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SHORT Summary

(originally launched into cyberspace on 01/26/2003)

Dear List Subscriber,

As many of you have noticed, I'm not exactly a master of brevity when it
comes to the 861 evidence. I always want to pile on a ton of citations,
logic, etc., proving every little step. In doing so, sometimes I overwhelm
the reader, and drown him in legalese before he ever gets to the punchline.

So this message is a test, to see if I can really do a SHORT summary of the
861 evidence. (Last time I tried, my "short" summary was about five pages
long.) So here goes...


There are two routes to the truth in the lawbooks concerning the very
limited nature of the federal income tax:

1) The issue of exempt income.
2) The issue of when domestic income is taxable.

I will summarize them separately:


For ages and ages, the income tax laws have included a very broadly-worded
general definition of "gross income," which would seem to include all income
from everywhere. (Generally speaking, "gross income" becomes "taxable
income" after subtracting deductions.) There are a few types of income that
Congress specifically exempted from income taxation, such as life insurance
proceeds and gifts, but the STATUTES passed by Congress do not specifically
exempt the income of most Americans. (This is why the tax professionals
think most of us owe the tax.)

However, the Supreme Court says that every statute is to be read in light of
the Constitution, and the regulations (past and present) show that some
types of income NOT exempted by any statute are nonetheless exempt from
taxation because of the Constitution itself.

The regulations, past and present, specifically list what is NOT exempt from
taxation (i.e. what IS taxable), and while those lists always include the
domestic income of FOREIGNERS, and certain FOREIGN income of Americans, they
do NOT include the income of the average American. That is because the
income of the average American is EXEMPT from taxation.


In addition to the general definition of "gross income," the income tax laws
have included (for more than 80 YEARS) sections which specifically said when
income from WITHIN the United States is taxable. Currently it is found in
Section 861 of the tax code, and the related regulations. (Section 862
describes when income from OUTSIDE of the U.S. is taxable.)

Section 861 and its regulations (and 80 years of predecessors) show the
domestic income of foreigners to be taxable, in addition to the income of
certain people doing business in federal possessions, but do NOT show the
domestic income of the average American to be taxable. Again, that is
because such income is NOT taxable. (The Supreme Court says we are not to
ASSUME that taxing statutes apply to things not "specifically pointed out.")


Hey, that was almost short! (I just barely survived writing it.)

However... I need to add one more thing, to address something that has often
come up recently. There is some confusion (and it was by design) about the
scope and purpose of Section 861 and its regulations. Some insist that only
people who have foreign AND domestic income should be looking there...
though they can never find any CITATION supporting such a claim. Some claim
that Section 861 DOES show the income of the average American to be taxable
(though IRS Chief Counsel does not argue such a thing, because they know how
weak that claim is). So here is a little more in-depth summary of how 861
and following work:

Section 861(a) and the related regulations from 1.861-2 through 1.861-7 say
what kinds of income count as income from WITHIN the United States, and
Section 862(a) and related regulations say what kinds of income count as
income from OUTSIDE of the United States. (In the case of income that comes
partly from inside and partly from outside the U.S., Section 863 gives rules
about how to divide up such income into "within" and "without" income.)
These are often called the "source rules."

As the status quo defenders are quick to point out, those "source rules" do
NOT say that the income of the average American is exempt. They also do not
say that the income of a billion people in China is exempt from U.S.
taxation (though of course it is). The "source rules" in 861 and 862 say
NOTHING about exactly what income is actually TAXABLE; they only distinguish
between "within" income and "without" income. One who looks at the
generally-worded "source rules" (in particular Section 861(a)(3) of the
statutes and Section 1.861-4 of the regulations) is likely to come away
thinking that ALL pay for services performed in the United States is subject
to tax.

(Step Six of "Theft By Deception" shows how the law was intentionally
changed over time to make such a misreading not just possible, but very
likely. But the history of the section leaves no room for doubt.)

However, the NEXT step is to determine when income from within the United
States is actually TAXABLE, and that is done under 26 CFR § 1.861-8. That
convoluted and mangled section (and again, that was by design) only shows
income from within the U.S. to be taxable when it comes from certain
"specific sources and activities" listed in 26 CFR § 1.861-8(f)(1), which
are all related to INTERNATIONAL and FOREIGN commerce. (That is commerce
which IS under federal jurisdiction, but which most of us do NOT get our
income from.) Again, the history of the sections really solidify the truth
about this, whereas the current 1.861-8 is as likely to give someone a
headache as it is to tell them how the law works.


There, now I feel better, since my clarification tripled the length of my
summary. (Oops.) I hope that helps.


Larken Rose
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