Larken Rose

[Imalawman]

Stevesy - hint: read the regs under 1.1-1. Then read 7701(b), then look at 861 and 871. That alone should really clear things up. I'm serious, it really should makes things clearer for you.

[Nikki]

Should. Won't.

[.]

Hard to believe that Sybil is dredging up ancient, useless, totally discredited 861 garbage.

I thought he was smarter than that. Obviously, I was wrong.

[Quixote]

Hard to believe that Sybil is dredging up ancient, useless, totally discredited 861 garbage.

I thought he was smarter than that. Obviously, I was wrong.

If you mean he's smart enough to know that the 861 delusion is ancient, useless, and totally discredited, you're right. Steve knows that the 861 argument fails as soon as someone reads 861 to see what it says. Larken knew that too. That is undoubtedly why Larken, Steve, and Dr. Tom refuse to discuss IRC §861. Steve would prefer to read the more context dependent, and therefore more ambiguous, regulations.

The writers of the 861 regulations may have been a bit careless in the drafting of their introductory remarks. After all, in the context of Section 861, it was perfectly clear what they meant by "sources". They never dreamed that morons would some day deliberately misconstrue their words in a futile attempt to support their conclusion that the IRC did not impose a tax on their income.

[Quixote]

UGA Lawdog:

Homer Simpson holding a gun, "This is just how God must feel when He holds a gun."

Query: Can God create a gun so powerful even He can't wield it?

Hell no, and it will have a bayonet lug to boot.

Would the bayonet that fits on that lug be large enough to cleave entire planets in two? Because that would be way cool.

Oh yeah, to both the question and the observation. But it takes a fine touch. Whack that sucker too hard and you get an asteroid belt.

[SteveSy]

Hard to believe that Sybil is dredging up ancient, useless, totally discredited 861 garbage.

I thought he was smarter than that. Obviously, I was wrong.

I saw someone quoted me in the Larken thread under high profile TP's. Must of been from a while ago. I responded because I was bored...however, this is even more boring lol.

[Paul]

From stevesy

Paul wrote:

Code: Select all

As a citizen of the US, there is nothing that tells you not to use Sections 861 through 863 to divide your income into two piles.

That's true, but there's nothing to tell you to use section 61 either if you have income.
But like 61 it's pretty obvious. "Income from sources within the U.S.".

See, I told you. Stevesy couldn't follow the very first sentence. I tell him that nothing tells a citizen not to look at 861-863, and he thinks I said that you DON'T look at it. What I said was that, when you do, all it does is tell you how to divide your income into two piles. It says nothing about what to do with those too piles once you've done that. 871 and 872, of course, tell a nonresident alien what to do with them - they create an exception to the general rule in 61, that says you have to pay tax on ALL your income except as otherwise provided. 871 and 872 "otherwise provide" that, if you're a nonresident alien, your gross income and taxable income include only the non-US pile. But, since he fell off the logic train at the very beginning, he can't possibly get to the end of the line.

[SteveSy]

From stevesy

Paul wrote:

Code: Select all

As a citizen of the US, there is nothing that tells you not to use Sections 861 through 863 to divide your income into two piles.

That's true, but there's nothing to tell you to use section 61 either if you have income.
But like 61 it's pretty obvious. "Income from sources within the U.S.".

See, I told you. Stevesy couldn't follow the very first sentence. I tell him that nothing tells a citizen not to look at 861-863, and he thinks I said that you DON'T look at it. What I said was that, when you do, all it does is tell you how to divide your income into two piles. It says nothing about what to do with those too piles once you've done that. 871 and 872, of course, tell a nonresident alien what to do with them - they create an exception to the general rule in 61, that says you have to pay tax on ALL your income except as otherwise provided. 871 and 872 "otherwise provide" that, if you're a nonresident alien, your gross income and taxable income include only the non-US pile. But, since he fell off the logic train at the very beginning, he can't possibly get to the end of the line.

The code and the regulations under 861 tell you how to determine taxable income. A non-resident alien will find their income is taxable if made from sources within the U.S. You must not have read the regulations.

The problem is if you're a U.S. citizen you won't find your wages are taxable using the regulations under 861, whether that means you owe a tax anyway or not is another story.

[Famspear]

I tell him [SteveSy] that nothing tells a citizen not to look at 861-863, and he thinks I said that you DON'T look at it. What I said was that, when you do, all it does is tell you how to divide your income into two piles. It says nothing about what to do with those too piles once you've done that.

Yes, and now for further explanation on what you do with those piles of domestic and non-domestic income.

The answer is that for a U.S. citizen or U.S. resident, you DO NOTHING MORE. Whether it's domestic income or not, it's includible in gross income under section 61 for that person. Why? Because nothing in the Code TELLS YOU TO DO ANYTHING MORE (at least, not in the context of the Larken Rose "861" theory).

For a nonresident alien, however, the answer is different. Section 871 may apply to that person. And section 871 does mention sources "within" the United States. Since section 871 by its very terms applies to nonresident aliens (and by definition, a nonresident alien is neither a U.S. citizen nor a U.S. resident), then the mention of sources within the United States has little or no legal importance for U.S. citizens or U.S. residents (at least, little or no importance in terms that could ever validate the goofy Larken Rose theory about section 861 somehow making the domestic income of a U.S. citizen not be included in the gross income of that person).

Steve still has not come up with the Code provision that, with respect to nonresident aliens, provides that the regular federal income tax imposed by section 1 and the alternative minimum tax under section 55 apply ONLY as provided in section 871 (or in section 877).

The key is that section 1 is the provision that specifically imposes the U.S. federal income tax on an individual (not section 61, and not section 861). Section 861 provides the definition of income from sources within the United States -- the definition that is needed to understand, among other things, the tax imposed on non-resident aliens by section 871.

Nothing in section 871, or in section 861, or in section 61, says anything about the domestic income of a U.S. citizen (or a U.S. resident) being excluded from the gross income of a U.S. citizen or a U.S. resident.

And, since no Code provision says that the domestic income of a U.S. citizen or resident is excluded from the gross income of that person, you are left with the general provision -- section 61 -- when dealing with a U.S. citizen or U.S. resident. Thus, the domestic income of a U.S. citizen or U.S. resident is included in the gross income of that person (except to the extent excluded by such things as section 101, relating to certain insurance proceeds, section 102, relating to certain gifts, etc., etc.).

In imposing the regular federal income tax on a single (unmarried) individual, Code section 1(c) imposes the tax on the "taxable income" of "every individual......" The other subsections of section 1 also use the word "every" to describe the imposition of the tax on the taxable income of married persons filing jointly, married persons filing separate, and so on. By its literal terms, section 1 -- without more -- would apply to the taxable income of any individual anywhere in the universe, even a person in India who has never received a penny of U.S. source income and who has never been a U.S. citizen or a U.S. resident.

Indeed, a non-U.S. citizen residing on the Planet Neptune is apparently subject to section 1 (at least, according to the language of section 1) -- unless there is another provision of the law that negates that.

There is such a provision -- right there in the Code.

Well, since Steve has been unwilling (or unable) to come up with the citation, I'll quit playing hide the ball.

The answer is subsection (d) of section 2 of the Code:

(d) Nonresident Aliens--In the case of a nonresident alien individual, the taxes imposed by sections 1 and 55 shall apply only as provided by section 871 or 877.

(PS: For the definition of an individual who is a "nonresident alien," see section 7701(b)(1)(B).)

[SteveSy]

You're right section one does impose a tax on the "taxable income" of every individual but it first must be taxable income. Gross income isn't synonymous with taxable income. You can have 100% gross income and none of it is taxable income. In fact ALL of your income can be one of the items of gross income listed under section 61 and none of it is "taxable income", it can be excluded from tax all together regardless of deductions, exemptions or Part III.

[Famspear]

You're right section one does impose a tax on the "taxable income" of every individual but it first must be taxable income. Gross income isn't synonymous with taxable income. You can have 100% gross income and none of it is taxable income.

Not exactly. Once you apply all the relevant provisions of the internal revenue laws and determine the items of gross income, that's pretty much it, as far as gross income is concerned. In other words, you look first to section 61. You then apply all the Code provisions that "change" what would otherwise be the result of section 61 (for example, sections 101 through 140, section 911, and so on). Your result is "gross income."

The way you get from gross income to section 63 (which is taxable income) is, essentially, by subtracting DEDUCTIONS from the gross income. "Taxable income" (section 63, which is what we're talking about here) is really a sort of "tax accounting" concept.

What might or might not be confusing you, Steve, is the fact that even tax lawyers, CPAs and courts sometimes use the term "taxable income" to mean something else. For example, I might say, in talking to a client, that compensation for personal service is "taxable", or is part of "taxable income". When I say that, I'm not referring to "taxable income" as that term is used in section 63. I'm using the term "taxable income" to mean "includible in section 61 gross income and not otherwise excluded from gross income by some other Code provision". That's a bit wordy, so it's just easier to day "it's taxable" or "it's taxable income" when talking with a client. Again, I admit it's confusing because I (and many tax practitioners) are using the term "taxable income" to mean two slightly different things.

In order for the Larken Rose section 861 argument to be legally correct, you would have to find either of the two following things:

A. An Internal Revenue Code provision that says that the domestic income (income from a source "within" the USA, if you will) is "not includible in gross income" of a U.S. citizen or U.S. resident (or something almost identical). Nothing in section 861 (or in Subchapter N generally) says that.

B. An Internal Revenue Code provision that allows a DEDUCTION for domestic income. You won't find that either. In fact, the term "deduction" as used in the Code usually applies to EXPENSES -- not to something that would be INCOME.

Steve, you're stuck.

[Famspear]

......You can have 100% gross income and none of it is taxable income. In fact ALL of your income can be one of the items of gross income listed under section 61 and none of it is "taxable income", it can be excluded from tax all together regardless of deductions, exemptions or Part III.

Can you give an example of what you mean?

[SteveSy]

You're right section one does impose a tax on the "taxable income" of every individual but it first must be taxable income. Gross income isn't synonymous with taxable income. You can have 100% gross income and none of it is taxable income.

Not exactly. Once you apply all the relevant provisions of the internal revenue laws and determine the items of gross income, that's pretty much it, as far as gross income is concerned. In other words, you look first to section 61. You then apply all the Code provisions that "change" what would otherwise be the result of section 61 (for example, sections 101 through 140, section 911, and so on). Your result is "gross income."

The way you get from gross income to section 63 (which is taxable income) is, essentially, by subtracting DEDUCTIONS from the gross income. "Taxable income" (section 63, which is what we're talking about here) is really a sort of "tax accounting" concept.

What might or might not be confusing you, Steve, is the fact that even tax lawyers, CPAs and courts sometimes use the term "taxable income" to mean something else. For example, I might say, in talking to a client, that compensation for personal service is "taxable", or is part of "taxable income". When I say that, I'm not referring to "taxable income" as that term is used in section 63. I'm using the term "taxable income" to mean "includible in section 61 gross income and not otherwise excluded from gross income by some other Code provision". That's a bit wordy, so it's just easier to day "it's taxable" or "it's taxable income" when talking with a client. Again, I admit it's confusing because I (and many tax practitioners) are using the term "taxable income" to mean two slightly different things.

Let's stop here because you're position is flawed.

You can have an item of gross income from section 61, have no deductions or use Part III and it still won't be "taxable income". I'm not talking about income that can be taxed but isn't because of deductions or exemptions, I'm using the term as in it can't be taxed, like that used in section 63.

[Famspear]

You're right section one does impose a tax on the "taxable income" of every individual but it first must be taxable income. Gross income isn't synonymous with taxable income. You can have 100% gross income and none of it is taxable income.

Not exactly. Once you apply all the relevant provisions of the internal revenue laws and determine the items of gross income, that's pretty much it, as far as gross income is concerned. In other words, you look first to section 61. You then apply all the Code provisions that "change" what would otherwise be the result of section 61 (for example, sections 101 through 140, section 911, and so on). Your result is "gross income."

The way you get from gross income to section 63 (which is taxable income) is, essentially, by subtracting DEDUCTIONS from the gross income. "Taxable income" (section 63, which is what we're talking about here) is really a sort of "tax accounting" concept.

What might or might not be confusing you, Steve, is the fact that even tax lawyers, CPAs and courts sometimes use the term "taxable income" to mean something else. For example, I might say, in talking to a client, that compensation for personal service is "taxable", or is part of "taxable income". When I say that, I'm not referring to "taxable income" as that term is used in section 63. I'm using the term "taxable income" to mean "includible in section 61 gross income and not otherwise excluded from gross income by some other Code provision". That's a bit wordy, so it's just easier to day "it's taxable" or "it's taxable income" when talking with a client. Again, I admit it's confusing because I (and many tax practitioners) are using the term "taxable income" to mean two slightly different things.

Let's stop here because you're position is flawed.

You can have an item of gross income from section 61, have no deductions or use Part III and it still won't be "taxable income". I'm not talking about income that can be taxed but isn't because of deductions or exemptions, I'm using the term as in it can't be taxed, like that used in section 63.

Example?

[SteveSy]

......You can have 100% gross income and none of it is taxable income. In fact ALL of your income can be one of the items of gross income listed under section 61 and none of it is "taxable income", it can be excluded from tax all together regardless of deductions, exemptions or Part III.

Can you give an example of what you mean?

Compensation for services not effectively connected with a trade or business in the United States. Section 61 is for everyone regardless of where your income comes from. The truth is the code doesn't even have to specifically exclude income not effectively connected with a trade or business in the United States. It still wouldn't be taxable because there isn't a way to determine your taxable income on it.

[Famspear]

......You can have 100% gross income and none of it is taxable income. In fact ALL of your income can be one of the items of gross income listed under section 61 and none of it is "taxable income", it can be excluded from tax all together regardless of deductions, exemptions or Part III.

Can you give an example of what you mean?

Compensation for services not effectively connected with a trade or business in the United States. Section 61 is for everyone regardless of where you income comes from.

You've lost me Steve. The general rule is that compensation for services is includible in gross income, regardless of whether it is effectively connected with a trade or business (in the United States or not). And even if you could find a Code section that made it "not includible in gross income", that is a separate concept from the concept of "taxable income" as used in section 63.

Or maybe I'm just not understanding what you're saying. (?)

EDIT: Example: Section 911. Even though section 911 may exclude certain earned income (such as certain compensation for personal services) from "gross income," that is a separate concept from saying it's not in "taxable income."

More to the point: You can't have it both ways. If, under some Code provision, it's not includible in gross income, then it's not includible in gross income. So, the statement that it's somehow "in" gross income but not "in" taxable income is wrong here, too.

Maybe I'm just not following what you're saying??

[SteveSy]

You've lost me Steve. The general rule is that compensation for services is includible in gross income, regardless of whether it is effectively connected with a trade or business (in the United States or not). And even if you could find a Code section that made it "not includible in gross income", that is a separate concept from the concept of "taxable income" as used in section 63.

Or maybe I'm just not understanding what you're saying. (?)

Yes it is included in gross income regardless. The point I was making is that you keep on telling me that if I can not exclude my income from gross income somewhere then it is taxable income. That's simply not true. Section 61 can have items of gross income that are excluded from taxable income regardless of deductions or exemptions.

26 USC 63

(a) In general
Except as provided in subsection (b), for purposes of this subtitle, the term “taxable income” means gross income minus the deductions allowed by this chapter (other than the standard deduction).

That's just a general rule and its not exactly on the mark. There can be "gross income" with no deductions or exemptions and its still not "taxable income".

[Famspear]

You've lost me Steve. The general rule is that compensation for services is includible in gross income, regardless of whether it is effectively connected with a trade or business (in the United States or not). And even if you could find a Code section that made it "not includible in gross income", that is a separate concept from the concept of "taxable income" as used in section 63.

Or maybe I'm just not understanding what you're saying. (?)

Yes it is included in gross income regardless. The point I was making is that you keep on telling me that if I can not exclude my income somewhere then it is taxable income. That's simply not true. Section 61 can have items of gross income that are excluded from taxable income regardless of deductions or exemptions.

OK, I think I see what you're saying. I think you're saying that "section 61 when read in isolation from all other Code sections", can have an item that would be gross income -- and yet not be included in section 63 taxable income. In other words, all compensation is included in gross income as defined in section 61, but since certain compensation could be excluded by ANOTHER code section (such as 911), that income would never "make it" down into "taxable income."

If that's what you're saying, then you're wrong about my post being wrong. Go back and read my post again.

And if that's what you're meaning, then you're also wrong when you say that you "can have 100% gross income and none of it is taxable income." Again, to determine gross income, you can't just look at section 61. You have to look at ALL THE INTERNAL REVENUE LAWS, including sections 101 through 140, section 911, and so on. Read my post again.

You cannot define gross income by stopping at section 61. Indeed, section 61 itself tells you that you cannot stop at section 61 to define "gross income". Its says, "EXCEPT AS OTHERWISE PROVIDED IN THIS SUBTITLE....."

Remember what I told you about section 1, and the fact that it would even apply to foreign income of non-U.S. citizens living on the Planet Neptune, except that there's another Code provision that negates that? (Section 2(d), remember?)

[Famspear]

That's just a general rule and its not exactly on the mark. There can be "gross income" with no deductions or exemptions and its still not "taxable income".

No, not in the section 63 sense of "taxable income". Once you apply all relevant Code sections, if the item is included in gross income, then that's it. You cannot get a "taxable income" amount that's going to be smaller than the gross income unless you start taking deductions or exemptions. (Technically, by the way, the exemptions for you, your spouse, and your kids are taken in the form of "deductions.").

If you have an item that is "gross income" for purposes of the Internal Revenue Code, you could not even take the standard deduction or the personal exemptions (to get you down to a zero "taxable income" amount) without taking "deductions."

EDIT: Stated another way: If you have "gross income" as defined in the INTERNAL REVENUE CODE (not as defined by ignoring the first seven words of section 61(a), and not as defined by ignoring sections 101 through 140, etc., etc.) then you are going to have section 63 "taxable income" unless you take some sort of deductions, even if they're just the standard deduction and the deductions for personal exemptions.

Read my post again, Steve. Reading is fundamental.

Good grief, it's after midnight in Houston. Nighty-night.

[SteveSy]

OK, I think I see what you're saying. I think you're saying that "section 61 when read in isolation from all other Code sections", can have an item that would be gross income -- and yet not be included in section 63 taxable income. In other words, all compensation is included in gross income as defined in section 61, but since certain compensation could be excluded by ANOTHER code section (such as 911), that income would never "make it" down into "taxable income."

If that's what you're saying, then you're wrong about my post being wrong. Go back and read my post again.

Doesn't have to be read in isolation. Nothing has to exclude it from 61 and it still won't be taxable income.

Compensation for services not effectively connected with a trade or business in the U.S. is and always will be an item of gross income under section 61, nothing excludes it from gross income and yet it still isn't taxable income.