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Tax Flow Chart | PDF | Gross Income | Income Tax
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Tax Flow Chart

The document discusses key sections of the Federal Regulations related to the computation of taxable income from specific sources or activities. It lists sections that define operative sections, sources or activities, statutory groupings, classes of gross income, items of gross income, deductions, and how taxable income must originate from a specific source or activity under an operative section.

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263 views2 pages

Tax Flow Chart

The document discusses key sections of the Federal Regulations related to the computation of taxable income from specific sources or activities. It lists sections that define operative sections, sources or activities, statutory groupings, classes of gross income, items of gross income, deductions, and how taxable income must originate from a specific source or activity under an operative section.

Uploaded by

Autochthon Gazette
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Computation of Taxable Income

26.1.861-8(a)(4) – “operative sections” give rise to


Operative specific “sources or activities.” 1
Sections 26.1.861-8(f)(1) – Gives list of specific “sources” that
REQUIRE determination of Taxable Income

Source or 26.1.861-8(a)(4) “sources or activities” are under


“operative sections.”
2
Activity

26.1.861-8(a)(4) “Statutory Grouping is Gross Income”


from 3
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


Statutory Income to which a specific deduction is definitely 4
Grouping related to.
&
Class of
26.31.3402(p)(1) voluntary agreements – W4 can only
Gross Income be entered into with respect to amounts [received from 5
& items] under IRC sec. 61
Item of
Gross Income
26.1.1441-2 and IRC section 61 list items of Gross 6
Income

26.1.861-8(a)(3) – “Items of Income” MUST definitely


be related to a “class of Gross Income.” 7

Deductions 26.1.861(a)(5)(b)(1) – Allocation of Deductions –


Deductions must be related to a “class of income.” 8

26.1.861-8(a)(4) – Taxable income MUST originate


Taxable from a specific “source or activity” under an “operative 9
Income section.”

Income Tax Flowchart 4


The Federal Regulations that we are dealing with make reference to
'sources' within, as well as without, the United States. Below are the
only sources listed from which income must derive in order for it to
be taxable for the purpose of the Income Tax.
Code of Federal Regulations 1.861-8(f)(1)
(i) Overall limitation to the foreign tax credit.

(ii) [Reserved]

(iii) DISC and FSC taxable income. (note: DISC is Direct International Sales Corp, and FSC
is a Foreign Sales Corp)

(iv) Effectively connected taxable income. Nonresident alien individuals and foreign
corporations engaged in trade or business within the United States,...

(v) Foreign base company income.

(vi) Other operative sections.

(A) "...foreign source items of tax..."

(B) "...foreign mineral income..."

(C) [Reserved]

(D) "...foreign oil and gas extraction income..."

(E) "...citizens entitled to the benefits of section 931 and the section 936 tax credit..."

(F) "...residents of Puerto Rico..."

(G) "...income tax liability incurred to the Virgin Islands..."

(H) "...income derived from Guam..."

(I) "...China Trade Act corporations..."

(J) "...income of a controlled foreign corporation..."

(K) "...income from the insurance of U.S. risks..."

(L) "...international boycott factor...attributable taxes and income under section 999..."

(M) "...income attributable to the operation of an agreement vessel under section 607 of
the Merchant Marine Act of 1936..."

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