Brian G. Takaba - Page 17




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               includes “all income from whatever source derived,”                    
               including compensation for services and interest.                      
               Secs. 61(a)(1), (4).  * * *                                            
                    Ignoring these statutory provisions, petitioners                  
               argue that their compensation for services * * * and                   
               interest do not constitute gross income because these                  
               items of income are not listed in section 1.861-8(f),                  
               Income Tax Regs. Their argument is misplaced and takes                 
               section 1.861-8(f), Income Tax Regs., out of context.                  
               The rules of sections 861-865 have significance in                     
               determining whether income is considered from sources                  
               within or without the United States.  The source rules                 
               do not exclude from U.S. taxation income earned by U.S.                
               citizens from sources within the United States.  See,                  
               e.g., Williams v. Commissioner, 114 T.C. 136, 138-139                  
               (2000) (rejecting claim that income is not subject to                  
               tax because it is not from any of the sources listed in                
               sec. 1.861-8(a), Income Tax Regs.); Aiello v.                          
               Commissioner, T.C. Memo. 1995-40 (rejecting claim that                 
               the only sources of income for purposes of sec. 61 are                 
               listed in sec. 861); Great-West Life Assur. Co. v.                     
               United States, 230 Ct. Cl. 477, 678 F.2d 180, 183                      
               (1982) (“The 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 section 1 and section                 
               11, respectively, on their worldwide income.”).                        
               Petitioner’s position, that respondent erred in determining            
          a deficiency in, and additions to, petitioner’s 1996 Federal                
          income tax, is frivolous, since all of petitioner’s arguments in            
          support of that position are frivolous.  Petitioner deserves a              
          penalty under section 6673(a)(1), and that penalty should be                
          substantial, if it is to have the desired deterrent effect.  Cf.            
          Talmage v. Commissioner, T.C. Memo. 1996-114 (text at n.5), affd.           
          without published opinion 101 F.3d 695 (4th Cir. 1996).  The                
          purpose of section 6673 is to compel taxpayers to think and to              
          conform their conduct to settled principles before they file                





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