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Aluminum Foil

(originally launched into cyberspace on 03/09/2007)

Dear Subscriber,

After I sent my message to this list concerning
the comments of Mr. Siegel, law professor at George Washington
University, having to do with the 861 evidence, a bunch of you
apparently sent him comments. In response, he made some additions
to his web page, adding (as he put it in an e-mail to me) "more
quotations, citations, and arguments demonstrating the error of
[my] position." Here are the two links he gave me:

http://docs.law.gwu.edu/facweb/jsiegel/Personal/taxes/861.htm
http://docs.law.gwu.edu/facweb/jsiegel/Personal/taxes/861det.htm

I'll address the first one here, and the second one in my next
message.

Once upon a time, someone discovered a clever way to foil
(no pun intended) radar-guided missiles. (Yes, this does relate to
the discussion at hand.) When a missile locked onto a plane's radar
signature, the plane would release a cloud of aluminum foil shreds,
giving a mess of a radar signature that would confuse the missile,
which couldn't distinguish between the plane and the distractions.
It would be drawn to the aluminum, of course, and blow up nothing.

Much of the discussion of the income tax ends up being an attempt
to isolate the target from the irrelevant debris, while some are
throwing out aluminum-foil-style distractions. Let's look at a few
shreds. Here are ALL of the "citations" and "quotations" which Mr.
Siegel added to the web page I referenced in my last message:

1)
He mentioned 26 USC 2(d), which explains that, in the case of a
nonresident alien, the income tax "shall apply only as provided by
section 871 or 877." Mr. Siegel then quotes Section 871 as imposing
a 30 percent tax on "the amount received from sources within the
United States by a nonresident alien individual." Not to be
nitpicky, but Mr. Siegel seems to be confusing the purpose of
subsection 871(a) and
subsection 871(b): the former imposes a
separate, flat tax (NOT the normal income tax) upon U.S. income
received by foreigners which is NOT connected with doing business
in the U.S. (such as passive investment income), while the latter
states that nonresidents "shall be taxable as provided in section 1
or 55 on his taxable income which is effectively connected with the
conduct of a trade or business within the United States."

Mr.
Siegel then explains that "foreigners need to know whether their
income is from sources within or without the United States, because
they are taxed only on their U.S.-source income." That is, to a
certain extent, true (though actually, a foreigner CAN have taxable
foreign-source income, if it comes from business conducted inside
the U.S.). Mr. Siegel then asserts, however, that U.S. citizens are
taxed on all of their income, regardless of source. He (again)
gives no citation supporting that assertion.

Now let's stand back
for a moment, and see if we've been looking at a plane or at
aluminum foil. The discussion has to do with the purposes of 861
and related regulations: are they really "irrelevant," and do they
really not "matter" for most U.S. citizens (as Mr. Siegel
suggests), or are they the sections to use to determine everyone's
taxable domestic income (as I suggest, and as the regulations
state)? Notice that the citations and quotations added by Mr.
Siegel don't even MENTION 861 at all. (Section 871 mentions 861
only in one obscure rule regarding certain interest and dividends
which aren't taxable.) So how do citations which DON'T MENTION 861
support Mr. Siegel's claim about what that section is for? (Note
that everything I cited very explicitly talks about 861 and/or its
regulations, and very clearly states what
those sections are for.)

Once again, distinguishing between domestic and foreign income IS
one thing which 861 and following (and related regulations) do. (It
would be pretty dang tough to give rules about determining taxable
domestic income and determining taxable foreign income, without
including rules about determining what is domestic and what is
foreign.) How does it follow that no one else should look there to
determine their taxable income? It doesn't.

2) The only other
citations added to that page were references to Sections 27 and 901
of the tax code, which discuss the foreign tax credit. Again,
neither section mentions 861 at all. More aluminum foil.

(Yes,
again, distinguishing between domestic and foreign income, which IS
one thing that 861 and 862 (and related regs) do, does come into
play in determining foreign tax credits. How does it follow that
the rest of us should ignore those sections? It doesn't, especially
since the regulations repeatedly tell us, unequivocally and
unconditionally, to look there to determine our "taxable income
from sources within the
United States.")

Mr. Siegel then says,
"That's really all one needs to know," but then gives a link to
another page on his site (which I'll address in my next message).
Um... where's the plane? All he added was a few citations that
don't even MENTION 861, and then he repeated his still unsupported
assertion that you and I don't need to look to 861 at all, because
all income we receive, be it foreign or domestic, is taxable.
Sorry, but I still fail to see the error of my ways.

In closing,
Mr. Siegel throws in this little dig: "Readers might also be
interested to know that Mr. Rose served a substantial jail term
following his conviction on tax evasion charges. One might wish to
consider this in deciding whether he is a trustworthy source of tax
information." Ah, one of my favorite logical fallacies: he got
punished, so he must be wrong. (Wasn't I just discussing Galileo on
this list?) Incidentally, it was willful failure to file, not tax
evasion. More importantly, as I've mentioned before, at trial the
court and the prosecution avoided the actual issue like the plague
(and kept my report, my video, all the letters I wrote to the
government, the transcripts of my meetings with the IRS, everything
from my web sites, and basically everything I've written in the
last decade, away from the jury). Those of you who were at the
trial know full well that there was no debate at all over the
substance of the issue. Their entire case was "We TOLD him he was
wrong!" And Mr. Siegel wants you to take that as proof that my
conclusions are incorrect?

Well, one good dig deserves another:
Readers might also be interested to know that Mr. Siegel served a
substantial term as a lawyer for the DOJ. One might wish to
consider this in deciding whether he is a trustworthy source of tax
information. (Just kidding... sort of.)

Sincerely,

Larken Rose
www.larkenrose.com