[date]
Pamela F. Olson
Assistant Secretary for Tax Policy
1500 Pennsylvania Ave NW, Room 1334
Washington, DC 20220
Dear Ms. Olson,
I understand that in the first week or so of November, several hundred individuals sent you letters requesting answers to six questions about how one should determine his taxable income for federal income tax purposes. (A copy of those questions is enclosed.) I have also heard that you have not sent out any answers to those questions (or given any indication that you intend to answer them), now almost three months since the questions were asked.
You have admitted that the tax code is so complex that it is virtually impossible for someone to figure out what he actually owes, but when hundreds of citizens asked you a few basic questions about how they should determine their taxable income, you did not answer. Why is that? Your statements also show that you understand that threats and punishments are a weak tool for maximizing "compliance" if the people do not believe that they owe and are obligated to pay the tax. Yet when hundreds of Americans politely ask the IRS and the Treasury Department questions about how to determine what they owe, such as those enclosed with this letter, some receive threats and insults, but none receive answers (including from you). This is despite the fact that the IRS "mission statement" includes helping people understand their tax obligations.
As you know, despite "conventional wisdom" to the contrary, tens of thousands of Americans now believe that the federal income tax laws are being grossly misapplied, and that the income of most Americans is not subject to the tax. In late October you were sent a copy of the video "Theft By Deception," which presents abundant evidence from the law itself (past and present) supporting that admittedly unusual claim. Dismissing the issue out of hand as "frivolous," mischaracterizing it as a "tax protestor argument," and refusing to answer perfectly reasonable questions about the issue is both an insult to the American people and an affront to the principles of due process. (It is also convincing those thousands of individuals more than ever that their conclusions are correct.)
How do your stated intentions of improving "customer service" fit with your failure to answer the questions of all those people? What do you expect these people to conclude when they ask logical questions, based on what your own regulations say, and receive no answers from you?
Pamela F. Olson, Page 2
If you believe these people are being misled, or are misreading the law, why are you not shouting the correct answers from the rooftops? An offer still stands from the owner of one of the most prominent web sites questioning the conventional wisdom about the income tax (www.taxableincome.net) to publicly post on his site any response you can give to the enclosed questions. Why have you not responded? If these people are incorrect, why are you not accepting the offer of free publicity for your answers, targeted directly at those who now doubt the conventional wisdom?
It is imperative that any legitimate government be willing and able to answer questions about the correction application of its laws. Surely you know that. You hold the highest office that has direct dealings with the drafting and interpretation of federal income tax regulations. If you cannot or will not answer the questions, who will? Please supply me with written, direct answers to the enclosed questions at your earliest convenience.
Sincerely,
[name]
[address]
[address]
cc: Mr. John Stossel
c/o ABC News 20/20
147 Columbus Ave
New York, NY 10023
cc: Taxpayer Advocacy Panel
Mail Stop 1006 MIL
310 West Wisconsin Ave
Milwaukee, WI 53203-2221.
1) Should I use the rules found in 26 USC § 861(b), and the related regulations beginning at 26 CFR § 1.861-8, to determine my taxable domestic income?
2) If some individuals—including myself—should not use those sections for determining their taxable domestic income, please show me where the regulations say who should or should not use those sections for that.
Reason for first two questions: The regulations under 26 USC § 861(b) (26 CFR § 1.861-8 and following) begin by stating that Sections 861(b) and 863(a) state in general terms "how to determine taxable income of a taxpayer from sources within the United States" after gross income from the U.S. has been determined. (The regulations then say that Sections 862(b) and 863(a) describe how to determine taxable income from outside of the U.S.) Section 1.861-1(a)(1) of the regulations confirms that "taxable income from sources within the United States" is to be determined in accordance with the rules of 26 USC § 861(b) and 26 CFR § 1.861-8. (See also 26 CFR §§ 1.862-1(b), 1.863-1(c).)
3) If a U.S. citizen lives and works exclusively within the 50 states, and receives all of his income from within the 50 states, do 26 USC § 861(b) and 26 CFR § 1.861-8 show such income to be taxable?
Reason for question: Section 217 of the Revenue Act of 1921, statutory predecessor of 26 USC § 861 and following, stated that income from within the U.S. was taxable for foreigners and for U.S. citizens and corporations deriving most of their income from federal possessions (but did not say the same about the domestic income of most Americans). The regulations under the equivalent section of the 1939 Code (e.g. §§ 29.119-1, 29.119-2, 29.119-9, 29.119-10 (1945)) showed the same thing. The current regulations at 1.861-8 still show income to be taxable only when derived from certain "specific sources and activities," which, concerning domestic income, still relate only to foreigners and certain Americans receiving income from federal possessions (26 CFR §§ 1.861-8(a)(1), 1.861-8(a)(4), 1.861-8(f)(1)).
4) Should one refer to 26 CFR § 1.861-8T(d)(2) to determine whether the "items" of income he receives (such as compensation, interest, rents, dividends, etc.) are excluded for federal income tax purposes?
Reason for question: The regulations (26 CFR § 1.861-8(a)(3)) state that a "class of gross income" consists of the "items" of income listed in 26 USC § 61 (e.g. compensation, interest, etc.). The regulations (26 CFR §§ 1.861-8(b)(1)) then direct the reader to "paragraph (d)(2)" of the section, which provides that such "classes of gross income" may include some income which is excluded for federal income tax purposes.
5) What is the purpose of the list of non-exempt types of income found in 26 CFR § 1.861-8T(d)(2)(iii), and why is the income of the average American not on that list?
Reason for question: After defining "exempt income" to mean income which is exempt, eliminated, or excluded for federal income tax purposes (26 CFR § 1.861-8T(d)(2)(ii)), the regulations give a list of types of income which are not exempt (i.e. which are subject to tax), which includes the domestic income of foreigners, certain foreign income of Americans, income of certain possessions corporations, and income of international and foreign sales corporations, but which does not include the domestic income of the average American (26 CFR § 1.861-8T(d)(2)(iii)).
6) What types of income (if any) are not exempted from taxation by any statute, but are nonetheless "excluded by law" (not subject to the federal income tax) because they are, under the Constitution, not taxable by the federal government?
Reason for question: Older income tax regulations defining "gross income" and "net income" said that neither income exempted by statute "or fundamental law" were subject to the tax (§ 39.21-1 (1956)), and said that in addition to those types of income exempted by statute, other types of income were exempt because they were, "under the Constitution, not taxable by the Federal Government" (§ 39.22(b)-1 (1956)).