FORMS: 6.9 POSITION STATEMENT TO IRS REGARDING W-4 Exempt
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This form is to be sent to the IRS when a citizen has attempted to stop income tax withholding using a W-4Exempt and the IRS has come back and told the employer to withhold at single with no exemptions.


<<NAME>>

<<ADDRESS>>

<<CITY>>, <<STATE>> <<ZIP>>

<<DATE>>

Internal Revenue Service

1111 Constitution Ave., NW

Washington, DC 20224

Dear Sir or Madam:

On <<DATE>>, I sent to your office a copy of a letter I had sent to my employer, <<COMPANY NAME>>, insisting that they not withhold as per my claim of exempt status on my W-4 form. (Let it be it known for your records that any mention of the Department of Justice in that letter was intended to refer to the courts, a part of the judicial branch, and therefore not to the United States Department of Justice, a part of the executive branch. The reference to the Department of Justice rather than the courts was erroneous, and, under penalty of perjury, I declare that all references to the “Department of Justice” in that letter were intended to refer to the courts, not to the Department of Justice.)

The claim of exempt status on my W-4 form is not to be construed as a willful attempt to commit fraudulent action to avoid payment of owed taxes. It is my belief and position that while I do indeed receive income from services rendered, it is not gross income as defined by the Internal Revenue Code and the associated federal regulations.

Indeed, none of my income in my present or past has ever derived from a taxable source. 26 C.F.R. 1.861-8 is the section of the Federal Regulations that is used to determine “sources of income” for the purposes of income taxes. The specific sources and activities listed in 26 C.F.R. 1.861-8(f)(1) do not include my income.

If you believe that my position is flawed, and you believe a counter argument could be proven in a federal court of law, as I believe mine could be proven in a federal court of law, then you or a representative of your service is encouraged to contact me to explain your argument. If I agree that the arguments are more sound than the attached position, and you can ultimately prove that my source of income is a taxable source of income that I am required to pay, I would be absolutely willing to withdraw the claim of exempt status on my W-4 form and to remit all due taxes and the 1040 form as required by the Internal Revenue Code.

However, if I am not provided a persuasive argument that 26 C.F.R. 1.861-8(f)(1) is not intended to determine the list of specific sources and activities (“operative sections”) of income that is referenced by the term “whatever source” in 26 USC 61 and by the same term in the Sixteenth Amendment of the Constitution of the United States of America, and if it is not proven to me that income taxes (where it is understood that all forms of taxes are understood to be imposed and required, regardless of whether compliance is “voluntary”) for citizens working and living in the United States receiving income from sources or activities not included in 26 C.F.R. 1.861-8(f)(1) would not be involuntary servitude nor slavery within the geographic borders of the United States of America, I will continue to claim exempt status on my W-4 form, and I will not file an unnecessary 1040 tax return form that does not apply to me since my income is not gross income as defined by Section 61 of the Internal Revenue Code.

This statement of intent is my official statement on the matter of income taxes, and is the explanation regarding why you will not receive an inapplicable and irrelevant 1040 form this year.

Sincerely,

<<NAME>>


Position Statement

Preface:

The income tax is imposed (by 26 USC 1) on “taxable income”; “taxable income” is generally defined as “gross income” minus allowable deductions (26 USC 63); and “gross income” is generally defined in 26 USC 61. (All emphasis in citations below has been added.)

Issue #1:

“Gross income” is defined (generally) in 26 USC 61 as “all income from whatever source derived.” While 26 USC 61 lists the more common “items” of income which may be taxable (and following sections specifically include or exclude various other “items” of income), Part I of Subchapter N of the Code (Section 861 and following), and the related regulations, determine what constitutes a “source” of income (from which those items must derive in order to be taxable) subject to the income tax imposed by 26 USC 1.

Sec. 1.861-1 Income from sources within the United States.
(a) Categories of income. Part I (section 861 and following), subchapter N, chapter 1 of the Code, and the regulations thereunder determine the sources of income for purposes of the income tax.
” [26 C.F.R. 1.861-1]

This fact has been stated in the first sentence of the regulations under 26 USC 861 since 1954 (when Section 861 came into existence). Numerous sections of the statutes identify Section 861 as the section defining “income from sources within the United States,” and 26 USC 306 uses the phrase “...part I of subchapter N (sec. 861 and following, relating to determination of sources of income).” Similarly, the indexes of both the United States Code and the Code of Federal Regulations refer to 26 USC 861 and the related regulations regarding “determination of sources of income.”

Income tax
Sources of income
Determination, 26 861 et seq…
Within the U.S., 26 861
” [USC Index]

Income from sources inside or outside U.S., determination of sources of income, 26 C.F.R. 1 (1.861-1--1.864-8T).” [C.F.R. Index]

In addition, the title of the part of regulations beginning at 26 C.F.R. 1.861-1 is titled “Determination of sources of income” (as were the related statutes up until 1988).

The language of 26 USC 861(a) quite clearly gives the general rules concerning which income constitutes “gross income” from “sources” within the United States.

Sec. 861. Income from sources within the United States
(a) Gross income from sources within United States
The following items of gross income shall be treated as income from sources within the United States:...
” [26 USC 861(a)]

The corresponding regulations in 26 C.F.R. 1.861-1 reiterate the point.

Sec. 1.861-1 Income from sources within the United States.
(a) Categories of income... section 861 and following... and the regulations thereunder
determine the sources of income for purposes of the income tax... The statute provides for the following three categories of income:
(1) Within the United States. The gross income from sources within the United States, consisting of the items of gross income specified in section 861(a) plus the items of gross income allocated or apportioned to such sources in accordance with section 863(a)...
” [26 C.F.R. 1.861-1(a)]

The “items” of income which may be taxable (as dealt with in 26 USC 61 and following) are a separate issue from the “sources” from which those items must derive to be taxable, which is dealt with by Subchapter N, “Tax based on income from sources within or without the United States.” (For example, the listing of “interest” in 26 USC 61 does not make the foreign-earned interest of all foreigners taxable.) In fact, in the full version of Title 26 (with all notes and amendments), 26 USC 61 itself contains the following cross-reference, clarifying that the matter of “sources” is dealt with by Section 861 and following:

Income from sources -
Within the United States, see section 861 of this title.
Without the United States, see section 862 of this title.

[Footnote under 26 USC 61 (full version of Title 26)]

But again, the clearest statement on the matter is found in the first sentence of regulations under 26 USC 861, which states that “section 861 and following... and the regulations thereunder determine the sources of income for purposes of the income tax.”

The statutes of Part I of Subchapter N (Section 861 and following), and related regulations, show income to be taxable only when it derives from the “specific sources” listed in 26 C.F.R. 1.861-8(f)(1). (Those “specific sources” are also described in various “operative sections” throughout the statutes of Subchapter N.) My income does not derive from any of the listed “specific sources.”

(ii) Relationship of sections 861, 862, 863(a), and 863(b). Sections 861, 862, 863(a), and 863(b) are the four provisions applicable in determining taxable income from specific sources.” [26 C.F.R. 1.861-8(f)(3)(ii)]

The rules contained in this section apply in determining taxable income of the taxpayer from specific sources and activities under other sections of the Code, referred to in this section as operative sections. See paragraph (f)(1) of this section for a list and description of operative sections.” [26 C.F.R. 1.861-8(a)(1)]

[T]he term ‘statutory grouping’ means the gross income from a specific source or activity which must first be determined in order to arrive at ‘taxable income’ from which specific source or activity under an operative section. (See paragraph (f)(1) of this section.)” [26 C.F.R. 1.861-8(a)(4)]

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…
(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 C.F.R. 1.861-8(f)(1)]

Both the regulations under Section 22(a) of the 1939 Code (predecessor to 26 USC 61), and the regulations under Section 119 of the 1939 Code (predecessor of 26 USC 861 - 864) list the same taxable activities (“sources”) when discussing income from within the United States. This reinforces that the legal meaning of the word “source,” “for purposes of the income tax” (rather than just for certain special situations) is limited to those matters to which 26 USC 861 and its predecessors apply.

39.22(a)-1 What included in gross income... Profits of citizens, residents, or domestic corporations derived from sales in foreign commerce must be included in their gross income; but special provisions are made for nonresident aliens and foreign corporations by sections 211 to 238, inclusive, and, in certain cases, by section 251, for citizens and domestic corporations deriving income from sources within possessions of the United States.” [26 C.F.R. 29.22(a)-1 (1945)]

Sec. 29.119-1. Income from sources within the United States.
Nonresident alien individuals, foreign corporations, and citizens of the United States or domestic corporations entitled to the benefits of section 251 are taxable only upon income from sources within the United States.”
[26 C.F.R. 29.119-1 (1945)]

Issue #2:

While 26 USC 63 generally defines “taxable income” (as “gross income” minus deductions), the sections to be used specifically for determining taxable income from sources within the United States are 26 USC 861(b) and 26 C.F.R. 1.861-8. (The regulations under 26 USC 63 give no instructions for determining taxable income.)

“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.” [26 C.F.R. 1.863-1(c)]

“Rules are prescribed for determination of gross income and taxable income derived from sources within and without the United States... 1.861-1 through 1.864. (Secs. 861-864; ’54 Code.)” [Treasury Decision 6258]

“Sections 861(b) and 863(a) state in general terms how to determine taxable income of a taxpayer from sources within the United States after gross income from sources within the United States has been determined.” [26 C.F.R. 1.861-8]

“The taxable income from sources within the United States… shall be determined by deducting therefrom, in accordance with sections 861(b) and 863(a), [allowable deductions]. See Secs. 1.861-8 and 1.863-1.” [26 C.F.R. 1.861-1]

Sec. 1.861-8 [is the section] for determining the taxable income from sources within the United States.” [26 C.F.R. 1.862-1]

Secs. 1.861-1 to 1.863-5, [give the principles] for determining the gross and the taxable income from sources within and without the United States.” [26 C.F.R. 1.863-6]

26 USC 861(b) is entitled “Taxable income from sources within the United States,” and the corresponding regulations in 26 C.F.R. 1.861-8 are entitled “Computation of taxable income from sources within the United States *and from other sources and activities.” (The portion of the title after the asterisk was added in 1978.)

(As shown in Issue #1, 26 USC 861(b) and 26 C.F.R. 1.861-8 do not show my income to be taxable.)

Issue #3:

The Treasury regulations state that the “items” of income listed in 26 USC 61 (which make up “classes of gross income”) may include income excluded from federal taxation.

[A “class of gross income”] “may consist of one or more items... of gross income enumerated in section 61.” [26 C.F.R. 1.861-8(a)(3)]

“[P]aragraph (d)(2) of this section... provides that a class of gross income may include excluded income.” [26 C.F.R. 1.861-8(b)(1)]

Concerning the matter of whether or not such “items” are exempt, the reader is directed to 26 C.F.R. 1.861-8T(d)(2), which states the following:

“ (ii) Exempt income and exempt asset defined--(A) In general. For purposes of this section, the term exempt income means any income that is, in whole or in part, exempt, excluded, or eliminated for federal income tax purposes.”
[26 C.F.R. 1.861-8T(d)(2)(ii)]

The section then goes on to specify what is not exempt.

“(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…
(B) In computing the combined taxable income of a DISC or FSC
(C) For all purposes under subchapter N of the Code… the gross income of a possessions corporation…
(D) Foreign earned income as defined in section 911 and the regulations thereunder…
” [26 C.F.R. 1.861-8T(d)(2)(iii)]

Again, only those engaged in international or foreign commerce (including commerce within federal possessions) are identified as not being exempt by law. The regulations in 26 C.F.R. 1.61-1 defines “gross income” as “all income from whatever source derived, unless excluded by law.” Prior regulations clarify that the term “excluded by law” means exempt by statute or exempt by the Constitution (though the phrase is often misread as referring only to statutory exemption).

“Sec. 29.21-1. Meaning of net income.
The tax imposed by chapter 1 is upon income. Neither income exempted by statute or fundamental law [the Constitution]... enter into the computation of net income as defined by section 21.” [26 C.F.R. 29.21-1 (1945)]

“Sec. 29.22(b)-1. Exemption--Exclusions from gross income.
Certain items of income specified in section 22(b) are exempt from tax and may be excluded from gross income... No other items are exempt from gross income except (1) those items of income which are, under the Constitution, not taxable by the Federal Government...
” [26 C.F.R. 29.22(b)-1 (1945)]

The prior regulations under the definition of “gross income,” as well as the current regulations in 26 C.F.R. 1.861-8T(d)(2) (shown above), give very similar positive lists of those types of activities, income from which is not exempted from federal taxation by the Constitution.

Though this issue is settled by the regulations alone, how the Constitution exempts certain income from federal taxation will be addressed, for completeness’ sake.

Congress’ legal power within the 50 states is limited to those matters enumerated in Article I, Section 8 (see the Tenth Amendment).

We start with first principles. The Constitution creates a Federal Government of enumerated powers. See U.S. Const., Art. I, 8. As James Madison wrote, ‘[t]he powers delegated by the proposed Constitution to the federal government are few and defined...’
[United States v. Lopez, 514 U.S. 549 (1995)]

Though Article I, Section 8 includes (in the first clause) the power to “lay and collect taxes,” the Supreme Court has repeatedly made clear that this does not empower Congress to control matters otherwise outside of the jurisdiction, merely by putting legislation in the form of a “tax.”

Grant the validity of this law, and all that Congress would need to do, hereafter, in seeking to take over to its control any one of the great number of subjects of public interest, jurisdiction of which the states have never parted with, and which are reserved to them by the Tenth Amendment, would be to enact a detailed measure of complete regulation of the subject and enforce it by a socalled tax upon departures from it. To give such magic to the word 'tax' would be to break down all constitutional limitation of the powers of Congress and completely wipe out the sovereignty of the states.
[Bailey v. Drexel Furniture Co., 259 U.S. 20 (1922)]

“[The citation above] has complete application to the act before us, and requires us to hold that the provisions of the act we have been discussing cannot be sustained as an exercise of the taxing power of Congress conferred by section 8, article 1.”
[Hill v. Wallace, 259 U.S. 44 (1922)]

The power to tax is therefore limited to those matters otherwise under federal jurisdiction (particularly with taxes which result in a significant regulation of behavior). For example, the power to tax combined with the power to regulate international commerce authorizes Congress to impose an income tax on income derived from international commerce. Concerning the income tax of 1913, in a case dealing with a taxpayer engaged in international commerce, the Supreme Court stated the following:

“The Constitution broadly empowers Congress not only 'to lay and collect taxes, duties, imposts, and excises,' but also ‘to regulate commerce with foreign nations.’ So, if the [the clause forbidding taxes on exports from states] be not in the way, Congress undoubtedly has power to lay and collect such a tax as is here in question.
[William E. Peck & Co. v. Lowe, 247 U.S. 165]

Correspondingly, the taxable activities spelled out in the statutes (see Subchapter N) and regulations (see 26 CFR 1.861-8, 1.861-8T) limit the tax to those matters specifically under federal jurisdiction pursuant to Article I, Section 8 of the Constitution (such as international commerce and federal possessions).

Brief mention should be made of the Sixteenth Amendment to the Constitution, since many incorrectly believe that it increased Congress’ power to tax. The Supreme Court (in the Brushaber and Stanton cases) and the Secretary of the Treasury agreed that “[t]he provisions of the sixteenth amendment conferred no new power of taxation, but simply prohibited [Congress’ original power to tax incomes] from being taken out of the category of indirect taxation, to which it inherently belonged, and being placed in the category of direct taxation subject to apportionment.” [Treasury Decision 2303] The Sixteenth Amendment had no effect whatsoever on Congress’ taxing jurisdiction.

(The above discussion concerning the Constitutional limits on Congress’ taxing power is included only to show the reason for the wording of the Treasury regulations. No claim is made that the current statutes and regulations are in any way unconstitutional.)

Conclusion:

Whereas:

1) The income I receive derives from activities which do not constitute “sources of income for purposes of the income tax” (26 C.F.R. 1.861-1), and;

2) I engage in no activities which generate taxable income, according to the section “for determining taxable income from sources within the United State” (26 C.F.R. 1.861-8), and;

3) The income I receive is excluded from the list of “non-exempt” income (26 C.F.R. 1.861-8T(d)(2)) (due to being exempted by the Tenth Amendment to the Constitution);

I therefore conclude that I receive no income subject to the “income tax” imposed by 26 USC 1.

Signed,

<<NAME>>
All rights reserved without prejudice, UCC 1-207