§861 — Income from sources within the United States

2002-18, 2002 WL 71029, at * 2 (taxpayer's argument that he had no gross income pursuant to section 861 from sources within the United States and without the United States was completely lacking in merit), M, 54 F.

An item may be classified as income from sources within the United States pursuant to section 861, as income from sources without the United States pursuant to section 862, or as income partly from within and partly from without the United States pursuant to section 863(b).

An item may be classified as income from sources within the United States pursuant to section 861, as income from sources without the United States pursuant to section 862, or as income partly from within and partly from without the United States pursuant to section 863(b).

Determination of Source of Income Section 1.861-8, Income Tax Regs., contains an interpretation of section 861, but it is part of the scheme also incorporating sections 862 through 864 and 901 through 908 by which foreign tax credits are computed.

Petitioner argues that, under the version of the section 861 regulations in effect during the years in issue, it “may allocate and apportion net interest, rather than gross, interest expense” in calculating taxable income from sources without the United States for purposes of section 904(a).

[Emphasis supplied.] It is helpful to read carefully the specific language from the regulations under section 861 on which petitioners rely.

ems of gross income from any taxable sources listed by the Secretary". With her Form 1040X, Amended U.S. Individual Tax Return, for 1999, petitioner submitted similar letters and made similar statements that she did not earn any income taxable under sec. 861. Petitioner, as managing member of Miroyal and National Land Bank, submitted similar documents with Miroyal's and National Land Bank's Forms 1065 for the 2000 taxable year and National Land Bank's amended Form 1065 for its 1999 taxable year.

(continued...) - 8 - section 861 argument with somber reasoning and copious citations of precedent, as to do so might suggest that petitioner's arguments possess some degree of colorable merit.³ See Crain v.

Petitioner’s frivolous arguments included, among others, that he derived none of his income from sources outside the United States and therefore his income was not taxable under section 861 and various associated regulations.

OPINION Section 861 requires the inclusion in gross income of up to 85 percent of Social Security benefits received.

ir compensation for services, - 4 - unemployment compensation, and interest do not constitute gross income. Petitioners argue: (1) There is no law making petitioners liable for a personal income tax; (2) petitioners have no gross income pursuant to section 861 et seq. concerning gross income from sources within the United States and without the United States; and (3) the notice of deficiency with respect to petitioners’ 1998 return is invalid because petitioners allegedly were denied an administ

Petitioner contends that income is defined only by section 911 and the regulations under section 861 and that his receipts are excluded from those definitions.

The intended method for allocating expenses in the CTI computations appears consistent throughout the legislative history of the DISC provisions, which states: the combined taxable income from the sale of the export property is to be determined generally in accordance with the principles applicable under section 861 for determining the source (within or without the United States) of the income of a single entity with operations in more than one country.

“A taxpayer generally must allocate and apportion [expenses] using the rules of the section 861 method.” Treas.

The sourcing rules are in the regulations under section 861, which are used in conjunction with operative sections of the Code, i.e., Code sections such as section 904 that require the taxpayer to determine taxable income from specific sources or activities.

Section 861(a)(8) provides that “[a]ny social security benefit (as defined in section 86(d))” shall be treated as income from sources within the United States.

Section 861 sets forth general rules for the sourcing ofincome. Subject to exceptions not relevant here, U.S.-source income includes "[c]ompensation for labor or personal services performed in the United States" and income from rent- ing or leasing "property located in the United States." Sec. 861(a)(3) and (4). Under the time charter, petitioner p

His second argument was based on section 861, which specifies sourcing rules for income received by nonresident alien individuals and foreign corporations.

The parties agree that petitioner's unemployment compensation, by analogy to other items ofincome specified in section 861, was U.S.-source income.

During the course ofthe proceedings commenced by the OPR, petitioner admitted that he had advised taxpayers that they were not liable for income taxes for reasons including that the Sixteenth Amendment was not legally ratified and _ 4 _ [*4] that section 861 and related regulations defined "source ofincome" in a way to exclude domestic income ofU.S.

at 295-296 (holding taxpayer liable for a section 6673 penalty because taxpayerfrivolously argued that under section 861 income for services from within the United States was not taxable); Precourt v.

=Buckardt also argued that section 861 exempted the payments he received from taxation .

The gist of the section 861 argument is that only foreign-source income is taxable and therefore a taxpayer's domestically earned money isn't.

possible analysis of guarantees . .* * * 1995 WL 1918236 (IRS FSA May 1,-1995) . All. we can conclude from this detour through transfer- pricing law is that it will not help us reach a reasonable conclusion on whether guaranties are services under section 861 . So we'll fall back on the dictionary,. The common meaning,of "labor-or personal services" implies the continuous. use of human capital, "as opposed to the salable product of the person's, skill."'-6 Under this definition, we find that Co

any possible analysis of guarantees. * * * [1995 WL 1918236 (IRS FSA May 1, 1995).] All we can conclude from this detour through transfer-pricing law is that it will not help us reach a reasonable conclusion on whether guaranties are services under section 861. So we’ll fall back on the dictionary. The common meaning of “labor or personal services” implies the continuous use of human capital, “as opposed to the salable product of the person’s skill.” Under this definition, we find that Containe

Mayer from preparing any tax forms that he knew would result in understatements of'tax, preparing false or fraudulent returns, and selling fraudulent tax schemes, specifically identifying returns that asserted a section 861 argument (which relates to U .S .

Mayer explained to petitioner the "section 861 theory" that was the basis for Mayer's tax avoidance advice (namely, that most income derived from sources within the United States by a resident U .S .

He claims : "I looked at section 861 and the definition in the Internal Revenue Code specifically states that sources of income are from foreign entities, corporations .-" Apparently, petitioner is relying on the discredited tax-protester argument that the regulations under section 861 establish that a citizen's income in the form of remuneration for services and bank inte

Discussion Section 861 Petitioner’s first and, apparently, primary argument concerns his “confusion” about the “requirements” of section 861, Income From Sources Within the United States.

Attached to the Form 4852 was Form 8275, Disclosure Statement, in which petitioner claimed that the Office of Personnel Management had "improperly reported" annuities paid to him as gross income because this "remuneration" was not from any of the foreign sources listed in section 861 and the regulations thereunder.

2003, reiterating and expanding upon his demands for a face-to-face hearing and extensive documentation. He further tendered various arguments about not having any “Income” in the “Constitutional sense” and not being taxable under the provisions of section 861. Mr. Freitag then sent two followup letters, dated November 19 and 21, 2003, respectively. In the first, Mr. Freitag discussed at length the substance of his review of petitioner’s case. Mr. Freitag again emphasized the need to raise rele

Please just show me the amount of tax I owe in a way that is consistent with Section 861 of the IRC and the implementing regulation and statute.

861, I.R.C., and regulations thereunder, do not exempt his compensation from tax. Held, further, petitioner is liable for the sec. 6651(a)(1), I.R.C., addition to tax for failure timely to file income tax returns for each of the years in issue. Held, further, petitioner is liable for the sec. 6654, I.R.C., addition to tax for failure to pay es

Taxable Sources of Income for the Year 1997” in which he explained his position. He claimed that the Form W-2 submitted by ECS for 1997 was incorrect because he did not have any gross income from a source listed in the regulations promulgated under section 861. Petitioner submitted a Form 1040A, U.S. Individual Income Tax Return, for taxable year 1998. Petitioner entered zeros on line 7 for wages and salaries, line 14 for total income, lines 18 and 19 for adjusted gross income, and line 24 for

The Section 6330(b) Hearing On May 3, 2001, the trusts each filed a Form 12153, Request for a Collection Due Process Hearing, for tax years 1996-97 in which they contended that: (1) Section 861 and the regulations thereunder preclude the income at issue in these cases from being taxable, and (2) the regulations upon which respondent relies are invalid because they were not published in the Federal Register; and asked that respondent give them case citations showing that income is taxable.

The Section 6330(b) Hearing On May 3, 2001, the trusts each filed a Form 12153, Request for a Collection Due Process Hearing, for tax years 1996-97 in which they contended that: (1) Section 861 and the regulations thereunder preclude the income at issue in these cases from being taxable, and (2) the regulations upon which respondent relies are invalid because they were not published in the Federal Register; and asked that respondent give them case citations showing that income is taxable.

The Section 6330(b) Hearing On May 3, 2001, the trusts each filed a Form 12153, Request for a Collection Due Process Hearing, for tax years 1996-97 in which they contended that: (1) Section 861 and the regulations thereunder preclude the income at issue in these cases from being taxable, and (2) the regulations upon which respondent relies are invalid because they were not published in the Federal Register; and asked that respondent give them case citations showing that income is taxable.

Taxable Sources of Income for the Year 1997” in which he explained his position. He claimed that the Form W-2 submitted by ECS for 1997 was incorrect because he did not have any gross income from a source listed in the regulations promulgated under section 861. Petitioner submitted a Form 1040A, U.S. Individual Income Tax Return, for taxable year 1998. Petitioner entered zeros on line 7 for wages and salaries, line 14 for total income, lines 18 and 19 for adjusted gross income, and line 24 for

., and whether P’s counsel must pay certain of R’s costs pursuant to sec. 6673(a)(2), I.R.C. P, initially pro se, made frivolous arguments, which were continued by P’s counsel, who further advocated the frivolous argument that the regulations under sec. 861, I.R.C., establish that, although P is a U.S. citizen, P’s income in the form of remuneration for services and bank interest received from sources within the United States is not subject to tax. 1. Held: P is liable for a penalty under sec. 6

- 4 - In his trial memorandum, petitioner alleged: (1) Income from sources not listed in section 861 is exempt from taxation; (2) income earned by U.S.

Sulla filed a status report with the Court advising the Court of petitioner’s “newly-revealed” interpretation of the Internal Revenue Code and supporting regulations; i.e., that, under regulations interpreting section 861, “remuneration for services earned in the United States by a United States citizen from a United States employer was not an operative source of gross income under IRS [IRC] Section 61, and hence exempt income.” Notwithstanding such new interpretation (hereafter, sometimes, the

For purposes of calculating CTI, petitioner allocated and apportioned operating expenses pursuant to the "sales factor" allocation method under section 861 and accompanying regulations.

For purposes of calculating CTl, petitioner allocated and apportioned operating expenses pursuant to the “sales factor” allocation method under section 861 and accompanying regulations.

The intended method for allocating expenses in the CTI computations appears consistent throughout the legislative history of the DISC provisions, which states: the combined taxable income from the sale of the export property is to be determined generally in accordance with the principles applicable under section 861 for determining the source (within or without the United States) of the income of a single entity with operations in more than one country.

I's component concentrate. Respondent argues further that the factual relationship test found in section 1.861-8(b) and (c), Income Tax Regs., is adopted in section 936(h)(5)(C)(ii)(II) through its overall incorporation of the standards contained in section 861. Respondent claims that Q&A-12 must be read in the context of the statute and is to be applied only as a supplement to Q&A-1, which determines, according to respondent, the expenses allocable and apportionable to the possession product in

Guarantee Fees Paid to Dapy and Roundabout in Connection With the Commercial Paper Transactions Petitioners argue that the guarantee fees were not specifically sourced under section 861 or 862 and urge the Court to characterize the payments as for services or to adopt an insurance premium analogy.

Guarantee Fees Paid to Dapy and Roundabout in Connection With the Commercial Paper Transactions Petitioners argue that the guarantee fees were not specifically sourced under section 861 or 862 and urge the Court to characterize the payments as for services or to adopt an insurance premium analogy.

Guarantee Fees Paid to Dapy and Roundabout in Connection With the Commercial Paper Transactions Petitioners argue that the guarantee fees were not specifically sourced under section 861 or 862 and urge the Court to characterize the payments as for services or to adopt an insurance premium analogy.

Guarantee Fees Paid to Dapy and Roundabout in Connection With the Commercial Paper Transactions Petitioners argue that the guarantee fees were not specifically sourced under section 861 or 862 and urge the Court to characterize the payments as for services or to adopt an insurance premium analogy.

l’s component concentrate. Respondent argues further that the factual relationship test found in section 1.861-8(b) and (c), Income Tax Regs., is adopted in section 936(h)(5)(C)(ii)(II) through its overall incorporation of the standards contained in section 861. Respondent claims that Q&A-12 must be read in the context of the statute and is to be applied only as a supplement to Q&A-l, which determines, according to respondent, the expenses allocable and apportionable to the possession product in

* shall be treated as derived partly from sources within and partly from sources without the United States. The statutory structure for determining source uses section 863 to source all items of income, expense, loss, or deduction not enumerated in section 861 or 862. Thus, section 863 is the catchall or “residual” source determination section. The first sentence of section 863(a) requires that all such nonenumerated items “shall be allocated or apportioned to sources within or without the Unit