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"That is an item of income, not a source of income."

This is where your logic fails. "Source" and "item" are one in the same, scuh as what would be the difference? Income is ALWAYS from a source. It cannot be from the destination, such that an "item" of income is an item that comes from a source, and if that source is on US soil by a US citizen, it is taxable as income.

in·come ( P ) Pronunciation Key (nkm)
n.
1. The amount of money or its equivalent received during a period of time in exchange for labor or services, from the sale of goods or property, or as profit from financial investments.
2. The act of coming in; entrance.

This is where your logic fails. "Source" and "item" are one in the same, scuh as what would be the difference? Income is ALWAYS from a source. It cannot be from the destination, such that an "item" of income is an item that comes from a source, and if that source is on US soil by a US citizen, it is taxable as income.

Did you read post 87? In my example there, an item of gross income is compensation for labor, and the source is XYZ Corporation in Canada. XYZ Corporation is not an item of income, nor is compensation for labor a source of income.

How do you come to the conclusion that if the source is on US soil by a US citizen it is taxable income? Section 861 and its associated regulations, according to the regulations, is the section to be used when determining taxable income from sources within the United States. Can you lay out your reasoning, please?