fuzzrabbit wrote:I know we have been over this before, but someone please tell me again what is this reference of income exemption specifically referring to? I'll pass it along. Love to hear Larken's response to it.
A general proposition like "some income is constitutionally exempt from tax" is useless without some way of identifying *what* kind of income might be exempt from tax. It's kind of like claiming that all people are entitled to due process of law, and then leaping to the conclusion that a particular person has been deprived of due process without any explanation for what is meant by due process of law and what circumstances in that particular person's case amounted to a denial of due process of law.
Or, as Justice Holmes put it, "General propositions do not decide concrete cases." Lochner v. New York, 198 U.S. 45, 75 (1905) (dissenting). See
http://evans-legal.com/dan/tpfaq.html#generalities for more about tax denier over-reliance on generalities and platitudes.
And the regulation on which Rose relies is not relevant to him anyway, because it's a regulation dealing with corporate earnings and profits, specifically Treas. Reg. 1.312-6(b), which reads in relevant part:
"Among the items entering into the computation of corporate earnings and profits for a particular period are all income exempted by statute, income not taxable by the Federal Government under the Constitution, as well as all items includible in gross income under section 61 or corresponding provisions of prior revenue acts."
"Earnings and profits" is defined in order to determine what is income to the shareholder, not what is income to the corporation, and the above definition does not exclude any income from any tax, but says that all income must be included in "earnings and profits" even though it is NOT subject to income tax when received by the corporation.
Rose is therefore drawing a negative inference from an irrelevant regulation.
Finally, I believe that the regulation in question is fairly old. If you checked, I think you would find that it was adopted in its present form in 1954, following the enactment of the Internal Revenue Code of 1954, and that the regulation was copied almost verbatim from similar regulations that existed under previous revenue acts back to the 1920s. All the regulation does, therefore, is reflect the fact that there have been exemptions recognized by the courts in the past, and might be other exemptions recognized in the future.
For example, there have been a few Supreme Court decisions that have found incomes that Congress did not have the power to tax. However, all of those decisions arose out of considerations of federalism (i.e., the relationship between the federal and state governments) or the separation of powers within the federal government, and all of those decisions were over-ruled by later decisions and are no longer good law. For example:
1. In Collector v. Day, 78 U.S. 113 (1870), it was held that Congress could not tax the salary of a state employee. That holding was reversed by Helvering v. Gerhardt, 304 U.S. 405 (1938).
2. Evans v. Gore, 253 U.S. 245 (1920), held that the compensation received by federal judges could not be subject to income tax because Article III of the Constitution states that the compensation of judges ‘shall not be diminished during their Continuance in Office.’ Evans v. Gore was over-ruled by O’Malley v. Woodrough, 307 U.S. 277 (1939).
3. In Pollock v. Farmers’ Loan & Trust Co., 157 U.S. 429, (1895), the Supreme Court held that interest on the debts of state and local governments could not be taxed. That holding was reversed in South Carolina v. Baker, 485 U.S. 505 (1988).
4. In Burnet v. Coronado Oil & Gas Co., 285 U.S. 393 (1932), it was held that the income from land owned by a state and leased to a private corporation could not be taxed if the lease was part of a “governmental function.” That holding was reversed by Helvering v. Mountain Producers Corp., 303 U.S. 376 (1938).
So, over the years, the Supreme Court has considered the possibility that certain types of income from government-related activities might be constitutionally exempt from income tax, but eventually decided that no such exemptions existed.
Rose would have you believe that, as soon as South Carolina v. Baker was decided (or perhaps when Helvering v. Mountain Producers was decided), the Internal Revenue Service should have amended Treas. Reg. 1.312-6(b) to eliminate the reference to constitutionally exempt income, but that's silly. After the Supreme Court decided South Carolina v. Baker, the reference to constitutionally exempt income was superfluous at worst, because the worst thing that could be said was that it no longer had any effect on the calculation of corporate earnings and profits.
