- 4 -
“shall be allocated or apportioned to sources within or without
the United States, under regulations prescribed by the
Secretary.” Petitioner admits, and the facts show, that he had
no items of gross income, expenses, losses, and deductions other
than those from a U.S. source.
From the items of U.S. source gross income, the taxpayer
“shall” deduct the expenses, losses, and other deductions
properly apportioned or allocated to U.S. source income along
with a ratable portion of expenses, losses, and other deductions
that cannot definitely be allocated to an item or class of gross
income. Sec. 861(b). The standard deduction is considered a
deduction that cannot definitely be allocated to an item or class
of gross income. Sec. 861(b). The remainder, if any, after
taking the above expenses, losses, and other deductions, is
included in full as U.S. source taxable income. Sec. 861(b).
Because 100 percent of petitioner’s gross income is U.S.
source gross income, 100 percent of petitioner’s expenses,
losses, and other deductions are properly allocated and
“apportioned” to U.S. source income. The thoughtful reader need
go no further than the words of the statute to determine that
section 861 is unnecessary to the determination of petitioner’s
income tax liability.
Petitioner, however, claimed at trial to be confused by the
terms “classes of gross income” and “statutory groupings”. The
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 Next
Last modified: May 25, 2011