Everyone earns Gross Income, correct?
Let's take a second look...
1. Determine positively if your 'income' from 'anywhere & everywhere' is in fact 'Gross Income'.
2. If you are not receiving 'Gross Income', then examine the legal steps needed to correct your situation.
It appears from looking at the statutes and regulations that the 'Income Tax' and 'wages' pivot upon the receipt of 'Gross Income' by the
individual. If your income is not 'Gross income', then what is it?
Important Note: While it must be pointed out that the "Gross Income Argument" is merely one small tool out of dozens that are available for Members to use, nevertheless many of the Taxgate Members are very fond of this article and this argument when facing the IRS..... read on and you will see why.
Let's examine whether ones 'income' is in fact 'Gross Income' as defined by the Congress and the Secretary of the Treasury:
* First, we will look at the definition of 'Gross Income' per Section 61 which is the standard definition to which we are commonly referred by those in the tax profession.
*We will then view the 16th Amendment and conclude that it is accurate (properly ratified or not).
The Federal Regulation that states where the 'list of sources' can be found.
*We will have a look at the 'list of sources' affirmed by the Secretary of the Treasury and the Congress.
For good measure, we'll examine the definition of 'exempt income' which applies to your earnings that are not 'gross income'!
Ready? Let's go!
Let's look at the definition of Gross Income: Section 61 of the Internal Revenue Code defines "Gross income" as:IRC Section 61
(a) GENERAL DEFINITION.
Except as otherwise provided in this subtitle, gross income means all income from whatever source derived, including (but not limited to) the following items:
(IMPORTANT NOTE: The list below is comprised of 'items' as stated above, not 'sources'.... don't give up yet.... researchers allege that the below 'items' must originate from a 'source' established by the Secretary of the
Treasury to be 'items' of 'Gross Income'.)
Here are the 'items':
(1) Compensation for services, including fees, commissions, and similar
items;
(2) Gross income derived from business;
(3) Gains derived from dealings in property;
(4) Interest;
(5) Rents;
(6i) Royalties;
(7) Dividends;
(8) Alimony and separate maintenance payments;
(9) Annuities;
(10) Income from life insurance and endowment contracts;
(11) Pensions;
(12) Income from discharge of indebtedness;
(13) Distributive share of partnership gross income;
(14) Income in respect of a decedent;
(15) Income from an interest in an estate or trust. 1.861-8(a)(4):
Good, we know about these 'items'... we grew up hearing these 'items' repeated through the years as they are components of gross income, right?
These above items have been indicated by amateurs and tax professionals alike to be 'sources'... yet it is argued by many that they are NOT 'sources'. That there is a difference between 'items' and 'sources'. It
gets easier...
We also know that the 16th Amendment specifies the authority of the Congress to tax... Let's look:
The Constitution of the United States Of America Amendment XVI.
"The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration." (emphasis added)
So far, so good.. we agree with this.
Now let us dispose of this matter of 'sources' which keeps 'popping up' whenever we look at a definition or description of 'Gross Income'..
Do our law books tell us where we can clarify this 'source' stuff??
Indeed they do! A simple search engine provided with the United States Code and the Code of Federal Regulations will tell us precisely where sources show up each time in the law. The sources can be found in the statutes, as well as the Regulations, the most fascinating place to learn about 'sources' is found to be in the words of the Secretary of the Treasury in the Code of Federal Regulations and are the legally binding definition of 'sources' that must apply to income for it to be classified as 'Gross Income'. This is very important as the Regulations always apply to and are required to be followed by the IRS.
Look below at CFR 1.861- 8(a):
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)
The Federal Regulations that we are dealing with make reference to 'sources' within, as well as without, the United States. Below are the only sources that we could find listed, from which income must derive, in order for it to be taxable for the purpose of the Income Tax.
Code of Federal Regulations 1.861-8(f)(1)
(i) Overall limitation to the foreign tax credit.
(ii) [Reserved]
(iii) DISC and FSC taxable income. (note: DISC is Direct International Sales Corp, and FSC is a Foreign Sales Corp)
(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.
(A) "...foreign source items of tax..."
(B) "...foreign mineral income..."
(C) [Reserved]
(D) "...foreign oil and gas extraction income..."
(E) "...citizens entitled to the benefits of section 931 and the section 936 tax credit..."
(F) "...residents of Puerto Rico..."
(G) "...income tax liability incurred to the Virgin Islands..."
(H) "...income derived from Guam..."
(I) "...China Trade Act corporations..."
(J) "...income of a controlled foreign corporation..."
(K) "...income from the insurance of U.S. risks..."
(L) "...international boycott factor...attributable taxes and income under section 999..."
(M) "...income attributable to the operation of an agreement vessel under section 607 of the Merchant Marine Act of 1936..."
Which of the above 'sources' does your employees' (and/or your) 'income', 'items' or 'wages' derive from?... Interesting... isn't it?
Take NOTICE: The IRS has claimed in a case in South Carolina that 861 has nothing to do with gross income in 61. This did not last long as the Department of Justice was quickly reaching for things within 861, without regarding the full effect of the attached regulations, to try to support their frail position. This seems to open up the application of the statute and regulations into the argument of gross income before the court and the public. If that were not enough, they also have to try to defeat this:
26 CFR 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. (Emphasis added)
Any argument that 861 has nothing to do with section 61 appears to be quite ridiculous, as 1.861-8(a)(3) displays the same list of items as 61(a), and 861 uses the same word "source" as used in both the 16th Amendment and section 61. In review of 1.863-1(c) we can ask the question to the search engine, is there another provision of law that is used for determining taxable or gross income from sources within the U.S.?
If we use the search engine and a combination of words around the word "source", any other provisions of law that could effect this argument will come up. To date we have not found any, and anyone can use their computer to do the same. Please do not to stay up too late trying every combination of words to discover a section of law that does not appear to exist.
The above list appears to be applicable, and to explain your 'gross income' involvement 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, then it is effectively 'excluded' from the Income Tax Act and subsequently the legal definition of 'Gross Income'. Ask a competent CPA.
The above list/regulation can be described simply as a 'fence'. The U.S. Congress gave the Secretary the task to encircle and delineate the only area from which 'Gross Income', and hence 'taxable income', can be derived or determined from... and the Secretary published his understanding of what was expected of him in the regulations, to which the Congress agreed by acquiescence. The above list is in fact the only list that many researchers could find defining 'sources' in the regulations. 'Whatever' is within the fence is 'allowed' to be listed as 'Gross Income'. They claim that if it is not within the confines of the Secretary's 'fence' or 'regulation', it is 'exempt' (as it has not been included in the law to be subject to the tax imposed).
Some with a vested interest in taking care of your money for you, will argue that the phrase 'whatever sources' in the 16th Amendment means 'any and all sources'... yes again, we AGREE that it does... 'any and all 'sources' within the list as found within the published and knowable law!
The Secretary has defined them, then Congress agreed with the Secretary.
And they appear to be restricted to the above list, as it is the only list which defines sources! We cannot find an entry for Citizens with domestic income on this list!
Remember from Law 101 that the power of the Congress and the authority it gives to the Executive Branch is limited to the contents of the law. The power to tax any particular thing must be clearly set forth by the words employed in the statutes. The Secretary has no power to expand the meaning, purpose, intent or function of the statute and its specific language with his authority to promulgate and enact regulations:
"The provisions of the act are unambiguous, and its direction specific, there is no power to amend it by regulation." Koshland v Helvering (1936) 298 U.S. 441, 80 L. Ed 1268 56 S.Ct. 7678. (emphasis added)
Let's put it still another way...
It is not always what is in a law that is important. Frequently what is not stated in a law is equally important. Especially if you're ASSUMING something is in a law (something the U.S. Supreme Court does not have authority to do), when it clearly is NOT there.
1.) Section 61 states that gross income is from 'sources' which are taxable.
2.) 26 USC 861(a), states that the following items of gross income shall be treated as income from sources within the United States that are taxable, but fails to include such income paid to U.S. Citizens within the regulation setting forth the 'specific sources' of income
from within the U.S.
3.) 26 CFR 1.861 and following, are the Regulations promulgated by the Secretary of Treasury to implement 26 USC 861, and prove that the items of gross income discussed in 26 USC 861, are applicable only to foreigners and U.S. Citizens living abroad (NOTE: The Internal Revenue Code considers a U.S. Citizen living and working in a U.S. Territory [Puerto Rico, Virgin Islands, Guam, etc...] as being abroad. See IRC 930-940).
Additionally, some have dared to argue against this research by claiming that the residual groupings, as opposed to the operative sections, apply to U.S. Citizens and make their 'remuneration' includible in gross income.
This would have made for a nice argument if it were not for the fact that the residual groupings are revealed in the regulations appear to be applicable to 26 USC 864, Definitions, and when applied within the U.S. can be directed only to nonresident aliens and foreign corporations.
Again, ask a competent CPA or the IRS.
Significantly, it seems that the only application of the federal income tax upon the income of U.S. Citizens in existence is with respect to:
(1) a U.S. Citizen's foreign earned income, and
(2) the income of U.S. Citizens living abroad.
In good faith, let's take a look at 861. When you examine 861's regulations, you find the it reads that in 1.861-8 (a)(4), 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 plainly applicable to non-resident aliens and foreign corporations. The others listed are foreign sources that U.S. citizens would definitely be taxed upon. There is no clear and direct mention of U.S. sources where U.S. Citizens can earn 'gross income'.
To wrap up this thesis, of the five sources listed in (f ) (1), four of them are repeated as non-exempt income pursuant to 26 CFR 1.861-8 (T)(d)(2)(iii). And pursuant to 1.861-8 (T)(d)(2)(ii)(A), all income that is exempt, excluded (not listed), or eliminated from the law, is exempt income.
Now the nay-sayers will say that these exclusions only apply to 861. So the next question is the same question we started with before getting into this regulation. And the question is, where are the other U.S. sources listed that are applicable to U.S. citizens living and working within the U.S.?
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 foreigners.
This legal fact fills in a lot of missing pieces in the income tax puzzle, yet the tax professionals we have encountered do not think so. Still
they refuse to answer the next haunting question: Why is it that the conventional school of thought believes that they can render an Act of Congress, The Paperwork Reduction Act of 1980, superfluous and of no legal effect, when we point out that the only form required to be filed by U.S. Citizens, pursuant to section 1.1-1 of the Code of Federal Regulations, is the 2555 foreign earned income form?
Try as one may, attempting to pass off 61 defining "Gross income" as the section of Code as the law taxing all U.S. citizens on their U.S. source income, even if the income cannot be deemed to be from taxable sources, is dishonest in light of the construction of the statute. Since 26 CFR 1.861-8 (f)(1) and -8T (d)(2)(iii) state plainly the taxable sources which a U.S. Citizen must have, to make income "Gross income" and thus "taxable income" (the latter being taxed in 1). Is it any wonder that the proper Form to be filed, pursuant to Section 1 of 26 U.S.C. and 26 CFR by a U.S. Citizen is the 2555 Foreign Earned Income form?
Added support below...
'Exempt Income'(It is really interesting to note that when the IRS cites case law, claiming that only that which is specifically exempt by the law is exempt, that they never address the following Regulation of the Secretary)26 CFR 1.861-8T(d)(2)(ii)(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." (Emphasis added)
"Exclusion" which is defined in Black's Law Dictionary, in part, as follows:
'Denial of entry or admittance.'
Isn't it fascinating that right after the Secretary stated this, he
plainly listed income not exempt from taxation here as follows:
26 CFR 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 section 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)).
NOTE: The only income above related to U.S. Citizens is (D)
This is of further importance as the definition of "wages" in 3401(a) to be withheld from in accordance with 3402, excludes all remuneration paid to U.S. Citizens by employers, except income which is deemed to be gross income under 911, or other income related to foreign and U.S. possession sources.
This law confirms our viewpoint, 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 requirements of 861, its regulations, and thus section 61(a) to be "Gross income", and is by definition EXEMPT.
This is a prime example of what we mean by the statement that, that is not within a law is just as important as what is. Your legal counsel can confirm this!
A simple 'rule of thumb' to remember about the tax code:
It appears that the entire topic of the 'Income Tax', and the statutes regarding it, are built chiefly around the foundation of 'Gross Income' as defined in 61 of the Internal Revenue Code...
