The item of income (compensation for labor) must derive from a source that is either within or without the US. The item is not the source. You are conflating items and sources.
The item of income (compensation for labor) must derive from a source that is either within or without the US. The item is not the source.
Take your sob story to a judge!
Commissioner v. Glenshaw Glass Co., 348 U.S. 426, 429-30 (1955).
- "Congress applied no limitations as to the source of taxable receipts, nor restrictive labels as to their nature."
The following is extacted from the state appellate decision where the the appellate board, California Board of Equalization, analyzes the arguments based on the 26 USC 861 and related treasury regulations as they apply to the federal tax system those portions of the IRC Title 26 the California income tax law includes by reference.
I highly recommend reading the opinion in full for it provides a very clear insight as to how both state and federal appellate judges construe the Federal Income Tax code and treat several common tax protest arguments that are frequently offered by defendants.
It is guaranteed that if one cannot clearly and completely refute this analysis in judicial review, the 861 "sources" argument will completely fail.
As regards 861 "sources" argument Meyers v CBOE
(pdf document) 2001 SBE 001, pages 8-11:
"Income “Sources.” Appellant’s primary contention relies on his misapplication of IRC section 861 and its implementing regulations (most specifically, Treasury Regulation section (Regulation) 1.861-8(f)(1)). Appellant contends that “gross income” (apparently for both federal and state tax purposes) is limited to income from an obscure list of “operative sections” listed in Regulation 1.861-8(f)(1). This contention is groundless and frivolous. To better understand this contention we will briefly review a few IRC sections and regulations. California Revenue and Taxation Code (R&TC) section 17071 defines “gross income” by reference to IRC section 61 “except as otherwise provided.” Section 61 defines “gross income” as follows:
“Except as otherwise provided in this subtitle [Subtitle A—Income Taxes], gross income means all income from whatever source derived, including (but not limited to) the following items:
(1) Compensation for services, including fees, commissions, fringe benefits, and similar items;
(2) Gross income derived from business;
(3) Gains derived from dealings in property;
(4) Interest;
(5) Rents;
(6) Royalties;
(7) Dividends;
(8) Alimony and separate maintenance payments;
(9) Annuities;
(10) Income from life insurance and endowment contracts;
(11) Pensions;
(12) Income from discharge of indebtedness;
(13) Distributive share of partnership gross income;
(14) Income in respect of a decedent; and
(15) Income from an interest in an estate or trust.”(Emphasis added.)
For federal purposes, IRC section 1 imposes a tax on the taxable income of every individual who is a citizen or resident alien of the United States. One of its implementing regulations provides, in part, as follows:
“In general, all citizens of the United States, wherever resident, and all resident alien individuals are liable to the income taxes imposed by the Code whether the income is received from sources within or without the United States. . . . As to tax on nonresident alien individuals, see sections 871 and 877.”
(Treas. Reg. § 1.1-1(b); emphasis added.) Thus, for a citizen or a resident alien it will normally not matter whether a source of income is from within the United States or without—since both are subject to the federal income tax unless specifically provided elsewhere in the code (such as the “foreign earned income” discussed above).
Nonresident aliens and foreign corporations have special provisions for federal income tax purposes. For example, IRC section 871 imposes “a tax of 30 percent of the amount received from sources within the United States by a nonresident alien individual . . . [on income other than capital gains].” (Emphasis added.) One of the implementing regulations for IRC section 871 provides, in part, as follows:
“For purposes of the income tax, alien individuals are divided generally into two classes, namely, resident aliens and nonresident aliens. Resident alien individuals are, in general, taxable the same as citizens of the United States; that is, a resident alien is taxable on income derived from all sources, including sources without the United States.”
(Treas. Reg. § 1.871-1(a); emphasis added.) Once again, it is clear that citizens and resident aliens are taxable on income from all sources, both within and without the United States.
For some purposes (such as taxing the income of nonresident alien individuals and foreign corporations), it is necessary to know whether a source of income is from within or without the United States. (See Int.Rev. Code, § 871, supra.) IRC sections 861 through 865, together with their implementing regulations, provide the bases for making this determination— for federal income tax purposes. IRC section 861 provides the criteria for determining which portions of various income items are from “sources” within the United States, and IRC section 862 does the same for “sources” of income without the United States. (IRC sections 863–865 provide additional rules—including for the apportionment and allocation of income to sources within or without the United States.)
The regulations under IRC section 861 assist in determining whether income is from a source within or without the United States—including situations where income comes partly from within and partly from without the United States—and where it is necessary to allocate and apportion deductions. It is here that appellant makes his primary error. Appellant completely misapplies Regulation 1.861-8, subsections (a)(1) and (f)(1). He concludes that these relatively obscure portions of the regulations suddenly change the whole definition of taxable income for citizens and resident aliens to include only income from the list of “operative sections” in subsection (f)(1) of this regulation. This defies logic and the clear purpose of IRC section 861. Subsection (a)(1) of the regulation states that it applies to the determination of taxable income “from specific sources and activities under other sections of the Code, referred to in this section as operative sections.” The list of “operative sections” in subdivision (f)(1) does not include IRC sections 61 and 63. Therefore, rather than limiting either “gross income” under section 61 or “taxable income” under section 63, this regulation has only the very limited application defined therein. Indeed, Regulation 1.861-8(g) provides a number of examples of how section 861 should be applied. (See Treas. Reg. § 1.861-8(g), examples 17-22 and 25-33.) These examples show how to determine whether an item of income (sometimes in very complex factual situations) is from a source within or without the United States. Sometimes the examples use terms such as “domestic” or “U.S.” source, or “foreign” source, instead of “within” or “without.” But they all clearly apply only to the determination of whether an item of income is from “within” or “without” the United States.
Finding as regards IRS agreeing with appellant's theories:
(pdf document) 2001 SBE 001, page 12:
8. Actions of the Internal Revenue Service. Appellant contends that the IRS agrees with his theories. In support of this contention, appellant provides copies of correspondence between the IRS and appellant, as well as between the IRS and Bosset Partners Marketing, Inc. Included are copies of checks purporting to be refunds of employment taxes initially paid to the IRS by the employer and then refunded after the employer sent the IRS a statement that the withholdings had been in error. We have been provided copies of these documents many times in the past, from many different appellants. Indeed, they seem to have been widely distributed. Although we do not know all of the circumstances of the cited transactions, they clearly do not establish that the IRS agrees with appellant’s contentions. Furthermore, this Board has a duty to apply the law as it is written without regard to whether the IRS, or any other entity, has been misinformed or is in error. (See Appeal of Der Weinerschnitzel International, Inc., Cal. St. Bd. of Equal., Apr. 10, 1979.) Penalties and Fees