1939:  Removed References to Nonresident Aliens from the Definition of "Gross Income"
SOURCE:  The Great IRS Hoax book, Section 6.3.11.

As shown above, some very telling phrases simply vanished from the regulations in 1954.  But it was not only the regulations that lost some honesty along the way.  The statutes found in the Revenue Act of 1921 show why the regulations said what they said up until 1954.  But just as happened with the regulations, a telling phrase that existed in 1921 is no longer found in the statutes.  The current Section 861 and its predecessors have remained basically the same for more than 70 years.  The text begins “The following items of gross income shall be treated as income from sources within the United States:”  The section then lists “items” of income (interest, dividends, compensation for labor, rents and royalties, etc.).  In 1921 the section was very similar, but it began “That in the case of a nonresident alien individual or of a citizen entitled to the benefits of section 262, the following items of gross income shall be treated as income from sources within the United States:...” 

(While Section 217 itself mentions only individuals, Section 232 of the Act states that “[i]n the case of a foreign corporation or of a corporation entitled to the benefits of section 262 the computation shall also be made in the manner provided in section 217.”  As the current regulations and historical regulations state, the section is applicable to nonresident aliens, foreign corporations, and citizen or domestic corporations which receive much of their income from within federal possessions.)

            1921 Code                              1939 Code                           Current Code   

Net income of nonresident alien individuals

 

Sec. 217. (a) That in the case of a nonresident alien individual or of a citizen entitled to the benefits of section 262, the following items of gross income shall be treated as income from sources within the United States:

(1) Interest...
(2) The amount received as dividends...
(3) Compensation for labor or personal services performed in the United States.
(4) Rentals or royalties...
(5) Gains, profits, and income from the sale of real property...

 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

(b) From the items of gross income specified in subdivision (a) there shall be deducted [allowable deductions].  The remainder, if any, shall be included in full as net income from sources within the United States.  

 

 

Sec. 119. Income from sources within United States

(a) Gross income from sources in United States.

The following items of gross income shall be treated as income from sources within the United States:

(1) Interest...
(2) Dividends...
(3) Personal services - Compensation for labor or personal services performed in the United States...
(4) Rentals and royalties...
(5) Sale of real property...
(6) Sale of personal property...
 

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

(b) Net income from sources in United States

From the items of gross income specified in subsection (a) of this section there shall be deducted [allowable deductions].  The remainder, if any, shall be included in full as net income from sources within the United States.

Sec. 861. Income from sources within the United States

(a) Gross income from sources within United States

The following items of gross income shall be treated as income from sources within the United States:

(1) Interest...
(2) Dividends...
(3) Personal services - Compensation for labor or personal services performed in the United States...
(4) Rentals and royalties...
(5) Disposition of United States real property interest...
(6) Sale or exchange of inventory property...
(7) Amounts received as underwriting income...
(8) Social security benefits...

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

(b) Taxable income from sources within United States

From the items of gross income specified in subsection (a) as being income from sources within the United States there shall be deducted [allowable deductions]. The remainder, if any, shall be included in full as taxable income from sources within the United States.... 

(c) The following items of gross income shall be treated as income from sources without the United States:...

 

 

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

(d) From the items of gross income specified in subdivision (c) there shall be deducted [allowable deductions].  The remainder, if any, shall be treated in full as net income from sources without the United States.  

 

(c) Gross income from sources without United States

The following items of gross income shall be treated as income from sources without the United States:...

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

(d) Net income from sources without the United States - From the items of gross income specified in subsection (c) of this section there shall be deducted [allowable deductions].  The remainder, if any, shall be treated in full as net income from sources without the United States.  

Sec. 862. Income from sources without the United States

(a) Gross income from sources without United States

The following items of gross income shall be treated as income from sources without the United States:...

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

(b) Taxable income from sources without United States - From the items of gross income specified in subsection (a) there shall be deducted [allowable deductions]. The remainder, if any, shall be treated in full as taxable income from sources without the United States...

(e) Items of gross income, expenses, losses and deductions, other than those specified in subdivisions (a) and (c), shall be allocated or apportioned to sources within or without the United States...

 

(e) Income from sources partly within and partly without United States

Items of gross income, expenses, losses and deductions, other than those specified in subsections (a) and (c) of this section, shall be allocated or apportioned to sources within or without the United States...

(f) Definitions...

 

Sec. 863. Special rules for determining source

(a) Allocation under regulations

Items of gross income, expenses, losses, and deductions, other than those specified in sections 861(a) and 862(a), shall be allocated or apportioned to sources within or without the United States... 

Sec. 864. Definitions and special rules...

Sec. 865. Source rules for personal property sales...
 

Although it is obvious to whom this section applied in 1921, some may question whether this is at all relevant to current law.  Treasury Decision 8687, in discussing what the regulations under the current 26 U.S.C. §863 should say (regarding sales of natural resources), specifically refer to Section 217 of the 1921 Code in trying to determine the “legislative intent” of Congress. 

“The legislative history to section 863's predecessor, section 217(e) of the Revenue Act of 1921, also reflects an intention that...” [Treasury Decision 8687]

This Treasury Decision, passed in late 1996, confirms that Section 217 of the Revenue Act of 1921 is the predecessor of the current Part I of Subchapter N, and shows that the IRS still refers to the 1921 Code to determine the proper application of the current Code.  The Internal Revenue Manual shows that the courts, as well as the IRS, considers legislative history when determining the correct application of the law.

“The courts give great importance to the literal language of the Code but the language does not solve every tax controversy. Courts also consider the history of a particular code section...” [Internal Revenue Manual, (4.2)7.2.1.1]

When the phrase disappeared from the statutes after 1921, the application of the law did not change.  What changed was how easily the truth could be found. 

Copyright Family Guardian Fellowship

 Last revision: August 10, 2006 10:53 AM
   Home  About  Contact This private system is NOT subject to monitoring