Gary M. Dashiell and Frances J. Dashiell - Page 4

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               On December 14, 2001, in response to respondent’s notice of            
          Federal tax lien filing, petitioners filed with respondent a                
          request for a hearing, which was held on October 17, 2002, with             
          respondent’s Appeals Office in Portland, Oregon.                            
               At the Appeals Office hearing, petitioners argued that they            
          were not taxable on their income.  Petitioners did not claim any            
          error had occurred in respondent’s collection procedures, nor did           
          petitioners raise any collection alternatives.                              
               On November 19, 2002, respondent mailed to petitioners a               
          notice of determination in which respondent determined that                 
          respondent’s tax lien constituted a valid and appropriate                   
          collection activity against petitioners.                                    
               On December 11, 2002, petitioners filed their petition                 
          herein in which petitioners claim only that they are not subject            
          to the income tax.  Petitioners make no claim of irregularity in            
          respondent’s collection procedures.  Quoting from petitioners’              
          pretrial memorandum, petitioners argue that –-                              

               A careful examination of 26 C.F.R. sec. 1.861-8, (as well as           
               over 80 years of predecessor statutes and regulations) shows           
               that taxable sources of income are limited to the following            
               types of commerce:                                                     
               (1) Certain foreign income of U.S. citizens (26 C.F.R.                 
                    sec. 1.861-8(f)(1)(i));                                           
               (2) The domestic income of foreigners (26 C.F.R.                       
                    sec. 1.861-8(f)(1)(iv));                                          
               (3) Certain income related to federal possessions                      
                    (26 C.F.R. sec. 1.861-8(f)(1)(vi)(E)).                            





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