Snake-Oil Warning ("Un-Taxing" Notions)

A new slay-the-monster-by-remote-control-and-without-any-messy-confrontations silver-bullet fantasy appears to be on the market, assuring the gullible that they can be permanently immunized against the "income" tax by some clever procedure invoked just once-- for a fee, of course.

I am not willing to fork over any money in order to learn the details of any version of this ridiculous proposition, and so can only speculate, but I'm guessing that the purveyors of these "plans" exploit the unfortunately pervasive erroneous notion that fundamental liability for the "income" tax is citizenship or residency based, and suggest that some process by which something about one's citizenship or residency can be entered into the official record, after which one will be presumed "non-taxable".  If my understanding is incorrect, I will welcome being illuminated to the contrary, but in the meantime, it is this notion that I will address here (and in any event, all varieties of "tax immunity" fantasy would be revealed as nonsense by the same general reasoning that will suit this one.)

That the tax is an excise, based not on citizenship or residency per se, but solely on engaging in taxable activities, is so well documented and broadly disseminated as to require no reiteration.  In light of that fact, citizenship and/or residency-related misunderstandings must involve the mistaken notion that only citizens or residents of some particular kind can engage in the activities taxed, or, to put it another way, that the tax only applies to the activities of such particular persons.  However, this is simply not true.  The tax applies to ANYONE who engages in the activities taxed, no matter what may be their citizenship, residency or location; ANYONE of ANY citizenship, residency or location is capable of engaging in those activities and being consequently liable for a tax; and at least the minimal tax-related protocols-- such as the need to rebut or otherwise respond to allegations made by another of having engaged in such activities-- are inescapable when such allegations are made and sworn to, other than by one whose person and property are entirely outside of the physical reach of the taxing entity.  (The converse is also true, of course: The earnings or receipts of ANYONE which are not derived from the exercise of a federal power, privilege or prerogative are NOT subject to the tax, regardless of citizenship, residency or location.)

The imposition of the tax clearly extends to those resident in the "United States" and those who are citizens thereof, AND to those who are neither, as well.  The statutes reflected at 26 USC § 1 imposes the tax upon the "taxable income" of every individual.  Period.  "Taxable income" is "gross income" less allowable deductions, etc..  Period.  "Gross income" includes "income" of all kinds and from any source whatsoever.  Period.  No distinctions are drawn in these statutes as a whole as to residency or citizenship, other than the specification that the "income" of non-resident aliens is taxed under special rules (which arise due to considerations of tax treaties generally providing that recipients of "income" in, and from within, foreign jurisdictions will be taxed by, and per the tax structure of, the foreign jurisdiction).

The manner in which those special rules are presented and organized in the statutes is complex and elaborate, but a concise rendering of certain of those provisions, sufficient for purposes of this discussion, can be found by looking at 26 CFR § 1.1-1, 26 USC § 871(b), and a couple of the regulations related to 26 USC § 871(b):

26 CFR § 1.1-1   Income tax on individuals.

(a) General rule.

(1) Section 1 of the Code imposes an income tax on the income of every individual who is a citizen or resident of the United States and, to the extent provided by section 871(b) [below] or 877(b) [relating to special treatment of those deemed expatriates for the purpose of tax-avoidance, and thus not presented here -PH], on the income of a nonresident alien individual.

26 USC § 871(b)

(b) Income connected with United States business - graduated rate of tax

(1) Imposition of tax
A nonresident alien individual engaged in trade or business within the United States during the taxable year shall be taxable as provided in section 1 [regular tax rates and rules] or 55 [alternative minimum tax rates and rules] on his taxable income which is effectively connected with the conduct of a trade or business within the United States.
(2) Determination of taxable income
In determining taxable income for purposes of paragraph (1), gross income includes only gross income which is effectively connected with the conduct of a trade or business within the United States.

26 CFR § 1.871-1   Classification and manner of taxing alien individuals.

(a) Classes of aliens. For purposes of the income tax, alien individuals are divided generally into two classes, namely, resident aliens and nonresident aliens. Resident alien individuals are, in general, taxable the same as citizens of the United States; that is, a resident alien is taxable on income derived from all sources, including sources without the United States. See §1.1–1(b). Nonresident alien individuals are taxable only on certain income from sources within the United States and on the income described in section 864(c)(4) from sources without the United States which is effectively connected for the taxable year with the conduct of a trade or business in the United States. However, nonresident alien individuals may elect, under section 6013 (g) or (h), to be treated as U.S. residents for purposes of determining their income tax liability under Chapters 1, 5, and 24 of the code. Accordingly, any reference in §§1.1–1 through 1.1388–1 and §§1.1491–1 through 1.1494–1 of this part to non-resident alien individuals does not include those with respect to whom an election under section 6013 (g) or (h) is in effect, unless otherwise specifically provided. Similarly, any reference to resident aliens or U.S. residents includes those with respect to whom an election is in effect, unless otherwise specifically provided.

26 CFR § 1.871-2   Determining residence of alien individuals.

(a) General. The term nonresident alien individual means an individual whose residence is not within the United States, and who is not a citizen of the United States. The term includes a nonresident alien fiduciary. For such purpose the term fiduciary shall have the meaning assigned to it by section 7701(a)(6) and the regulations in part 301 of this chapter (Regulations on Procedure and Administration). For presumption as to an alien's nonresidence, see paragraph (b) of §1.871–4.

(Beyond the straightforward provisions of the law, such as are presented above, it is obvious that if the application of the tax relied upon "citizenship" or "residency", it would actually be a tax on one or both of those CONDITIONS-- the amount of which would be measured by economic activity (in whatever fashion and to whatever extent the taxing authority preferred)-- rather than a tax on an activity or activities.  Such a tax would hardly qualify as an "excise"...)

In sum, the tax applies to "U.S. citizens", those who are NOT "U.S. Citizens" but are resident within the "United States", and those who are not "U.S. citizens" and ARE NOT resident within the "United States".  The common denominator is the receipt of "income"-- a profit from the exercise of federal privilege or property.

Thus, regardless of what assertions may be entered into some record today, if at any time in the future one is alleged to have engaged in a taxable activity, the allegation will be accorded standing until responded to, for there is no prior citizen or residency assertion that could establish one as incapable of owing "income" taxes (nor any other assertion that could do so).  One can no more immunize oneself against a future allegation of a tax liability than one can do so against a future lawsuit, or indictment.  (And this would remain true even if the tax WERE status-based.  Nothing that could be done in advance could pre-empt a future assertion or presumption that one's status had since changed to the "taxable" variety...)

P. S.

Although unnecessary to the point of this discussion, some may wish to reflect on the meaning of "trade or business"-- "taxable income" connected with which, and accruing to non-resident aliens, "shall be taxable as provided in section 1 or 55...":

26 USC § 7701. -Definitions

(a) When used in this title, where not otherwise distinctly expressed or manifestly incompatible with the intent thereof-

(26) Trade or business

The term "trade or business" includes the performance of the functions of a public office.

OFFICE. An office is a right to exercise a public function or employment, and to take the fees and emoluments belonging to it,. Shelf. on Mortm. 797; Cruise, Dig. Index, h. t.; 3 Serg. & R. 149.

  2. Offices may be classed into civil and military.

  3. ‑ 1. Civil offices may be classed into political, judicial, and ministerial.

  4. ‑ 1. The political offices are such as are not connected immediately with the administration of justice, or the execution of the mandates of a superior officer; the office of the president of the United States, of the heads of departments, of the members of the legislature, are of this number.

  5. ‑ 2. The judicial offices are those which relate to the administration of justice, and which must be exercised by persons of sufficient skill and experience in the duties which appertain to them.

  6. ‑ 3. Ministerial offices are those which give the officer no power to judge of the matter to be done, and require him to obey the mandates of a superior. 7 Mass. 280. See 5 Wend. 170; 10 Wend. 514; 8 Verm. 512; Breese, 280. It is a general rule, that a judicial office cannot be exercised by deputy, while a ministerial may.

(Bouvier's Dictionary of the Law, 6th Edition)

P. P. S.

Revised Statutes, Title XXXV- Internal Revenue, Section 3140 (currently represented by 26 USC 7701(a)(1) and (10), and 26 USC 7651):

“The word “State” when used in this title shall be construed to include the Territories and the District of Columbia, where such construction is necessary to carry out its provisions.  And where not otherwise distinctly expressed or manifestly incompatible with the intent thereof, the word “person”, as used in this title, shall be construed to mean and include a partnership, association, company, or corporation, as well as a natural person.”

The ‘code’ representation of the definition of “person”, which is a consolidation of 10 statutes, leaves out the phrase ‘natural person’.  The draftsmen relied on the term ‘individual’, which is incorporated in the language of several of those statutes, to express the same meaning.  Nonetheless, the actual language of R.S. 3140 remains the law.  Unfortunately, some theorists-- whose ‘research’ began and ended with nothing more than the code-- have erroneously concluded that “person” (and/or "individual") in the law only means some kind of artificial entity.  This has led, as might be imagined, to all manner of wild flights of fancy regarding the nature of the “income” tax structure.

Person. In general usage, a human being (i.e. natural person), though by statute term may include a firm, labor organization, partnerships, associations, corporations, legal representatives, trustees, trustees in bankruptcy, or receivers.

Black's Law Dictionary, 5th edition.

 

P. P. P. S.

Citizenship and/or residency DO enter into the tax on a secondary level-- for instance, the structure of FICA "income" taxes uses citizenship and/or residency to distinguish which of those activities/receipts otherwise subject to the tax are also subject to these surtaxes.  See 'Withholding The Truth' in CtC for more on this.

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