Main menu

Sins of Omission

(originally launched into cyberspace on 03/10/2007)

Dear Subscriber,

It's time now to address the second web page of
Mr. Siegel (law professor at George Washington University). On the
first page we looked at, he asserted (with no legal support) that
861 and its regulations don't "matter" and are "irrelevant" to
determining the taxable income of most U.S. citizens. Now let's see
what his second page says. Here is the link to it:

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

On that page, he sets out to dispute the claim that "Section 861
shows that the domestic income of U.S. citizens is not taxable."
First of all, that's not what I claim. Section 861 itself is NOT
where the limited nature of the tax is demonstrated. Sections 861
through 863 categorize ALL income, whether taxable or not, as
either domestic or foreign. It is the rest of Subchapter N, and the
regulations under 861 which explain how all the pieces work
together, which show the limited nature of the tax.

Setting aside
the slight mischaracterization of the issue, let's see what Mr.
Siegel has to say. He makes it clear that he is specifically
attempting to respond to my "Theft By Deception" video (
www.theftbydeception.com ), and uses the example from my video of
"Andy Green," a hypothetical U.S. citizen who lives and works in
Ohio. Mr. Siegel begins by running through the same basics my video
does:

1) Section 1 imposes a tax on "taxable income";
2) Section
63 generally defines "taxable income" as "gross income" minus
deductions, and;
3) Section 61 generally defines "gross income" to
mean "all income from whatever source derived," and lists a few of
the most common items of income (compensation, interest, etc.).

Mr. Siegel then asserts that for the income Andy Green receives,
"It is not necessary to determine the geographic source of this
income because gross income includes income 'from whatever source
derived.'" Then, however, Mr. Siegel refers to Section 861(a)(3),
which addresses "Compensation for labor or personal services
performed in the United States." He even quotes from my video
where, at the end of Step Three, I state that based on what we've
seen up to this point, including 861(a)(3), the law apparently
seems to show Andy's income to be taxable.

At this point what
strikes me as curious (to put it nicely) about Mr. Siegel's
article, is what he OMITS. He has obviously seen the video, so he
knows the statutory history of Section 861. If you look at
217(a)(3) from the 1920's, the "grandfather" of 861(a)(3), it very
obviously was NOT saying that the compensation of people like Andy
Green is taxable. Behold:

“Sec. 217. (a) In the case of a
NONRESIDENT ALIEN or of a citizen ENTITLED TO THE BENEFITS OF
SECTION 262
  • , the following items of gross income shall be
    treated as income from sources within the United States:...
    (3)
    Compensation for labor or personal services performed in the United
    States;...
    (b) From the items of gross income specified in
    subdivision (a) there shall be deducted [the allowable deductions].
    The remainder, if any, shall be included in full as net income from
    sources within the United States.” (Section 217, Revenue Act of
    1925)

    (* A citizen could only be "entitled to the benefits of
    section 262" if most of his income came from federal possessions,
    such as Guam or Puerto Rico.)

    My video shows that section, and
    shows how the section has "evolved" over time, WITHOUT changing in
    substance, into the current Section 861. I must wonder, why did Mr.
    Siegel say nothing about that? As a law professor, he of course
    knows the importance of legislative history, and having seen my
    video, he knows where 861 came from. So why does he imply that
    861(a)(3) means that Andy Green's income is taxable, when he knows
    full well that that is NOT the case?

    And that's not all he fails
    to mention.

    1) He harps on the wording "from whatever source
    derived" (in Section 61), but never mentions the fact that the
    regulations say that "Section 861 and following... and the
    regulations thereunder determine the SOURCES of income for purposes
    of the income tax" (26 CFR 1.861-1). My video quotes that
    repeatedly. Why didn't he address it, or even mention it at all?

    2) He cites Section 61, but doesn't mention the fact that for many
    decades, since before I was born, Section 61 itself was followed by
    a cross-reference which specifically referred to Section 861
    regarding "Income from sources within the United States." (That
    cross-reference was part of the actual text of the statute
    previously, as 22(g) in the 1939 Code.) My video mentions it. Why
    doesn't Mr. Siegel?

    3) He quotes from Section 61, including the
    list of common "items" of income. He doesn't mention the fact
    (which my video does mention) that the regulations say that those
    items make up "classes of gross income," which in some cases
    include EXEMPT income (i.e., they are NOT always taxable) (26 CFR
    1.861-8(a)(3), 1.861-8(b)(1)). He also never mentions the list of
    non-exempt income which those regulations then lead to (26 CFR
    1.861-8T(d)(2)(iii)), though my video quotes from it.

    4) He
    quotes the very broad wording of the general statutory definition
    of "gross income," but doesn't mention at all the fact that income
    tax regulations, past and present, show that notwithstanding the
    broad wording of the section, there ARE Constitutional limits upon
    what is taxable, because some income is, "under the Constitution,
    not taxable by the Federal government" (26 CFR 39.22(b)-1 (1956)).
    My video specifically quotes that, but Mr. Siegel doesn't mention
    it at all. (See also 26 CFR 1.312-6.)

    5) He doesn't mention any
    of the places, such as those quoted in my prior message, where the
    regulations say, unequivocally and unconditionally, that 861 and
    its regulations give the rules for determining one's "taxable
    income from sources within the United States." He ASSERTS we
    shouldn't look there, but doesn't address (or even mention) all the
    citations that say the exact opposite--citations which ARE included
    in my video.

    In short, Mr. Siegel parrots the exact mistakes made
    by the status quo tax professionals, and ignores the citations
    which demonstrate their error. He doesn't refute them or respond to
    them: he acts as if they don't exist. And since he's seen the
    video, this can't very well be explained by mere ignorance.

    For
    example, he quotes from 26 CFR 1.1-1 (as does my video), which says
    that citizens are liable "to the income taxes imposed by the Code,"
    whether their income is "from sources within or without the United
    States." Of course, the taxes "imposed by the Code" apply only to
    one's TAXABLE income (not all income), as 1.1-1 also states. So how
    does one DETERMINE his taxable income, foreign and/or domestic?

    “(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)]

    My video quotes this, specifically as it relates to the
    wording in Section 1.1-1, yet Mr. Siegel doesn't mention it at all,
    instead asserting again that we need not look at 861 and its
    regulations. Why? It can't be because he's not aware of that
    regulation; he's seen the video.

    It's not that I expect Mr.
    Siegel to respond to every point I make, but it would be nice if he
    wouldn't just ignore evidence, acting as if it doesn't exist or as
    if he's never seen it. When I give specific citations refuting
    various assumptions and claims made by the status quo tax
    professionals, to simply REPEAT the same claims, without doing a
    thing to address the contrary evidence, is a very strange method of
    debate, if you ask me. If his goal is to change my mind, or yours,
    wouldn't it be better to ADDRESS some of those citations, instead
    of acting as if they don't exist?

    Sincerely,

    Larken Rose
    www.larkenrose.com