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is scienter and a false (or, in the securities fraud context,
misleading) statement.
We find that Mr. Sulla was reckless in making the 861
argument. We do so because (1) there were obvious reasons for
Mr. Sulla to doubt his interpretation of the regulations and (2)
the conclusions to be drawn from the 861 argument are so
inherently improbable that only a reckless man would have made
that argument. As stated, the 861 argument is that the
regulations under section 861 establish that, although petitioner
is a U.S. citizen, petitioner’s income in the form of
remuneration for services and bank interest received from sources
within the United States is not taxable income (or is not “non-
exempt income”). The most obvious reason for Mr. Sulla to doubt
his interpretation of the regulations is that it is flatly
contradicted by section 1.1-1, Income Tax Regs. In pertinent
part, section 1.1-1, Income Tax Regs., provides:
SEC. 1.1-1 Income tax on individuals.--
(a) General rule. (1) Section 1 of the Code
imposes an income tax on the income of every individual
who is a citizen or resident of the United States * * *
* * * * * * *
(b) Citizens or residents of the United States
liable to tax. In general, all citizens of the United
States, wherever resident, * * * are liable to the
income taxes imposed by the Code whether the income is
received from sources within or without the United
States. * * *
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