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The Short Tour The Code of Federal Regualtions (26CFR) is the book of tax rules given to the public by the Treasury, and is based on the tax laws in the United States Code (26USC).
Regulations in the CFR are written to explain the statutes to us, and to provide rules for us to follow. So, we examine the corresponding regulation (USC 61 = CFR 61) to see if it will explain, what is "otherwise provided." CFR Sec. 61(b) So, if another section of the Code, or regulations, provides "specific treatment for any item", the "other provision shall apply", in spite of Sec. 61 and a claim to all income. Also, CFR 61(b) says, "more common items... are... excluded from gross income entirely". It just so happens another section does provide specific treatment for more common items of income. That section is found thousands of pages later in Sec. 861, in "the rules... for determining taxable income." Your own computer can confirm "the rules", including the following provision, are exclusive and occur only once. So, they cannot be mistaken for other "rules... for determining taxable income". Remember, we are told if either the code or regulations has a section that "provides specific treatment for any item of income, such other provision shall apply". And, here it is... CFR Sec. 861-8T(d)(2)(iii)
The regulation says, "Income that is not considered tax exempt" - don't underestimate this statement. It is a double negative. In a common tongue, this more accurately means "Income That Is Taxable", or in other words, it is telling us What Is Taxed. Not only does this section "provide specific treatment for any item of income" as required in Sec. 61(b), but is also the only location - in the entire CFR - with a actual list of items considered taxable. So, where is the income of Americans? Why should we consider domestic income taxable when the regulations clearly list what is considered taxable? Obviously, CFR Sec. 861-8T(d)(2)(iii) does not specifically say that a particular income, like yours, is exempt. Or does it? Actually, it does. Tax Rules must tell us What is Taxed, not what isn't taxed. Just like the rules must tell us how to determine the amount of tax we do owe, and not the amount of tax we do not owe. Do you think we're making this up, to fit a particular story? Since this is the only specific list of taxable items, any item of income that is considered taxable ("not considered tax exempt") must be included within this list, according to the Principles of Statutory Construction.
Again, that whole process went just like this:
No other sections in the entire CFR can claim to have the rules to apply in determining taxable income, and there are no other lists of items of income that are nonexempt. These "rules"... and the "list" of "items"... happen to occur within the same section, together, with the "list" of "specific sources". If reasonable is the required condition for law, there can be no mistake, we are examining the correct rules applicable to "determining taxable income" for a US citizen. You can verify any of this with your own computer. In case you were wondering, following next is the rule for exempt and nonexempt income. While people may naturally tend to seek answers, as shown in (1)(i) and (1)(ii), as being excluded or exempt, the rules only give us this information as in number (2), as being "nonexempt." And, notice number (2) shows, only nonexempt income is required to be included in gross income.
Just follow this simple logic... Over the year, we accumulate what we hope is a tall pile of gross income. From this pile, we hope to shovel away as much of it as possible, in the form of deductions, because the remainder is taxable income. However, exempt income does not even require shoveling, because it is NOT a part of gross income; it is tax exempt. (It is not a part of a class of nonexempt income.) According to the list of items of "Income ... not ... exempt" (i.e. "Income That Is Taxable"), most Americans do not have any taxable income. They have been excluded from the list. Expressio unius est exclusio alterius. - Findlaw.com You can use your own computer to verify all the Search Results that lead to Sec. 861-8. The results include many exclusive terms that give specific instructions to compute income tax. If you think this is simply incorrect, keep in mind that only one section contains "specific guidance" and "how to determine taxable income". It's even titled "Computation of taxable income". Many more similar results occur. The federal income tax is a scam. We challenge anyone; CPAs, attorneys, IRS, tax experts, and all, to find search results that could prove a different conclusion. In fact, the term "taxable income" is found in 817 files, but "excluded income" is only found in seven. So it isn't necessary to do much searching to simply read the relevant files. The one reasonable conclusion is that only the income gained from foreign sources is taxable income for a US citizen. Evidently, the U.S. Federal Income Tax is a just scam upon its citizens by (surprise, surprise) politicians, bureaucrats, and bankers, people who play both sides of every issue. See the Search Examples and How to Search to better understand the discovery process. For more information, continue with the following, or see the complete Analysis. Quick Facts:
What the law actually says: USC Sec. 1 Regulations are written by the Treasury Secretary to interpret the laws and explain to us what we must do. At this point, look up the corresponding regulation (USC 61 = CFR 61) to see if it offers a clue as to what is "otherwise provided", such as deductions. CFR Sec. 61 (b) CFR Section 61(b) tells us, notwithstanding (or in spite of) what the law in USC Sec. 61(a) says about all income, there is such a thing as, "more common items" of income that "are... excluded from gross income entirely". And, if other sections provide more specific treatment, "such other provision shall apply". So, CFR 61(b) explains to us a little something about "Except as otherwise provided," such as telling us that cross references found throughout the regs have a purpose, to direct our attention to these "items which are... excluded... entirely."
WARNING: The Cross References to Sec. 861 are being removed from the USC, for unclear reasons. You may have to look in an Edition of the USC which is slightly older. Or, look in the USCA or USCS. We found it in USC (1994) and USCA (2002). There is also a separately printed index that has these references. Since the law came first, we begin with the law, USC 861. Cross References in USC 61 are pointing us to Sec. 861 - apparently, in regards to "Except as otherwise provided". USC Sec. 861 USC Sec. 861 clearly says "the remainder, if any, shall be... taxable income," and that's all the USC will ever know about the matter. Later, we see that the Treasury Secretary is the one who knows if any shall be taxable income ("under regulations prescribed by the Secretary" - USC Sec. 863). USC 861 isn't a specific instruction, nor does it provide specific guidance. Not to mention that this is a law. We are told to follow the rules, which are also binding on IRS (Internal Revenue Manual, 4.10.7.2.3.4). All this law 'knows' is that, "if any" income remains, it shall be included in taxable income. How can we tell what is taxed, and where are the "deductions"? How can we know what is "excluded income"? So, the rules and laws up to this point say that an unknown number (or type?) of "more common items" are "excluded from gross income entirely". Then "deductions" are applied and "if any" ("any items") happen to remain, they are included in taxable income. Also, we must still apply "another section" that "provides specific treatment for any item of income". This section must exist if it is written about, and "another section" is easily found with a computer. (Be aware that laws and rules refer to an "item", "any item", "item of income", "following items", "items of gross" and more "common items".) A more specific instruction still exists. We must find out what, "if any", remains and where the deductions and excluded incomes are located. USC Sec. 861(b) is saying "there shall be... deductions properly... allocated thereto", but 861(a) only mentions one deduction. Where are the other deductions? Where are the specific items of taxable income and excluded income? They must be written down someplace. We must continue looking for more specifics. A computer search of keywords "deduction" with "allocated" provides us with Sec. 863 ... USC Sec. 863 USC Section 863 (the law) is leaving it up to the Secretary and his regulations (the rules) to prescribe items of gross, and deductions, which "shall be allocated or apportioned to sources." Isn't the law here giving too much power and control to a single person or entity? Who keeps track of the Secretaries here? Shouldn't this be corrected? Secretaries make prescriptions much too long and drawn out, using references to references to references. Required information is so scattered among the millions of words. Since USC 863 instructs us to allocate under regulations, we begin by examining regulation CFR 863 to see what is prescribed. According to the law in USC 863, it says items of gross income and other deductions "shall be allocated or apportioned to sources within or without the United States, under regulations prescribed by the Secretary." So, we find the corresponding regulation (USC 863 = CFR 863) to see what is prescribed. 26CFR1.863-1 First, Sec. 863-1 says the rules for determining taxable income begin with 861-8, second, this fact is confirmed by the next 2 citations (and by several specific search terms, see Search Results). 26CFR1.863-3(d) Next we examine 861-8 as instructed, and we notice it claims "This section provides specific guidance... by prescribing rules for... deductions of the taxpayer." No other section claims to provide specific guidance or to have the rules that "apply in determining taxable income." 26CFR1.861-8(a)(1) The above actually says, "The rules... apply in determining taxable income of the taxpayer from specific sources and activities under other sections of the Code... See paragraph (f)(1)... for a list." Looking in paragraph (f)(1) tells us that these are the "sections of the Code which require the determination of taxable income... and which give rise to statutory groupings" of income. What are statutory groupings? CFR Sec. 861-8(a)(4) It says both the statutory or residual sources of gross income "may include, or consist entirely of, excluded income", and that we should see paragraph (d)(2) for allocation and apportionment of deductions to excluded income. 861-8(d)(2) 861-8(d)(2) says to see 861-8T(d)(2) 861-8T(d)(2)
26CFR1.861-8(b) So, there may be no items left, and they may consist of excluded income. And, again we are told to see paragraph (d)(2). Paragraph (d)(2) tells us to see (d)(2)(ii) for a definition. 861-8T(d)(2)(ii) Then finally, we are given a specific list. Immediately after the Secretary prescribes that "exempt income means ANY INCOME" that is eliminated for federal income tax purposes, 861-8T(d)(2)(iii) provides us with a list of income that is Not exempt, eliminated, or excluded. The list is titled, "Income that is not considered tax exempt", which also means "Income that Is Taxable." In other words, it is telling us exactly What Is Taxed. Presented in the order given, the whole thing looks like this...
Why is the income of most Americans not on the list? Could it be exempt since it is "not considered tax exempt?" Notice that there is no list of "Income that is considered tax exempt." Logically, who could possibly predict what sources or items may exist in the future. Such a list would be outdated as soon as a new "item" of income is developed. Since any list of excluded income would eventually be incomplete, this likely explains why there is no such list, but only examples. It also coincides with the idea that our tax rules must tell us what we do owe, and not the amount we do not owe. In case you are wondering, here is the rule for exempt and nonexempt income... 26CFR1.265-1(b)
How do we find out exactly to what extent the rule in 861-8T(d)(2)(iii) covers these items? To find out, we must determine its Scope. The scope shows it covers income "under other sections of the Code." In addition, CFR Sec. 861-8(f)(1), which states "sections of the Code which require the determination of taxable income" is also excluding the income of most Americans from it's own list (a list of sources). It actually makes perfect sense - if something is not included in a list, then by default, it has been excluded from the list. Can this be true? Yes, according to Principles of Statutory Construction, but also according to CFR Sec. 61(b), which says if there is another section of Code or regulations that treats any item of income more specifically than Sec. 61, then it shall apply. CFR Sec. 61(b) Sec. 61(b) says more common items ARE excluded from gross entirely, and that if another section of the Code or regulations provides specific treatment for any item - it shall apply - in spite of what section 61 says about "Gross income... from whatever source." Well, in fact, the most specific treatment for any item of income is found under 861-8T(d)(2)(iii), and it actually tells us which "items are not... excluded income." If the items in the list are not excluded income, it's actually telling us the Income That Is Taxable. So, why aren't all the other items of "income from whatever source" on the list of Income That Is Taxable? For example, if the income from your job (an item of income) is Not exempt, why isn't it on the only list of items that are Not exempt? Sec. 861-8T(d)(2)(ii) says, "exempt income means ANY INCOME." Wouldn't your income be on the list of "Income that is not considered tax exempt" (Income That Is Taxable) if it was? This shows that the income of most Americans is excluded for federal income tax purposes. Still doubt these are the correct rules? Have another look at the exclusive terms within the computerized search results, and ask yourself what are the odds that there could be so many specific terms indicating how to determine taxable income, yet they shouldn't apply? All the terms are found in Sec. 861 and 863. What about the items of gross listed in USC Sec. 861? Regulations in the CFR show that USC Sec. 861(b) only states how to determine taxable income "in general terms" [CFR Sec. 861-8(a)], and continues on to say "This section provides specific guidance... by prescribing rules for...deductions." Regulations specifically say, "[ gross income ] may include, or consist entirely of, excluded income" and that "gross income may include excluded income" (See "excluded income" in Search Results). USC Sec. 861 is giving us the "items of gross," but it does not say those are sources of "items of gross". There is a big difference. For example, we can have items of gross from the sale of inventory, one sale made in Texas (from sources within the U.S.) and one item of gross from France (sources without the U.S.). The law, USC 861, is only stating a very basic fact, saying there is such a thing as gross income from sources within the United States. What if "items of gross" are only gross when they come from sources outside the United States, or when gained only by a particular group of taxpayer? It does not specify such a thing here, but it did in previous editions of U.S. Code [see below]. To understand this better, read What Can Be Excluded (See heading "WHAT CAN BE EXCLUDED" in the Analysis). Remember, as shown earlier, it is the Secretary of the Treasury who "prescribes" regulations for deductions, and also the specific "items of gross", which are taxable.
In early editions of the U.S. Code, which then had different numbers assigned, this law was written as... (a) In the case of a nonresident alien individual or of a citizen entitled to the benefits of section 1030 of this title, the following items of gross income shall be treated as income from sources within the United States: [ USC Sec. 958 (1928 Edition) ] Now this law is written in 861 and begins as... (a) Gross income from sources within United States Section 1030, in the old law, was for citizens making a certain amount of income from possessions. (a) In case of citizens... gross income means only gross income from sources within the United States - If 80 per centum or more of the gross... was derived from sources within a possession of the United States..." [ USC Sec. 1030 (1928 Edition) ] The written law of Section 1030 still exists today, but it is now in the regulations in CFR Sec. 931-1(b). CFR Sec. 931-1(b) The condition for "In the case of a nonresident alien individual" is still a condition in the current laws, but is not prescribed until later under a more expanded explanation, and different number assignments of the current USC, within Sec. 864(c) and Sec. 871. The conditions still exist for "citizens" from the old Sec. 1030, but has been moved to USC Sec. 861(a)(3)(C)(ii), and 864(b)(1)(B) and required amounts of 80-percent moved to USC Sec. 861(c)(1)(A) Apparently, Sec. 931-1(b) can used to the advantage of taxpayers gaining income from possessions. If the required percentage of income is gained, a US citizen can claim it was gained from within the United States. For example, if 80% of income is reached as prescribed, only the remaining 20% is foreign source income and therefore is taxable income. But, if only 79% of the income is from the possession(s), then all the income is from foreign sources and all of it is taxable income. An additional rules must also be applied, the workplace must be a foreign country for 330 days per year (Sec. 911). The important fact to notice here is that only one law used to specifically tell us who was taxed on the items of gross income from sources within the United States. This older version of the law had the conditions (who, when), and the items (what) within the same law. Now this information is separated between the law book (USC) and the rulebook (CFR). We have seen that the Secretary has prescribed that our "items of gross income" from sources within the United States are exempt for federal tax purposes because they have been excluded from the list of "Income that is not considered tax exempt." There are Principles of Statutory Construction, which confirm that if a list does not list, but excludes an item, it has been kept off the list for a good reason. Both the title of CFR Sec. 861-8T(d)(2)(iii), and the rule underneath it are using a negative on top of a negative, which is deceptive and confusing. It is similar to a NOT NOT type of statement in computer programming, or like (negative x negative)=positive in simple math. In conclusion, consider this: If all income from whatever source is taxable, why does CFR Sec. 861, "the rules... for determining taxable income," even exist? If we read the rules, the one reasonable conclusion is that only the income gained from foreign sources is taxable income for a US citizen. Evidently, the US Federal Income Tax is a giant scam. Who really gets this money, the interest. It's certainly not used to pay for government services (research Grace Commission Report).
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