Topic: A Frivolous Summary
originally launched into cyberspace on 01/12/2003
( Note: This didn't turn out as short as I was hoping, but I highly suggest
reading it all anyway if you want a crash course in the 861 evidence. Also,
feel free to distribute this however you see fit. - Larken Rose )
Dear List Subscriber,
Today (1/12/03) the New York Times is gloating over the fact that a federal
judge in Pennsylvania has signed an order silencing Mr. Thurston Bell and
his web site (www.nite.org). The order also demands that Mr. Bell publicly
say (on his website) that his conclusions are incorrect. (Apparently
censorship was not enough; they demand that he now spout the "royal
Various government officials have made the accusation that the issue Mr.
Bell addresses is "frivolous," completely without merit, "nonsensical,"
contrary to established law, "absurd," and even "stupid." (Interestingly,
several of the officials who have made such comments were appointed by the
man who is best known for the line, "I did not have sex with that woman.")
The claim is not simply that Mr. Bell, and others who have reached the same
conclusions, are incorrect; the claim is that their conclusions are so
completely baseless and idiotic, that it's okay--or even necessary--to
silence them using the force of law.
(Based on the same claim, the IRS nationwide refuses to discuss the
substance of the issue, refuses to send the issue to their lawyers for an
official ruling, and refuses to even process many tax returns which mention
the issue, sending out threats of penalties instead.)
In light of today's "report" in the New York Times, I thought this would be
a good time to put together a relatively brief summary of this "frivolous"
and baseless "argument," that has no support in the law. So here goes:
The income tax is imposed upon one's TAXABLE income, and nothing else.
(Section 1 of the Internal Revenue Code imposes the tax on the "taxable
income" of individuals, and Section 11 imposes it on the "taxable income" of
corporations.) Every tax professional knows that NOT all income is taxable,
and that only someone who has TAXABLE income can possibly owe the tax. Here
is how the tax professionals determine what is taxable:
Section 63 of the income tax statutes generally defines "taxable income" to
mean "gross income" minus deductions. Section 61 generally defines "gross
income" to mean "all income from whatever source derived," and it includes a
list of some of the more common items of income, such as compensation for
services, interest, rents, etc. There are other sections of the statutes
which say that certain types of income (such as gifts, life insurance
proceeds, income of state governments, etc.) are exempted from the tax. But
other than those specific exceptions, the so-called "tax experts" conclude,
based on the general definitions mentioned above, that the income of most
Americans is taxable.
So far we have not seen anything "frivolous"; all of the above is agreed
upon by the status quo tax preparation industry.
But there is a slight problem. You see, according to those general definitions (found in Subchapter B of the income tax statutes), the incomeof
several BILLION people is subject to the U.S. income tax. The general definitions above make the income of a Chinese man in China look just astaxable
as the income of the average American. The general definitions say nothing about who is receiving the income, or where the income is coming from; they
do NOT limit the tax to those inside the United States. Obviously Congress did not try to tax everyone on the planet, though you'dnever know that
from looking at the general definitions above.
If not for another part of the law--Subchapter N of the statutes--there
would be NO limits on who could have taxable income, and from where.
Subchapter N is entitled "Tax based on income from sources within or without
the United States." As the title implies, this is the part of the law that
specifies when income from inside the U.S. is taxable, and when income from
outside the U.S. is taxable. Sure enough, Part II of Subchapter N shows
that nonresident aliens (which would include all the Chinese people living
in China) are only taxed on income which either comes from the U.S. or comes
from doing business within the United States (see 26 USC § 871). This of
course QUALIFIES the general definitions of "gross income" and "taxable
income," and shows that it is a mistake (at least in this case) to rely on
those general definitions alone.
Some tax professionals will know enough to say, "well if you're a citizen,
it doesn't MATTER where the income comes from; it's all taxable," and they
will point to Section 1.1-1(b) of the income tax regulations, which says
that citizens are liable to the tax, whether their taxable income is "from
sources within or without the United States." (Of course, that still
depends upon what income is TAXABLE income.)
But now we come to something they DON'T say; a citation that no court has
EVER mentioned, despite numerous citizens quoting it. No IRS form letter
addresses it; no DOJ "press release" mentions it; no government lawyer wants
to talk about it. When faced with it, most government officials respond
either with a blank expression, or some pre-fab line about it being
"frivolous." Keeping in mind that the tax professionals AGREE that citizens
are taxed on their taxable income "from sources within or without the United
States," here is what the legally-binding federal income tax statutes say:
"Determination of taxable income. The taxpayer's taxable income from sources
within or without the United States will be determined under the rules of
Secs. 1.861-8 through 1.861-14T for determining taxable income from sources
within the United States." [26 CFR § 1.863-1(c)]
Note: You can look up most of the citations mentioned in this article
(including the one above) on the government's own web site, here:
Since citizens are taxed on their taxable income "from sources within or
without the United States" (26 CFR § 1.1-1(b)), and the regulations plainly
say that should use the rules in 26 CFR § 1.861-8 and following to determine
their "taxable income from sources within or without the United States," do
the tax professionals use those sections?
Nope. "That's frivolous. It has no merit. It's been ruled against. Now
shut up or we'll shut you up."
You can't figure out what you owe until you determine your taxable income.
The above citation says where to go to determine your taxable income. The
tax professionals DO NOT DO WHAT THE REGULATIONS SAY. How curious.
Well, maybe we're missing something. Maybe we shouldn't be looking at
1.863-1(c), or maybe we're taking something out of context. Most tax
professionals will, in fact, claim that we have no business looking to
Section 861, or the related regulations, which would include 1.861-8, where
the above citation pointed us. So maybe we jumped the gun, and that section
is only to be used by certain people for certain things. Let's find out,
"No! Just shut up and pay up, or else!"
Again, the general definitions of "gross income" and "taxable income" (26
USC §§ 61, 63) don't say anything about who exactly is receiving the income,
or where it is coming from. Since the above citation told us to us the
rules of 1.861-8 to determine our "taxable income from sources within or
without the United States," let's see how that section starts. Read it
"Sec. 1.861-8 Computation of taxable income from sources within the United
States and from other sources and activities.
(a) In general--(1) Scope. Sections 861(b) and 863(a) state in general terms
how to determine taxable income of a taxpayer from sources within the United
States after gross income from sources within the United States has been
determined. Sections 862(b) and 863(a) state in general terms how to
determine taxable income of a taxpayer from sources without the United
States after gross income from sources without the United States has been
determined." [26 CFR § 1.861-8]
Looks clear enough. Sections 861(b) and 863(a) are for determining taxable
income from INSIDE the U.S., and Sections 862(b) and 863(a) are for
determining taxable income from OUTSIDE the U.S.
"NO! THAT'S FRIVOLOUS, COMPLETELY WITHOUT MERIT, AND THE COURTS HAVE
CONSISTENTLY RULED AGAINST IT!!! < froth, froth >"
Uh... but it's what the regulations SAY in plain English. Are the
regulations "frivolous"? Or is it just "frivolous" to BELIEVE them when
they contradict conventional wisdom? Again, let's make sure we're not
missing something. Here is an outline of 861 through 863:
Section 861: Income from sources within the United States
Subsection 861(a): Gross income from sources within United States
Subsection 861(b): Taxable income from sources within United States
Section 862: Income from sources without the United States
Subsection 862(a): Gross income from sources without United States
Subsection 862(b): Taxable income from sources without United States
Section 863 and its regulations deal with income that comes partly from
inside and partly from outside the United States (for example, if you had a
job where you would travel and do work in different countries), and gives
rules about how to divide up such income into "within" income and "without"
All this matches the statement shown above, that says that "Sections 861(b)
and 863(a) state in general terms how to determine taxable income of a
taxpayer from sources within the United States after gross income from
sources within the United States has been determined," and that "Sections
862(b) and 863(a) state in general terms how to determine taxable income of
a taxpayer from sources without the United States after gross income from
sources without the United States has been determined." There's no hint
that most of us should just IGNORE those sections. In fact, under Section
61 itself (which generally defines "gross income" to mean "all income from
whatever source derived")=, the USCS and USCA printings of the tax code (and
the USC version up until 2001) even included cross-references such as these:
"Income from sources -
within the United States, see section 861 of this title.
without the United States, see section 862 of this title."
(The indexes of the code contain similar entries.)
The first section of regulations under Section 861 (namely, 26 CFR §
1.861-1) further elaborates on how to determine taxable income from INSIDE
the U.S., from OUTSIDE the U.S., and income from partly within and partly
without. Regarding income from WITHIN the U.S., it says that "The gross
income from sources within the United States, consist[s] of the items of
gross income specified in section 861(a) plus the items of gross income
allocated or apportioned to such sources in accordance with section 863(a),"
and then says that "The taxable income from sources within the United
States, in the case of such income, shall be determined by deducting
therefrom, in accordance with Sections 861(b) and 863(a)," the allowable
deductions. (And the section then refers the reader to Sections 1.861-8 and
1.863-1, both of which are quoted above.) Again, that just reinforces the
citations shown above.
POINT #1: IS IT PATENTLY "FRIVOLOUS" TO BELIEVE THAT ONE SHOULD USE THE
RULES OF 26 USC § 861(b), AND THE RELATED REGULATIONS BEGINNING AT 26 CFR §
1.861-8, TO DETERMINE HIS TAXABLE DOMESTIC INCOME?
Various tax professionals insist that most people should NOT look there, in
spite of the above citations. Why?
"Those sections are only about foreign income."
"Those sections are only for foreigners."
"Those sections are only for those who have foreign AND domestic income."
"Those sections are only for those who need to allocate deductions between
domestic and foreign income."
"Those sections are only for people who need to determine the geographic
origin of their income."
Oddly enough, the tax professionals don't even agree with each other about
what the sections are for, and NONE of them agree with what the regulations
actually SAY the section are for. Where do they get the idea that most
people should ignore those sections? They get it from a false premise and
As we will soon see, Sections 861(b) and 1.861-8 show various types of
domestic income (income from within the United States) to be taxable, but
NOT for the average American. "Everyone knows that most Americans owe the
tax, so if some sections (like 861 and its regulations) do NOT show that
income to be taxable, people shouldn't be looking there." THAT is the
"logic" of the so-called "experts." Your income MUST be taxable, but 861
and its regulations DON'T show it to be taxable, so you must be looking in
the wrong place. In other words, "that evidence doesn't lead to my
conclusion, so DON'T LOOK AT IT."
"THE COURTS HAVE RULED AGAINST THIS!!! PAY UP OR GO TO JAIL!!! < froth,
If you DO look at those sections, and talk about them, and try to get open,
honest answers from your government about the issue, you will be vilified,
threatened, fined, accused of being a law-breaker, and possibly SILENCED BY
FORCE (as Mr. Bell has been). Nifty.
Some tax professionals will point out that 861 and following, and related
regulations, give rules about determining the geographic origin of income,
rules about allocating deductions, etc. They then make the flying leap that
those sections should be ignored for everything else. They simply refuse to
believe that those sections are to be used to determine your "taxable income
from sources within the United States," even though the regulation
specifically and repeatedly SAY that the sections do that (see 26 CFR §§
1.861-1(a)(1), 1.861-1(b), 1.861-8(a), 1.862-1(b), 1.863-1(c).) Here is one
of the first things the Treasury Department ever said about Section 861 and
"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]
Again, where does that say most of us should IGNORE those sections? If you
go back, and read ONLY the actual citations in this article (and skip my
commentary), how could any sane, honest person claim that it is not just
wrong, but patently "FRIVOLOUS" to think you should use 861(b) and 1.861-8
to determine your "taxable income from sources within the United States"?
Such an accusation is either the result of complete lunacy, or absolute
dishonesty. (Whether the judge in Mr. Bell's case was an idiot or a
criminal remains to be seen.)
Faced with all the citations above, occasionally a tax professional will
cave, and say "okay, maybe you SHOULD use those sections," but will follow
up with, "but they show your income to be taxable anyway!" And that brings
us to the second point. Having shown abundant reason why we should use
861(b) and 1.861-8 to determine our taxable domestic income, now we must see
what income those sections show to be taxable.
First, it should be explained that the income tax code does not just spring
out of nowhere each year. The tax code has been amended, complicated, and
expanded over the years, but the underlying tax has been in place for over
80 YEARS. The history of any given section can shed led on what the CURRENT
law means. For example, the recent Treasury Decision 8687 shows that the
regulation-writers refer to the 1921 statutes to decide what the CURRENT
regulations under Section 861 should say. In addition, according to the
Internal Revenue Manual, "The courts give great importance to the literal
language of the Code but the language does not solve every tax controversy.
Courts also consider the history of a particular code section..." (Internal
Revenue Manual, (4.2)188.8.131.52 (1999)).
So let us begin at the beginning, and examine where the current Section 861
came from. It came from Section 217 of the Revenue Act of 1921. At that
time, no one with even basic reading comprehension skills would think the
section was saying that the domestic income of the average American was
taxable. It said quite plainly that in the case of FOREIGNERS, and in the
case of Americans receiving most of their income from federal POSSESSIONS
(like Guam or Puerto Rico), certain types of domestic income were to be
included in full as taxable domestic income. That section unquestionably
did NOT say that the domestic income of most Americans was to taxable.
The section would later become Section 119 of the 1939 Code. By then the
STATUTE no longer said precisely WHO could have taxable domestic income.
The statute (which has remained the same since) just says which income
counts as income from "within," and which income counts as income from
"without." The statute didn't say anything about when such types of income
were taxable... but the related REGULATIONS did. Again, they quite plainly
showed that domestic income was taxable for foreigners, and for Americans
doing business in federal possessions. (See 26 CFR §§ 29.119-1, 29.119-2,
29.119-9 and 29.119-10 of the 1945 regulations.)
Though the regulations underwent wording changes since then to make them
obscenely complicated and convoluted, the SUBSTANCE has not changed. The
general wording of the STATUTES of 861 and 862 still just give rules about
"within" and "without" (without saying WHEN such income is taxable), but the
REGULATIONS spell out when such income is taxable.
(Some now point to 861(a)(3), which addresses compensation for services
performed within the U.S., claiming that that would cover the income of most
Americans. Interestingly, IRS Chief Counsel, and most other high-ranking
government officials, do NOT argue this, because they know the history of
the section, and know that if they AGREE that we should be looking at
Section 861 at all, they are one step away from disaster.)
IRS form letters like to say that the "source" rules in 861 and following
are only about determining the geographic origin of income, and do not
exempt the average citizen's income from taxation. At least in one sense,
this is entirely TRUE. It is also a very lawyer-like response, since it
evades the question, and IMPLIES something false while saying something
The current regulations still show that income from WITHIN the United States
is only taxable when it comes from the various specific activities listed in
26 CFR § 1.861-8(f)(1), which are all about certain types of international
or foreign commerce (including Americans getting FOREIGN income, and
FOREIGNERS getting income from here). While the path to that conclusion is
now somewhat muddled and twisted (see 26 CFR §§ 1.861-8(a)(1),
1.861-8(a)(4), 1.861-8(f)(1)), the history of the section leaves no room for
doubt: these sections do NOT say that the domestic income of the average
American is taxable.
POINT #2: IS IT PATENTLY "FRIVOLOUS" TO BELIEVE THAT 26 USC § 861(b), AND
THE RELATED REGULATIONS BEGINNING AT 26 CFR § 1.861-8, DO NOT SHOW THE
DOMESTIC INCOME OF THE AVERAGE AMERICAN TO BE TAXABLE?
If the law specifically directs you to use certain sections (i.e. 861 and
its regulations) to determine your taxable domestic income, and those
sections do NOT show your income to be taxable, what should you conclude?
Here is what the Supreme Court says:
"In the interpretation of statutes levying taxes it is the established rule
not to extend their provisions, by implication, beyond the clear import of
the language used, or to enlarge their operations so as to embrace matters
not specifically pointed out. In case of doubt they are construed most
strongly against the government, and in favor of the citizen." [Gould v.
Gould, 245 U.S. 151 (1917)]
Where in Section 861 or its regulations is it "specifically pointed out"
that your domestic income is taxable? Nowhere, because it ISN'T. But why
not? This couldn't have been an 80-year typo. We're not talking about a
mistake, or a loophole. It was written this way on purpose. So why didn't
they tax YOUR income?
The general definition of "gross income" found in the current regulations
defines the term to mean all income from whatever source derived, "unless
excluded by law." If you ask a tax preparer what that last phrase means,
you will almost always get an answer like this: "Well, some types of income,
like gifts and life insurance proceeds, are specifically exempted by other
sections of the code, but everything else is taxable." They have always
believed that the only income exempt for income tax purposes are the types
exempted by the statutes in the tax code. The current 26 CFR § 1.265-1
unequivocally shows that is INCORRECT. It makes the distinction between
income exempted by the tax code, and income exempted for income tax purposes
by "any other law." What other law?
Again, examining the history of the law sheds some light on the issue. The
older regulations defining "gross income" mentioned the types of income
exempt by statute, and then said that no OTHER types of income were exempted
from taxation, EXCEPT those types of income which were, "under the
Constitution, not taxable by the Federal Government" (26 CFR § 39.22(b)-1
(1956)). That statement blows apart the entire false premise on which
almost every tax professional bases his conclusions: the premise that only
income specifically exempted by STATUTE is exempted from taxation. They
simply have no explanation for this.
Of course, we can't just GUESS at what is or isn't Constitutionally taxable,
and since the regulations raised the question, they would have to answer it.
They did. The regulations under the 1939 Code clearly said that Americans
MUST include income they receive from "foreign commerce," and that the
domestic income of foreigners and certain people doing business in federal
possessions are to be included (26 CFR § 39.22(a)-1 (1956)). (Note how that
matches exactly what the regulations under the predecessor of 861 said about
when DOMESTIC income could be taxable.)
"That's old. That doesn't apply anymore! Pay up or you're in trouble!"
Though the older sections are not still in effect themselves, they certainly
clarify the meaning of the CURRENT statutes and regulations. For example,
the CURRENT regulations say that the "items" of income listed in the general
definition of "gross income" (26 USC § 61), such as compensation, interest,
rents, dividends, make up "classes of gross income," which in some cases are
EXEMPT from taxation (26 CFR §§ 1.861-8(a)(3), 1.861-8(b)(1)). Again, no
court ruling, form letter, or government press release even MENTIONS those
citations, much less explains them. They just pretend they're not there.
Again, we cannot just GUESS at what is exempt, nor do we need to. The
regulations direct us to 1.861-8T(d)(2) which gives a specific list of those
types of income which are NOT exempt (in other words, the kinds of income
that ARE taxable). As in the older regulations, the list includes certain
FOREIGN income of Americans, and the U.S. income of foreigners, but does NOT
include the domestic income of the average American (26 CFR §
1.861-8T(d)(2)(iii)). The "experts" have no explanation for this. They
don't know what that list is even for, or why YOUR income isn't on the list.
They can't explain it, so they ignore it. Better yet, they call it
"frivolous" to even MENTION it.
I won't bother here to get into WHY Congress had to impose such a limited
tax. That and a whole lot of addition evidence can be seen in the "Taxable
Income" report, available for free here:
(The same issue is explained, I believe in a more understandable manner, in
the video "Theft By Deception," which is available at:
Based on the explanation and citations above, is it not somewhat curious
that the government's response is almost always "THAT'S FRIVOLOUS AND
COMPLETELY WITHOUT MERIT!!"? If we're missing something, or there is some
other citation which would clarify or correct something, why not PRESENT IT?
Why are judges issuing injunctions against people, silencing them by force,
without ever addressing any of the SUBSTANCE of the above issue (and why is
the Department of "Justice" requesting such injunctions)? Why is there a
nationwide pattern of the IRS openly REFUSING to say what its OWN position
is on the points above? In the vast majority of cases, they won't SAY
whether you should use 861(b) and 1.861-8 to determine your taxable domestic
income, but they will try to FINE you for saying you should. Is that not
odd? Is that "due process"?
Never mind. I take it all back. A couple ex IRS agents, posing as "judges"
in the glorified administrative hearing now called "Tax Court" (whose
"rulings" are not binding on any court, or on the IRS, or on you and me)
have baseless asserted that the issue is frivolous. So it must be.
Evidence be damned. And a couple judges have issued injunctions, relying on
the assertions of the Tax Court "judges." Never mind that they can't figure
out the specifics of their OWN position. Never mind the piles of citations
supporting the issue, and the complete lack of contradictory citations. The
King has said that you pathetic peasants shall not speak of this. He has
decreed it to be frivolous. So shut up and pay up, or we'll fine you
thousands of dollars and silence you by force. Welcome to the land of the
If at first you don't succeed, skydiving is not your sport.