(originally launched into cyberspace on 01/17/2007)
Just to remind you, the subject of this series
of messages is how to properly COMPLY with the federal tax laws.
For example, if your Uncle Fred gave you a gift of $200 last year,
you should NOT have reported it on your tax return, because the tax
code specifically says that gifts are NOT subject to the federal
income tax (26 USC 102). It's not patriotic or noble to have
reported such income on your return; it's an ERROR. It's income
you're NOT SUPPOSED TO pay taxes on (because it's non-taxable).
we saw in the last message, the older federal income tax
regulations used to clearly state that, in addition to the types of
income specifically exempted by the tax code, some OTHER income is
also NOT SUPPOSED TO BE included in your taxable income, because
such income is, "under the Constitution, not taxable by the Federal
Government." Near the bottom of the following link are scans of
many different years of regulations saying so (look for links
called "First," "Second," etc.):http://home.hiwaay.net/%7Ebecraft/TaxActs.html
As also stated in
the last message, current tax professionals (with very rare
exceptions) DO NOT KNOW that this is the case. They are completely
unaware that ANY income is tax-free because of the Constitution
itself. As a result, they NEVER tell their clients about it, and
they NEVER take it into account when determining their clients' tax
liabilities. We haven't yet considered WHAT income might be
Constitutionally non-taxable (we will very soon), but whether it's
some obscure kind of investment income that only a few people have,
or something more significant, you HAVE TO KNOW what it is if you
are to properly COMPLY WITH the law. Why? Because if you happen to
have some of that Constitutionally non-taxable income, and you
report it on your return as if it were taxable, you are MISAPPLYING
the law, just as if you had reported that $200 gift from Uncle
The link above shows older tax regulations (many years'
worth). An obvious question at this point would be, What about NOW?
Are those Constitutional limits still applicable? Do the current
regulations still mention them? Yes, and yes, though they make it a
lot let obvious now. There have been no Constitutional amendments
relative to Congress' taxing power since those older regulations
were written. So anything that was, "under the Constitution, not
taxable by the Federal Government" in 1956 (or 1925), is still not
taxable today. The current regulations defining "gross income" (26
CFR 1.61-1) just say "gross income" includes all income from
whatever source derived, "unless excluded by law." Unlike the older
regs, however, they do not specifically explain that income can be
exempted by statutory law OR by "fundamental law" (the Constitution
itself). However, the current 26 CFR 1.265-1 does still show that
something OTHER than the tax code can exempt income, and a fairly
obscure regulation at 26 CFR 1.312-6(b) does still plainly speak of
THREE types of income: 1) "all income exempted by statute"; 2)
"income not taxable by the Federal Government under the
Constitution"; and 3) income which is "includible in gross income
under section 61." In case you think I'm making this up, you can
see that regulation on the government's own web site at:http://www.access.gpo.gov/nara/cfr/waisidx_05/26cfr1d_05.html
should be noted that occasionally a tax professional will at least
guess at something that might be Constitutionally non-taxable, such
as the income of state governments, or interest on municipal bonds.
However, those things have been exempted by STATUTE from the
beginning (e.g., 26 USC 103, 115), so that is NOT what the regs
(past and present) were talking about. Remember, they mention
income exempted by statute, and then say that no OTHER income is
exempt, except for what is, "under the Constitution, not taxable by
the Federal Government.")
So while the older regulations were a
lot more obvious about it (you can wonder why if you'd like), the
principle still applies. Now, here is what may seem like a silly
question: Do those in government WANT us to know how to OBEY the
law? Presumably they would be eager to have us all understand the
law so we can comply with it. In fact, the IRS' "mission statement"
says that their reason for existing is to help people "UNDERSTAND"
and comply with their tax responsibilities. So, in light of what
we've seen above, wouldn't it make sense to ASK the government what
the regs mean when they talk about some income being excluded
because of the Constitution?
1) When I brought up that point at my
first meeting with the IRS, they had no comment at all. (I'm not
sure they even comprehended what the question was.) When we met
again, same thing: I quoted the regulations saying that, and they
had no response.
2) When I was a witness at someone else's meeting
with the IRS, the person explained to the IRS that it was his
position that "some of the income not specifically exempted by
statute is nonetheless exempted from taxation by the Constitution
itself," and cited the regs saying just that. The veteran IRS agent
responded, "Without further research, I don’t really have a
response for that one. I can’t really tell you without researching
an answer to that question." (As of today, many YEARS later, he
never answered that question.)
3) At another meeting with the IRS
(at which they were looking for an excuse to shut down my web
site), the following exchange occurred:
Me: "These are photocopies
of two of the sections of the 1956 regulations. Again, we’re
talking about 1956 at the moment. I’m about to tie it to the
current. As you’ll see on the last page of that, exemptions from...
exclusions from gross income. It’s on the right-hand side. It talks
about the items exempted by statute, and then it says 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. And then it mentions some other Acts of
Congress and things that exempt other income. That’s one of the
questions I have yet to hear anybody at the IRS or any tax
professional give me an explanation as to what that could be
talking about. If you’d like to offer any opinions, I’m open for
IRS Agent Chris Roginksy: "It’s at outdated regulation. Not
going to comment on it."
Wow, that was a short discussion (or lack
4) Since then, hundreds of people have sent letters to
two IRS commissioners, two Secretaries of the Treasury, two
Assistant Secretaries of the Treasury, IRS Chief Counsel, the
Attorney General, the head of the Tax Division of the DOJ, and many
lower DOJ and IRS offices, asking several basic questions about how
we are to COMPLY with the federal tax laws. The last question was:
"What types of income (if any) are not exempted from taxation by
any statute, but are nonetheless 'excluded by law' (not subject to
the federal income tax) because they are, under the Constitution,
not taxable by the federal government?" (All six questions can be
seen here: http://www.petermacshow.com/content/view/55/45/
how many answers to the question we got? If you guessed ZERO, you
5) When I went to trial, I filed a motion asking the judge to
inform the jury that "gross income" means all income, except for
what is exempted by statute OR exempted by the Constitution itself
(aka "fundamental law"). He refused to tell them that. When the
government called an IRS agent up to testify about the taxes they
thought I owed, based on my financial numbers, the following
Me: "When you go to total up these figures and
get to the bottom, do you keep your eyes open for any sorts of
income which may be specifically exempted by a section of the tax
IRS witness: "I normally did, but I did not see that in this
Me: "Okay, but it's normal to keep your eyes open in case
there's some item, and that would enter into the equation. Is that
IRS witness: "Sure, sure."
So far so good. This 24-year
veteran IRS agent obviously knew about statutory exemptions. Then
Me: "My last question is, in coming to your total,
did you subtract any amounts of income which are exempt from
federal taxation because of the Constitution itself?"
Judge: "I'm not sure I understand the question."
witness: "Yeah, I don't either."
Judge (to the witness): "Do you
understand the question?"
IRS witness: "No, I do not."
me): "Do you want to rephrase it?"
Me: "Did you subtract, to arrive
at your bottom number, any amounts of income which are excluded
from federal taxation due to the Constitution itself?"
Me: "Well, she either did or didn't. It's a
Judge (to witness): "Well, you can answer that 'yes' or
'no,' if you understand it."
IRS witness: "I'm not sure I
understand the question. I mean, if you're asking if I subtracted
anything from these numbers, I did not."
Why is it that neither
the IRS witness nor the JUDGE had any idea what I was even asking?
Why did they not know that anything might be excluded because of
the Constitution itself? The IRS' own regulations say it--why don't
their employees know about it? And why does it seem that NO ONE in
government is able (or willing) to say what income that might be,
even when HUNDREDS of Americans politely ask them in writing? Why,
when I cite their OWN regulations to them, are those in government
so reluctant to discuss the matter?
Back to our seemingly silly
question: Given what you've seen above, would you still assume that
those in government WANT us to know how to properly COMPLY with the
law? Shouldn't they WANT us to know what is and what isn't taxable?
There must BE an answer to the question. Shouldn't they be not only
able, but EAGER to explain such things to common folk like you and
me? After all, it is literally IMPOSSIBLE to correctly determine
your taxes without first knowing what is and what isn't taxable. So
why are they unable (or unwilling) to tell us what is meant by some
income being exempt because it is, "under the Constitution, not
taxable by the Federal Government"? Is this all starting to seem a
wee tad curious to you yet?
Once again, let me conclude this
message with the following: In what I've said above, do you see me
encouraging anyone to break the law? Do you see me objecting to the
law? Do you see me arguing anything "frivolous"? (No, no, and no.)
Lastly, would you consider it okay for the government to try to
forcibly stop me from telling you what I've told you so far, or to
punish me for publicly talking about such things? (Me neither.)