Interestingly, Taxgate will be hosting a “Criminal Law Seminar” on January 25-26, at the Trenton’s Woman’s Club, which Taxgate describes as being “behind the County Jail on SR 339”. Hmmm.

_________________________________________

Taxgate’s Argument Exploded

For federal income tax purposes, "gross income" means all income from whatever source derived and includes compensation for services. I.R.C. § 61. Further, Treasury Regulation § 1.1- 1(b) provides, "[i]n general, all citizens of the United States, wherever resident, and all resident alien individuals are liable to the income taxes imposed by the Code whether the income is received from sources within or without the United States." I.R.C. sections 861 and 911 define the sources of income (U.S. versus non-U.S. source income) for such purposes as the prevention of double taxation of income that is subject to tax by more than one country. These sections neither specify whether income is taxable, nor do they determine or define gross income. Further, these frivolous assertions are clearly contrary to well-established legal precedent.

Relevant Case Law:

Great-West Life Assur. Co. v. United States, 678 F.2d 180, 183 (Ct. Cl 1982) - the court stated that "[t]he determination of where income is derived or 'sourced' is generally of no moment to either United States citizens or United States corporations, for such persons are subject to tax under I.R.C. § 1 and I.R.C. § 11, respectively, on their worldwide income.

Williams v. Commissioner, 114 T.C. 136, 138 (2000) - the court rejected the taxpayer's argument that his income was not from any of the sources listed in Treas. Reg. § 1.861-8(a), characterizing it as "reminiscent of tax-protester rhetoric that has been universally rejected by this and other courts.

Corcoran v. Commissioner, T.C. Memo. 2002-18, 83 T.C.M. (CCH) 1108, 1110 (2002) - the court rejected the taxpayers' argument that his income was not from any of the sources in Treas. Reg. § 1.861-8(f), stating that the "source rules [of sections 861 through 865] do not exclude from U.S. taxation income earned by U.S. citizens from sources within the United States." The court further required the taxpayers to pay a $2,000 penalty under section 6673(a)(1) because "they . . . wasted limited judicial and administrative resources.

Aiello v. Commissioner, T.C. Memo. 1995-40, 69 T.C.M. (CCH) 1765 (1995) - the court rejected the taxpayer's argument that the only sources of income for purposes of section 61 are listed in section 861.

Madge v. Commissioner, T.C. Memo. 2000-370, 80 T.C.M. (CCH) 804 (2000) - the court labeled as "frivolous" the position that only foreign income is taxable.

Solomon v. Commissioner, T.C. Memo. 1993-509, 66 T.C.M. (CCH) 1201, 1202 (1993) - the court rejected the taxpayer's argument that his income was exempt from tax by operation of sections 861 and 911, noting that he had no foreign income and that section 861 provides that "compensation for labor or personal services performed in the United States . . . are items of gross income.

Taxgate’s argument is also thoroughly de-bunked starting at http://evans-legal.com/ dan/ tpfaq.htm l#section61

---

FOR IMMEDIATE RELEASE THURSDAY, NOVEMBER 7, 2002 WWW.USDOJ.GOV

TAX (202) 514-2007 TDD (202) 514-1888

JUSTICE DEPARTMENT SUES N.J. MAN TO STOP
PROMOTION OF TAX SCAM

JUSTICE DEPARTMENT SUES ANOTHER PROMOTER
OF FRIVOLOUS “SECTION 861" SCHEME

WASHINGTON, D.C. - The Department of Justice today filed suit in federal court to stop Richard Haraka, alias Rick Bryan, of Clifton, N.J., from promoting a tax refund scam known as the “Section 861 argument” for the tax code provision it misinterprets. Promoters of the Section 861 argument falsely claim that income from sources in the United States is not subject to federal income tax.

Today’s suit, filed in Newark, N.J., is part of a continuing nationwide crackdown against promoters of the Section 861 scam. The government’s complaint alleges that Haraka helped co-found an organization known as “Taxgate,” where he sells materials over the Internet designed to teach customers how to evade federal taxes and unlawfully interfere in the administration of the federal tax laws. According to the complaint, Haraka began promoting the scheme in the mid-1990s with Thurston Bell, who is the subject of a similar suit pending in federal court in Harrisburg, Pa.

The complaint also asks the court to order Haraka to provide the Department of Justice with the name of every person to whom he gave, sold or otherwise provided materials relating to the so-called Section 861 argument.

“Like several of the lawsuits we have recently filed around the country, this suit involves the Section 861 scam. Every court that has considered it has rejected it as frivolous,” said Eileen J. O’Connor, Assistant Attorney General in charge of the Justice Department’s Tax Division. “We will continue to pursue these cases vigorously and shut down schemes that cheat honest Americans who pay their taxes.”

The Justice Department has already obtained injunctions against three bogus Section 861 promoters: Harold Hearn of Atlanta; David Bosset of Spring Hill, Fla.; and Douglas Rosile of Venice, Fla. A hearing on the Department’s request for an injunction against a fourth alleged promoter, Thurston Bell of Hanover, Pa., took place on Nov. 4th in a U.S. district court in Harrisburg.

###

02-659