-Caveat Lector- WJPBR Email News List [EMAIL PROTECTED] Peace at any cost is a Prelude to War! Activists challenge IRS using agency's rules Dozens of employers claim statutes allow them to stop withholding taxes ------------------------------------------------------------------------------ -- By Ed Oliver © 2001 WorldNetDaily.com An ever-growing group of American employers has stopped withholding taxes from their workers' paychecks – citing federal tax laws as their authority – and some of them have even received refunds from the IRS as a result. But challenging the taxman is not without its problems. The IRS has announced it will be actively prosecuting some business owners and their advisers "for tax evasion and other crimes," because the businesses have stopped withholding, paying and reporting income, Social Security and Medicare taxes when paying their employees. "The system simply cannot work if they get away with this," former IRS commissioner Sheldon Cohen told the New York Times. Yale professor and former Bush tax policy adviser Michael Graetz also warned in the article that the IRS must act, "or this will get out of hand very, very quickly." WorldNetDaily spoke with several businessmen and individuals who are part of the recent phenomenon. They say they are simply following the law and regulations to the letter and that it is the IRS representatives who are the scofflaws in this matter. California businessman Nick Jesson of No Time Delay Electronics told WND his company does $15 million dollars in business a year. His company no longer pays taxes and does not withhold from 18 of its 22 employees, he said. The other four employees still pay taxes because they want to remain eligible for government entitlement programs. Jesson, who says he is livid over being portrayed by the Times as a tax cheat and criminal, said his attorney is looking into filing a possible lawsuit, and he is also trying to negotiate with the newspaper to provide equal space for his side of the story. Jesson credited his tax adviser, Thurston Bell of the National Institute for Taxation Education, or NITE, with helping his company to get $217,000 refunded from employment taxes it paid to the IRS in 1997. A member of NITE, Jesson gave power-of-attorney to the organization to compose a response letter on his behalf to IRS Commissioner Charles O. Rossotti, which was mailed shortly after a Feb. 10 New York Times article. According to that article, Rossotti "warned that people who are taken in by claims that they are exempt from taxes, 'put themselves at terrible risk, both legally and financially,' because the IRS 'will take enforcement action to uphold the law.'" Bell told WorldNetDaily, "We are going to have the letter published on a full-page ad in a national paper so that all can see how absurd and legally destructive the IRS's threats of prosecution for evasion are. These employers are only guilty of attempting to exhaust the administrative remedy required in order to make a lawful claim that can be brought to court. I wonder how it is that they are going to criminalize a citizen exercising his responsibility to make proper testimony to the government?" Editor's note: NITE's ad appears in today's print edition of USA Today. View ad here. Jesson and roughly a couple dozen other employers who have gone public are acting on the "gross income" or "U.S. sources" legal argument. That argument says that according to the law, not all income is subject to the income tax. They say the law stipulates that only "gross income" derived from certain "sources" is taxable. The place to find the list of U.S. sources of income that are taxable, they insist, is in the oft-overlooked Treasury Regulations, which go hand in hand with the statutes. Proponents of the argument say the IRS points to the broadest definition of taxable income in section 61 of the statute, which taken by itself can mean nearly everything is taxable to U.S. citizens, including a penny one picks up off the street. But, they say, the IRS does not want people to look at the "rest of the story" -- the pertinent Treasury Regulations that also have the force of law and which are there to interpret the statutes. The U.S. sources of income listed in the regulations as taxable by the secretary of the Treasury does not include most residents' income within the 50 states, they say. WorldNetDaily asked IRS spokesman Don Roberts if 26 USC S 861(b) and the related regulations in 26 CFR § 1.861-8 are the specific sections to consult to determine one's taxable income from sources within the United States as the "U.S. sources" argument proponents claim. "No," answered Roberts. "They apply to non-resident aliens. They're picking up sections that aren't even relevant to them. They're not people who understand tax law. They are people who misunderstand tax law or, more likely in some cases, people who misconstrue the tax law. They are not tax experts. They missed the boat by a long shot." Where exactly are the argument's proponents misreading the law and regulations? "Probably from beginning to end in what they present," he answered. "They are talking about the sections that relate to non-resident aliens who may be taxed upon U.S. source income. That's what the section deals with. If they'd really like to know what the law says about the taxability of their income, they might take a look at section 61, too, where it defines gross income." Roberts continued, "I'm going to suggest a website for you to look at: http://www.taxprophet.com. This is a private-sector website put together by an attorney out in California named Robert Summers. Look at some of the stuff, especially what he has at the bottom of the page. Look especially at the link to the 'tax protester hall of fame.' Congress said in 1998 that we can no longer call them tax protesters, but everyone else can." Bell, founder and executive researcher of the Hanover, Pa.-based NITE, is generally recognized as the man who developed the "U.S. sources" argument into a practical approach for challenging federal tax law. "The income tax is 100 percent legal and constitutional in its statutory and regulatory form," said Bell. "NITE does not question the legitimacy of the internal revenue laws, but does scrutinize the IRS's compliance with the whole of the law and its published procedures on a case-by-case basis. "It must be remarked that the laws of our land are actually written more in our favor than we have been led to believe. By examining and learning our laws, we are in a better position to insist that they be obeyed, as written, and thereby provide a safe environment for our loved ones and future generations to flourish." Regarding Roberts' statements, Bell told WND, " If this section of law only applies to non-resident aliens, then I have a ton of questions about all of the provisions of the 1.861 regulations which refer to citizens and the Foreign Tax Credit, which I understand only applies to citizens and residents of the U.S. "Since this is, as this man says, the section of law relating to non-resident aliens earning income from U.S. sources, where are the corollary statutes regarding foreign corporations earning income from U.S. sources? Where are the corollary statutes regarding resident aliens earning income from U.S. sources? Where are the corollary statutes regarding domestic U.S. corporations earning income from U.S. sources? Where are the corollary statutes regarding U.S. citizens earning income from U.S. sources? "The fact is that the law is just as the secretary has stated. This is the only provision of law regarding income from U.S. sources, in very specific and particular terms, as the secretary has noted in 26 CFR §1.863-1(c), the taxability of U.S. sources are set forth in 26 CFR §1.861-8 through -14T. In those regulations, you will find everything disclosed about the specific applicability to residents, non-residents, foreign corporation, citizens and domestic corporations." WorldNetDaily checked with two of the big five national accounting firms. Interestingly, a spokesman for Arthur Andersen in New York said that David Cay Johnston from the New York Times also called his firm inquiring about the same subject, but they did not want to comment to either publication on the issue for "unspecified reasons." Martin Nissenbaum, national director of personal income tax planning at Ernst and Young in New York, told WorldNetDaily that Section 861 of the code is a definitional section about sources of income within the United States. "It clearly applies to non-residents who earn income in the United States," he said. "861 … I don't really see the relevance to someone who is resident in the United States." Another leading proponent of the "U.S. sources" argument, Larken Rose, told WorldNetDaily he first heard about the argument from Bell's work and subsequently spent hundreds of hours doing his own research, which is available in a report online. Also on his website are transcripts of examination meetings with the IRS where Rose confronted the agency over the issue in an attempt to get a technical opinion from the national office. "861 and its regulations describe all situations in which 'income from sources within the United States' is taxable for citizens, foreigners, foreign and domestic corporations, etc.," explained Rose. "However, the regulations still on the books are a bit behind the times regarding all the mangled possessions rules in the statutes, 26 USC § 931 and following. But for most of us, that makes no difference, and it shows that the section applies in determining domestic taxable income, for anyone." Ernst and Young's Nissenbaum disagreed. "I'm pretty sure when this gets to a court they will throw this right out," he stated. "They will argue this is frivolous and they will probably be penalized as well. I would not be surprised. I just don't see the argument. Again, 861 only says this is how you figure out where income is from, but the rules in this section only apply for purposes of certain other sections, and none of those sections apply to someone who is resident in the United States. Someone who is resident in the United States is taxable on all their income worldwide, regardless of the source." Nevertheless, using the "U.S. sources" argument and strategies he developed, Bell electrified the tax-resistance movement after posting at NITE's website a string of its members' successes over the last year and a half, starting with a case of employment tax refunds to a company called Bosset Partners Marketing. *COPYRIGHT NOTICE** In accordance with Title 17 U. S. C. Section 107, any copyrighted work in this message is distributed under fair use without profit or payment to those who have expressed a prior interest in receiving the included information for nonprofit research and educational purposes only.[Ref. http://www.law.cornell.edu/uscode/17/107.shtml ] Want to be on our lists? Write at [EMAIL PROTECTED] for a menu of our lists! <A HREF="http://www.ctrl.org/">www.ctrl.org</A> DECLARATION & DISCLAIMER ========== CTRL is a discussion & informational exchange list. Proselytizing propagandic screeds are unwelcomed. Substance�not soap-boxing�please! 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