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  • Bowman7a
    Dear List Subscriber, As promised, I m taking my own test. (I m doing it all from memory, and the one think I don t remember is the numbered citations for
    Message 1 of 1 , Oct 5, 2003
      Dear List Subscriber,

      As promised, I'm taking my own test.  (I'm doing it all from memory, and the one think I don't remember is the numbered citations for Supreme Court rulings.  Yes, I really am such a freak that all the citations below were done from memory.) 

       Part 1: General Concepts  
        1) Is the federal "income tax" a "direct" tax,  or an "indirect" tax, in the Constitutional 
            sense? Indirect.  See Treasury Decision 2303, and Stanton v. Baltic Mining
            (Supreme Court). 

      2) Does the Constitution prohibit all federal  taxation within the 50 states?

          No.  The only specific prohibition on the taxing power is that Congress cannot tax
          state exports.  However, there are "virtual" limitations on the taxing power, having to 
          do with Congress' limited Constitutional power, and their inability to overstep those
          bounds via a "tax" law (see Bailey v. Drexel). 

      3) Is the federal income tax imposed by the 16th Amendment?

          No.  The 16th Amendment does not impose any tax.  It simply declares that "income 
          taxes" need not be apportioned as they are not considered "direct" taxes.  (See T.D.
          2303 and Stanton v. Baltic Mining.) 

      4) Did the 16th Amendment have any effect on which income Congress can and cannot

         No.  It rendered nothing taxable that was not taxable before (Evans v. Gore); it did not
         extent the taxing power to new or excepted subjects (Peck v. Lowe); and it did not
         confer any new power of taxation (Stanton v. Baltic Mining). 

      5) Which of the following does Congress (the  Legislative Branch) enact?:  case law,
          statutes, or regulations?

          Statutes.  They are enacted as "Statutes at Large," and then encoded into the
          United States Code. 

      6) Which of the following does the Executive  Branch write?: case law, statutes, or

         Regulations.  (See 26 USC � 7805 for the authority for the Secretary of the Treasury to
         promulgate tax regulations.) 

      7) Which of the following comes from the Judicial Branch?: case law, statutes, or  

          Court rulings are referred to as "case law." 

      8) Which carries more legal weight, a Supreme Court ruling, or a District Court ruling?

         Supreme Court.  (That's why it's called the "Supreme" court.)  The Constitution creates
         the Supreme Court, which is above all other federal courts. 

      9) Which of the following carries the most  legal weight?: IRS publications, IRS letters,
          IRS regulations, IRS Revenue Rulings, or IRS  forms. 

         Regulations.  The regulations "outrank" all other IRS documents (see Part 4.10 of the
         Internal Revenue Manual), and under the Federal Register Act (44 USC) act as the
         official notice to the public of what the law requires. 

      10) According to the Supreme Court, EVERY statute, no matter how broadly worded,
            must be "interpreted" keeping this in mind: the regulations, the Constitution, or the
            legislative history.

      The Constitution.  See McCullough v. Virginia. 

       Part 2: Important Sections  
      11) 26 USC � 1 imposes a tax on the ______________ of individuals.  Which of the
           following belongs in the blank?: "income," "gross income," "net income," or "taxable

      Taxable income. 

      12) 26 USC � 63 generally defines "taxable  income" to mean which of the following:

       .   Net income minus exemptions
       .   Gross income minus deductions
       .   All income not excluded by law

           Gross income minus deductions. 

      13) 26 USC �� 861 through 863 do which of the following:  List specific activities that are
           taxable, which all relate to international commerce Describe what counts as domestic
           income and what counts as foreign income.   Specifically state that the domestic
           income of most Americans is exempt from tax.

          Describes what counts as domestic and what counts as foreign.  Those sections of
          the statutes by themselves do NOT list the "specific sources and activities" which
          generate taxable income. 

      14) What sections are to be used to determine taxable domestic income?

         26 USC � 861(b) and 26 CFR � 1.861-8
         26 USC � 861(a) and 26 CFR � 1.861-1
         26 USC � 931 and 26 CFR � 1.931-1

         26 USC � 861(b) and 26 CFR � 1.861-8.  (See 26 CFR �� 1.861-1(a)(1),  1.861-1(b),
         1.861-8(a)(1), 1.862-1(b), 1.863-1(c).) 

       Part 3: About exempt income  
      15) All income is taxable EXCEPT for:

        Income exempted by statute
        Income from labor
        Income excluded by statute or by the Constitution

        By statute or the Constitution.  See Section 39.22(b)-1 of the 1956 regulations, 29.22
        (b)-1 of the 1945 regulations ("Regulations 111"), and  Article 71 of Treasury Decision
        3640, as well as the current 26 CFR � 1.312-6(b). 

      16) Where do the current regulations list what is NOT excluded because of the
           Constitution itself?

           26 CFR � 1.861-8
           26 CFR � 1.861-8T(d)(2)(iii)
           26 CFR �� 1.61-1 and 1.63-1

          26 CFR 1.861-8T(d)(2)(iii).  The current regulations specify that the "items" listed in
              Section 61 are sometimes EXEMPT (26 CFR �� 1.861-8(a)(3), 1.861-8(b)(1)), and
              direct the reader to 1.861-8T(d)(2).  The current regulations no longer specify that
              the Constitution itself is WHY those items are in some cases exempt, but they still
              give a list of what is NOT "excluded by law," at 1.861-8T(d)(2)(iii). 

      17) According to the income tax regulations  defining "gross income" from at least 1922
           to 1956, what "MUST" U.S. citizens include in  their "gross income"?

           Income received from foreign commerce
           All income, domestic and foreign
           Only income from federal possessions

      Income they receive from foreign commerce. 

       Part 4: About 861 and its regulations  
      18) Where do the STATUTES describe the specific types of activities that are taxable?
          Sections 861 through 863 Various statutes throughout of Subchapter N Sections 61
          and 63

          Various statutes throughout Subchapter N, which the regulations refer to as "operative
          sections."  (See 26 CFR �� 1.861-8(a)(1), 1.861-8(a)(4), 1.861-8(f)(1).) 

      19) What is a "class of gross income" made up of?  The items of income listed in 26
           USC 61  Income from the specific sources listed in 1.861-8(f)(1)  Income exmpted by
           statute or the Constitution

           One or more of the "items" listed in Section 61.  (See 26 CFR � 1.861-8(a)(3).) 

      20) What is a "statutory grouping" of gross income?

        All income from whatever source derived
        The foreign income of nonresident aliens
        Income from one of the activities listed in 1.861-8(f)(1)

        Income from one of the "specific sources or activities" described in the "operative
        sections" listed at 1.861-8(f)(1).  (See 26 CFR � 1.861-8(a)(4).) 

      21) To have taxable income under 26 CFR 1.861-8, one must receive:

           A class of gross income
           A statutory grouping of gross income
           Income to which deductions may be apportioned

           A statutory grouping of gross income.  See 26 CFR �� 1.861-8(a)(4),  1.861-8(f)(1). 

      22) Where does 1.861-8 specifically say that the domestic income of U.S. citizens is
           exempt from tax?

                In 1.861-8(a)(3)
                In 1.861-8(f)(1)
                It doesn't

           It doesn't.  While it can be (and should be) inferred from what that section does say,
           the section does not come right out and say "the domestic income of U.S. citizens is
           exempt from tax." 

      23) Where does 1.861-8 specifically say that the domestic income of most U.S. citizens
            is  taxable?

               In 1.861-8(a)(1)
               In 1.861-8(f)(1)
               It doesn't

          It doesn't.  A study of the history of the section (such as Section 217 of the Revenue
          Act of 1921, and sections 29.119-1, 29.119-2, 29.119-9 and 29.119-10 of the 1945
          regulations) make it perfectly clear that the section does NOT mean that the domestic
          income of all Americans is taxable. 

      24) If law specifies that "A," "B" and "C" are subject to a tax, but does NOT specify 
           whether "D" is subject to the tax, we should assume:

            That "D" is taxable unless specifically exempted
            That "D" is not subject to the tax
            That "D" is always taxable

          That "D" is not subject to the tax, under the principle of "inclusio unius est exclusio 
          alterius."  See also Gould v. Gould (Supreme Court), which says that tax laws are not
          to be interpreted to cover matters "not specifically pointed out." 

       Part 5: True or false  
      25) T/F: Only foreign income is taxable.

             False.  There would be no Section 861(b) or 1.861-8 if income from within the U.S. 
                        (i.e. domestic income) was never taxable. 

      26) T/F: Only foreigners are subject to the tax.

           False.  U.S. citizens ARE taxed on certain income, primarily from foreign commerce.
                     (See 26 USC � 901 and following, and 26 CFR �� 1.861-8(f)(1)(i) and 1.861-8T

      27) T/F: The law does not make anyone liable for the tax.

           False.  Those who receive substantial taxable "gross income" are require to file
                      returns (26 USC � 6012) and pay the tax (26 USC � 6151).  In addition,
                      Section 1461 makes the domestic employers of nonresident aliens liable
                      to  withhold and collect the tax. 

      28) T/F: Section 861 lists the taxable activities.

                  False.  Section 861 of the statutes merely describes what income is considered
                             domestic income.  (Section 862 describes what counts as foreign
                             income.)  Those statutes do NOT show ANY income to be exempt from
                             tax.  It is the REST of Subchapter N, and the regulations under Section
                             861, which show that income is only taxable when it comes from certain
                             matters related to international trade. 

      29) T/F: Section 861 says that all domestic  income is taxable, but the regulation-writers
                  chose to limit it to only international income.

                 False.  A regulation cannot limit a statute.  Section 861 (and 862) must be
                            viewed in light of the REST of Subchapter N.  The general wording of 861
                            does NOT mean that all domestic income is taxable for everyone, any
                            more than 861 means that all foreign income is taxable for everyone.  The
                            regulations under 861 explain how, to have taxable income, one must first
                            have income from a specific type of commerce described in an "operative

      30) T/F: Only income specifically exempted by  statute is exempt. 

                False.  The Constitution itself exempts some income.  See Section 39.22(b)-1 of
                           the 1956 regulations, 29.22(b)-1 of the 1945 regulations ("Regulations
                           111"), and Article 71 of Treasury Decision 3640, as well as the current 26
                           CFR � 1.312-6(b). 

       Part 6: Essays:  
      31) Explain why Section 861(a)(3) does NOT mean that the domestic wages of all
           citizens are subject to the tax.

           A study of the history of the section, starting with Section 217 of the Revenue Act of
           1921, makes that obvious.  (No one literate would have claimed that Section 217(a)(3)
           from 1921, predecessor of 861(a)(3), meant that the domestic wages of most U.S.
           citizens were taxable.)

         Currently the "source rules" in 861 and 862 only tell what income counts as domestic  
         and what income counts as foreign; those sections do NOT show ANY income to be 
         exempt.  It is the sections throughout the REST of Subchapter N which specifically
         describe the circumstances in which domestic income and/or foreign income is
         actually TAXABLE.  The current regulations under Section 861 explain this, as follows:

      Section 861, 862 and 863 are about income from SPECIFIC sources (26 CFR 1.861-8(f)(3)(ii)), and those "specific sources" are the activities or types of commerce describes in OTHER sections of the code, called "operative sections" (26 CFR �� 1.861-8(a)(4),1.861-8(f)(1)).  One cannot have taxable income under 1.861-8 unless it derives from one of those specific types of commerce.

      The older regulations prove this more clearly.  As one example, Section 119 of the 1939 Code (predecessor of Section 861, and almost identical) by itself sounded like it meant that ALL "interest" from U.S. investments was domestic "gross income." 
       However, the related regulations (29.119-2 (1945)) said quite plainly that such domestic interest was to be included in the gross income of nonresident aliens, foreign
      corporations, and American business and citizens who receive most of their income from federal POSSESSIONS (e.g. Guam, Puerto Rico).  Other sections back then (e.g. 29.119-1, 29.119-9, 29.119-10) also made it clear that the GENERAL terms of  the statute did NOT mean that the list types of income were taxable for EVERYONE. 

      32) Explain why the general definition of "gross income" in 26 USC � 61 does NOT mean
           that the domestic wages of all citizens are subject to  the tax.

         First of all, Section 61 begins by saying "except as OTHERWISE provided" in  
         Subtitle   A, which means that EVERYTHING ELSE in the whole code takes  
         precedence over the general definition.

         In addition, there are TWO reasons to conclude that the general definition of "all 
         income from whatever source derived" (Section 61) is NOT as all-encompassing as it
         may seem:

      1) The regulations under Section 861 begin by saying that 861 and following, and related
          regulations, "determine the SOURCES of income for purposes of the income tax" (26
          CFR � 1.861-1).  Section 61 lists some of the more common "items" of income, but it
          does NOT say ANYTHING about who is receiving the income, where it is coming from,
          etc.  In fact, in the USCS printing of the Code, and in the USC and USCA printings
          until 2001, Section 61 was followed by cross-references such as the following:

        Income from sources within the United States, see section 861 of this title Income from
        sources without the United States, see section 862 of this title
       The indexes of the code reinforce this, as under "Gross income" there are entries like

      - Within the U.S., � 861
      - Without the U.S., � 862

      Treasury Decision 6258 also states that 861 and following, and related regulations, gave the rules for determining GROSS INCOME (and taxable income) from sources within and without the United States.

      If "all income from whatever source derived" meant "all income no matter where it comes from," NONE of those references would exist.  In fact, there would be no need for Section 861 and 862 at all (or the rest of Subchapter N, for that matter), if the word "source" had no meaning.

      2) According to the Supreme Court, ANY statute, however broadly worded, must be
          interpreted in light of the Constitution (McCullough v. Virginia).  The very general
          statutory definition of "gross income" has been around since the beginning of the tax,
          but the regulations defining "gross income," up until 1956, made it clear that there
          were CONSTITUTIONAL restrictions on that very general definition.  (See for example
          Section 39.22(b)-1 of the 1956 regulations.)

      Likewise, the CURRENT regulations state that the "items" listed in Section 61 are NOT always taxable, but are sometimes EXCLUDED for federal income tax purposes (26 CFR �� 1.861-8(a)(3), 1.861-8(b)(1)).  That by itself proves that reliance on the general definition in 61 alone in INSUFFICIENT to determine what income is taxable and what is not. 

      33) Explain why Section 1.1-1 does NOT mean that the domestic wages of all citizens
           are subject to the tax.

      Section 1.1-1 says that citizens are liable to the taxes imposed by the code, whether their income is from sources within or without the United States.  Of course, 26 USC � 1 (which those regulations interpret) make it obvious that the "taxes imposed by the code" are only upon TAXABLE income, not all income.  Section 1.1-1 itself says that the tax is upon "TAXABLE income" (not all income), and Section 1.863-1(c) says that a taxpayer's
      TAXABLE income "from sources within or without the United States," SHALL BE
      DETERMINED under the rules in 1.861-8 and following.  To read 1.1-1 as if it means that it's okay to just SKIP all the rules about DETERMINING your "taxable income" makes no sense at all.  The tax applies ONLY to one's "taxable income," and Section 861 and its regulations (NOT Section 1.1-1) give the rules for DETERMINING one's taxable income. 

      34) Respond to the claim that most Americans should NOT look to Section 861 and its 
            regulations to determine their taxable domestic income.

            In short, such a claim is a baseless assertion.  ALL of the following show, WITHOUT
           qualification, that one's taxable domestic income is to be determined under the rules
           of 26 USC � 861(b) and 26 CFR � 1.861-8 (and sometimes Section 863 as well):

      26 CFR �� 1.861-1(a)(1), 1.861-1(b), 1.861-8(a)(1), 1.862-1(b), 1.863-1(c)Treasury
          Decision 6258 Entries in the USC indexes under "gross income," "deductions" and
         "taxable income, all of which refer to Section 861 regarding income from within the
          U.S.Cross-references under Section 61, and what probably was the reason for those
          cross-references: Section 22(g) of the 1939 Code.

      NONE of those say that one should look to 861 and its regulations to
      determine their taxable domestic income only in CERTAIN circumstances. 

       Part 7: The Nasty Part  
      Take the test over again, only this time provide actual CITATIONS...

      I did the first time.


      Larken Rose

      (P.S. Yes, I really did do that test WITHOUT looking anywhere for citations. I readily admit to being an obsessed freak.)

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