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Credentials versus Evidence

(originally launched into cyberspace on 03/06/2007)

(Please pardon the length of this e-mail. Unlike some people, I
have a nasty habit of actually quoting citations to support the
points I make, which tends to lengthen things considerably. Plus,
I'm naturally long-winded.)

Dear Subscriber,

Yet another "expert"
opinion poo-pooing the 861 evidence was recently brought to my
attention. It would be a full-time job to respond to all of them
(the status quo always has a lot of beneficiaries, and therefore
proponents), but the general gist of most of them can be addressed
with one response. The example I'll use this time comes from a
professor of law at the George Washington University Law School (in
DC), so one would think that it would at least be a little more
credible than the remarks of some untrained paper-pusher. Here is
the link to the (attempted) refutation of the 861 evidence:

important first thing to note about the article is that it cites
absolutely nothing from the law. Not one word. Anywhere. As is
often the case, it consists of a string of unsupported assertions.
The closest thing to legal support Mr. Siegel gives is to say that
"the rest of the tax code (especially sections 1, 61 and 63) shows
that U.S. citizens are taxed on their income from all sources,
whether from within or outside the United States." Again, nothing
from the law is quoted.

As many of you know, Section 1 imposes a
tax on one's "taxable income." It says nothing about how to
determine what is and what is not "taxable income." Section 63
generally defines "taxable income" to mean "gross income" minus
deductions. It says nothing about how to determine what is or is
not to be included in "gross income." Section 61 not only says
NOTHING about geographic origin of income, or the type of commerce
which generates the income (which is addressed in great detail in
Subchapter N of the code, beginning with Section 861), but Section
61 itself, for many decades, was followed by a cross-reference
referring the reader to Section 861 regarding "Income from sources
WITHIN the United States," and to Section 862 regarding income from
OUTSIDE of the United States. (If the wording of Section 61 meant
that geographic origin didn't MATTER, why on earth would we be told
to look somewhere else concerning geographic origin?)

I expect
that Mr. Siegel is basing his conclusion upon the wording "all
income from whatever source derived" from Section 61, though he did
not bother to quote even that. But the first thing that should be
addressed is actually a psychological point: WHY did he feel no
need to cite ANYTHING from the law? My guess is that, being a
professor of law, he is accustomed to having his students assume
that he knows what he's talking about. In other words, his
credentials ARE his support, and the only support he thinks he
needs. (Conversely, many people might view my LACK of credentials
as all that is needed to render my "opinion" worthless, despite the
fact that I quote from the law itself constantly, as you'll see

Mr Siegel asserts that 861 and its regs exist, not to
determine whether domestic income is taxable, but merely to
"determine[] whether income is considered to be from a source
within the United States or from a source outside the United
States." While that is ONE thing that those sections do (though he
cites nothing demonstrating that), the implication is clearly that
one should NOT look there to determine whether his domestic income
is TAXABLE. Again, nothing is cited supporting such a claim.

sans credentials myself, I must defer to the statutes and
regulations. Mr. Siegel states that whether one's income is foreign
or domestic "doesn't matter" and that 861 "is irrelevant" for most
U.S. citizens, "because U.S. citizens are taxed on all income from
all sources." However, here is what the official Executive branch
regulations say:

“(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 [and
following].” [26 CFR § 1.863-1(c)]

Of course, to determine what
(if anything) you owe, you must first determine your TAXABLE
income, be it foreign and/or domestic. So how does one DETERMINE
his taxable domestic income? I think the above is pretty darn clear
about that. I believe the following is pretty darn clear as well:

“Sections 861(b) and 863(a) state in general terms HOW TO DETERMINE
after gross income from sources within the United States has been
determined. Sections 862(b) and 863(a) state in general terms how
to determine taxable income of a taxpayer from sources WITHOUT the
United States after gross income from sources without the United
States has been determined.” [26 CFR § 1.861-8]

Clearly implied in
Mr. Siegel's comments is that you DON'T NEED to go to Section 861
and its regs to determine the "taxable income of a taxpayer from
sources within the United States." The rest of the code, he say
(without quoting anything from it), says that citizens are taxed on
their income regardless of its geographic source. Someone can have
taxable domestic income, taxable foreign income, both, or neither.
(There can't be taxable income that doesn't come from anywhere.)

Consider the following, which is what the first section of
regulations under 861 says, and has said since before I was born
(with minor wording changes). While reading it, keep in mind that
this professor of law says you should NOT be looking to 861 to
determine your taxable domestic income:

Ҥ1.861-1 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. ... 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). See §§ 1.861-2 to 1.861-
7, inclusive, and § 1.863-1. The TAXABLE INCOME FROM SOURCES WITHIN
THE UNITED STATES, in the case of such income, shall be determined
by deducting therefrom, in accordance with sections 861(b) and
863(a), the [allowable deductions]. See §§ 1.861-8 and 1.863-1.

(2) Without [outside of] the United States ...
(3) Partly within
and partly without the United States ...
(b) Taxable income from
sources within the United States.
WITHIN THE UNITED STATES shall consist of the taxable income
described in paragraph (a)(l) of this section plus the taxable
income allocated or apportioned to such sources, as indicated in
paragraph (a)(3) of this section.” [26 CFR § 1.861-1]
In giving his
reason for 861's existence, without (in his words) "going into all
the situations where section 861 matters," Mr. Siegel gives two
examples: 1) a foreigner distinguishing between taxable domestic
income and non-taxable foreign income, and; 2) a citizen entitled
to the foreign tax credit, who must determine domestic versus
foreign to figure out the limit on the credit. Again (sorry to beat
a dead horse), he cites nothing supporting his claim that 861 is
only to be used in such unusual circumstances. Above, you can see
for yourself what the OFFICIAL government regulations say about
what the sections are for. Notice that they give NO indication that
only CERTAIN people should be referring to those sections. Here is
yet another example of an official IRS document summarizing the
purpose of 861 and following. See if you see ANY indication that
most people should ignore the section entirely, as Mr. Siegel

“Rules are prescribed for DETERMINATION OF GROSS INCOME
United States, and for the allocation of income derived partly from
sources within the United States and partly without the United
States or within United States possessions. §§ 1.861-1 through
1.864. (Secs 861-864; ‘54 Code.)” [Treasury Decision 6258]

I just
can't relate to this strange psychological phenomenon wherein
someone with credentials can assert ANYTHING, and somehow people
think it needs responding to. "That section is only for
foreigners/Americans with foreign income/albino wombats named
Edmund." They ASSERT who should look there, and people
automatically give it credibility, though the asserters cite
NOTHING from the law supporting it. They can assert until they're
blue in the face that 861 is for someone other than you, but when
have you ever seen any of them QUOTE anything from the statutes or
regulations which comes close to supporting that claim? Show me ANY
citation which says that 861 is NOT to be used by everyone to
determine their taxable domestic income. You will NEVER see one.
I've done text searches through ALL of the tax statutes and
regulations, reviewing EVERY mention of Section 861. NEVER is there
any indication, or even a subtle hint, that most people should
IGNORE 861 when it comes to determining their taxable domestic
income. Quite the opposite, as you can see above.

So let's review:
we have lots of assertions but ZERO citations saying that we
shouldn't use 861--that's it's not for us--and at least half a
dozen official citations (including those shown above) which say,
unequivocally and unconditionally, that those ARE the sections to
use for "determining taxable income from sources within the United
States." Why are people so reluctant to believe their own eyes, or
to accept what is right in front of them in black and white? Why do
they continue to give weight to the provably-false, utterly
baseless assertions of people, just because those people have
credentials (i.e., pieces of paper that say they SHOULD know what
they're talking about)?

I must admit, my respect for Mr. Siegel
dropped a few notches when his otherwise civil comments ended with
a reference to a completely substance-free attempt by Irwin Schiff
to discredit the 861 evidence. Mr. Siegel mentions Mr. Schiff's
comments, and adds that "When even the tax protestors reject your
tax protestor argument, you know it's got problems." Aside from the
fact that he uses the ever-popular spin
of mischaracterizing the
issue as being about "protesting" a tax (when anyone with basic
reading comprehension can see that it's not), his little dig is
intellectually dishonest, if not borderline schizophrenic. I'm sure
Mr. Siegel's deferring to Mr. Schiff as some sort of authority
would not apply when Mr. Schiff is disagreeing with conventional
wisdom--only when he's disagreeing with me. Furthermore, a
professor of law should certainly be able to recognize that Mr.
Schiff's comments about Section 861 and its regulations--which Mr.
Schiff ADMITS to not understanding--are not a substantive rebuttal
at all, but merely a complaint that I don't argue what Mr. Schiff
wants people to argue (that wages aren't income). What kind of
rebuttal is that?

I've long since lost track of how many supposed
experts have ASSERTED that we shouldn't be looking at 861 at all,
but I know exactly how many actual citations of law I've seen
supporting that claim: ZERO. If you ask me, lots of evidence and no
credentials is more compelling than lots of credentials and no
evidence. (I'm funny that way.) I should add, however, that there
ARE some people who have credentials AND cite evidence. For an
excellent example, put on a pot of coffee, make a sandwich, and dig
into THIS:

(I haven't yet read the entire motion, but I
agree wholeheartedly with the parts I've reviewed so far.)


Larken Rose