Larken Rose

[LPC]

For the "record" (as lawyers like to say): The first message in this thread is a message I added to a thread on Larken in the promoters forum. Or at least that's what I thought I did. I really don't know how it ended up as a new thread in this forum.

[Cpt Banjo]

The general rule is that for a non-resident alien (the person in India, a citizen of India, a resident of India, who is not a citizen or resident of the USA), the regular federal income tax (imposed by section 1) and the alternative minimum tax (under section 55) are imposed ONLY to the extent provided under either section 871 or section 877.

Wait, nothing told them to use those sections.....why would they do that? According to people like Dan, people who make U.S. income and are U.S. citizens aren't supposed to use 861 because nothing tells them to use it.

Oh my God, now Stevie is insisting on some kind of a cross-reference to Sections 871-877 so that nonresident aliens will be told to use those sections.

I guess we need to be told to use Section 1031 if we engage in a like-kind exchange.
I guess we need to be told to use Section 351 if we contribute appreciated property to a corporation we control.
I guess we need to be told to use Section 354 if we do a stock exchange as part of a corporate reorganization.

It's not enough for Stevie that these Code provisions mean what they say and operate as they were intended to. No, we need another Code provision that leads people like Stevie by the hand and ushers them to the appropriate Code provision. But then he'd complain that there's nothing to tell him to use that particular provision...

[SteveSy]

The general rule is that for a non-resident alien (the person in India, a citizen of India, a resident of India, who is not a citizen or resident of the USA), the regular federal income tax (imposed by section 1) and the alternative minimum tax (under section 55) are imposed ONLY to the extent provided under either section 871 or section 877.

Wait, nothing told them to use those sections.....why would they do that? According to people like Dan, people who make U.S. income and are U.S. citizens aren't supposed to use 861 because nothing tells them to use it.

Oh my God, now Stevie is insisting on some kind of a cross-reference to Sections 871-877 so that nonresident aliens will be told to use those sections.

I guess we need to be told to use Section 1031 if we engage in a like-kind exchange.
I guess we need to be told to use Section 351 if we contribute appreciated property to a corporation we control.
I guess we need to be told to use Section 354 if we do a stock exchange as part of a corporate reorganization.

It's not enough for Stevie that these Code provisions mean what they say and operate as they were intended to. No, we need another Code provision that leads people like Stevie by the hand and ushers them to the appropriate Code provision. But then he'd complain that there's nothing to tell him to use that particular provision...

OMG! That's Dan's and the like argument not mine goofy. Actually there used to be a cross reference section but its gone now. There doesn't need to be a section to tell you to use it or not. It either applies or it doesn't. The titles generally should be enough to decide whether they apply or not.

You're right they mean what they say:
26 USC 861 "Income from sources within the United States"

But we're not supposed to use that section if you have income from sources within the United States right? That's what you guys keep tell me anyway.

[grixit]

Is there a law that allows us to brand the words onto Steve's hands so he'll always have them to refresh his strangely unretentive memory?

[Cpt Banjo]

The core sections are 861 and 862 respectively for sources within or without the U.S. Walking through the regulations will clearly show what is or is not taxed for foreigners under the regulations for those sections and how to treat that income.

No, it won't. These sections will simply tell someone what is "gross income from sources within the United States", "gross income from sources without the United States", "taxable income from sources within the United States" and "taxable income from sources outside the United States." These are all terms of art, Stevie. You need to look elsewhere (try the operative sections referred to in the regs) to find out when these terms are relevant in determining your overall taxable income. If your particular tax situation doesn't involve any of the operative sections that utilize these special terms, you don't need to concern yourself with 861-863. It's really that simple.

[SteveSy]

If your particular tax situation doesn't involve any of the operative sections that utilize these special terms, you don't need to concern yourself with 861-863. It's really that simple.

I realize that you assume your premise is true to come to your rock solid conclusion but please explain how you can make that statement considering NOTHING in the code or regulations say such a thing.

[Cpt Banjo]

Since Sections 861-863 are merely definitional, it should be patently obvious that if your tax situation doesn't involve the use of any of the defined terms, you needn't concern yourself with them. It's like the definition of original issue discount under Section 1053 -- if your gross income consists solely of wages, why would you ever concern yourself with the definition of OID?

But to humor you, try Reg. Sec. 1.861-8(a)(1), which says, "The rules contained in this section apply in determining taxable income of the taxpayer from specific sources and activities under other sections of the Code, referred to in this section as operative sections. See paragraph (f)(1) of this section for a list and description of operative sections."

Rose makes the illogical leap that because ordinary wages earned by a US citizen aren't mentioned in the operative sections, then they're somehow not taxable. But the fact that wages aren't mentioned in the operative sections simply means that the rules under Reg. Sec. 1.861-8 don't apply in connection with determining the amount of taxable income from one's wages. Nothing more, nothing less. In particular, it doesn't mean that the general rule of Section 61 that includes such wages in gross income is inapplicable.

[SteveSy]

Rose makes the illogical leap that because ordinary wages earned by a US citizen aren't mentioned in the operative sections, then they're somehow not taxable. But the fact that wages aren't mentioned in the operative sections simply means that the rules under Reg. Sec. 1.861-8 don't apply in connection with determining the amount of taxable income from one's wages. Nothing more, nothing less. In particular, it doesn't mean that the general rule of Section 61 that includes such wages in gross income is inapplicable.

First off, where does it say that? More importantly, items under 61 can be exempt from taxable income.

§ 1.861-1 Income from sources within the United States.

(a) Categories of income. Part I (section 861 and following), subchapter N, chapter 1 of the Code, and the regulations thereunder determine the sources of income for purposes of the income tax.

[Famspear]

.......items under 61 can be exempt from taxable income.

§ 1.861-1 Income from sources within the United States.

(a) Categories of income. Part I (section 861 and following), subchapter N, chapter 1 of the Code, and the regulations thereunder determine the sources of income for purposes of the income tax.

Now, Steve, go look for something in section 861 (or the related regs) that EXEMPTS the domestic income of a U.S. citizen or U.S. resident. Stop "doing the Larken Rose" and get down to brass tacks. Look for something in section 861 that EXEMPTS the income. Hint: You won't find it; it's not there.

Nothing in section 861 (or its regs) exempts the domestic income OR the non-domestic income of a U.S. citizen or resident.

And nothing in section 861 (or its regs) exempts the domestic income OR non-domestic income of any else, either.

Section 861 serves to identify which sources of income are considered to be from "within" the United States and which sources are considered to be from "without" the United States. That's it. The reason that the Code needs to make that distinction can be learned only by referring to other Code sections.

But, more to the point: You, Steve, don't really need to know the purpose of section 861 in order to understand why Larken Rose is wrong. You don't really need to know the purpose of section 861 in order to understand why the ordinary, domestic income of a U.S. citizen or U.S. resident is taxable.

You are looking under the wrong rock, Steve.

I am still playing hide the ball.

EDIT: Steve, I just noticed that Cpt Banjo told you the much same thing earlier in this thread.

[SteveSy]

Section 861 serves to identify which sources of income are considered to be from "within" the United States and which sources are considered to be from "without" the United States. That's it. The reason that the Code needs to make that distinction can be learned only by referring to other Code sections.

That's not what this says:

(1) Within the United States. The gross income from sources within the United States, consisting 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). See §§1.861–2 to 1.861–7, inclusive, and §1.863–1. 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 expenses, losses, and other deductions properly apportioned or allocated thereto and a ratable part of any other expenses, losses, or deductions which cannot definitely be allocated to some item or class of gross income. See §§1.861–8 and 1.863–1.

That says in a nutshell, that taxable income within the United States shall be determined using the code and regulations (1.861-8) under them. In other words, 861 and 863 and the regulations under them do more than source income, they provide the means to determine taxable income from sources within or without the U.S.

If you're a non-resident alien having gross income from within the U.S., you can walk through 861 and the regulations under it and see your compensation for services is taxable income along with your deductions, likewise if you're a U.S. citizen making foreign income. Not so if you're a U.S. citizen making income from within the U.S., even though the regulation nor the code tell a U.S. citizen not to use the section titled "Income from sources within the United States".

[wserra]

For the "record" (as lawyers like to say): The first message in this thread is a message I added to a thread on Larken in the promoters forum. Or at least that's what I thought I did. I really don't know how it ended up as a new thread in this forum.

Demo's bored:

Demosthenes [IP] Wed Jun 10, 2009 10:13 am
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» from Rose, Larken
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Demosthenes [IP} Wed Jun 10, 2009 10:13 am
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» to Larken Rose
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[Cpt Banjo]

Rose makes the illogical leap that because ordinary wages earned by a US citizen aren't mentioned in the operative sections, then they're somehow not taxable. But the fact that wages aren't mentioned in the operative sections simply means that the rules under Reg. Sec. 1.861-8 don't apply in connection with determining the amount of taxable income from one's wages. Nothing more, nothing less. In particular, it doesn't mean that the general rule of Section 61 that includes such wages in gross income is inapplicable.

First off, where does it say that?

Section 61 says so, in its opening clause: "Except as otherwise provided in this subtitle, gross income means..." Do 861-863 and their associated regs provide otherwise with respect to wages? Nope.

More importantly, items under 61 can be exempt from taxable income.

Inddeed they can. And when they are, it's usually done by using words such as "Gross income does not include" (e.g., Section 102) or "No gain or loss shall be recognizned" (e.g., Section 354), or "In the case of a nonresident alien individual, except where the context clearly indicates otherwise, gross income included only..." (Section 872). Each of these is a specific case of "otherwise provided" that makes Section 61 inapplicable. But as Famspear says, there's no comparable language in 861-863.

§ 1.861-1 Income from sources within the United States.

(a) Categories of income. Part I (section 861 and following), subchapter N, chapter 1 of the Code, and the regulations thereunder determine the sources of income for purposes of the income tax.

So what? You (and all of the other Rose lemmings) are reading that sentence completely out of context, as if the regs under 861 were the only provisions that applied in determining taxable income under all circumstances. But if you read the entire paragraph of the regulation, you'll find the part I quoted earlier: ""The rules contained in this section apply in determining taxable income of the taxpayer from specific sources and activities under other sections of the Code, referred to in this section as operative sections. See paragraph (f)(1) of this section for a list and description of operative sections." If you read the regs and the statutes in their entirety, it should be obvious even to you that they're dealing only with the determination of US-sourced and non-US-sourced gross and taxable income.

Answer me this: under what circumstances is it relevant whether an item of gross or taxable income is US-sourced or non-US-sourced?

[Famspear]

......In particular, it doesn't mean that the general rule of Section 61 that includes such wages in gross income is inapplicable.

First off, where does it say that? More importantly, items under 61 can be exempt from taxable income.

§ 1.861-1 Income from sources within the United States.

(a) Categories of income. Part I (section 861 and following), subchapter N, chapter 1 of the Code, and the regulations thereunder determine the sources of income for purposes of the income tax.

Wow, Steve, is this the kind of "logic" you use in your computer work?

Section 861 says nothing about exempting any kind of income, but you still want to see a specific statement within section 861 that says "Oh, by the way, nothing in this section -- which does not even pertain to exemption of income -- in any way exempts any income otherwise covered under section 61"???? You created an Imaginary SteveSy Rule of Statutory Construction that requires that? Where do you come up with stuff like this?

And look at your follow-up quote -- reg 1.861-1. Nothing there exempts any income, either. And yet you seem to be persistent in your frantic effort to read some sort of imaginary exemption there. It means exactly what it says, Steve.

Yes, items under section 61 CAN be otherwise exempted from tax. But the Code provision that does the "exempting" generally does that with words like "gross income shall not include" or "gross income does not include". For example, read Code sections 101 through 140, which is Part III of Subchapter B of Chapter 1 of the Code. The title of Part III is "ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME". Those are examples of Code sections that exclude income that -- because of section 61 -- would otherwise be taxed.

[SteveSy]

Section 61 says so, in its opening clause: "Except as otherwise provided in this subtitle, gross income means..." Do 861-863 and their associated regs provide otherwise with respect to wages? Nope.

You admit that just because its listed in 61 doesn't mean its taxable income, so what's the point?

Answer me this: under what circumstances is it relevant whether an item of gross or taxable income is US-sourced or non-US-sourced?

It's always relevant. I detect you are once again presuming that your premise is valid without ever proving it.

Answer me this. If the code didn't exempt foreign income made by a foreigner in a foreign land would the code tax it or just by the mere fact that it isn't dealt with make it exempt?

[Famspear]

Section 61 says so, in its opening clause: "Except as otherwise provided in this subtitle, gross income means..." Do 861-863 and their associated regs provide otherwise with respect to wages? Nope.

You admit that just because its listed in 61 doesn't mean its taxable income, so what's the point?

Answer me this: under what circumstances is it relevant whether an item of gross or taxable income is US-sourced or non-US-sourced?

It's always relevant. I detect you are once again presuming that your premise is valid without ever proving it.

I think I see what part of your problem is, Steve. You don't understand the difference between the terms "gross income" and "taxable income" -- as those terms are used in the Code.

We tax people add to the confusion by colloquially referring to items of gross income as being "taxable income." I think this is gonna take some more effort to sort it out for you. But unfortunately I can't take any more time right now.....

[Cpt Banjo]

If you're a non-resident alien having gross income from within the U.S., you can walk through 861 and the regulations under it and see your compensation for services is taxable income along with your deductions, likewise if you're a U.S. citizen making foreign income. Not so if you're a U.S. citizen making income from within the U.S., even though the regulation nor the code tell a U.S. citizen not to use the section titled "Income from sources within the United States".

Nonsense. Suppose I'm a US citizen whose only income consists of wages received for the performance of services within the US, and that I have no deductions other than the standard deduction. Per Section 861(a)(3), the wages constitute US-sourced gross income. Per Section 861(b), the standard deduction is subtracted in arriving at m y taxable income from sources within the US. So now I know my US-sourced taxable income.

So what? What difference does it make that I have "taxable income from sources within the United States"?

[Nikki]

Steve has had issues with "derived from sources" for quite a long time.

[Famspear]

Answer me this. If the code didn't exempt foreign income made by a foreigner in a foreign land would the code tax it or just by the mere fact that it isn't dealt with make it exempt?

Let me answer that this way. Section 1 of the Internal Revenue Code, by its terms, taxes ALL INCOME of all individuals -- even if they are foreigners who have never been U.S. citizens and have never set foot in the United States -- and even if they never realize a penny of income from a U.S. source.....

EXCEPT FOR ONE THING.......

Namely, that there is another provision of the Internal Revenue Code that CHANGES what would OTHERWISE be the rule of section 1. The effect of that Code provision is to make section 1 apply to U.S. citizens and U.S. residents, and not to non-resident aliens.

There are exceptions to that as well, though. Section 1 DOES apply to non-resident aliens to the extent provided in section 871 or section 877, for example.

But the REASON section 1 is very limited in its application to non-resident aliens will NOT BE FOUND IN SECTION 1. It's found in another Code section. That reason is not found in section 861 or section 862.

I am still playing hide the ball.

[Cpt Banjo]

Answer me this: under what circumstances is it relevant whether an item of gross or taxable income is US-sourced or non-US-sourced?

It's always relevant.

Prove it. Cite the law that says it's always relevant. And then tell me why, if it's always relevant, the 861 regs refer to the operative sections.

Answer me this. If the code didn't exempt foreign income made by a foreigner in a foreign land would the code tax it or just by the mere fact that it isn't dealt with make it exempt?

If the Code didn't exempt it, it would be included in the foreigner's gross income. Whether it would be constitutional to tax such income, however, is another matter.

[Famspear]

If the Code didn't exempt it, it would be included in the foreigner's gross income. Whether it would be constitutional to tax such income, however, is another matter.

Yes, good point. If the mystery Code provision that I have so far refused to cite to SteveSy did not exist, then section 1 (which imposes the basic federal income tax) would theoretically also apply to foreign income of foreigners who had never even heard of the United States in the same way it does to U.S. citizens and U.S. residents -- that is, unless there is some constitutional law principle that would negate that (or perhaps some sort of tax treaty or other international agreement that would negate it).