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Date: Fri, 14 Nov 1997 06:10:02 -0800
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From: Paul Andrew Mitchell [address in tool bar]
Subject: SLS: Income - 3

>                 Income in a Constitutional Sense - Part 3
>                           by Tony Bator
>                   - The Subject of Withholding -
>The only legislation currently active with respect to withholding for income 
>tax purpose is the Current Tax Payment Act of 1943.  It is contained in the 
>Internal Revenue Code as Chapter 24, and titled `Collection of Income Tax at 
>Source' and starts with section 3401.  Listed below are the sources of 
>information that were used concerning the subject of withholding:
>     (a) The Current Tax Payment Act of 1943
>     (b) Senate Report No. 221, 78th Congress, 1st Session, page 17
>     (c) House Report No. 401 78th Congress, 1st Session, page 22
>     (d) The Supreme Court decision in Central Illinois Public Service Co. 
>          v. United States 435 U.S. 21
>     (e) The Fourth Circuit Court of Appeals decision in Royster v. United
>          States, 479 F2d 387
>     (f) Section 7701(b) of the Internal Revenue Code
>In the following case, the IRS objective was to get a court decision that 
>would make withholding by the employer mandatory.  They were not successful:
>     The district court noted that the government, there, as here, abandoned 
>     its position that in all instances the code provisions relating to 
>     income tax liability of employee's are in pari materia with FUTA and 
>     FICA and income tax provisions relating to employer's duty to
>     That confession by the government was inescapable in light of the 
>     recent case law which has rejected such a theory.  Royster Co. v. 
>     United States, 479 F2d 387, 388.
>The attempt by the IRS to get judicially what they did not have 
>legislatively failed.  The Act of 1943 permits the employee to determine if 
>he has an income tax liability.  The only duty required by the employer is 
>to obtain from the employee a signed W-4 Form declaring his status.
>This Act of 1943 is separate, self-contained legislation, and consequently 
>the definitions within the act determines who is subject to the provisions 
>of the Act.  Any attempt by the Internal Revenue Service to stretch these 
>definitions are without judicial support.
>The following two definitions are obtained from the Current Tax Payment Act 
>of 1943.  These definitions, in addition to other information obtained from 
>the congressional committee reports dealing with this act, provide complete 
>information as to the intent of Congress.
>     Employee.  - For purposes of this chapter, the term "employee" includes 
>     an officer, employee, or elected official of the United States, a State 
>     or any political subdivision thereof, of the District of Columbia or 
>     any agency or instrumentality of any one or more of the foregoing.  The 
>     term employee includes an officer of a corporation.
>     Wages.  - The term "wages" means all remuneration (other than fees paid 
>     to a public official) for services performed by an employee for his 
>     employer, including the cash value of all remuneration paid in any 
>     medium other than cash; except such term shall not include remuneration 
>     paid ...  (followed by minor exceptions).
>In the definition of an employee, the officer of a corporation is probably 
>meant to be an officer of a Municipal Corporation as all cities are 
>municipal corporations.  Withholding was to occur only if the 
>employee/employer relationship existed, therefore that relationship only 
>exists if you fit within the definition of an employee as shown within the 
>An extract of the Current Tax Payment Act of 1943 is listed below, and 
>because reference to a 466(a) which is a section of the Victory Tax Act of 
>1942 is made, that section of the Victory Tax Act of 1942 will also be 
>provided in the interest of ease of understanding.  First, the extract from 
>the Current Tax Payment Act of 1943:
>     A clerical amendment in the house bill eliminated the provisions in 
>     466(a) which restricts the withholding to wages includeable in 
>     gross income.  The same change is made to the present bill.  This 
>     limitation which was designed to exclude from withholding the amount 
>     of any wage payment exempted under the law from the tax imposed by 
>     chapter 1 of the code, is rendered unnecessary by the changes made in 
>     the definition of "wages".
>Now section 466(a) of the Victory Tax Act of 1942.
>     466(a) Requirements of Withholding - There shall be withheld, collected 
>     and paid upon all wages of every person, to the extent that such wages 
>     are includeable in gross income, a tax equal to 5 per centum on 
>     the excess of each payment of such wages over the withholding 
>     deduction allowable under this part.  This subsection and subsection 
>     (c) shall not be applicable in any case of wages paid to 
>     residents of a contiguous country who enter and leave the United 
>     States at frequent intervals. 
>These sections are listed here only to show that originally it was 
>abundantly clear that withholding was restricted to wages includeable 
>in gross income.  That this phrase was replaced by the new definition of 
>wages, and, so, by the use of definitions and the clever use of the 
>English language, what was abundantly clear was made totally confusing, 
>but, it has not changed the intent nor the substance of the legislation.
>We also find in the committee reports associated with the Current Tax 
>Payment Act of 1943, that, there were other people who might wish to use the 
>provisions of withholding to alleviate possible tax payment problems.  They 
>are listed below:
>     1 - Citizens or residents of the United States.
>     2 - Persons receiving remuneration as a pension or retired pay as a 
>     result of service in the military or naval forces.
>     3 - Persons who are employed by a non resident alien individual, 
>     foreign partnership, or foreign corporation for services performed 
>     within the United States will be subject to withholding under the 
>     provisions of the bill.
>The committee reports also state that "wages" are remuneration meaning 
>salary, wages, fees, commissions, etc.
>Now, understand the role of citizenship, the local legislative power of 
>Congress, our dual form of government plus the Public Salary Tax Act of 1939 
>(probably unconstitutional) it becomes perfectly obvious who is taxable by 
>the Normal Taxes specified in the Internal Revenue Code of 1954, and 
>therefore might wish to use the provisions of withholding.
>As a result of the preceding information, the Supreme Court's decision in 
>the following case, dealing with the subject of withholding, should be very 
>     The committee reports of the time stated consistently that `wages meant 
>     remuneration' if paid for services performed by an employee for his 
>     employer.  Central Illinois Public Service v. United States, 435 U.S. 
>     21, 27.
>     Considerations that support subjectability to the income tax are not 
>     necessarily the same as the considerations that support withholding.  
>     To require the employee to carry the risk of his own tax liability is 
>     not the same as to require the employer to carry the risk of the tax 
>     liability of its employee.  Required withholding, therefore, is rightly 
>     much narrower than subjectability to income taxation.  Central Illinois 
>     Public Service v. United States, 435 U.S. 21, 29.
>     ... as is often the case, administrative and other pressures seek to 
>     soften and stretch the definition.  Central Illinois Public Service v. 
>     United States, 435 U.S. 21, 31.
>                               - Excise Tax -
>Indirect class of taxes as specified by the Constitution is comprised od 
>Duties, Imposts, and excises.  Duties and imposts normally are associated 
>with foreign trade and most people never are concerned with them.  However, 
>excise taxes should have a word said about them.  The following two 
>citations concerning these type taxes say it best.
>     The individual, unlike the corporation, cannot be taxed for the mere 
>     privilege of existing.  The corporation is an artificial entity which 
>     owes its existence and charter powers to the States; but the 
>     individuals rights to live and own property are natural rights for the 
>     enjoyment of which an excise cannot be imposed.  26 R.C.L. Taxation, 
>     section 1676; In re opinion of the Justices, 195 Mass. 607, 84 N.E. 
>     499. Cited in Redfield v. Fisher, 292 P. 813, 819.
>     Excises are taxes laid upon the manufacture, sale or consumption of 
>     commodities within the country, upon license to pursue certain 
>     occupations and upon corporate privilege.  Flint v. Stone Tracy Co., 
>     220 U.S. 107, 151.
>Please note that prior to 1895 there were instances wherein a tax was 
>imposed upon officers of government as a duty -- the duty being to help 
>support the poor.  Otherwise this term is used as a tax on the importation, 
>exportation or consumption of goods.
>In closing, it must be stated that our founding fathers, the men who wrote 
>the organic documents that established this great country, were truly 
>remarkable men.  They gave to us a government that was unique then as it is 
>unique today.  They were the thinkers of the first order and understood that 
>the history of governments consistently demonstrated that governments 
>eventually become opressive.
>Our founding fathers gave us the Blueprint to remain free men with 
>unalienable rights.  We have to exercise our sovereignty and demand 
>obedience to the Constitution by our elected representatives, both at the 
>State and the National level.  In support of my opinion, I leave you with 
>two final exerpts:
>     If, in the opinion of the people, the distribution or modification of 
>     the Constitutional powers be in any particular wrong, let it be 
>     corrected by an amendment in the way the Constitution designates.  But 
>     let there be no change by usurpation; for though this, in one instance, 
>     may be the instrument of good, it is the customary weapon by which free 
>     governments are destroyed.  The precedent must always greatly 
>     overbalance in permanent evil any partial or transient benefit which 
>     the use can at any time yield.  George Washington's Farewell Address.
>     This amendment (10th) disclosed the widespread fear that the 
>     National Government might, under the pressure of a supposed general 
>     welfare, attempt to exercise powers which had not been granted.  
>     With equal determination, the framers intended that no such assumption 
>     should ever find justification in the organic act, and that if in 
>     the future, further powers seemen necessary, they should be granted 
>     by the people in the manner they had provided for amending that act.  
>     It reads, `The powers not delegated to the United States by the 
>     Constitution, nor prohibited by it to the states, are 
>     reserved to the States respectively, or to the people.' The 
>     argument of counsel ignores the principle factor in this article, to 
>     wit, `the people.' Its principle purpose was not the distribution of 
>     power between the United States and the States, but a reservation to 
>     the people of all powers not granted.  The preamble of the 
>     Constitution declares who framed it, `We, the people of the 
>     United States,' not the people of one State, but the people of all 
>     the States, and Article X reserves to the people of all the States 
>     the powers not delegated to the United States.  The powers affecting 
>     the internal affairs of the States not granted to the United States 
>     are reserved to the States respectively, and all powers of a 
>     national character which are not delegated to the National Government 
>     by the Constitution are reserved to the people of the United States.  
>     The people who adopted the Constitution knew that in the nature of 
>     things they could not forsee all the questions which might arise in the 
>     future, all the circumstances which might call for the exercise of 
>     further national powers than those granted, they reserved to 
>     themselves all powers not so delegated.  This Article X is not to be 
>     shorn of its meaning by any narrow or technical construction, but 
>     it is to be considered fairly and liberally so as to give effect to 
>     its scope and meaning.  State of Kansas v. State of Colorado, et al. 
>     Defendants, and the United States, Intervenor, 206 U.S. 46.
>[Reprinted from `Freedom League Newsletter', Aug/Sep 1986]

Paul Andrew Mitchell, Sui Juris      : Counselor at Law, federal witness 01
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