ELECTIONS: When “gross income” includes more than profit
SOURCE: Gross Income Worksheet, Form #09.080**, Section 4; https://sedm.org/product/gross-income-worksheet-nonresident-alien-form-09-080/
1. Introduction
The Sixteenth Amendment limits the term “income” and therefore STATUTORY “gross income” to “profit”.
After examining dictionaries in common use (Bouv. L.D.; Standard Dict.; Webster’s Internat. Dict.; Century Dict.), we find little to add to the succinct definition adopted in two cases arising under the Corporation Tax Act of 1909 (Stratton’s Independence v. Howbert, 231 U.S. 399, 415; Doyle v. Mitchell Bros. Co., 247 U.S. 179, 185) — “”Income may be defined as the gain derived from capital, from labor, or from both combined,” provided it be understood to include profit gained through a sale or conversion of capital assets, to which it was applied in the Doyle Case (pp. 183, 185).
Brief as it is, it indicates the characteristic and distinguishing attribute of income essential for a correct solution of the present controversy. The Government, although basing its argument upon the definition as quoted, placed chief emphasis upon the word “gain,” which was extended to include a variety of meanings; while the significance of the next three words was either overlooked or misconceived. “Derived — from — capital;” — “the gain — derived — from — capital,” etc. Here we have the essential matter: not a gain accruing to capital, not a growth or increment of value in the investment; but a gain, a profit, something of exchangeable value proceeding from the property, severed from the capital however invested or employed, and coming in, being “derived,” that is, received or drawn by the recipient (the taxpayer) for his separate use, benefit and disposal; — that is income derived from property. Nothing else answers the description.
[Eisner v. Macomber, 252 U.S. 189, 206-208 (1920); SOURCE: https://scholar.google.com/scholar_case?case=6666969430777270424]
However, there are occasions where an ELECTION of some kind can EXPAND the definition of “gross income” in 26 U.S.C. §61 beyond mere PROFIT to encompass MORE than mere “profit”, such as “GROSS RECEIPTS”. That election happens by one of two methods:
- Electing U.S. person status under 26 U.S.C. §7701(a)(30), which makes YOUR status PUBLIC rather than private. This has the effect of making all property connected to you by the franchise mark PUBLIC as well, since a Social Security Number is mandatory for all U.S. persons.
- “Effectively connecting” your earnings by entering them on the 1040-NR return.
Since item 1 is forbidden to Compliant Members, the following subsections will delve into item 2 above.
This subject is EXTREMELY important because it permits you to EXCLUDE from entering ANYTHING on the 1040-NR return as “income” if you don’t CONSENT to effectively connect that amount. We account for this option recognized by law to EXCLUDE earnings from the 1040-NR return with the following language in our 1040-NR Attachment;
5. Blocks 1 to 15: INCOME EFFECTIVELY CONNECTED WITH U.S. TRADE/BUSINESS
1. See definition of “effectively connected” later in section 11.
2. This section contains earnings described in 26 U.S.C. §871(b) from “sources within the United States” and is limited to earnings voluntarily associated with the “trade or business” excise taxable franchise defined as “the functions of a public office” in 26 U.S.C. §7701(a)(26). Everything listed in this section is subject to “trade or business” deductions under 26 U.S.C. §162. “United States” in this context means the government as a corporation, and not a geography. 26 C.F.R. §1.871-2(f) indicates that I am the only one who can “effectively connect” earnings in this section (“by that individual”). Thus, you have no authority to add ANYTHING to this section that I myself did not add, and certainly no type of “income”.
3. Values listed in this section are all zero, because:
3.1. The 1040-NR Instructions relating to Block 1a (wages) state: “Don’t include any income on line 1a Form 1040-NR that isn’t treated as effectively connected”. Thus, I can’t include any earnings from labor that I don’t consent to donate to a public use in order to procure the “benefit” of “deductions” under 26 U.S.C. §162 in connection with a “trade or business’.
3.2. There is no place on the Schedule NEC to enter earnings from my personal labor, thus recognizing that I can only put it on a tax return if I donate it to a public use by “effectively connecting” it.
3.3. Submitter does not consent and has no delegated authority or lawful authority to consent to “effectively connect” his/her earnings or him/her self to a statutory “trade or business” or public office either by entering it on the 1040-NR form or associating it with a statutory SSN/TIN franchise mark. He/she as the absolute owner of both is the only one authorized by law to do so as required by 26 C.F.R. §1.872-2(f) and as required by the Bill of Rights protecting all his/her private property.
3.4. Earnings are therefore expressly excluded from “gross income” under 26 C.F.R. §1.871-7(a)(4) in this section. It would constitute fraud and possibly a violation of 18 U.S.C. §912 for me to claim otherwise, as proven by: The Trade or Business Scam, https://sedm.org/Forms/05-MemLaw/TradeOrBusScam.pdf.
[1040-NR Attachment, Form #09.077, Section 5; https://sedm.org/Forms/09-Procs/1040NR-Attachment.pdf]
2. “Effectively Connected” Trap
“Effectively connected” is defined below:
26 U.S. Code § 864 – Definitions and special rules
(c)Effectively connected income, etc.
For purposes of this title—
(A) In the case of a nonresident alien individual or a foreign corporation engaged in trade or business within the United States during the taxable year, the rules set forth in paragraphs (2), (3), (4), (6), (7), and (8) shall apply in determining the income, gain, or loss which shall be treated as effectively connected with the conduct of a trade or business within the United States.
(B) Except as provided in paragraph (6) [1] (7), or (8) or in section 871(d) or sections 882(d) and (e), in the case of a nonresident alien individual or a foreign corporation not engaged in trade or business within the United States during the taxable year, no income, gain, or loss shall be treated as effectively connected with the conduct of a trade or business within the United States.
The above is not a definition, because it merely describes how to IMPLEMENT it but not WHY it exists. The WHY is answered by the more complete definition of “Effectively connected” below:
Effectively connected: Earnings from WITHOUT the “United States” (government) donated to a public use, a public purpose, and a public office to procure the benefits of a franchise privilege such as deductions under 26 U.S.C. §162 and 26 U.S.C. §873.
Our 1040-NR attachment defines “effectively connected” as:
11. Definitions
5. “Effectively connected” means otherwise private property CONSENSUALLY donated by its original owner to a public use, a public purpose, or a public office within the national and not state government, and thus connected to the statutory “trade or business” defined in 26 U.S.C. §7701(a)(26) as “the functions of a public office”. None of God’s entirely private property under my stewardship falls into this category. All of Gods’ property is absolutely owned private property protected by the constitution and defined as a “foreign estate” under 26 U.S.C. §7701(a)(31) and the First Amendment separation of church and state. Ownership of “trade or business” property, on the other hand, is QUALIFIED (shared) rather than ABSOLUTE (singular). “Trade or business” property ownership or control is shared by the owner and its government parens patriae, Creator, and owner. A portion of the shared ownership becomes a kickback (called a return) to compensate its trustee for his or her services.
[1040-NR Attachment, Form #09.077, Section 11: Definitions; https://sedm.org/Forms/09-Procs/1040NR-Attachment.pdf]
Note that there are TWO methods to volunteer to owe tax:
- ELECT to change YOUR status from private “nonresident alien” to PUBLIC “U.S. person”.
- Elect to convert your PRIVATE property from PRIVATE to PUBLIC by “effectively connecting” it.
“Effectively connecting” implements item 2 above, by converting your PROPERTY rather than YOURSELF from PRIVATE to PUBLIC.
“Effectively connecting” is an implementation of the rules for converting private to public recognized by the U.S. Supreme Court:
“Men are endowed by their Creator with certain unalienable rights,-‘life, liberty, and the pursuit of happiness;’ and to ‘secure,’ not grant or create, these rights, governments are instituted. That property [or income] which a man has honestly acquired he retains full control of, subject to these limitations: First, that he shall not use it to his neighbor’s injury, and that does not mean that he must use it for his neighbor’s benefit [e.g. SOCIAL SECURITY, Medicare, and every other public “benefit”]; second, that if he devotes it to a public use, he gives to the public a right to control that use; and third, that whenever the public needs require, the public may take it upon payment of due compensation.”
[Budd v. People of State of New York, 143 U.S. 517 (1892) ]
The above rules are summarized below:
Table 1: Rules for converting private property to a public use or a public office
| # | Description | Requires consent of owner to be taken from owner? |
| 1 | The owner of property justly acquired enjoys full and exclusive use and control over the property. This right includes the right to exclude government uses or ownership of said property. | Yes |
| 2 | He may not use the property to injure the equal rights of his neighbor. For instance, when you murder someone, the government can take your liberty and labor from you by putting you in jail or your life from you by instituting the death penalty against you. Both your life and your labor are “property”. Therefore, the basis for the “taking” was violation of the equal rights of a fellow sovereign “neighbor”. | No |
| 3 | He cannot be compelled or required to use it to “benefit” his neighbor. That means he cannot be compelled to donate the property to any franchise that would “benefit” his neighbor such as Social Security, Medicare, etc. | Yes |
| 4 | If he donates it to a public use, he gives the public the right to control that use. | Yes |
| 5 | Whenever the public needs require, the public may take it without his consent upon payment of due compensation. E.g. “eminent domain”. | No |
Rule 4 above is implemented by the “effectively connected” scam.
3. History of “effectively connecting”
The 1966 Tax Act added “effectively connected” income to the definition of “gross income” for a nonresident aliens. This was the same year the rolled out the 1040-NR tax return form. Before that, they only had the 1040 return and nonresident aliens used that form and didn’t check the box that asked “Are you a citizen or resident of the United States?”. See:
| Tax Return History-Citizenship, Family Guardian Fellowship https://famguardian.org/Subjects/Taxes/Citizenship/TaxReturnHistory-Citizenship/TaxReturnHistory-Citizenship.htm |
Before this, ONLY income that was ACTUALLY from a source within the United States would be “gross income” to a nonresident alien. Such income today would go on the Schedule NEC. Uncle Sam recognized that all Americans are nonresident aliens every year by default (unless they file 1040 for that year). So by creating this “effectively connected” nexus it allows for a purely CONTRACTUAL/CONSENSUAL liability to be created. Before that it was just mistake of law if a nonresident alien filed as a U.S. person and declared all his income as “gross income”.
By introducing this “effectively connected” nexus, the liability is created quasi-contractually through your consent (even if done by mistake) and therefore it is more solidly legal because there is from that point a basis in the Code for liability to arise that way. As if to further cover their asses, they added “national of the United States” to the Code in 1972 in a provision under with Public Law 92-580 for nonresident aliens that allowed for privileged deductions. That provision is now found in 26 U.S.C. §873.
Then later, in 1986, the “election to be treated as a resident alien” in 26 U.S.C. §6013(g) and (h) created a quasi-contractual basis for “U.S. person” whereas before that it would just have been purely mistake of law on the part of the nonresident alien filer. Even to this day, however, there is no statutory provision in the I.R.C. for a “national of the United States” who is a “nonresident alien” (state citizen) to elect to be treated as a “resident alien” or U.S. person if they are not married to one. The U.S. Supreme court DID, however, recognize the right of an American national abroad under 26 U.S.C. 911 to ELECT “U.S. person” status by filing the 1040 when abroad. This happened in Cook v. Tait, 265 U.S. 47 (1924). In that case, Cook ELECTED U.S. person status by filing a 1040 instead of a 1040-NR.
Uncle Sam knew since 1919 (if not before that) they were relying on deception to DUPE 1040 filers into liability based on the filer’s MISTAKES OF LAW. They wanted tax liability to be more legally solid, so they added these provisions to the Code in 1966, 1972 and in 1986 respectively that would transform what had been up to that point a reliance on duping Americans into pure mistakes of law into these quasi-contractual devices for American nonresident aliens to effectively “opt in” to being liable. This gave everyone running the SCAM more plausible deniability than they had before.
4. “Effectively Connecting” expands STATUTORY “gross income” beyond CONSTITUTIONAL “income”
All waivers of constitutional protections and rights begin with consent, which we call an “election” in this document. Among those waivers are the protections of the Sixteenth Amendment limitation upon “income” as including only PROFIT. Once that consent is given, the Public Rights Doctrine and the Constitutional Avoidance Doctrine of the U.S. Supreme Court kick in, which recognize a waiver of constitutional and Sixteenth Amendment protections. You can learn more about these doctrines in:
| Catalog of U.S. Supreme Court Doctrines, Litigation Tool #10.020 https://sedm.org/Litigation/10-PracticeGuides/SCDoctrines.pdf |
In order for an amount to be taxable as more than just profit as required by the Sixteenth Amendment, there must be a voluntary election to “effectively connect” the earning by placing it in the “effectively connected” section of the 1040-NR return. The Treasury Regulations recognize TWO types of “effective connection”:
1. Voluntary “effective connection” by the taxpayer for income from sources WITHOUT the “United States”.
1.1. This is described in 26 C.F.R. §1.872-2(f).
26 C.F.R. §1.872-2 – Exclusions from gross income of nonresident alien individuals.
(f) Other exclusions.
Income which is from sources without the United States, as determined under the provisions of sections 861 through 863, and the regulations thereunder, is not included in the gross income of a nonresident alien individual unless such income is effectively connected for the taxable year with the conduct of a trade or business in the United States by that individual.
1.2. Notice the phrase “by that individual”, meaning you CHOOSE it rather than have it determined by someone else unilaterally.
2. “Deemed effectively connected” without any choice or action by the taxpayer.
2.1. This is found in 26 C.F.R. §1.871-8.
2.2. It includes a nonresident alien student or trainee who is deemed under 26 U.S.C. §871(c) and 26 C.F.R. §1.871-9 to be engaged in trade or business in the United States.
5. Types of income subject to taxation of TOTAL amount received, rather than just profit
Income subject to taxation on TOTAL amount received appears ONLY on the “effectively connected” section of the 1040-NR or the 1040 returns. Everything on the 1040 return is “trade or business” earnings because it is subject to “deductions” under 26 U.S.C. §162 and is earned by the “U.S. person” fiction and office, rather than the human officer consensually occupying said office. These types of income include:
- Interest income:
- Interest from savings accounts
- Bond interest (e.g., municipal bonds, corporate bonds)
- Interest from certificates of deposit (CDs)
- Dividend income:
- Qualified dividends (e.g., from stocks)
- Non-qualified dividends (e.g., from real estate investment trusts)
- Rent and royalty income:
- Rental income from properties
- Royalties from intellectual property (e.g., patents, copyrights)
- Royalties from natural resources (e.g., oil, gas)
- Business income:
- Self-employment income (e.g., freelance work)
- Business income from pass-through entities (e.g., partnerships, S corporations)
- Retirement income:
- Pension income
- Annuity income
- Distributions from retirement accounts (e.g., 401(k), IRA)
- Prize and award income:
- Lottery winnings
- Contest prizes
- Awards (e.g., Pulitzer Prize)
- Unemployment compensation:
- State unemployment benefits
- Social Security benefits:
- Partially taxable above certain income thresholds
- Alimony:
- Received alimony (note: changed by Tax Cuts and Jobs Act)
Note that the above types of income do NOT appear on the Schedule NEC, because they must be voluntarily connected to the “trade or business” excise taxable franchise by the nonresident alien who owns them by simply entering them on the 1040-NR return.