U.S. Federal Income Tax

Subjugation by taxation

The Rules for Determining Taxable Income

On the this page, Bill the burger flipper is going to help us examine the rules for determining taxable income from sources within the United States. What applies to Bill applies to me and to you if your compensation is from within any state of the union and you are an American Citizen.         Bill the burger flipper is flipping burgers in the U.S. and getting compensated for it.  We are going to follow Bill's compensation through the IRC sections and their regulations.         First we will review what we have already covered, then we will follow Bill's compensation through the rules for determining taxable income from sources within the United States. If Bill has taxable income, Bill must pay a tax on it. The "in general" definition of taxable income is gross income minus the deductions allowed. The "general definition" of gross income is all income from whatever source derived. (This appears to be the case so long as you "believe" gross income is all money from everywhere. This is not the case and will be proven in the chapter about Sixteenth Amendment Income.) The "general definition" in IRC 61 does not apply in all cases. Bill's income comes from the source (activity) of flipping burgers in the United States. Bill is commanded in a general form, to allocate and / or apportion his deductions to his income from sources within the United States by section 861(b). Bill now must look at the specific guidance and the rules for determining taxable income from sources within the United States contained within Treasury Regulation 1.861-8. Code of Federal Regulations From the U.S. Government Printing Office via GPO Access Sec. 1.861-8 (a)(3) Class of gross income. For purposes of this section, the gross income to which a specific deduction is definitely related is referred to as a ``class of gross income'' and may consist of one or more items (or subdivisions of these items) of gross income enumerated in section 61, namely:     (i) Compensation for services, including fees, commissions, and similar items;         Bill has a class of gross income, Compensation for his services of flipping burgers.  Bill has a specific deduction, which is his expense of purchasing and repairing his spatulas and frying pans. Code of Federal Regulations From the U.S. Government Printing Office via GPO Access Sec. 1.861-8 (b) Allocation--(1) In general. For purposes of this section, the gross income to which a specific deduction is definitely related is referred to as a ``class of gross income'' and may consist of one or more items of gross income. The rules emphasize the factual relationship between the deduction and a class of gross income.         It's pretty factual that there is a relationship between compensation for flipping burgers and the deduction of the expense of maintaining one's burger flipping equipment. Code of Federal Regulations From the U.S. Government Printing Office via GPO Access Sec. 1.861-8 (b) Allocation--(1) In general. See paragraph (d)(1) of this section which provides that in a taxable year there may be no item of gross income in a class or less gross income than deductions allocated to the class, and paragraph (d)(2) of this section which provides that a class of gross income may include excluded income.         Huh? A class of gross income may include "excluded income"? Code of Federal Regulations From the U.S. Government Printing Office via GPO Access Sec. 1.861-8 (a) In general--(4) Statutory grouping of gross income and residual grouping of gross income. For purposes of this section, the term ``statutory grouping of gross income'' or ``statutory grouping'' means the gross income from a specific source or activity which must first be determined in order to arrive at ``taxable income'' from which [that] specific source or activity... In some instances ... the statutory grouping or the residual grouping may include, or consist entirely of, excluded income. See paragraph (d)(2) of this section with respect to the allocation and apportionment of deductions to excluded income.         Huh?  A statutory grouping of gross income may include, or consist entirely of, "excluded income". A residual grouping of gross income may include, or consist entirely of, "excluded income". A class of gross income may include "excluded income".