861 Argument

The 861 argument is totally erroneous on a variety of grounds, and Larkin Rose has probably set the truth in taxation movement back about 10 years by promoting it as successfully as he has done. What is amazing is the lengths to which he and his advocates have gone in order to unravel what is essentially an irrelevant,[1] ninety-three page regulation that would have to be declared “void for vagueness” if it were “law” – when an understanding as why no one has to pay income taxes is really quite simple: there is simply no law (in my view) that makes anyone “liable” for the payment of income taxes. What can be simpler than that?

But that’s not all. In relying on the 861 argument - its advocates apparently ignore, or know nothing about numerous other aspects related to income taxes. Their whole approach is based solely on a tunnel vision understanding that the only thing you have to know about the federal income tax is that only “foreign source income” is subject to the tax. Therefore, according to 861 advocates, if one has foreign source “income” one is: (1) “liable” for income taxes on such “income”; (2) required to pay taxes on that “income;” (3) required to file a return with respect to that “income”; (4) required to keep books and records with respect to that “income”; (5) required to submit to IRS audits with respect to that “income” – and, in addition, (6) since the income tax is based on “self-assessment,” those who have “foreign source income” are required, by law, to “self-assess” themselves for the taxes allegedly due on such “income.” It has always been my belief and claim that no law requires any one to do any of those things - but 861 advocates obviously believe that there are laws requiring recipients of “foreign source income” to do all of the above. I’m from Missouri – show me the law that provides for, or requires anyone to do any of the above.

In any case, to determine the basis of my beliefs and to decide if they are correct, one merely has to read my pleadings in connection with my current criminal prosecution and read what the government and the court have to say about these matters and see who is telling the truth – me or the government.

But getting back to the 861 argument – its fundamental fallacy and overlooking all of its other fallacies - is that it is based on the assumption that the income tax is imposed on "sources" or "items" of “income” - rather than being an excise tax on “income” separated from those sources - therefore, say its advocates, it is important to determine where ones taxable “income” comes from.

In seeking to do this, 861 advocates concoct a distinction between "sources" of “income” and" items" of “income,” as is supposedly distinguished in section 61 - where no such distinction is actually made. In any case, it would be a distinction without a difference.

Since the term "income" referred to in Code Section 61 refers to “income” received in the “constitutional sense” and not income received in the “ordinary sense,” the “source” of that “income” is immaterial as to whether or not it is taxable. Obviously, if a corporation were to receive “foreign source income” but did not have a “profit” for that taxable year, if would pay no income taxes on its “foreign source income.” Since section 61 does not make a distinction between corporations and individuals, how could the law require individuals to pay income taxes on “foreign source income,” but not corporations?

While the above example should be enough to expose the entire fallacy of the 861 argument, I would simply call attention to what I wrote about the argument years ago, when I first addressed the argument. I stated then that no court would ever sustain the argument (which, itself, would not make the argument invalid) since the argument provides the courts with a simple basis for rejecting it. And sure enough, all the courts that that have heard the argument rejected it, for the reason I stated. [2]

The following is what I said about the 861 argument years ago when I first wrote about it:

The alleged definition of "Gross income" as used in Code Section 61 attempts to be all-inclusive, and that is what the courts will rule. No court is going to rule that the all inclusive phrase "from whatever source derived" as contained in the statute, excludes some "sources" of income such as “foreign source income” as is allegedly excluded by the regulation.

If one accepts the fallacy that what Section 61 purports to tax are "sources" or "items" of revenue (and not "profit"), then the revenue from all "sources" will be held to be taxable.

Read the law. That's what it says - if you accept its basic fallacy. Once you understand that Section 61 only purports to tax corporate profit[3] (which advocates of the 861 argument appear not to understand at all), you realize that it makes no difference where your items of revenue come from, either foreign or domestic sources - since the tax is only allegedly imposed on "profit," not on the individual "items" or "sources" that produced it.

As long as you do not have a "profit" (and individuals can not have a profit) you have received nothing that can possibly fall within the meaning of "Gross income" as that term is used in Code Section 61.

That is what the Brushaber Court (240 US 1) said was the whole purpose of the 16th Amendment. (See page 198 of "The Great Income Tax Hoax") The Supreme Court said in that decision, "The whole purpose of the 16 Amendment" was to separate a tax on income "from a consideration of the source" that produced the income.[4]

However the whole basis of the 861 argument is to focus on, and consider the "sources," that allegedly produced your revenue. Therefore the advocates of the 861 argument admit to not knowing what the 16 Amendment and the Brushaber decision were all about.

What is also incredible is that advocates of the 861 argument believe that argument is more fundamental as to why people might not to pay income taxes, than the fact that no statute exists that makes anyone (American citizens or resident aliens) even "liable" for the payment of income taxes - regardless of where their revenue comes from.

And while the Code provides a different definition of income for Americans living abroad than those living here, it is my claim that even Americans living abroad don't have to pay federal income taxes.

So advocates of the 861 argument close their eyes entirely to the fundamental fact that there are no provisions making Americans liable for income taxes regardless of where their revenue comes from.

In addition to everything else, 861 advocates also overlook that the income tax is still - legally - based on "self assessment."

This means that if you don't assess yourself with an income tax liability, under the law - you can't owe any income taxes regardless of where your revenue comes from or what produced it. So, in addition to everything else, 861 advocates admit to not even knowing about the "self-assessment" nature of the income tax.

In addition to that, 861 advocates claim that according to par. 8f of 861, I would have to file a return and pay income taxes on revenue I might have received from the extraction of foreign oil and gas; and certain other types of revenue the character of which I can't even begin to understand.

The point is, I don't care where anybody's revenue comes from, they don't have to file returns and pay income taxes on any of it for a variety of reasons - which apparently the advocates of the 861 argument know nothing about.

For example: Since all information on a tax return can be used against you, how can the law require you to file and pay income taxes even on sources of revenue allegedly reportable under 861? The answer is no law requires you to do so - for that very reason.

And lastly since all Americans have a constitutional right not to pay a federal tax which is not imposed either pursuant to the rule of apportionment or the rule of geographic uniformity (read the Brown decision posted on my web site where this is explained in detail),[5] and since the income tax is not imposed pursuant to either rule, its payment can not be made mandatory - regardless of where your revenue comes from.

And an understanding of this simple concept is far more valid and relevant than all the complicated gobbledygook upon which the 861 argument is based.

It is also obvious that pursuant to the wording of Code Section 61 only a corporate profit can fall within the meaning of "Gross income" - and "wages" "salary" and "compensation for personal services" simply do not fall within that definition.

As a matter of fact, these items were specifically removed from Code Section 61, even though they specifically appeared in Code Section 22 (the forerunner of Code Section 61) of the 1939 Code as shown in Exhibit G of "Schiff Report" 6-2.

And your understanding of this is far easier to use in explaining why "wages" and "compensation for personnel service" can not be taxable as income, rather than seeking to explain why such items do not fall into the items of allegedly taxable "sources" supposedly listed in Treasury Regulation 861.

However, there is yet another reason why the 861 argument is nonsense. Code Section 861 occupies 2 pages in the Code - but its alleged Regulation runs to 92 pages. Frankly, I get lost trying to understand it. But why do I have to understand it?

The law itself is very simple to understand and it tells me that nothing I receive in the form of revenue falls within the meaning of "Gross income" and is not taxable for a variety of other reasons. So why do I have to bother digesting 92 pages of complicated legalese?

The Regulation itself does not have the force and effect of law anyway. If you check, you will see that the support for Treasury Reg. 861 is always shown to be T.Ds (Treasury Decisions), not Code Section 861.

So the Regulation, not being legislative, is not even binding on the public (Though it is binding on the IRS, but who cares?).

[1] Since the authority for this regulation, as shown at the end of the Regulation, is Treasury Decision 8785 (and not Code section 861 itself), and since Treasury Decisions do not have the “force and effect of law,” neither are regulations based on them. This is a technique used by the government to mislead the public concerning the actual “force and effect” of income tax regulations as they appear in 26 C.F.R. If you check the authority for regulations as shown in 27 C.F.R., which deal with liquor, tobacco and firearms taxes, you will see that the authority for those regulations are generally shown to be statutes – either the statutes at large or Title 26 statutes, or often both are shown. No such statutory authority are ever shown in CFR 26 with respect to regulations that apply to the enforcement of income taxes.

[2] I believe that, so far, only U.S. Tax Courts have rejected the 861 argument. However, since the U.S. Tax Court is not court of law (it is actually a government agency masquerading as a court), no Tax Court judge had any jurisdiction to even consider the 861 argument, let alone rule upon its legal validity. However, since Larkin Rose has now been charged with several counts of willful failure to file income tax returns, he now has an opportunity to argue the legal validity of the 861 argument in a court of law. However, he must do this in the form of a pre trial motion to dismiss the charges against him on that basis. Once he goes to trial, he will only be able to argue that his “good faith” belief in the 861 argument persuaded him that he was not required to file. And as long as the jury is persuaded he had such a “good faith” belief, (as I am sure he has), they should find him “not guilty.” However, such a “not guilty” verdict, will not establish the legal validity of the 861 argument, only his “good faith” belief in it – as, for example, a midget might establish that he had a “good faith” belief that he isn't required to file because he's a midget. Naturally the more rational is a person’s good faith belief, the more likely will a jury believe it – and certainly Larkin Rose’s belief is “rational” and believable, even though it is incorrect as a matter of law - as the judge will instruct the jury. However, in instructing the jury on why the 861 argument is not law (which itself will be misleading, since Larkin’s trial should be about what Larkin believes the law to be, and not what it actually is) the judge will actually misinform and mislead the jury as to what the law really is.

[3] Since corporate profit falls within the meaning of “income” in the “constitutional sense,” since a corporation’s profit is “separated” from the “sources” that produced the profit, and a tax on a corporations profit is not a direct tax on the individual “sources” that produced the profit.

[4] At the time I wrote this, I had not as yet filed my motions to dismiss – which, since they are now posted to this web site, provide a far more comprehensive understanding then what I was saying here.

[5] When this was originally written no Memorandum of Law was then posted on my web site as to why the I income tax was not “traceable” to any of the powers conferred on Congress to “lay and collect taxes.”

[6] However, if I wrote this piece today, I would have been more technically correct, by stating: “’income’ as used in section 61 means ‘income’ used in its ‘constitutional sense’ as in a corporate profit.”