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Plain as Day

(originally launched into cyberspace on 09/04/2007)

Dear Subscriber,

By far the most common argument made against the 861 evidence boils
down to "You're not supposed to look there! Those rules are for
someone else!" Oddly, the IRS and tax professionals can't seem to
agree amongst themselves who SHOULD use those rules, but somehow
they're sure (some of the time) that it's not you and me.

There are LOTS of rules in the tax code that only apply to certain
people, and in every case, the rules make it abundantly clear,
right up front, to WHOM the rules apply. For example, let's compare
two sections: Section 860 and Section 861. (Section 860 is the last
section in Subchapter M, and Section 861 is the first in Subchapter
N, so despite being right next to each other, they aren't at all
about the same things.)

Let's begin with Section 860, and see if we can tell WHO is
supposed to use the rules found therein. Is it everyone? Is it just
certain people? Here is where the section appears in the
arrangement of the code:

Subtitle A - Income Taxes
Subchapter M - Regulated Investment Companies and Real Estate
Investment Trusts

Sec. 860. Deduction for deficiency dividends
(a) General rule - If a determination with respect to any
QUALIFIED INVESTMENT ENTITY results in any adjustment for any
taxable year..."
(b) Qualified investment entity defined - For purposes of this
section, the term "QUALIFIED INVESTMENT ENTITY" means - (1) a
regulated investment company, and (2) a real estate investment
Notice how often it just slaps you in the face, saying who those
rules are for. The related regulations are the same, over and over
again saying that these rules are about any "qualified investment

When only CERTAIN people are supposed to use a particular part of
the law, the law SAYS so, and it does it blatantly and repeatedly.
No one needs to guess or theorize about who is supposed to use
Section 860. No insinuation or extrapolation, no inference or
deduction is required.
Now let's see where Section 861 is located, and what it says:
Subtitle A - Income Taxes
Subchapter N - Tax Based on Income From Sources Within or Without
the United States

  • Sec. 861. Income from sources within the United States
    (a) Gross income from sources within United States...
    (b) Taxable income from sources within United States...

    [* If you are looking in some printing of the tax code other than
    the USCS printing, you will find a different, INCORRECT title for
    Part I. For the complete explanation, download my free "Taxable
    Income" report from the link near the bottom of the front page of
    the web site.]
    Nothing in Section 861 gives the slightest hint that the rules
    therein are only for certain people, or that most of us shouldn't
    be looking there.

    Likewise, where the indexes of the tax code point to 861 regarding
    domestic income, under topics such as "gross income," "taxable
    income," "deductions," and "sources of income," there is nothing
    even remotely suggesting only CERTAIN people should look there.
    Here is how the cumulative bulletin sums up what 861 and following
    are all about:

    “Rules are prescribed for determination of GROSS INCOME and TAXABLE
    INCOME derived from sources WITHIN and WITHOUT the United States,
    and for the allocation of income derived partly from sources within
    the United States and partly without the United States or within
    United States possessions. §§ 1.861-1 through 1.864. (Secs 861-864;
    ‘54 Code.)” [Treasury Decision 6258]

    The first section of regulations under 861 (26 CFR 1.861-1)
    elaborates on the concept, explaining that 861(a) and related regs
    are for determining domestic "gross income," and 861(b) and related
    regs are for determining domestic "taxable income." You can find
    that section here:

    So where, in all that, does it say that only CERTAIN people, in
    CERTAIN situations, should be looking there to determine their
    "taxable income from sources within the United States"? When a part
    of the law only applies to certain people, the law SAYS that,
    unambiguously and repeatedly, as shown above.

    The real problem is not in the law books; it is in peoples' heads.
    When twelve jurors, for example, heard that IRS bureaucrats "TOLD"
    me I wasn't supposed to look at 861 (after telling me they weren't
    familiar with that part of the law, and weren't really sure what it
    was about), the jurors couldn't imagine how I could still disagree.

    "Oh, those rules are only for people who..." At my trial, several
    government folk asserted that, though none of them backed up their
    claims with the smallest shred of evidence. Where does the law SAY,
    or even HINT, that I'm not supposed to use those rules? It doesn't.
    But they can simply ASSERT that it is so, and the average sheep
    will take their word for it.

    What I find most discouraging at this point is how little evidence
    and logic matter to people (including a lot of people in the "tax
    honesty movement"). The "argument" over the 861 evidence, if it can
    even be called that, has become utterly absurd. One side quotes
    what the law SAYS, while the other side asserts that it MEANS
    something completely different from what it says. It's like trying
    to argue with someone who thinks 2 + 2 = 5. If they are so far gone
    that they literally refuse to see what's right in front of them,
    what's the point?

    Being right, and having piles of evidence to prove it, doesn't
    matter much when the general public is not only incapable of
    critical thought, but unwilling to even look at evidence which
    might threaten their comfortable assumptions. I'll keep putting the
    evidence out there for the few who actually want it, but at this
    point I don't think any amount of concrete evidence--whether about
    the federal income tax or anything else--can penetrate the thick,
    empty heads of the indoctrinated masses. I wish I had something
    more upbeat to end this message with, but at the moment I don't.
    Maybe in a few hundred years, the truth-tellers of today will be
    vindicated (a la Galileo). Or maybe not. Maybe in a few hundred
    years, people will go back to thinking that the sun goes around the
    earth, because "authority" says so.


    Larken Rose