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subfever -> Interesting Tax Information (1/16/2007 7:03:57 AM)
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The following is a message from Larken Rose to his e-mail list. He has given me permission to post this message (in its entirety and unedited) and to post all messages that follow.
I've read most of his writings over the past 3-4 years, and have always found them interesting. Hopefully, you will too.
BTW... I got a 404 error message when clicking on the link below, and have written to Mr. Rose about this. I'll update when a correction is received:
Dear Subscriber,
In the series of messages to follow, I'd like to say a few things about taxes. First, just to prepare you, I'd like to tell you what I'm NOT going to talk about. I'm NOT going to whine and complain about taxes in general, nor will I opine about how taxes are unfair, unconstitutional, illegal, invalid, immoral, economically-destructive, or in any other way nasty. I'm NOT going to protest or object to any tax. I'm also NOT going to talk about how to get out of paying taxes, or how to use some loophole or financial or legal trickery to avoid or reduce taxes. And I'm NOT going to advocate that any law be disobeyed, or that any law be
repealed, or that any tax law policy be changed. (It's easy to find
plenty of other people who will be glad to talk about those things
until they're blue in the face. I'm not going to.)
The only topic I WILL be discussing in the following messages is how to COMPLY WITH THE LAW; in other words, HOW TO DETERMINE WHAT YOU OWE in federal income taxes. That may at first sound like a remarkably boring thing to discuss, but please bear with me; it will be worth it.
According to tax professionals, this is how one complies with the
tax laws:
1) If you can find some section of the tax code specifically saying that some of your income is tax-free, congratulations. (For example, one section says that life insurance proceeds aren't taxable.) Otherwise, all of your income constitutes what is called "gross income," which is income subject to the federal income tax.
2) However, the tax pros know how to then apply various rules to increase your allowable deductions, or to arrange things to make certain income tax-deferred (or sometimes even tax-exempt), or to entitle you to certain tax credits. In these ways, they can lower your taxable income, and lower what you owe in taxes. They then put the numbers together, fill out the forms, and give them to you to sign.
If you read the preceding to your tax preparer, he will most likely agree that that's a fair summary of what it is he does. And tax professionals tend to be pretty good at step #2 (finding deductions, credits, and other
tricks to reduce the bottom line of what you owe). The problem is with step #1. No matter how much you pay them, or how knowledgeable
you assume them to be, the folks you look to for tax advice apply
the law INCORRECTLY. This is not because they're sneaky or
dishonest, but only because they're ignorant--not completely ignorant, but ignorant of one fundamental issue that is CRUCIAL to correctly determining what someone owes in federal income taxes.
Of course, your accountant can assert one thing, and I can assert another, but then it would just be a matter of who you choose to believe. So rather than me telling you how things are, I'm going to let the government's own official law books tell you how things are. (If you decide to give more credence to the so-called "tax experts" than you do to the actual LAW they are supposed to be applying, then you might as well skip the rest of this discussion. But if you're one of those crazy people who believe their own eyes, hang on to your hat.)
If you were to take a look at the official federal income tax regulations from a few decades ago, you would only need to go through a few pages to learn all of the following:
1) When it comes to the federal income tax, neither income exempted
by statute (sections of the tax code) NOR income exempted by
"FUNDAMENTAL LAW" (the Constitution itself), enter into the
computation of one's taxable income.
2) There are several concepts important to determining one's tax liability: the concept of "income" in the broad sense, which means all wealth a person receives (except when he's just getting back what was already his); "gross income," which means all income except for any income that is exempted by statute or OTHERWISE exempt; and "net income," which generally means "gross income" minus allowable deductions.
3) The statutes of the tax code exempt certain types of income, and no
OTHER income is to be excluded from one's taxable "gross income"
EXCEPT for income which is, "under the CONSTITUTION, not taxable by the federal government."
For that last one, the following link shows an actual scan of the regulation saying that:
http://irobyou.info/TaxableIncome_Net/exhibits/1956regs.html
(I hope to have more complete, better-quality scans up soon.)
Okay.
So what? Why is any of that worth mentioning? Because, in the span
of a couple pages, those older regulations admitted THREE TIMES to
a fact that your tax preparer is utterly unaware of. You see, just about every CPA and tax attorney you'll ever meet (except for a handful of wackos who have actually looked at the law) accepts as unquestionable tax doctrine that ALL income is taxable unless a specific section of the tax code says it isn't. (All of the tricks with deductions, deferments, credits, etc., are based on their ASSUMPTION that your income is taxable in the first place.) They believe that all income fits neatly into two categories:
1) Non-taxable: Income exempted by the statutes of the tax code.
2) Taxable: All other income.
But, as you can see for yourself, that is NOT what those older income tax regulations (expressing the government's official interpretation of the tax laws) say. They very clearly delineate THREE categories of income:
1) Non-taxable: Income exempted by the statutes of the tax code.
2) Also non-taxable: Income excluded because of the Constitution itself.
3) Taxable: All other income.
I can't stress this enough: the current tax professionals DO NOT KNOW that that second category exists at all. Soon enough we'll address the question of WHICH income might be excluded from tax because of the Constitution itself, but first it's important to let this sink in: SOME kinds of income are exempt (non-taxable), not because of any particular section of the tax code, but because of the Constitution itself--and your tax preparer DOES NOT KNOW THAT.
Feel free to go back to the link above and review those old regulations. See for yourself where the government's own law books say in plain English (at least as plain as their law books ever get) that there is some income you're supposed to LEAVE OUT of the calculation of your taxable income because such income is, "under the Constitution, not taxable by the Federal Government." Your tax preparer doesn't know that the law books ever said such a thing. YOU now know something about tax law that all those highly-paid tax "experts" DON'T. If you don't believe me, ask them. Pick someone who makes a living preparing tax returns, and ASK him, "What income is exempt from the federal
income tax because of the Constitution itself?" He won't know what
you're talking about, because he doesn't know that ANY income fits
that description.
Just to be clear, I'm NOT saying there is anything unconstitutional about the income tax. Those regulations are just saying that because of the Constitution, certain income isn't subject to the tax, which means it would be a MISTAKE to report such income on a tax return, or to pay taxes on it, just as it would be a MISTAKE to report and pay taxes on life insurance proceeds (which the statutes say are tax-exempt). This isn't a protest of the law; this is the government's own law books telling
you how to properly COMPLY with the law, and to do that you are
SUPPOSED TO leave out of your calculations any income you may
receive which is non-taxable due to the Constitution.
Why don't the tax pros know about this? Which income is it talking about? Why would some income be Constitutionally non-taxable? We'll get to allbof those questions soon, but for today I'm just going to leave
things hanging right there. But before I sign off for the day, there are a few questions I want you to ask yourself. (I'll include these after each message in this series.)
In what I've said above, do you see me encouraging anyone to break the law? Do you see me objecting to the law? Do you see me arguing anything "frivolous"? (No, no, and no.) Lastly, would you consider it okay for the government to try to forcibly stop me from telling you what
I've told you so far, or to punish me for publicly talking about such things? (Me neither.)
Sincerely,
Larken Rose
[Mod Note: Broken link fixed]
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