EDITORIAL: What is an income tax "exclusion"?
In order to make your earnings taxable, they must be converted from PRIVATE to PUBLIC as described below:
Separation Between Private and Public Course, Form #12.025
https://sedm.org/LibertyU/SeparatingPublicPrivate.pdf
Another way of saying this is that the earnings must be REMOVED from the protections of the Constitution and the Bill of Rights so that they can be put under civil statutory control.
"Under basic rules of construction, statutory laws enacted by legislative bodies cannot impair rights given under a constitution. 194 B.R. at 925. "
[In re Young, 235 B.R. 666 (Bankr.M.D.Fla., 1999)]
There are only two ways to CONVERT PRIVATE to PUBLIC:
- Convert the status of the PROPERTY. This is done, for instance, by calling the earnings "wages" when filing a W-4 as a private man or woman per 26 U.S.C. §3402(p).
- Convert the civil status of the OWNER (jurisdiction over the PERSON). This is done, for instance, by changing your DEFAULT civil status of "nonresident alien" as a state national by "electing" to be treated as a PRIVILEGED STATUTORY "citizen" or "resident", who file a 1040 instead of a 1040NR and can then take privileged "deductions" under 26 U.S.C. §162. The cost of PROCURING this "benefit" or privilege is that the character of your earnings changes from being taxable only from U.S. sources in 26 U.S.C. §872 to being taxable on your worldwide EARNINGS UNDER 26 U.S.C. §61 and §861. NOT a good deal.
The following court case acknowledges the above mechanisms to convert PRIVATE property to PUBLIC property:
“In the case of the federal government where the individual is either a United States citizen or an alien residing in the taxing jurisdiction, the tax under section 1 of the Code is based upon jurisdiction over the person; where the individual is an alien [LEGISLATIVELY OR CONSTITUTIONALLY “foreign”, INCLUDING states of the Union] not residing in the taxing jurisdiction [the “geographical United States”, meaning the District of Columbia per 26 U.S.C. §7701(a)(9) and (a)(10), the tax under section 871 of the Code is based upon jurisdiction over the [PUBLIC] property or income of the nonresident individual [GEOGRAPHICALLY and PHYSICALLY] located or earned in the taxing jurisdiction”
[Great Cruz Bay, Inc., St. John v. Wheatley, 495 F.2d 301, 307 (3d Cir. 1974)]
An "EXCLUSION" happens when any of the following methods are employed to reduce taxable income without invoking an "EXEMPTION" or "DEDUCTION" under 26 U.S.C. §162:
- Avoiding clouding the ownership or title to the payment as "property" by:
1.1
Not getting involved in or accepting payments from sources within the geographical "United States" under 26 U.S.C. §872(a).
1.2 Not getting involved in or accepting payments from activities involving a "trader or business" under 26 U.S.C. §872(b).
- Avoiding clouding the civil status of the OWNER of the income by connecting him, her, or it to a public office or "trade or business" by pursuing a civil status that is a privilege, such as STATUTORY "citizen" or STATUTORY "resident" in 26 C.F.R. §1.1-1(a). These two civil statuses are voluntary and avoidable PRIVILEGES. Those who don't consent to them simply declare themselves as "nonresident aliens", which does not have any civil statutory duties, liabilities, or obligations directly attached to it. See:
Lawfully Avoiding Government Obligations Course, Form #12.040
https://sedm.org/LibertyU/AvoidGovernmentObligations.pdf
More on this subject at:
- Hot Issues: Laws of Property (OFFSITE LINK) -SEDM
- Authorities on Rights as Property (OFFSITE LINK) -SEDM
- How You Lose Constitutional or Natural Rights, Form #10.015 (OFFSITE LINK)-SEDM
- Separation Between Public and Private Course, Form #12.025 (OFFSITE LINK)-SEDM
- Private Right or Public Right? Course, Form #12.044 (OFFSITE LINK) -SEDM
26 U.S. Code § 872 - Gross income
(a)General ruleIn the case of a nonresident alien individual, except where the context clearly indicates otherwise, gross income includes only—
(1)
gross income which is derived from sources within the United States and which is not effectively connected with the conduct of a trade or business within the United States, and
(2)
gross income which is effectively connected with the conduct of a trade or business within the United States.
(b)ExclusionsThe following items shall not be included in gross income of a nonresident alien individual, and shall be exempt from taxation under this subtitle:
(1)Ships operated by certain nonresidents
Gross income derived by an individual resident of a foreign country from the international operation of a ship or ships if such foreign country grants an equivalent exemption to individual residents of the United States.
(2)Aircraft operated by certain nonresidents
Gross income derived by an individual resident of a foreign country from the international operation of aircraft if such foreign country grants an equivalent exemption to individual residents of the United States.
(3)Compensation of participants in certain exchange or training programsCompensation paid by a foreign employer to a nonresident alien individual for the period he is temporarily present in the United States as a nonimmigrant under subparagraph (F), (J), or (Q) of section 101(a)(15) of the Immigration and Nationality Act, as amended. For purposes of this paragraph, the term “foreign employer” means—
(A)
a nonresident alien individual, foreign partnership, or foreign corporation, or
(B)
an office or place of business maintained in a foreign country or in a possession of the United States by a domestic corporation, a domestic partnership, or an individual who is a citizen or resident of the United States.
(4)Certain bond income of residents of the Ryukyu Islands or the Trust Territory of the Pacific Islands
Income derived by a nonresident alien individual from a series E or series H United States savings bond, if such individual acquired such bond while a resident of the Ryukyu Islands or the Trust Territory of the Pacific Islands.
(5)Income derived from wagering transactions in certain parimutuel pools
Gross income derived by a nonresident alien individual from a legal wagering transaction initiated outside the United States in a parimutuel pool with respect to a live horse race or dog race in the United States.
(6)Certain rental income
Income to which paragraphs (1) and (2) apply shall include income which is derived from the rental on a full or bareboat basis of a ship or ships or aircraft, as the case may be.
(7)Application to different types of transportation
The Secretary may provide that this subsection be applied separately with respect to income from different types of transportation.
(8)Treatment of possessions
To the extent provided in regulations, a possession of the United States shall be treated as a foreign country for purposes of this subsection.
In re Twisteroo Soft Pretzel Bakeries, Inc., 21 B.R. 665, 667 (Bankr. E.D. Pa. 1982)]
“Initially, it is important to bear in mind the distinction between a tax exclusion and a tax exemption. Tax exemptions are items which the tax payer is entitled to excuse from the operation of a tax and, as such, are to be strictly construed against the tax payer. Tax exclusions, on the other hand, are items which were not intended to be taxed in the first place and, thus, to the extent there is any doubt about the meaning of the statutory language, exclusionary provisions are to be strictly construed against the taxing body. In fact, tax laws in general (with the exception of exemption clauses) are construed in favor of the tax payer and against imposition of the tax unless the legislative intent is clear and unambiguous.”
[In re Twisteroo Soft Pretzel Bakeries, Inc., 21 B.R. 665, 667 (Bankr. E.D. Pa. 1982)]
FOOTNOTES:
See, e.g., Equitable Gas Co. v. Commonwealth, 18 Pa.Commw. 418, 335 A.2d. 892 (1975); Tyger Karl Complete Water Systems Co., Inc. v. Commonwealth, 5 Pa.Commw. 154 (Pa.Commw.Ct. 1972).
Aabakus, Inc. v. Huddleston, No. 01-A-01-9505-CH-00215, at *1 n.7 (Tenn. Ct. App. Sep. 25, 1996)
“For the purpose of taxation, exclusions are items that were never in the taxing statute in the first place, while exemptions are items that would otherwise be subject to taxation but which have been removed by statute. In re Twisteroo Soft Pretzel Bakeries, Inc., 21 B.R. 665, 667 (E.D. Pa. 1982); Lancaster Labs., Inc. v. Commonwealth, 631 A.2d 739, 741 n. 1 (Pa. Commw. Ct. 1993).”
[Aabakus, Inc. v. Huddleston, No. 01-A-01-9505-CH-00215, at *1 n.7 (Tenn. Ct. App. Sep. 25, 1996)]
Barclay v. First Paris Holding Co, 344 Ark. 711 (2001)
“We discussed the issue of appropriate burdens of proof in Ragland v. Meadowbrook Country Club, 300 Ark. 164, 777 S.W.2d. 852 (1989). In Ragland, the DFA argued that it was the taxpayer's burden to prove entitlement to a statutory exemption. Id. We noted that the taxpayer in that case was not claiming entitlement to an exemption, but instead was claiming an exclusion from coverage. Id. We explained the difference in the two taxing concepts, and noted that "a different burden of proof at the administrative and trial levels is required when an exemption or exclusion is at issue." We noted that:
HN18 the taxpayer claiming an exemption shoulders the burden of establishing his claim. By the [***20] same logic, it follows that the agency claiming the right to collect a tax bears the burden of proving that the tax law applies to the item sought to be taxed.
Ragland, supra. Applying this rule to the case at hand, we hold that the trial court properly placed the burden on justifying the imposition of a tax upon intercorporate dividends that were excluded from taxation on the DFA. The facts in the case now on review are on all fours with those in Ragland. Specifically, the appellees in this case were not claiming an exemption from taxation they were instead claiming an exclusion from the consolidated group's gross income of [*725] dividends paid to the Holding Company by First National. Therefore, it became DFA's burden to prove that appellees were not eligible to file, or improperly filed, a consolidated tax return that did not include the intercorporate dividends within the affiliated group. DFA did not meet this burden of proof. Accordingly, we affirm the trial court.”
[Barclay v. First Paris Holding Co, 344 Ark. 711 (2001)]
Budhwani v. Comm'r of Internal Revenue , 70 T.C. 287, 290 (U.S.T.C. 1978)
“Residence is an elusive concept which is undefined by both the Code and the legislative history of section 872.”
[Budhwani v. Comm'r of Internal Revenue , 70 T.C. 287, 290 (U.S.T.C. 1978)]
DeKoning v. Treasury Dep't, 211 Mich. App. 359, 362 (Mich. Ct. App. 1995)
“Section 872 of the Internal Revenue Code states:
(a) General Rule — In the case of a nonresident alien individual, gross income includes only —
(1) gross income which is derived from sources within the United States and which is not effectively connected with the conduct of a trade or business within the United States, and
(2) gross income which is effectively connected with the conduct of a trade or business within the United States. [ 26 U.S.C. § 872. Emphasis added.]
From the words "gross income includes," we can presume that the items not listed are excluded. ”
[DeKoning v. Treasury Dep't, 211 Mich. App. 359, 362 (Mich. Ct. App. 1995)]
Ragland v. Meadowbrook Country Club, 300 Ark. 164 (1989)
“The appellant argues that the appellee did not prove entitlement to an exemption from the Gross Receipts Act. However, the appellee was not claiming an exemption; rather, it [*168] was claiming exclusion from coverage. The difference between an exemption and exclusion is that an exemption pertains to sales that would be covered were they not specifically exempted from the Act, while exclusion is simply not included in the first place. A different burden of proof at the administrative and trial levels is required when an exemption or exclusion is at issue.
[5, 6] We have many times held that the taxpayer claiming an exemption shoulders the burden of establishing his claim. By the same logic, it follows that the agency claiming the right to collect a tax bears the burden of proving that the tax law applies to the item sought to be taxed.”
[Ragland v. Meadowbrook Country Club, 300 Ark. 164 (1989)]
26 C.F.R. § 1.6662-4
(2)Tax shelter -
(i)In general. For purposes of section 6662(d), the term "tax shelter" means-
(A) A partnership or other entity (such as a corporation or trust),
(B) An investment plan or arrangement, or
(C) Any other plan or arrangement, if the principal purpose of the entity, plan or arrangement, based on objective evidence, is to avoid or evade Federal income tax. The principal purpose of an entity, plan or arrangement is to avoid or evade Federal income tax if that purpose exceeds any other purpose. Typical of tax shelters are transactions structured with little or no motive for the realization of economic gain, and transactions that utilize the mismatching of income and deductions, overvalued assets or assets with values subject to substantial uncertainty, certain nonrecourse financing, financing techniques that do not conform to standard commercial business practices, or the mischaracterization of the substance of the transaction. The existence of economic substance does not of itself establish that a transaction is not a tax shelter if the transaction includes other characteristics that indicate it is a tax shelter.
(ii)Principal purpose.
The principal purpose of an entity, plan or arrangement is not to avoid or evade Federal income tax if the entity, plan or arrangement has as its purpose the claiming of exclusions from income, accelerated deductions or other tax benefits in a manner consistent with the statute and Congressional purpose.
[EDITORIAL: So a PLAN to use exclusions from gross income that are consistent with statute (such as IRC 872) is NOT a "tax shelter" for purposes of that penalty, according to Treasury. The above is for purposes of determining accuracy-related penalties]
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