NoSSN - TAX BASICS 101

TAX BASICS 101
July 17, 2000

TAX BASICS 101 -- Basic facts regarding "income" and "employment" taxes which every American needs to understand..

Under our republican form of limited government, the Constitution (the supreme Law of the land - see Article VI, Clause 2) grants only those specific powers which are enumerated therein to the three branches of government.

Exclusive law making authority is vested in a Congress (see Article I, Clause 1) which enacts its legislative intent as the written law of the land. No law making authority is granted to the President nor to any judge.

The Constitution absolutely protects private property from being taken without due process or for public use (see Amendment V) without just compensation, providing the bar to forced participation of the citizen in so-called "entitlement" programs.

Furthermore, the 14th Amendment guarantees to all citizens the equal protection of the laws, making the spending of federal funds for the benefit of one class of citizens (benefits recipients) to the exclusion on another (producers) unconstitutional.

Under the Constitution, the sole power of the Congress to legislate for the citizen residing within the States of the Union is constrained to interstate commerce and postal roads.

With regard to the federal power to tax, since rights come from God and not from any instrument of man (government) - and as such are unalienable (unable to be divorced or diminished) - they cannot be taxed. The right to life is one such example. Another is the right to work for a livelihood.

The Constitution provides for two distinct, great classes of taxation: direct and indirect. As evident from a reading of Madison's Notes, the original intent of the Framers was that indirect taxes in the nature of excises (duties, tariffs) laid upon the importation of commodities from foreign countries
would fund the day-to-day operations of a small, limited federal government constrained only to those powers and activities enumerated in the Constitution, while the citizen would remain free of all internal taxation.

Article 1, Section 8, Clause 1 imposes indirect excise taxes which must be uniform throughout the states. When indirect excises should prove insufficient, Article 1, Clause 2, Section 3 authorizes Congress to apportion a direct tax to the states to be divided amongst them based upon their respective populations, pursuant to a census to be conducted every ten years (Article 1, Section 9, Clause 4), and to be collected within their respective borders pursuant to the authority and limitations imposed by their respective state constitutions.

It was also the intent of the Framers that direct taxes be resorted to only in times of emergency, such as to extinguish any federal debt carrying over from the previous year or to prosecute a war. Five direct taxes have been apportioned to the several states within our nation's history, the last in 1861 and none since. Congress retains the power to impose another direct tax at any time, in particular to extinguish the current federal debt.

While many erroneously believe the 16th Amendment to have provided for a new form of taxation, it in fact never repealed any of the above taxing clauses which remain in full force and effect to this day. The amendment, as correctly read by the supreme Court in the Brushaber vs. Pacific Railroad Co. (1916) and Stanton vs. Baltic Mining (1916) cases, simply prohibited Congress from removing the income tax from the great class of indirect taxes to which it inherently belonged from the beginning, and attempting to place it in the category of direct taxes which would then require apportionment to the States.

Note that there is no authority in the Constitution for Congress to directly tax the citizen, nor has it ever done so, making the Internal Revenue Code one-hundred percent constitutional in its application.

The U.S. citizen becomes liable for internal taxation only when engaged in an activity not of unalienable right - i.e., one which can be regulated and licensed by the federal government. All laws pertaining to property being the sole jurisdiction of the states, occupational licenses such as are applied
for by a beautician, real estate agent or chiropractor, are state-issued and not a federal matter.

An example of an indirect excise is the duty (tariff) on the importation of funds by a foreigner into the Union States for the purpose of investing. Another is the excise imposed on the gain (profit) accruing as income to the foreigner in the form of dividends on the stock of domestic (U.S.) corporations. An
example of an excise taxable activity within the Union States is the manufacture and distribution of alcohol and tobacco products.

Under the Internal Revenue Code (see below) there is no excise imposed on the domestic earnings of the citizen living and working within the Union States who makes an equal exchange of his labor for compensation since no gain (profit) results from the transaction.

A long standing principle of American jurisprudence is that a law must be written explicitly (with all legal terms defined) to mean exactly what it says and to say exactly what it means, as well as to be readily understandable by any person of average intelligence, otherwise the courts have ruled that it
must be held "void for vagueness".

All United States law is categorized into 50 "titles" of law comprising the United States Code (USC). Regulations to enforce the Law are promulgated by agencies of the executive branch.

Title 26 (26 USC) encompasses the entirety of the Internal Revenue Code (IRC). The Department of the Treasury oversees the Internal Revenue Service (IRS), with the authority of the Secretary of the Treasury delegated down to the Commissioner of Internal Revenue. Treasury regulations for the IRC
are found in 26 Code of Federal Regulations (26CFR).

It has been the consistent experience of those educated in these matters that the vast majority of attorneys (tax and otherwise), C.P.A.'s and tax preparers have never read, and for that reason, do not understand the actual, limited liability of U.S. citizens working exclusively within the 50 states for
income and employment (wage) taxes, relying instead upon IRS booklets, pamphlets, publications, guidelines, circulars, "case law", etc., which are not written Law.

The IRC was first codified in 1939, again in 1954, and again in 1986. We are currently, as of 1999, under the 1999 version of the 1986 code. In order to understand the IRC which encompasses far more than just "income" taxes, one must first understand the compartmentalization and subdivision of the IRC.

The IRC is currently divided into eleven subtitles, the first five of which (subtitles A through E) each cover different categories of taxation. Subtitle F covers procedure, administration, general definitions (when not replaced by local, specific definitions), etc. The remaining five subtitles pertain to the Joint Committee On Taxation, Financing Presidential Election Campaigns, etc.

Subtitle A covers the income tax.
Subtitle B covers estate and gift taxes.
Subtitle C covers wage (employment) tax.
Subtitle D covers miscellaneous excise taxes.
Subtitle E covers alcohol, tobacco, and "certain other excise taxes".

Each subtitle is totally distinct and separate with regard to the tax it covers, and the liability and enforcement provisions within one subtitle do not apply to another, to wit: Subtitle A, income tax, as stated above, is a distinct and separate tax from subtitle C, wage (employment/social security) tax.

As with all law, jurisdiction must first pertain. With regard to taxation, the following questions must first be asked and answered:

* Who is the person being taxed?

* Where on Earth was the person to be taxed geographically located? The Constitution geographically pertains within the States of the Union only. Congress has plenary power to legislate within the federal territories without regard for the constraints enumerated within the Constitution.

* What is the object of the intended taxation? I.e., in what activity was the person involved? Is this a taxable activity? Note that the income tax is imposed under IRC section 1 on the "taxable income" of an unspecified "individual", not on the individual himself.

* Within what period or time frame did the activity take place?

The IRS routinely designates all citizens as "taxpayers". However, in order to become the "taxpayer" (one word) as legally defined within subtitle F in code section 7701(a)(14)) to be one made liable for any internal revenue tax, a liability for the tax must first arise from written statute within the subtitle to which the tax pertains.

Liability cannot arise from mere activity alone (since geographic requirements may not apply), but must arise from the written law (liability statute) itself.

The income tax is imposed on taxable income under code section 1, chapter 1, subtitle A. The only liability statute in all of subtitle A making any person liable for the tax on income within subtitle A, chapters 1-6, is code section 1461 which makes the "withholding agent" as defined in code section 7701(a) liable to withhold income tax from nonresident aliens under code section 1441, from foreign corporations under IRC 1442 and from certain foreign tax-exempt organizations under IRC 1443.

There is no code section to be found anywhere within subtitle A (or elsewhere within the IRC) in which Congress has authorized the withholding of income tax from the citizen living and working within the (now 50) Union States.

An examination of the tax regulations reveals that the income tax is imposed on foreign - and not on domestic - items and sources of income. Provisions within 26 CFR section 861 specifically list all items of "taxable income" from within the United States and all are from foreign sources.

For this reason, it is correct to state that, unless: 1) receiving income in the form of dividends from any foreign source, 2) living and working abroad in a foreign country under a current tax treaty with the U.S. and earning over the $70,000 annual exclusion, or 3) withholding income tax as the U.S. agent or representative of a foreigner doing business here within the U.S., no citizen or resident alien who has always lived and worked exclusively within the 50 States of the Union has ever paid so much as a dime in income tax.

He has paid the employment tax on wages under Subtitle C (as commonly reported by employers on forms W-2 and 1099) for the purpose of building credits towards welfare entitlement programs such as Social Security, although swearing all earnings, compensation, receipts, etc., to be subtitle A "income" to him on the tax affidavit titled Form 1040.

Even though IRC code section 6201(a) allows the Secretary of the Treasury to assess tax only on tax stamps and on returns which have been filed, once the return has been filed, regardless of whether or not the filer was actually in receipt of foreign income, 6201(a) then applies. The IRS correctly relies
upon this sworn self-assessment, referring to it as "voluntary compliance and self-assessment".

The income tax is reported through declaration and withholding, either by the citizen with foreign sources of income or by the withholding agent, respectively. The only requirement within the IRC for an individual to file returns of income under subtitle A can be found at code section 6012(a).

Under the 1980 Paperwork Reduction Act, Congress made the Office of Management and Budget (OMB) the watchdog which must assign an OMB approval number to any agency information collection request (i.e., form) presented to a U.S. citizen. Any form not bearing an OMB approval control number Congress calls "bootleg", instructing that such a form may be ignored by the citizen.

Under 26 CFR part 602, OMB assigned the same approval control number (1545-0067) to tax regulations 1.1-1 "Tax imposed" and 1.6012-0 "Person required to make returns of income". Note that these regulations implement underlying code sections 1 and 6012 and mentioned above.

The IRS form on which this number is displayed is not Form 1040, but Form 2555 "Foreign Earned Income."

The 1040 return for the "U.S. Individual" is a supplemental worksheet for the primary, required return, namely the Form 2555. The top of Form 2555 instructs "attach to Form 1040" and states that it is "for use by U.S. citizens". Further examination of the tax regulations reveals that the 1040 form is a supplemental worksheet to be attached to numerous other primary, required returns. There is no lawful requirement for the 1040 to be filed other than as a worksheet attached to a primary return.

It is interesting to note that the Form 1040 "U.S. Individual Income Tax Return" is not titled "U.S. Citizen Income Tax Return", while Form 2555 "Foreign Earned Income" specifically states that its use, as mentioned above, is for the citizen. Clearly, the IRS understands the distinction between an individual and a citizen.

Treasury Decision 2313 (TD 2313), issued in 1916 to "collecters of internal revenue" pursuant to the U.S. Supreme Court decision in Brushaber v. Union Pacific R.R., clarifies that the Form 1040 individual income tax return is to be used by the fiduciary of the nonresident alien receiving interest and/or dividends from the stock of domestic (U.S.) corporations on behalf of the alien.

For the above reasons, the income tax under Subtitle A is not "voluntary" as some have asserted. It is mandatory, but only for those to whom it applies. Since the law is limited in its application, the question of whether it is mandatory or voluntary is superfluous. The question is: to whom, and under
what circumstances is the law applied?

With regard to the wage tax under Subtitle C, certain legal requirements may be considered mandatory, but only for the payor of the wages (the "employer") and even then, only if both the participating "employer" and the "covered employee" have agreed via voluntary application on Form W-4 to participate in the entitlement programs.

26 CFR at section 31.3402(p)(1)-(b)(2) states (with regard to the W-4 form) that either employer or employee may "terminate the agreement" (to withhold) at any time by serving written notice on the other.

Under 26 CFR section 301.6109-1 "identifying numbers", taxpayer identification numbers are required to be furnished by nonresident aliens and foreign corporations only.

Under 42 USC section 405(c)(2)(B)(i), subparagraph (I), we see that the Secretary of Social Security is authorized to assign a Social Security Number (SSN) to an alien upon lawful admission into the United States, and under subparagraph (II), to the applicant for any program financed in whole or in
part by federal funds. In this instance, the applicant is the citizen.

SSN's are applied for by parents on behalf of legally incompetent minors and by those of majority on their own behalf on Form SS-5 "Application For Social Security Account Number". Legally, of course, there can never be a requirement (under force of written law) to make application for (request) anything, making all applications voluntary (consensual, permissive).

As the Social Security Administration will readily admit, there is no legal requirement to have a SSN in order to live and work in the U.S. or simply for the sake of having one.

Since there is also no legal requirement to enter a SSN on Form W-4, sign or submit it, and no legal requirement for an employer to obtain an employer identification number (EIN) in order to hire workers, neither party - "employee" or "employer" - can be compelled to participate in the welfare
entitlement programs, hence compliance under Subtitle C is correctly said to be voluntary.

IRS Publication 515 and Treasury regulation 1.1441-5 explain the proper use of the Statement of Citizenship (SOC), a copy of which is sent by the employer (who retains the original) to the IRS in Philadelphia (only) since Philadelphia is the IRS international (foreign) tax office and the income tax is a tax on foreign source income. The SOC authorizes (and indemnifies) the employer to stop withholding income taxes from the working citizen or resident alien who chooses not to have income taxes withheld.

Citizens or resident aliens working for a living within one of the 50 states of the Union who file Form 1040 create a legal presumption of a tax liability where none may actually exist under Law, and will be expected by the IRS to continue to file unless and until the presumption of liability is rebutted via
sworn Affidavit of Revocation and Rescission sent to the Secretary of the Treasury pursuant to Title 5, section 552(d), thereby shifting the burden of proof to the agency which must then disprove the statements of fact contained within the affidavit and cannot.

One who legally volunteers, as thousands of Americans have already done, to stop participating in the "Social Security" intergenerational wealth transfer program will not receive back any monies already paid in.

For a detailed and exhaustive understanding of the federal tax laws as pertaining to the citizen, it is highly recommended that the reader obtain and view the two-hour introductory educational video "The Truth Behind The Income Tax" and the 12-hour master tax education video seminar "Just The Facts". Telephone or fax INFORM AMERICA! at (801) 715-3890 or via e-mail at gordon@informamerica.com for more information.

"Enslave the liberty of but one human being and the liberties of the world are put in peril." -- William Garrison (1805-1879)

DISCLAIMER: The data on this website is the collaborative experience, contributions, and research of various websites, legal books, tax documents, researchers, associates, attorneys, CPA's, etc. and does not constitute legal advice. The primary purpose of this site is education. We do not advocate any specific course of action. What you do with this information and any course of action you decide to take, if any, is entirely your responsibility.

]