by newer regulations and is still in force.   (WTP #449)

11.9. Admit that the regulations under 26 U.S.C. 863 state:   (WTP #450)

26 C.F.R. 1.863-1(c)

Determination of taxable income. The taxpayer's taxable income from sources within or without the United States will be determined under the rules of Secs. 1.861-8 through 1.861-14T for determining taxable income from sources within the United States.”

11.10.  Admit that 26 U.S.C. 61 lists some of the more common “classes of gross income” which may possibly be taxable, such as compensation for services, interest, and dividends, among others and admit that section 1.861-8(d)(2) of the federal income tax regulations are to be consulted in determining in which situations these “classes of gross income” are excluded for federal income tax purposes?   (WTP #451)

26 C.F.R. 1.861-8(d)(2)

(2) Allocation and apportionment to exempt, excluded, or eliminated income. [Reserved] For guidance, see Sec. 1.861-8T(d)(2).

11.11. Admit that 26 C.F.R. 1.861-8T(d)(2) of the regulations lists several types of income which are, quote, not considered to be exempt, eliminated, or excluded income, end quote as follows:   (WTP #452)

26 C.F.R. 1.861-8T(d)(2)(iii)

(iii) Income that is not considered tax exempt. The following items are not considered to be exempt, eliminated, or excluded income and, thus, may have expenses, losses, or other deductions allocated and apportioned to them:
    (A) In the case of a foreign taxpayer (including a foreign sales corporation (FSC)) computing its effectively connected income, gross income (whether domestic or foreign source) which is not effectively connected to the conduct of a United States trade or business;
    (B) In computing the combined taxable income of a DISC or FSC and its related supplier, the gross income of a DISC or a FSC;
    (C) For all purposes under subchapter N of the Code, including the computation of combined taxable income of a possessions corporation and its affiliates under section 936(h), the gross income of a possessions corporation for which a credit is allowed under section 936(a); and
    (D) Foreign earned income as defined in section 911 and the regulations thereunder (however, the rules of Sec. 1.911-6 do not require the allocation and apportionment of certain deductions, including home mortgage interest, to foreign earned income for purposes of determining the deductions disallowed under section 911(d)(6)).

11.12.  Admit that only "income" derived from certain activities related to international or foreign commerce are included on that list of non-exempt types of income appearing in 26 C.F.R. 1.861-8T(d)(2)(iii) above.    (WTP #453)

11.13. Admit that the "income" of most American Nationals (but not "citizens") domiciled in the states is absent, and therefore excluded, from the list appearing in 26 C.F.R. 1.861-8T(d)(2)(iii).    (WTP #454)

11.14.  Admit that 26 U.S.C. 861(b), and the related regulations beginning at 26 C.F.R. 1.861-8, are the sections to use to determine one’s taxable income from "sources within the United States", regardless of citizenship and residency.   (WTP #455)

11.15.  Admit that for American Nationals (but not "citizens") living and working exclusively in the 50 states and receiving all earnings from within the 50 states, that 26 U.S.C. 861(b) and related regulations beginning at 26 C.F.R. 1.861-8 do not classify such earnings to be taxable.   (WTP #456)

11.16.  Admit that "classes of gross income" are defined in 26 C.F.R. 1.861-8(a)(3) and are identified in 26 U.S.C. 61.

11.17.  Admit that "items of income" of income are defined in 26 C.F.R. 1.861-1(a) and are identified in 26 U.S.C. 861 through 26 U.S.C. 863.


QUESTIONS ADDED BY AUTHOR BEYOND ORIGINAL WE THE PEOPLE HEARING


11.18.  Admit that "operative sections" are defined in 26 C.F.R. 1.861-8(a)(1) and 26 C.F.R. 1.861-8(f)(1).

11.19.  Admit that to be "gross income", monies must derive from an "operative section" defined in 26 C.F.R. 1.861-8(a)(1) and 26 C.F.R. 1.861-8(f)(1).

11.20.  Admit that the only "operative sections" identified in 26 C.F.R. 1.861-8(a)(1) and 26 CFR 1.861-8(f)(1) are 26 U.S.C. 871(b), 26 U.S.C. 882, and 26 U.S.C. 904(a).

11.21.  Admit that 26 U.S.C. 871(b) deals only with nonresident aliens engaged in a "trade or business" within the "United States".

11.22.  Admit that 26 U.S.C. 882 deals only with "Taxes on income of foreign corporations connected with United States Business".

11.23.  Admit that 26 U.S.C. 904(a) deals only with "Limitations on credit" taken under 26 U.S.C. 901(a), which then deals with "taxes on foreign countries and of possessions of the United States".

11.24.  Admit that before monies can be called "gross income", they must first be classified as "income" in a Constitutional sense.

11.25.  Admit that in the case of Eisner v. Macomber, 252 U.S. 189 in 1920, the U.S. Supreme Court ruled that Congress cannot by legislation define or redefine the term "income" because only the Constitution can define it.

“In order, therefore, that the [apportionment] clauses cited from article I [2, cl. 3 and 9, cl. 4] of the Constitution may have proper force and effect …[I]t becomes essential to distinguish between what is an what is not ‘income,’…according to truth and substance, without regard to form.  Congress cannot by any definition it may adopt conclude the matter, since it cannot by legislation alter the Constitution, from which alone, it derives its power to legislate, and within those limitations  alone that power can be lawfully exercised… [pg. 207]…After examining dictionaries in common use we find little to add to the succinct definition adopted in two cases arising under the Corporation Tax Act of 1909, Stratton’s Independence v. Howbert, 231 U.S. 399, 415, 34 S.Sup.Ct. 136, 140 [58 L.Ed. 285] and Doyle v. Mitchell Bros. Co., 247 U.S. 179, 185, 38 S.Sup.Ct. 467, 469, 62 L.Ed. 1054…”

11.26.  Admit that the only definition of the term "income" in Title 26, the Internal Revenue Code, is found in 26 U.S.C. 643 as follows.

TITLE 26 > Subtitle A > CHAPTER 1 > Subchapter J > PART I > Subpart A > 643

643. Definitions applicable to subparts A, B, C, and D

 (b) Income

For purposes of this subpart and subparts B, C, and D, the term “income”, when not preceded by the words “taxable”, “distributable net”, “undistributed net”, or “gross”, means the amount of income of the estate or trust for the taxable year determined under the terms of the governing instrument and applicable local law. Items of gross income constituting extraordinary dividends or taxable stock dividends which the fiduciary, acting in good faith, determines to be allocable to corpus under the terms of the governing instrument and applicable local law shall not be considered income.

11.27.  Admit that the term "income" was defined by the U.S. Supreme Court to mean "corporate profit".

“…Whatever difficulty there may be about a precise scientific definition of ‘income,’ it imports, as used here, something entirely distinct from principal or capital either as a subject of taxation or as a measure of the tax; conveying rather the idea of gain or increase arising from corporate activities.”  Doyle v. Mitchell Brothers Co., 247 U.S. 179, 185, 38 S.Ct. 467 (1918)

“This court had decided in the Pollock Case that the income tax law of 1894 amounted in effect to a direct tax upon property, and was invalid because not apportioned according to populations, as prescribed by the Constitution.  The act of 1909 avoided this difficulty by imposing not an income tax, but an excise tax upon the conduct of business in a corporate capacity, measuring, however, the amount of tax by the income of the corporation…Flint v. Stone Tracy Co., 220 U.S. 107, 55 L.Ed. 389, 31 Sup.Ct.Rep. 342, Ann. Cas.”  Stratton’s Independence v. Howbert, 231 U.S. 399, 414, 58 L.Ed. 285, 34 Sup.Ct. 136 (1913)

11.28.  Admit that the term "income" means the same thing in Corporate Excise Tax of 1909 as it meant in the Sixteenth Amendment and all revenue acts subsequently passed.

“Income has been taken to mean the same thing as used in the Corporation Excise Tax Act of 1909 (36 Stat. 112) in the 16th Amendment, and in the various revenue acts subsequently passed.”  [Bowers v. Kerbaugh-Empire Co., 271 U.S. 170, 174, (1926)]

11.29.  Admit that the taxable sources listed in 26 C.F.R. 1.861-8(f)(1) contain only "income" as constitutionally defined.

11.30.  Admit that in the case of Stanton v. Baltic Mining, 240 U.S. 103 in 1916, Congress identified the income tax as an "indirect" tax and stated that "the 16th Amendment conferred no new powers of taxation".

"But, aside from the obvious error of the proposition, intrinsically considered, it manifestly disregards the fact that, by the previous ruling, it was settled that the provisions of the Sixteenth Amendment conferred no new power of taxation, but simply prohibited the previous complete and plenary power of income taxation possessed by Congress from the beginning from being taken out of the category of indirect taxation to which it inherently belonged, and being placed [240 U.S. 113] in the category of direct taxation subject to apportionment by a consideration of the sources from which the income was derived -- that is, by testing the tax not by what it was, a tax on income, but by a mistaken theory deduced from the origin or source of the income taxed."

11.31.  Admit that income taxes are all uniformly classified as excise taxes according to the U.S. Supreme Court in Brushaber v. Union Pacific Railroad, 240 U.S. 1 (1916).

"...the conclusion reached in the Pollock case did not in any degree involve holding that income taxes generically and necessarily came within the class [240 U.S. 17] of direct taxes on property, but, on the contrary, recognized the fact that taxation on income was in its nature an excise entitled to be enforced as such unless and until it was concluded that to enforce it would amount to accomplishing the result which the requirement as to apportionment of direct taxation was adopted to prevent, in which case the duty would arise to disregard form and consider substance alone, and hence subject the tax to the regulation as to apportionment which otherwise as an excise would not apply to it."

"...a tax on incomes cannot properly be classified as a property tax, but falls in the class of excise taxes."

11.32.  Admit that excise taxes are taxes that are imposed on those entities in receipt of privileges, according to the U.S. Supreme Court in the case of Flint v. Stone Tracy, 220 U.S. 107 (1916).

"Excises are taxes laid upon the manufacture, sale or consumption of commodities within the country, upon licenses to pursue certain occupations and upon corporate privileges...the requirement to pay such taxes involves the exercise of [220 U.S. 107, 152]   privileges, and the element of absolute and unavoidable demand is lacking...

It is therefore well settled by the decisions of this court that when the sovereign authority has exercised the right to tax a legitimate subject of taxation as an exercise of a franchise or privilege, it is no objection that the measure of taxation is found in the income produced in part from property which of itself considered is nontaxable.

Conceding the power of Congress to tax the business activities of private corporations.. the tax must be measured by some standard..."  Flint v. Stone Tracy, 220 U.S. 107 (1916)

11.33.  Admit that corporations are in receipt of privileges by virtue of their existence as an artificial legal entity.

11.34.  Admit that entities other than federal corporations can volunteer to become liable for an excise tax for which they aren't technically or legally liable by identifying themselves as officers or agents of a privileged federal corporation.

[Code of Federal Regulations]

[Title 26, Volume 17, Parts 300 to 499]

[Revised as of April 1, 2000]

From the U.S. Government Printing Office via GPO Access

[CITE: 26CFR301.6671-1]

TITLE 26--INTERNAL REVENUE

Additions to the Tax and Additional Amounts--Table of Contents

Sec. 301.6671-1 Rules for application of assessable penalties.

 (b) Person defined. For purposes of subchapter B of chapter 68, the term ``person'' includes an officer or employee of a corporation, or a member or employee of a partnership, who as such officer, employee, or member is under a duty to perform the act in respect of which the violation occurs.

11.35.  Admit that a person engaged in a "trade or business" is engaged in an excise taxable voluntary activity defined in 26 U.S.C. 7701(a)(26) as "the functions of a public office".

26 U.S.C. Sec. 7701 Definitions

(a)(26) "The term 'trade or business' includes the performance of the functions of a public office."

11.36 Admit that the United States government is a federal corporation:

United States Code

TITLE 28 - JUDICIARY AND JUDICIAL PROCEDURE
PART VI - PARTICULAR PROCEEDINGS

CHAPTER 176 - FEDERAL DEBT COLLECTION PROCEDURE
SUBCHAPTER A - DEFINITIONS AND GENERAL PROVISIONS
Sec. 3002. Definitions

(15) ''United States'' means -

(A) a Federal corporation;

(B) an agency, department, commission, board, or other entity of the United States; or

(C) an instrumentality of the United States.

11.37  Admit that a "person" engaged in a "trade or business" as a "public officer" in the "United States" makes that person an "officer of a corporation" who fits the description of "person" found in 26 U.S.C. 6671(b) and 26 U.S.C. 7343.

TITLE 26 > Subtitle F > CHAPTER 68 > Subchapter B > PART I > 6671

6671. Rules for application of assessable penalties

(b) Person defined
The term “person”, as used in this subchapter, includes an officer or employee of a corporation, or a member or employee of a partnership, who as such officer, employee, or member is under a duty to perform the act in respect of which the violation occurs.

________________________________________________________________________

TITLE 26 > Subtitle F > CHAPTER 75 > Subchapter D > Sec. 7343.

Sec. 7343. - Definition of term ''person''

The term ''person'' as used in this chapter [Chapter 75] includes an officer or employee of a corporation, or a member or employee of a partnership, who as such officer, employee, or member is under a duty to perform the act in respect of which the violation occurs

[NOTE: This is the "person" for the purposes of some of the miscellaneous penalties under the Internal Revenue Code]

11.38.  Admit that the word "tax" as legally defined does not include monies donated or volunteered for which the payer is not liable  or is not engaged in the privileged activity subject to tax.

“Tax:     A charge by the government on the income of an individual, corporation, or trust, as well as the value of an estate or gift.  The objective in assessing the tax is to generate revenue to be used for the needs of the public.

 A pecuniary [relating to money] burden laid upon individuals or property to support the government, and is a payment exacted by legislative authority.  In re Mytinger, D.C.Tex. 31 F.Supp. 977,978,979.  Essential characteristics of a tax are that it is NOT A VOLUNTARY PAYMENT OR DONATION, BUT AN ENFORCED CONTRIBUTION, EXACTED  PURSUANT TO LEGISLATIVE AUTHORITY.  Michigan Employment Sec. Commission v. Patt, 4 Mich.App. 228, 144 N.W.2d 663, 665.  …”

11.39.  Admit that because monies paid voluntarily cannot legally be classified as "taxes", then they are more properly classified as "donations"

“Donatio:  A gift.  A transfer of the title of property to one who receives it without paying for it.  The act by which the owner of a thing voluntarily transfers the title and possession of the same from himself to another person, without any consideration.”

11.40.  Admit that Dwight E. Avis, former head of the Alcohol and Tobacco Tax Division of the IRS, testifying before a House Ways and Means subcommittee in 1953, said the following:

"Let me point this out now. Your income tax is 100 percent voluntary tax, and your liquor tax is 100 percent enforced tax. Now, the situation is as different as night and day. Consequently, your same rules just will not apply...".

11.41.  Admit that American Nationals who are not "liable" but pay money anyway under Subtitle A of the Internal Revenue Code cannot properly be said to be paying a "tax", but a "donation" based on the legal definition of "tax" presented above.

11.42.  Admit that the IRS routinely referring to "donations" as "taxes" could lead an educated and reasonable person to believe that a constructive fraud is being committed.

11.43.  Admit that the result of such a constructive fraud, if it exists, is called "theft by deception".

11.44.  Admit that specific sources or activities subject to tax under the Sixteenth Amendment are identified in 26 C.F.R. 1.861-8(f)(1).

11.45.  Admit that all of the taxable sources listed in 26 C.F.R. 1.861-8(f)(1) are directly or indirectly derived from corporations in one form or another, including a "trade or business".

11.46.  Admit that the types of corporations identified in 26 C.F.R. 1.861-8(f)(1) which are subject to tax are foreign corporations, including Foreign Sales Corporations (FSC) and Domestic International Sales Corporations (DISC).

11.47.  Admit that the taxable sources identified in 26 C.F.R. 1.861-8(f)(1) relate to foreign commerce coming under Article 1, Section 8, Clause 1 and Article 1, Section 8, Clause 3 of the U.S. Constitution.

11.48.  Admit that foreign and interstate commerce are the only types of commerce which Congress is authorized to regulate relating to states of the Union Article 1, Section 8 of the U.S. Constitution.

11.49.  Admit that foreign commerce is the only type of taxable source identified in 26 C.F.R. 1.861-8(f)(1).

11.50  Admit that the term "foreign" is only defined once in the Internal Revenue Code, and only in the context of "corporations".

United States Code
TITLE 26 - INTERNAL REVENUE CODE

SUBTITLE F - PROCEDURE AND ADMINISTRATION
CHAPTER 79 - DEFINITIONS
Section 7701. Definitions

(a) When used in this title, where not otherwise distinctly expressed or manifestly incompatible with the intent thereof -

[. . .]

(5) Foreign

The term ''foreign'' when applied to a corporation or partnership means a corporation or partnership which is not domestic.

11.51  Admit that the term "domestic" is nowhere defined in the Internal Revenue Code or the Treasury Regulations.

11.52  Admit that the absence of definitions of the terms "foreign" and "domestic" in the context of natural persons within the I.R.C. makes it difficult, if not impossible, for the average American National to easily determine from written law whether he or she has income from sources that are "domestic".

11.53  Admit that the term "United States" as used under Subtitle A of the Internal Revenue Code is defined as follows and not expanded anywhere else in that context to include any other place:

TITLE 26 > Subtitle F > CHAPTER 79 > Sec. 7701.  [Internal Revenue Code]
Sec. 7701. - Definitions

(a)(9) United States

The term ''United States'' when used in a geographical sense includes only the States and the District of Columbia.

(a)(10)The term ''State'' shall be construed to include the District of Columbia, where such construction is necessary to carry out provisions of this title.

11.54  Admit that all income originating from the "United States", as defined above, is "domestic" income within the meaning of Subtitle A of the Internal Revenue Code.