Computation of Taxable Income

        After you read this chart it all comes down to this. There is no section in the internal revenue code that make a person liable for a income (revenue) tax. It is up to YOU to make the determination if you are liable or not. Remember "Voluntary compliance and self assessment" "self assessment" get it? You are the only one who can stick it to yourself.

        Operative
        Sections


        26.1.861-8(a)(4) – "operative sections" give rise to specific "sources or activities."
        26.1.861-8(f)(1) – Gives list of specific "sources" that REQUIRE determination of Taxable Income


        Source or
        Activity

        26.1.861-8(a)(4) "sources or activities" are under "operative sections."


        Statutory Grouping
        & Class of Gross Income
        & Item of Gross Income

        26.1.861-8(a)(4) "Statutory Grouping is Gross Income" from a specific "Source or Activity" which MUST FIRST be determined in order to arrive at Taxable Income.

        26.1.861-8(a)(3) – "Class of Gross Income" is the Gross Income to which a specific deduction is definitely related to.

        26.31.3402(p)(1) voluntary agreements – W4 can only be entered into with respect to amounts [received from items] under IRC sec. 61

        26.1.1441-2 and IRC section 61 list items of Gross Income

        26.1.861-8(a)(3) – "Items of Income" MUST definitely be related to a "class of Gross Income."


        Deductions

        26.1.861(a)(5)(b)(1) – Allocation of Deductions – Deductions must be related to a "class of income."


        Taxable Income

        26.1.861-8(a)(4) – Taxable income MUST originate from a specific "source or activity" under an "operative section."


        FTP Download the "Flow Chart.rtf"=(rich text format) in an understandable design.
        7/03/00