U.S. Income Tax Facts

A summery I compiled thanks to Larken Rose‘s TaxableIncome.net [circa early 2000s] and the United States Code.

Here is a step-by-step look at the United States income tax imposed under Title 26 of the United States Code (U.S.C.), the Internal Revenue Code.  Are you Subject? Here are the facts:

1) The federal income tax is imposed upon “taxable income” (not all income).

Section 1 of the Title 26 statutes imposes the “income tax” in five different categories (unmarried people, married people filing jointly, etc.). In each case, the wording reads “there is hereby imposed on the taxable income of…”

2) “Taxable income” generally means “gross income” minus deductions.

“Sec. 63. Taxable income defined
(a) In general – …the term “taxable income” means gross income minus the deductions allowed by this chapter…” [26 USC § 63]

3) “Gross income” is generally defined as “all income from whatever source derived,” including compensation, interest, rents, dividends, etc.

“Sec. 61. Gross income defined
(a) General definition – … gross income means all income from whatever source derived, including (but not limited to) the following items:
(1) Compensation for services…;
(2) Gross income derived from business;
(3) Gains derived from dealings in property;
(4) Interest;… [more items listed]” [26 USC § 61]

4) Certain sections of the law specifically describe in which situations income from inside the United States is taxable.

Sections 79, 105, 410, 414 and 505 each identify Section 861 as the section that determines what constitutes “income from sources within the United States,” and Section 306 even uses the phrase “part I of subchapter N (sec. 861 and following, relating to determination of sources of income).” The sections that are specifically for determining taxable income from sources within the United States are 26 USC § 861(b) of the statutes, and the corresponding regulations found at 26 CFR § 1.861-8.

5) While those sections show income to be taxable when it derives from certain kinds of international and foreign commerce, they do not show the income of United States citizens living and working only in the 50 states to be taxable.

“The operative sections of the Code which require the determination of taxable income of the taxpayer from specific sources or activities and which gives rise to statutory groupings to which this section is applicable include the sections described below.
(i) Overall limitation to the foreign tax credit
(ii)
[Reserved]
(iii) DISC and FSC taxable income… [international and foreign sales corporations]
(iv) Effectively connected taxable income. Nonresident alien individuals and foreign corporations engaged in trade or business within the United States…
(v) Foreign base company income…
(vi) Other operative sections. The rules provided in this section also apply in determining–
(A) The amount of foreign source items…
(B) The amount of foreign mineral income…
(C) [Reserved]
(D) The amount of foreign oil and gas extraction income…
(E) (deals with Puerto Rico tax credits)
(F) (deals with Puerto Rico tax credits)
(G) (deals with Virgin Islands tax credits)
(H) The income derived from Guam by an individual…
(I) (deals with China Trade Act corporations)
(J) (deals with foreign corporations)
(K) (deals with insurance income of foreign corporations)
(L) (deals with countries subject to international boycott)
(M) (deals with the Merchant Marine Act of 1936)” [26 CFR § 1.861-8(f)(1)]

6) The Constitution specifically limits government. Article 1 Section 8 restricts congress (the legislative branch), Article 2 Sections 2 and 3 restrict the president (the executive branch), and Article 3 Section 2 restricts the Supreme Court (the judicial branch).

To learn more about the Internal Revenue Code and how it applies to you, download Larken Rose’s Taxable Income Report.  Also, he has produced a wonderful visual aid every American should watch called Theft By Deception.  Watch it today, it could be the best investment of your life.

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