What "Sources" are Really Taxed
our law books tell us where we can clarify this 'source' stuff??
Indeed they do!...
sources are described by the Secretary of the Treasury in the Code of Federal
Regulations and are the
legally binding definition of 'sources' that must apply to
an income for it to be classified as 'Gross Income'..
Code of Federal Regulations § 1.861- 8(a):
"...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." (Emphasis added)
Would you like to look at paragraph (f)(1) mentioned above?
We thought that you might!
forewarned, they do not look like much, but then, that's good!)
Regulations make reference to 'sources' within the United States.. these
are the only
sources listed from which income must derive in order for it to be taxable for
the purpose of the Income Tax.
contributions made by John Gill CPA & Associates
Code of Federal Regulations 1.861-8(f)(1)
(NOTE: Each of
these 'sources' will be elaborated upon soon)
(i) Overall limitation to the foreign tax credit.
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,...
Foreign base company income.
(vi) Other operative sections.
...foreign source items of tax...
...foreign mineral income...
"...foreign oil and gas extraction income..."
"...citizens entitled to the benefits of section 931 and the section 936
"...residents of Puerto Rico..."
"...income tax liability incurred to the Virgin Islands..."
"...income derived from Guam..."
"...China Trade Act
"...income of a controlled foreign corporation..."
"...income from the insurance of U.S. risks..."
"...international boycott factor...attributable
taxes and income under section 999..."
"...income attributable to the operation of a
agreement vessel under section 607 of the Merchant Marine Act of 1936..."
is very important in light of the fact that the U.S. Supreme Court has determined
that the Congress acts intentionally and purposely in the inclusion or
exclusion of something in a law. Or simply, if a particular source is not on
the list, it is effectively 'excluded' from 'Gross Income'.
of the above 'sources' does your, your employees, or your clients 'income' or 'items' derive from?...
It is not always
what is in a
law that is important. Sometimes what is not
stated in a law is also equally important.
if you're assuming something is in a law, when it clearly is not.
1.) Section 61 states that gross is
income from 'sources' which are taxable.
2.) Section 861 states the 'sources' from within the U.S. are taxable in relation to
3.) Code of Federal Regulations 26 § 1.861 only cites U.S. Citizens earning foeign income as having income from a taxable source under
take a look at 861. When you examine 861's regulations, you find the admission
in 1.861-8 (a)(4), that income must come from a
specific source to be taxable. If you examine the sources in 1.861-8 (f)(1), you will find that the domestic sources are only
applicable to non-resident aliens and foreign corporations. The others listed
are foreign sources that U.S. citizens would definitely be
To wrap up the thesis, the five sources listed in (f)(1),
four of them are repeated as non-exempt income pursuant to 26 CFR section
1.861-8 (T)(d)(2)(iii). And pursuant to 1.861-8 (T)(d)(2),
all income that is exempt, excluded (not listed), or eliminated from the law,
is exempt income.
Since the law is so plainly structured to be taxing foreigners, and foreign
earned income, we must have some specific citation of law specifically taxing
U.S. citizens on their domestic source income, as the Secretary has made the
list of U.S. sources that are taxable in 26 U.S.C. § 861, applicable only to
Remember, the only form required to be filed by U.S. Citizens, pursuant to section
1.1-1 of the Code of Federal Regulations, is Form 2555 Foreign Earned Income !
Added support below...
"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." (Emphasis added)
"Exclusion" which is
defined in Black's Law
Dictionary, in part, as follows:
'Denial of entry or
This law confirms our
position, in simple terms according to Black's Law Dictionary, that if the
income in question comes from a source 'excluded' from the law, and thus not
mentioned within the law as being taxable, it cannot then meet the source
requirement of section 61(a) to be "Gross income" and is by definition
This is a prime example
of what we mean by the statement that... What is not within a law is just as
important as what is!
The simple 'rule of thumb' to remember
about 'tax law' is that the entire 'Tax Code' and the topic of 'Income Tax' is built on the foundation of 'Gross
Income' as defined in § 61 of the Internal Revenue Code...
It is widely accepted by the courts and most Americans who will
comprise a jury, that in 1913 the U.S. Congress enacted the 16th
Amendment to lay a tax upon incomes from "…whatever source derived…" In
the case of James v. U.S. the U.S. Supreme Court has determined
that the Amendment means exactly what it says, and that "source" is
The same phraseology is applied in 26 United States Code
(Internal Revenue Code) § 61(a), which defines the "Gross income, which
is ultimately taxed as "Taxable income" (26 U.S.C.§
63) in 26 USC § 1 and a return is required to be filed on as set forth in
26 § 6012, to the effect that the actual statute states that "gross
income" is income from whatever 'source' derived. This is also confirmed
by the U.S. Supreme Court in the case of U.S. v. Burke as the
Court again has included the stipulation of "source" in its legal
determination that all of the words in the law exist within the law with
purpose and authority.
Before we continue, we must examine the legal definition of
"source" as set forth in Black’s Law Dictionary. The legal definition reveals that
a "source" is not a thing, but is a place or circumstance.
It is at this point that the first crucial error is made by the
reader of the law as the reader usually does not understand that the law means
exactly what is says and is not subject to anyone’s interpretation, as even the
U.S. Supreme Court lacks any such power. The error is one reading the remainder
of § 61 before the list of the items 1 to 15. These items 1 through 15 have
been read by millions to be "sources" of "gross income"
when in fact, as set forth in the rules promulgated by the Secretary of the
Treasury in 26 CFR § 1.861-8(a)(3) these items listed are not
"sources" as set forth under the law but are merely "items".
Most accountants refuse to even see the word "source"
in the law and thus avoid its very significance. This was done by one
accountant recently, despite his pointing out that the word "source"
reportedly appears 214 times in the United States Code. Such an approach
renders the word "source", as employed by the Congress superfluous
(of no effect) in the face of the fact that the law states that ‘items’ come
from a ‘source’.
In our search for ‘sources’ we came upon 26 CFR § 1.861, the
Regulations for § 861 Sources of Income from within the United States. This was the only section of
law addressing U.S. source income and we hoped to
find the taxable U.S. sources here. In the process
we learned that we were further correct, as our understanding of the law is
supported by the next rule as shown in 26 CFR §1.861-8(a)(4). This law states that in
order to have taxable income, one must have items of gross income from a
taxable "source" as listed in 26 CFR §1.861-8(f)(1). This next law lists all of
the taxable ‘sources’ from which one must have items of income in order to have
a taxable income for the purpose of the federal income tax. Upon review of this
list, it should be clear to most U.S. Citizens that they never made any gross
income as they never made any income from any of the taxable sources as set
forth under 26 CFR § 1.861-8(f)(1).
Now, for the doubters in the crowd, it has been set forth by the
Secretary of the Treasury in the Code of Federal Regulations at 26 CFR §
1.861-8(a)(1) that these are the rules that his office
has set forth to be used for the purpose of determining income which is taxable
for the purposes of the federal income tax.
Follow this next point...
The Congress wrote in the Amendment "…whatever
after which, the Secretary made a list of specific
"sources" in the Code of Federal Regulations, the Regulation was
then published in the Federal Register for correction before becoming the law
as agreed to between the Congress and the Administration. Therefore, it is
plain to see the legal fact that the Secretary has limited the taxable sources to those
that are clearly listed in 26 CFR § 1.861-8(f)(1) for the law means
exactly what it says, and the
Congress has not protested the Secretary’s
Furthermore, the Secretary has set this fact into stone so to
speak. The fact that 26 CFR 1.861 sets forth the rules for determining taxable
income for the income tax, this section of the regulations are the only
such rules, there are no others. So, it is equally revealing in the
Temporary Regulation of 26 CFR § 1.861-8T(d)(2)(ii)(A) that "exempt income" means income which is "excluded" from the law, and that §
1.861-8T(d)(2)(iii) lists the "Income that is not considered tax exempt".
Between these two sections of regulations, that which is to be taxed is by law
Black’s Law Dictionary 6th Edition plainly states
what the legal definition for an exclusion is therefore that which is
denied entry under the law is "exempt income", as least in accordance
with the instructions given to the IRS by the Secretary of the Treasury.
Here you have it. In the most simplistic terms available and
free to all. The root of the 'income tax' is in "gross income" as
defined by law. The root of "Gross income" is a specific taxable source as set forth in the law.
Exempt income is income which is "exempt" (an exemption is made or
given) "eliminated" (was there but is no longer as it was repealed),
or "excluded" (denied entry or admittance into the law). Non
exempt as set forth in the Secretary’s rules is income is that income earned by
foreigners here in the U.S. and foreign earned income by U.S. Citizens.
Can you see how the claim that all U.S. Citizens are not subject to
the income tax is legally incorrect? If a U.S. Citizen has
'income' from the listed 'source', then that income is then subject to the 'income tax'.
Can you see how the claim that 'the income tax' is
'unconstitutional' is legally incorrect? The 'income tax' is perfectly
constitutional... and it is limited in application.
The facts reveal that most American’s income has always
"exempt income" as defined by the Secretary of the Treasury. Since we
were intimidated by the volumes
and volumes of words which make up all of the internal revenue laws
(26 USC and CFR), abided in a belief that the government could and do us no
wrong, and were terrified of the idea that we could have been acting under a
law incorrectly for so long, we have not seen this simple truth that there are
no U.S. taxable sources for U.S. Citizens living and working in the U.S.
We say this with renewed vigor as our position has recently undergone scrupulous examination
by two CPA’s, one also being a Professor. Both were asked to provide
citations of the taxable U.S. sources for U.S. Citizens living and working
in the U.S., as the Secretary had set
forth rules regarding Foreign income and Foreigners.
Neither has bothered, or more likely, has been able to provide the law. Our
position is that it doesn't
Did the Secretary fail to provide such rules, or did he not have
a statute to begin from?
So it is very important to understand that it is not only what a
law says that is important, but also what it does not say. For what it legislates over
is included in the law, that which the law does not legislate over is excluded from the law.