The opinion of the court was delivered by: Christopher C. Conner, United States District Judge.
Before the court*fn1 is the United States' motion for preliminary
injunction. (Doc. 34). The parties have fully briefed the issues, and the
matter is ripe for disposition.
Defendant Thurston Bell ("Bell") has fashioned a career by devising and
publicizing ways to avoid paying federal income tax. Bell acknowledges
that he has "dealt with the issue of taxes for eight and a half years on
the edge of what would be seen as legal . . . ." Transcript of November
4, 2002 preliminary injunction hearing ("N.T."), pg. 28. A brief
explanation of Bell's career as a tax protester is appropriate to put the
United States' motion for preliminary injunction in context.
In the 1980s, Dell worked for Save-A.Patriot, "[a]n organization that
believes that American citizens are not liable for income tax." (Doc.
36, Exhibit J, pg. 13). (See also Doc. 36, Exhibit C, pg. 66). As a case
worker at Save-A-Patriot, Bell helped clients "avoid paying taxes or any
number of other things that could happen as a result of not paying
taxes." (Doc. 36, Exhibit J, pg. 17).
When Bell left Save-A-Patriot, he co-founded Tax-gate and created the
taxgate.com website. (Doc. 36, Exhibit C, pp. 16-17). At Tax-gate, Bell
drafted court pleadings and letters to the Internal Revenue Service
("IRS") and state taxing agencies on his clients' behalf. (Doc. 36,
Exhibit J, pg. 25). See also id. at Exhibit 19 (letter date January 27,
1998, outlining Bell's tax avoidance argument). Bell charged his clients
for tax advice and for preparation of documents directed to taxing
authorities. (Doc. 36, Exhibit J, pg. 32). (See also Doc. 36, Exhibit K,
pg. 88) (deposition testimony that Bell charged a $1,OOO.OO retainer
before discussing certain tax matters).
The Internal Revenue Code defines "gross income" as "all income from
whatever source derived . . . ." 26 U.S.C. § 61 (a). Bell claims that
the word "source" in section 61 is defined in the "Source Rules and Other
General Rules Relating to Foreign Income." 26 U.S.C. § 861-865
(emphasis supplied). Section 861 states that certain "items of gross
income shall be treated as income from sources within the United
States . . . ." 26 U.S.C. § 861 (a). According to the
U.S. Sources argument, domestically earned wages of U.S. citizens are not
taxable because such wages are not specifically mentioned in the list of
items of gross income that "shall be treated as income from sources within
the United States." See 26 U.S.C. § 861 (a).
Bell concedes that section 861 itself does not exempt domestically earned
wages of U.S. citizens.*fn3 Nevertheless, he argues that such
wages are not taxable because certain regulations promulgated under
section 861 (i.e. 26 C.F.R. § 1.861-8 (a)(4),
1.861-8(f)(1), and 1.861-8T(d)(2)(ii)(A)) create an applicable exemption.
Bell's clients typically file zero income tax returns with an
"asseveration of claimed income" attached, disputing the gross income
indicated on the taxpayer's W-2 forms. (Doc. 36, Exhibit K, pg. 53). See
also N.T. 59-60. When this method fails, Bell argues that the IRS has
violated his clients' due process rights by not allowing them to
cross-examine their employers regarding the gross income listed on their
W-2 forms. (Doc. 36, Exhibit J, pg. 63). Bell's goal in seeking to
cross-examine employers is to show an absence of gross income according
to the fallacious U.S. Sources argument outlined above. (Doc. 36, Exhibit
J, pg. 63). Bell's methods have secured erroneous tax refunds for
numerous clients. (See, e.g., Doc. 36, Exhibit C, pg. 64-65).
On November 4, 2002, the court held a hearing on plaintiff's motion for
a preliminary injunction. On November 19, 2002, Bell filed a response to
plaintiffs supplemental memorandum of law (Doc. 85), exhibits in support
thereof (Doc. 86), and an additional deposition transcript. (Doc. 87).
Plaintiff seeks preliminary injunctive relief under 26 U.S.C. § 7402.
The court is authorized to grant such relief "as may be necessary or
appropriate for the enforcement of the internal revenue laws."
26 U.S.C. § 7402. A preliminary injunction under section 7402 is
governed by the same standard as a preliminary injunction undei Rule 65
of the Federal Rules of Civil Procedure. U.S. v. Rosile, 2002 WL 1760861
*1 (M.D.Fla. 2002); U.S. v. Bosset, 2002 WL 1058105 *1 (M.D.Fla. 2002).
The court must evaluate four factors: (1) likelihood of success on the
merits; (2) irreparable harm resulting from a denial of the relief; (3)
the harm to the non-moving party if relief is granted; and (4) the public
interest. Allegheny Energy. Inc. v. DQE. Inc., 171 F.3d 153, 158 (3d
Cir. 1999) (citing A.C.L.U. of New Jersey v. Black Horse Pike Regional
Bd. of Educ., 84 F.3d 1471, 1477 n. 2 (3d Cir. 1996) (en banc); Rosile,
2002 WL 1760861 *1. As the party seeking preliminary injunctive relief,
the United States bears the burden of proof Mettler-Toledo, Inc. v.
Acker, 908 F. Supp. 240, 245 (M.D.Pa. 1995). "The
injunction should issue
only if the plaintiff produces evidence sufficient to convince the
district court that all four factors favor preliminary relief" Merchant
& Evans, Inc. v. Roosevelt Bldg. Prods., 963 F.2d 328, 632-33 (3d
A. Likelihood of Success on the Merits
In order to prevail on the merits, the United States must establish
that an injunction is "necessary or appropriate for the enforcement of
the internal revenue laws." 26 U.S.C. § 7402. Plaintiff argues that
it is likely to succeed on the merits because "the § 861 Argument is
completely meritless" and because Bell blindly insists on the argument's
validity, "despite overwhelming evidence to the contrary." (Doc. 35 pg.
23). The court agrees with plaintiff.
Section 61(a) of the Internal Revenue Code states in pertinent part:
Except as otherwise provided in this subtitle, gross
income means all income from whatever source
derived. . . including (but not limited to). . .
[c]ompensation for services, including fees, commissions,
fringe benefits, and similar items.
26 U.S.C. § 61 (a) (emphasis supplied).
The Supreme Court has "repeatedly emphasized the "sweeping scope' of
[section: 61(a)] and its statutory predecessors." C.I.R. v. Schleier,
515 U.S. 323, 327-328 (1995) (citing C.I.R. v. Glenshaw Glass Co.,
348 U.S. 426, 429 (1955); United States v. Burke. 504 U.S. 229, 233
(1992); Helvering v. Clifford. 309 U.S. 331, 334 (1940)). When it define
gross income, Congress intended "to use the full measure of its taxing
power." Glenshaw Glass, 348 U.S. at 429. Moreover, it is well-settled that
wages or compensation for services constitute income and that individuals
receiving income are subject to the federal income tax. See, e.g.,
26 U.S.C. § 61 (a)(1); Central Illinois Public Service Co. v. U.S.,
435 U.S. 21, 25 (1978), U.S. v. Connor, 898 F.2d 942, 943-44 (3d Cir.
1990); Coleman v. Commissioner, 791 F.2d 68, 70 (7th Cir. 1986).
Bell's U.S. Sources argument is nonsensical. It rests purely on
semantics and takes the regulations promulgated under section 861 out of
context.*fn4 As noted by the Tax Court in Christopher v. C.I.R., 2002 WL
71029 *3 (Tax Ct. 2002);
The rules of sections 861-865 have significance in
determining whether income is considered from sources
within or without the United States. The source rules
do not exclude from U.S. taxation income earned by
U.S. citizens from sources within the United States.
See also Great-West Life Assur. Co. v. United States, 678 F.2d 180, 183
(Ct. Cl. 1982) ("The determination of where income is derived or
"sourced' is generally of no moment to either United States citizens or
United States corporations, for such persons are subject to tax