Re: Do you believe that these words mean anything other than what they say?

by HALE WESTMAN on 2004-09-11 19:42:20

"Dale Eastman" wrote in message
news:zZL0d.21334$Wv5.19033@newsread3.news.atl.earthlink.net...
or
look here.

OK
The constitutionality of the 16th Amendment to the United States
Constitution was sustained by the United States Supreme Court as early as
1916. Brushaber v. Union Pacific Railroad Company, 240 U.S. 1 (1916).
Subsequently, an uninterrupted line of decisions by various United States
Courts of Appeals have reaffirmed that conclusion against claims that the
16th Amendment was either "not ratified" or "fraudulently adopted." See,
e.g., Miller v. United States, 868 F.2d 236 (7th Cir. 1989); United States
v. Sitka, 845 F.2d 43 (2d Cir. 1988); Pollard v. Commissioner, 816 F.2d 603
(11th Cir. 1987); United States v. Thomas, 788 F.2d 1250 (7th Cir. 1986);
United States v. Stahl, 792 F.2d 1438 (9th Cir. 1986); Sisk v. Commissioner,
791 F.2d 58, 60 (6th Cir. 1986); Knoblauch v. Commissioner, 749 F.2d 200,
202 (5th Cir. 1984); Parker v. Commissioner, 724 F.2d 469, 471 (5th Cir.
1984).
Several of these decisions were either criminal convictions involving
willfulness determinations or findings by the courts in civil tax cases that
the argument asserted was frivolous. See, e.g., Miller v. United States,
supra; Knoblauch v. Commissioner, supra. In Knoblauch v. Commissioner,
supra, the Court of Appeals imposed sanctions under Rule 38 of the Federal
Rules of Appellate Procedure against a taxpayer proceeding pro se, finding
that the appeal was baseless, presented no colorable claim of error and
raised repeatedly rejected contentions. Rule 38 of the Federal Rules of
Appellate Procedure, which serves a function similar to Rule 11 of the
Federal Rules of Civil Procedure, provides:

"If a court of appeals shall determine that an appeal is frivolous, it may
award just damages and single or double costs to the appellee."

Similarly, in Miller v. United States, supra, the court found the appeal
(premised, inter alia, on Sixteenth Amendment arguments) "patently
frivolous" and, quoting Granzow v. Commissioner, 739 F.2d 265, 269-270 (7th
Cir. 1984), noted "we can no longer tolerate abuse of the judicial review
process by irresponsible taxpayers who press stale and frivolous arguments .
. .." Id. at 242.

In summary, more than a decade before the conduct giving rise to
Respondent's alleged violations, the courts had both uniformly sustained the
constitutionality of the 16th Amendment and found that arguments to the
contrary were frivolous when asserted by ordinary taxpayers, let alone by
experienced tax practitioners.

Respondent's argument premised on the "sourcing" rules of §§ 861-865 of the
Internal Revenue Code of 1986, as amended and in effect during the years in
issue, stand on no firmer footing. §§1(a), 1(b), 1(c) and 1(d) of the
Internal Revenue Code of 1986, as amended and in effect during the years in
issue, imposed a tax on the taxable income of (i) married individuals filing
joint returns and surviving spouses, (ii) heads of households, (iii)
unmarried individuals (other than surviving spouses and heads of
households), and (iv) married individuals filing separate returns,
respectively. §61(a) of the Internal Revenue Code of 1986, as amended and in
effect during the years in issue, provided: "Except as otherwise provided in
this subtitle, gross income means all income from whatever source derived,
including (but not limited to) [fifteen enumerated items]." (Emphasis
added.)
§1.61-1(a) of the Treasury Regulations further elaborated on this statutory
language:

"Gross income. - (a) General definition. Gross income means all income from
whatever source derived, unless excluded by law. Gross income includes
income realized in any form, whether in money, property, or services. Income
may be realized, therefore, in any form, whether in money, property or
services. Income may be realized, therefore, in the form of services, meals,
accommodations, stock, or other property, as well as in cash. Section 61
lists the more common items of gross income for purposes of illustration.
For purposes of further illustration, § 1.61-14 mentions several
miscellaneous items of gross income not listed specifically in section 61.
Gross income, however, is not limited to the items so enumerated." (Emphasis
added.)

The language of §61(a) itself and the language of the regulations issued
thereunder, which have the force and effect of law, both demonstrate that
Congress intended §61(a) to encompass all sources of income. The courts have
also recognized the all-encompassing scope of §61(a) and the fact that it is
intended to have an ambit equaling that of the Sixteenth Amendment. See,
e.g., Commissioner v. Glenshaw Glass Co., 348 U.S. 426 (1955), where the
United States Supreme Court noted that, "Congress applied no limitations as
to the source of taxable receipts." Id. at 429.
In each of the years here in issue, in the case of United States citizens
and resident aliens, the United States generally taxed the worldwide income
of such individuals under §§ 1(a), 1(b), 1(c) or 1(d) of the Internal
Revenue Code of 1986, as amended and in effect. With two limited exceptions,
the sourcing rules of §§861-865 of the Internal Revenue Code of 1986, as
amended and in effect during those years, had no effect on the determination
of the United States tax liabilities of United States citizens and resident
alien individuals. § 911(a) of the Internal Revenue Code of 1986, as amended
and in effect for the years in issue, excluded from the gross income of an
electing qualified individual, (1) the "foreign earned income" of that
individual (an amount subject to an inflation adjusted "cap") and (2) the
"housing cost amount" of the individual. Also, to ameliorate the effects of
double taxation on income of United States persons (including United States
citizens and resident alien individuals) from sources "without the United
States," §§ 901-908 of the Internal Revenue Code of 1986, as amended and in
effect during the years in issue, allowed such persons a limited credit
against their United States tax liabilities for taxes paid with respect to
sources of income without the United States that were subjected to specified
forms of tax imposed on the same income by those foreign jurisdictions.
Neither of these specific provisions departing from the general rules had
any application to Taxpayer C or Taxpayer T.

The source of income rules, now codified as §§861-865 of the Internal
Revenue Code of 1986, had their origin in provisions adopted as early as
1913. The Revenue Act of 1913, ch. 16, 38 Stat. 114, imposed a tax on
nonresident aliens with respect to net income "from all property owned and
of every business, trade or profession carried on in the United States by
persons residing elsewhere," and on foreign corporations with respect to net
income "accruing from business transacted and capital invested within the
United States. Revenue Act of 1913, ch. 16, §§II(A)(1), II(G)(a), 38 Stat.
114, 166, 172. The sourcing rules were then more explicitly addressed in the
enactment of the Revenue Act of 1916, which imposed a tax on the net income
of foreign persons (nonresident alien individuals and foreign corporations)
from sources within the United States. Ch. 463, 39 Stat. 756. These rules
were not substantively modified by the Revenue Act of 1917, which only
changed the statutory rates on the income so subjected to tax. Ch. 63, §§2-3
(nonresident aliens) and §4 (foreign corporations), 40 Stat. 300, 301, 302.
Initially, neither these statutory provisions nor the regulations issued
thereunder (see, e.g., Treas. Reg. 33, art. 66 (1918)) provided detailed
rules or methodologies for determining the sources of income. Over the
years, both the statutes themselves and the regulations issued thereunder
adopted more specific source of income rules. However, both the statutes and
regulations continued to reflect Congress' basic statutory scheme of taxing
the worldwide income of U.S. persons (including U.S. citizens, resident
aliens and U.S. corporations, while adopting a "water's edge" regime for the
taxation of foreign persons (including nonresident alien individuals and
foreign corporations). Thus the purpose and intent of the "source of income
rules was hardly a closely guarded secret at the time of Respondent's
conduct. For example, the opening "PORTFOLIO DESCRIPTION SHEET" of BNA's Tax
Management Portfolio 905 (Source of Income Rules) at all times relevant to
these proceedings provided:

"Tax Management Portfolio 905, Source of Income Rules, analyzes the rules
applicable in determining whether income is treated as from sources within
the United States or from foreign sources. In the case of persons who are
not citizens or residents of the United States or domestic corporations, and
thus are not subject to tax on their worldwide income, the source of income
rules generally are pivotal in determining whether the tax jurisdiction of
the United States extends to the income. In addition, in the case of all
persons who are subject to U.S. tax, the source of income rules are critical
to determining to what extent a credit is available for income taxes or
taxes in lieu of income taxes paid to a foreign government. The source of
income rules are applied in conjunction with the rules governing the
allocation and apportionment of expenses between domestic and foreign
sources in order to determine foreign source taxable income for purposes of
the foreign tax credit limitation prescribed for each separate limitation
category under § 904."

Blessing, 905 T.M., Source of Income Rules. See also Section I.A.1 of the
Detailed Analysis contained in the same secondary source material (dealing
with the taxation of "U.S. persons," defined to include United States
citizens, resident alien individuals and U.S. corporations), Id. at A-1. In
addition, several IRS publications providing general information to
taxpayers provide information on the appropriate uses of §§861-865's "source
of income" rules. See Publication 54 (US Tax Guide for US Citizens and
Resident Aliens Living Abroad), Publication 514 (Foreign Tax Credit for
Individuals), Publication 515 (Withholding of Tax on Nonresident
Individuals), and Publication 519 ((US Tax Guide for Aliens).

The purpose and intent of the "source of income" rules were hardly a closely
guarded secret at the time of Respondent's conduct. The argument advanced by
Respondent and his counsel, also asserted by Respondent in a submission
pertaining to a Collection Due Process Hearing Respondent sought on behalf
of Taxpayer C, and by Respondent in the 1996 and 1998 amended federal
individual income tax returns (Forms 1040X) he prepared for Taxpayer T for
1996 and 1998 that were later filed with the Internal Revenue Service, would
stand the sourcing rules on their head, using them as a basis for limiting
the tax liabilities of U.S. citizens and resident aliens residing in the
United States with respect to income sourced within the United States.
These arguments were first directly considered by a court in Solomon v.
Commissioner, T.C. Memo. 1993-509, 66 T.C.M. (CCH) 1201 (1993), affirmed
without published opinion, 42 F.3d 1391 (7th Cir. 1994), where Judge Dawson
found that neither §§861(a)(1) and 861(a)(3) nor § 911(d)(2)(A) provided a
basis for excluding from gross income (i) interest income from sources
within the United States or (ii) compensation received for the performance
of personal services within the United States when received by a United
States citizen residing in the United States. A similar argument was next
considered by the Tax Court in Aiello v. Commissioner, T.C. Memo 1995-40, 69
T.C.M. (CCH) 1765 (1995) where the taxpayer asserted that (1) no Federal
statute imposed a tax on the income of citizens or residents of the United
States that is derived from sources within the United States and (2) Federal
income taxes were imposed only on the privilege of nonresident aliens and
foreign corporations to receive income from sources within the United
States. Noting that the taxpayer's first argument was clearly rebuffed by
the existence of § 61(a) and that his argument that the source rules of §861
somehow limited the all inclusive scope of §61(a)'s gross income definition
was unclear, Special Trial Judge Wolfe held that the taxpayer was clearly
required to include income from whatever source derived in calculating his
gross income, his taxable income and his liability for tax.

The Tax Court next considered the argument in Williams v. Commissioner, 114
T.C. 136 (2000), where the Tax Court clearly stated that the taxpayer was
arguing that since his income was not from any of the sources enumerated in
§ 1.861-8(a) of the regulations, that income was not appropriately subject
to taxation in the United States. In assessing this argument, Judge Vasquez
stated:

"We shall not painstakingly address petitioner's assertions 'with somber
reasoning and copious citation of precedent; to do so might suggest that
these arguments have some colorable merit.' Crain v. Commissioner, 737 F.2d
1417, 1417 (5th Cir. 1984). Accordingly, we conclude that petitioner is
liable for the deficiency determined by respondent." Id. at 139.

Judge Vasquez then considered whether he should sustain the §6673 penalty
imposed against the pro se petitioner. Noting that such a penalty is
appropriately imposed only if the position taken is frivolous, Judge Vasquez
noted that a position is frivolous only "where it is 'contrary to
established law and unsupported by a reasoned, colorable argument for a
change in the law.'" Id. at 144 (citing Coleman v. Commissioner, 791 F.2d
68, 71 (7th Cir. 1986)). Considering this standard, Judge Vasquez
nonetheless imposed the §6673 penalty against the taxpayer. The Tax Court
again considered the arguments first advanced in Solomon v. Commissioner,
supra, in Furniss v. Commissioner, T.C. Memo 2001-137, 81 T.C.M. (CCH) 804
(2001). Judge Marvel found that "[n]either section 911 nor section 861
operates to prevent section 61 from applying to petitioner's Accordingly, on
four separate occasions, three different Judges and one Special Trial Judge
of the United States Tax Court determined that the § 911 argument, the § 861
argument or both in combination did not prevent the income of a United
States citizen, residing in and earning income from sources within the
United States, from being included in gross income under §61(a) and from
being subject to tax under §§1(a), 1(b), 1(c) or 1(d). The only decision of
the Tax Court appealed was affirmed on appeal, again prior to the dates of
Respondent's conduct.

Moreover, even earlier, in 1985, a United States District Court issued an
opinion in Peth v. Breitzmann, 611 F. Supp. 50 (E.D. Wisc. 1985), in which a
pro se taxpayer sought to enjoin collection of Federal income taxes and to
obtain a refund of taxes alleged to have been wrongfully withheld from his
pay. The taxpayer argued, inter alia, that his compensation was excludable
from the definition of gross income under §861(a)(3)(C)(ii) as "compensation
. . . for labor or services performed in the United States as an employee of
or under a contract with . . . an individual who is a citizen or resident of
the United States, a domestic partnership, or a domestic corporation, if
such labor or services are performed for an office or place of business
maintained in a foreign country or in a possession of the United States by
such individual, partnership, or corporation."

The court gave short shrift to this argument, noting:

"Suffice it to say that if plaintiff wished to avail himself of §
863(a)(3)(C)(ii), he would have to show that his work was done for a foreign
office, or an office in a United States possession, of a domestic business
entity. He has not alleged this, and it is clear from the record that he
performed his work in the State of Wisconsin for Wisconsin employers."

Id. at 55. The court could also have noted that even in those circumstances,
§861(a)(3)(C)(ii) would have excluded the income from inclusion in United
States gross income only if the recipient was also a nonresident alien
temporarily in the United States for a period or periods not exceeding 90
days during the taxable year. Finding these and the other arguments advanced
by the plaintiff to be without merit, the court imposed Rule 11 sanctions
against the pro se taxpayer. Id. at 56-57.

The District Court's decision in Peth v. Breitzmann, supra, the Tax Court
decision and 7th Circuit's summary affirmance in Solomon v. Commissioner,
supra, and the Tax Court's decision in Aiello v. Commissioner, supra each
preceded the dates of Respondent's conduct. Further, the dispatch with which
Judge Vasquez dealt with petitioner's arguments in Williams v. Commissioner,
supra, and the fact that he saw fit to impose a §6673 penalty against a pro
se taxpayer based on the same state of the law that existed on the dates of
Respondent's conduct, support Judge Moran's conclusion that each of the
actions undertaken by Respondent as alleged in the Initial Complaint
involved the assertion of frivolous arguments in violation of the various
sections of Treasury Circular 230 cited in the Initial Complaint. While I
would have phrased the point differently, I agree with the spirit of the
following statement by Judge Moran, appearing at page 6 of his Order on
Complainant's Motion for Summary Judgment:

"Interestingly, the language of IRC Section 61 is the same as that used in
the Sixteenth Amendment. Thus, the 861 argument and the non-ratified
Sixteenth Amendment argument share a related lunacy in that, for differently
concocted reasons, neither accomplishes the presumed goal of creating a
Federal income tax on U.S. citizens."