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The Professor (Part 2)

(originally launched into cyberspace on 05/12/2007)

Dear Subscriber,

It's time to look at what little substance there was in the radio
debate between myself and Professor Siegel. Again, you can listen
to the show here:

Unfortunately, the beginning of my questioning Professor Siegel is
missing from the archived recording. What I first asked him was:
What kinds of income are the regulations referring to when they say
that some income is EXEMPT because of the Constitution itself?

His guess was that those regulations were referring to the issue
addressed by the Supreme Court in the Eisner v. Macomber case, in
which they ruled that certain stock dividends don't constitute
"income," and therefore couldn't be subject to the federal income
tax. As I pointed out, there are several reasons why that is NOT
what the regulations are talking about:

1) Years BEFORE the Eisner case happened, the regs were already
talking about some income being Constitutionally non-taxable. They
obviously could not have been referring to a ruling that hadn't
happened yet.

2) From 1921 to 1936, AFTER Eisner, the tax statutes said "A stock
dividend shall not be subject to tax"--in other words, the types of
dividends discussed in Eisner were, BY STATUTE, identified as
exempt. And the regulations said that IN ADDITION TO those things
exempted by statute, some OTHER income was excluded because of the
Constitution itself. Obviously that statement was NOT talking about
"Eisner" stock dividends, which were specifically exempted by
statute following the decision.

3) The Eisner case did NOT actually conclude that any income was
Constitutionally non-taxable; instead, it concluded that the
dividends in question WERE NOT EVEN INCOME. (When I pointed this
out, Mr. Siegel said, "I think that's too fine a distinction."
Well, since it proves him wrong, I'm not surprised.)

So his one guess at what the regulations are referring to was
proven dead wrong, for several reasons, yet he suggested no
alternative explanation. He threw out a guess (and it was pretty
obviously only a guess), because he knew that even a bad guess
would look better than saying "I don't know," which obviously would
have been the truth. He showed no curiosity and no desire to
discuss it further, demonstrating that his agenda was not to
DETERMINE the truth, but to try to convince the listener that he
already KNOWS the truth (when he obviously does not). He clearly
doesn't KNOW what all is exempt, and therefore cannot possible know
what all is taxable (non-exempt), yet he has the gall to insult you
and me for wanting to have a "reasonable debate" about it.

"Arrogance and ignorance go hand in hand." - Metallica

- --------------------------------------

About the only other point of substance that was covered had to do
with the purpose of Section 861. Pay close attention, because the
professor did on the show what he had done previously in e-mails.
Early on, he said this: "Section 861 deals with the international
aspects of taxation." His main position is that, as a U.S. citizen
living and working in the U.S., you don't NEED to use 861 and its

On the show, as you can hear for yourself, at one point he quoted
from 26 CFR 1.1-1, which says that U.S. citizens are "liable to the
taxes imposed by the code," whether their (taxable) income is "from
sources within or without the United States." In response, I asked
whether Mr. Siegel agreed that the taxes imposed by the code are
only upon "TAXABLE income" (not all income). Mr. Siegel agreed. I
then quoted from 26 CFR 1.863-1, which says that a taxpayer's
TAXABLE income "from sources within or without the United States"
WILL BE DETERMINED under the rules in Section 1.861-8 and
following. His response was this: "And when you do that, you
discover that it's all their worldwide income for a U.S. citizen."

Now hold on. Before dealing with whether that statement is
accurate, make note of his position CHANGE. He went from saying
that 861 is just for international stuff--you don't need to look
there--to apparently CONCEDING that you should look there. And this
isn't the first time he's done that.

In responding to an e-mail question from someone (who then sent me
the entire exchange), Professor Siegel QUOTED directly from the
regs at 1.861-1 and 1.861-8, which clearly state that one SHOULD be
looking to 861 and related regs to determine his taxable domestic
income. Then the law professor said this:

"Therefore, the answer to your question is that, as these
regulations provide, you, or anyone else, whether a U.S. citizen or
not, can use section 861 and following of the code to figure your
gross income from sources within the United States, and then your
taxable income from sources within the United States. Go right
ahead, be my guest."

Hang on. What happened to those sections being irrelevant for us?
What happened to those just being about "international aspects of
taxation"? What happened to us just looking at Section 61, and
assuming that the "source" of income doesn't matter? Now we ARE
supposed to use those sections?

This is important to note: for any given person, either you ARE
supposed to use those sections, or you're NOT. It can't be both.
(Oddly, Mr. Siegel says one "can" use those sections, as if it's
optional.) Why did he just CHANGE his position, from "don't look
there," to "well, even if you do..."?

He follows his admission that you SHOULD look there (or at least
you "can," whatever that means) by saying that, "If you are like
most U.S. citizens, you will discover, if you do this, that it
makes no difference as to your ultimate tax." In the next message
I'll show why he is dead wrong about that. But don't overlook the
significance of the classic lawyer-think stunt here: have one
argument, and have a back-up, CONFLICTING argument to justify the
same conclusion.

I've seen other lawyers do this as well, including Dan Evans (who
attempts, and fails, to refute the 861 evidence on his web site).
They argue that you should IGNORE Section 861, until they are
buried in so many citations saying the opposite that they revert
to, "Well, even if you DO look there, it says your income is
taxable." Then, to keep the water as muddy as possible, they say it
doesn't "matter" whether you use those sections or not.

Why try so hard to keep us from looking at those sections, if they
say our income is taxable? On the other hand, why argue that those
sections say we owe the tax, if we're not even supposed to be
looking there? Why do these supposed "experts," who say the issue
isn't even debatable, have to have two CONFLICTING positions about

It reminds me of the lawyer joke, in which a lawyer argues
something like: "My client didn't take this man's lawnmower. And if
he did, it wasn't broken when he gave it back. And if it was, it
was broken when he borrowed it."

Why do they do this? The answer is simple: both of their positions
are dead wrong, so they want to be able to jump back and forth
between them each time one is proven incorrect. It's the classic,
"Well, even if that's true" obfuscation technique. The truth is, we
ARE supposed to use those sections--as you just saw the professor
finally concede--and they do NOT show our income to be taxable (as
you'll see in the next message). But they jump between multiple
incorrect arguments in this manner so they always have a fall-back:
each time one of their two huge mistakes is exposed, they change
the subject to the OTHER argument. They can jump back and forth
forever, keeping the average observer confused.

So, as we go to the next message, be sure to have it cemented in
your mind that Mr. Siegel, professor of law, admitted that the
regulations say that "you, or anyone else, whether a U.S. citizen
or not, can use section 861 and following of the code to figure
your gross income from sources within the United States, and then
your taxable income from sources within the United States." Don't
forget that.


Larken Rose