Today's
Feature Article • Published
Saturday, August 11, 2001
The Truth Behind
Payroll Tax Withholding
Reader take note: the following factual article may cause you to engage in prolonged analytical thought. If independent thought is not indicated at this time, please consult a licensed tax advisor for their professional "opinion".
No
More W-4!
Take
Home 100% Of Your Paycheck
This
presentation will provide invaluable information about the unique
advantages of Non-Covered Worker Contracting. Under this
increasingly popular and lawful working arrangement, both business
owner and worker benefit greatly:
*
WORKERS! -- Take home 100% of your paycheck and take care of your
own retirement and other benefits at far lower cost.
*
BUSINESS OWNERS! -- Liberate yourself from the onerous burden of providing
uncompensated payroll tax withholding services for Uncle Sam (i.e.,
functioning as the equivalent of an unpaid janitor in a federal
building) while at the same time saving thousands of dollars on each
worker each year;
No
Legal Advice
The
information contained herein is offered for educational purposes
only. It is not intended to provide legal, tax or financial advice,
nor is it intended to lead the reader into any particular course of
action. Since ignorance of the Law is no excuse, the responsibility
of each citizen is to know and understand the Law for himself. Any
action(s) the reader may take as a result of discoveries obtained
from this presentation will be understood to be of his own volition.
Reader
Warning
I
should forewarn you that, whether you are a worker, employer, or tax
professional, if you are unfamiliar with what the law really says
with regard to internal taxation and the withholding of taxes in the
workplace, you may find the information in this presentation
astonishing to say the least. In fact, it may represent the exact
opposite of what you've been led to believe. Nothing you will be
told, however, will be based upon opinion, conjecture or theory.
Rather,
I will review property rights under the provisions of the United
States Constitution; I'll examine the Laws covering the imposition
of and liability for income and employment taxes with regard to the
citizen living and working within the 50 States of the Union under
the provisions of Subtitles A and C of Title 26 -- Internal Revenue
Code -- and it's implementing regulations; I’ll examine the
provisions within the Law to withhold these taxes as well the
procedures to stop withholding with all necessary legal cites
provided to facilitate your own follow-up research; I'll explain the
many disadvantages to business owner and worker alike of both
conventional, covered employment and employee leasing, and finally;
I'll introduce you to Non-Covered Worker Contracting which provides
many financial advantages to both business owner and worker alike.
In
short, this could be the single most comprehensive resource
currently available on the subject. I believe you will find the
facts to follow highly informative and eye-opening. Whether you are
a worker or a business owner, these facts could have a major impact
on your wallet.
Smart
Business People
Today,
smart business people are becoming increasingly aware of the many
cost-effective advantages of contracting out, not just services that
are needed for their business, but for workers as well. This working
arrangement, although still unfamiliar to most Americans, is
becoming increasingly popular.
When
a business owner contracts for workers through a third-party such as
an "employee leasing" or "temp" agency, he
immediately eliminates all payroll hassles and headaches. He simply
writes one check for all of his contracted workers and the
contracting firm takes care of the rest. Plus, provided that the
proper paperwork is submitted to the contracting company under the
taxing regulations as will be explained shortly, the contracted
worker will take home 100% of his weekly paycheck and can take care
of his own retirement and "benefits" at far less cost.
An
employee leasing company, let's call it ABC Leasing, hires all or a
portion of the current workforce and in turn leases them back to the
business owner. All of the participating employees are entered into
ABC's database and computer payroll system which maintains all of
the monetary requirements such as tax withholding, medical payments,
union dues, 401k deductions, direct deposits, credit union, and so
forth. ABC is then the employer of record, responsible for the
administration of payroll. The "transfer" can take place
quickly and smoothly -- during even a single pay period -- and with
virtually no disruptions or changes in the daily operation, except
for the name on the paycheck. The business owner still maintains
full control and supervision over his workers.
The
difference is that the business owner simply writes one check to ABC
for his workers per pay cycle which includes everything -- payroll,
benefits, worker's compensation, etc. -- and ABC takes care of the
rest. At the end of the year he can leave all of his former tax
responsibilities to ABC because they, not he, are the employer of
record. That means no more accountant bills, filing 941's, W-2's,
etc. Therefore he can afford to free up more time to concentrate on
building his business, and less time on having to maintain human
resources.
Since
the cost of contracting out for workers is normally offset by
reduced workers compensation costs, reduced healthcare costs and
lower administrative costs, employee contracting pays for itself. In
fact, most companies realize sizeable savings through a contracting
program. A business owner can convert all or part of his existing
workforce, such as salaried, hourly or unionized labor to contracted
workers.
The
advantages to the contracted worker are that he can negotiate his
own hourly pay which may or may not include the costs of Workers'
Compensation, 50% matching co-FICA, health and medical coverage,
401(k) retirement accounts, paid "sick days", vacations
and maternity leave, automobile allowances and other typical
benefits of covered employment. Although the contracting firm is
likely to offer fewer benefits than would the employer directly,
they are likely to receive a higher hourly rate of pay in
compensation for reduced benefits.
Covered
Employment
The
types of working arrangements most familiar to most Americans today
are "employment" and "self-employment", also
commonly referred to as "subcontracting". A prospective
worker applying for a job is presented an IRS Form W-4 to sign. If
he refuses to do so, he will be turned away by most employers and
will not be hired. If he enters his name, address and SSN on the W-4
and signs and returns it to the employer, he will have taxes
withheld and will be treated as a covered employee, building credits
towards vestment in government welfare programs.
The
benefits to the covered employee may include health and medical
insurance, vacation and sick pay, a retirement program, worker's
compensation, maternity leave, and other "perks" of
employment. Of course, all of these "perks" are nothing
more than window dressing since each bears a finite annual cost to
the covered employer, which, if divided by the total hours actually
worked over the course of the year by the covered employee, would
merely raise the net hourly wage paid to him.
For
example, if the covered employee's agreed upon hourly wage is $10
and the additional value of employment benefits provided by the
covered employer amounts to $4 per hour, then the net hourly wage
paid to the covered employee actually amounts to $14. Were the
covered employee to receive the full $14 per hour as a common law
employee, he could simply make his own arrangements to procure
health insurance, worker's compensation coverage and so forth and to
budget for his own vacations and retirement.
The
covered employer must match each covered employee's own F.I.C.A.
contribution, currently 7.65% of his wage. If the employee is
earning $30,000 annually, this 50% co-matching amounts to nearly
$2,300 which the employer must pay out of his own pocket. Multiplied
by 5 workers in a typical small business, this amounts to an extra
$11,500 out of the employer's pocket each year. Of course, if his
employees choose not to be covered for social security purposes
Medicare or other voluntary government welfare entitlement programs,
the employer could spend this $11,500 on advertising, on seeking new
markets or in generally expanding his business.
The
covered employer must also estimate in advance his payroll for the
year ahead and pay Worker's Compensation on the entire amount. For
example, if his 5 employees each work 2,000 hours per year, or
10,000 hours total at an average pay rate of $10 per hour each, his
annual payroll will be $100,000. If his Worker's Compensation tax is
assessed at a rate of 5.1% (for example, a small machine shop), he
must then pay $5,100 at the beginning of the year. If, in order to
save money up front, he deliberately underestimates his annual
payroll, upon audit at years' end he must immediately pay the
difference. If his employees actually each worked 15,000 total hours
for the year, those extra 5,000 hours will result in the employer
having to pay an extra $1,700 at year's end, then add those extra
5,000 hours to the next year's estimated payroll and pay an
additional $1,700 as well.
Another
disadvantage to the covered employer is the many legal landmines he
may encounter if he fails to adhere to a myriad of state and federal
regulations. These increasingly draconian "rules" dictate
what he may or may not do or say to his employees without becoming
the target of a Lawsuit over sexual harassment, discrimination in
the workplace, compliance with OSHA guidelines and a mess of other
"red tape". For many a small businessperson with just a
few covered employees, having to take on these financial burdens has
meant the end of the business, regulated to death and taxed out of
existence. And the completion of all the associated and onerous
paperwork has often meant the difference between burning the
midnight oil and having a family life.
With
all this in mind, it's not difficult to understand why many American
business owners have begun taking taken an active role in teaching
their employees the Law! Certainly, with the increasingly widespread
awareness of non-covered employment contracting, that number may
soon vastly expand.
The
covered employer withholds taxes from the weekly paycheck of his
covered employees and pays them over to various agencies of the
government, although neither employer nor employees usually have any
idea whatsoever of what types of taxes are actually being paid under
the Law. For most Americans, income taxes, social security taxes,
employment taxes and F.I.C.A. taxes are all simply lumped together
as "payroll taxes" and referred to overall as "tax
withholding". The truth is, most Americans have no idea what is
actually being withheld -- they simply go along with it and never
ask questions. Those who do are instructed by ostensible “tax
professionals” who have never read the law and backed up IRS
officials with a vested interest in ignoring the law in the interest
of maximizing tax revenues. It's quite a system!
Self-Employment
The
other working arrangement familiar to most Americans is the
subcontractor relationship, also known as covered
"self-employment". This arrangement usually just involves
an individual or company performing a particular service, either on
its own premises or on the premises of the business owner, working
unsupervised using its own tools and materials and billing the
business owner who then simply writes out a check to the billing
subcontractor. Over recent years the IRS has made every effort to
attack as many subcontractor relationships as possible and to
redefine them as actual covered employment in disguise.
To
this end, the IRS has forms that the prospective subcontractor is
told he must fill out, bearing numerous check boxes which must be
ticked off, proving that a covered employment arrangement does not
exist. Of course, it's always difficult to "prove a
negative". The rationale behind this strategy from the
government's point of view is simple -- the payroll tax withholding
scheme has become a giant "cash cow" for Congress, a giant
hose pumping hundreds of millions of dollars weekly right into the
legislature.
This
waterfall of weekly revenue does not depend upon the subcontractor
volunteering to file a tax return each April 15th and assessing
himself a year's worth of tax all at once. From Washington's
perspective, weekly is better! Since, according to the IRS' own
figures, at least 20 million Americans have already stopped filing
tax returns, the pressure has been turned up to get everyone to be
an employee, milked (some would say, bilked) weekly of taxes before
he can spend them or forget to pay them to Uncle Sam.
Of
course, there does exist within the Law the provision for the
self-employed to volunteer to file quarterly estimated taxes. I say
"volunteer" since Internal Revenue Code section 6654(h)(3)
which covers exceptions to the requirement to pay estimate tax
specifically excludes the citizen who was: "... a citizen or
resident of the United States throughout the preceding taxable
year." The penalty for reliance upon an inadequately educated
tax professional may mean volunteering to pay quarterly estimated
taxes.
Employee
Leasing -- A Partial Solution
As
a work-around to the above situation, employee leasing has become
extremely popular in recent years. Indeed, employee leasing is now
so prevalent that many such companies can be found advertising on
the Internet. Employee leasing solves some, but not all, of the
above problems. Essentially, a leased employee is paid for by the
hour, as if he were a computer or a delivery van.
As
a point of clarification, there is really no fundamental difference
between employee leasing and Non-Covered Worker Contracting, except
that the latter arrangement is not covered for Social Security
purposes. If the average employee leasing firm understood the Law,
accepted the Statement of Citizenship in lieu of a Form W-4 as will
be explained shortly, did not withhold taxes and dishonored IRS
Notices of Levy unless accompanied by a valid court order (Warrant
of Distraint), there would be no real difference between the two.
Since this is not the case with any employee leasing or
"temp" agency we can find, there is obviously a world of
difference.
As
stated already, when an employee leasing firm such as ABC takes over
the payroll for a business, it actually becomes the employer of
record. Each employee will sign a Form W-4 with ABC, and they will
then take the burden of payroll administration out of the employer's
hands. Of course, the employer is still paying the costs of 50%
matching co-FICA, workers compensation and other "perks"
of covered employment -- these costs are simply added into the check
he pays to ABC each week, plus their service fees.
The
disadvantage to the worker who wishes to take home 100% of his
entire weekly paycheck remains that he is expected to sign a Form
W-4 with ABC and become their employee, with all of the usual
"payroll" taxes withheld. For the worker who wishes to
take full control of his paycheck, this is clearly not a solution,
although the benefits to the employer are obvious.
Employment:
The Law vs. The Common Practice
Now,
let's look at what the law actually says with regard to employment,
as opposed to the common practice in the workplace. After you learn
and understand the difference between the two, you may be shocked.
One thought that may occur to you is "How could my accountant
or CPA possibly not have known this?"
Most
Americans rely upon a variety of peer-licensed tax experts,
including a tax preparer, C.P.A., accountant, tax attorney or
financial planner. The reasoning of the average American goes
something like this: "I cannot possibly understand the Internal
Revenue Code and implementing regulations, therefore I need a
licensed expert to explain it to me and tell me what my requirements
are. Since the government licenses paid professionals as competent
to administer the laws it has written, it's a safe bet that these
professionals know what they're doing."
Well,
did you ever get a bad haircut from a licensed barber? How about a
bad hairdo from a licensed beautician? The problem with this line of
reasoning is that most paid tax professionals –- perhaps 9,999 out
of 10,000 -- have never read the actual laws covering income and
employment taxes. They don't even know where to find them!!! They
attend IRS sponsored workshops which “teach” them the common
practice of other tax professionals, but not the actual law itself.
They learn in which little boxes on which forms to print which
numbers without ever looking at or even questioning the authority
behind those forms or the actual laws they implement.
One
indication of this phenomenon is that, although the office libraries
of most tax professionals are well stocked with IRS pamphlets and
brochures -- none of which are Law -- most do not contain a single
copy of the Internal Revenue Code or implementing tax regulations.
To verify this fact, you might ask this of your own tax
professional. One might ask how such "tax pros" can
possibly understand the Law if they have never seen or read it? My
Sunday school teacher used to call this "the blind leading the
blind".
It
is important to understand that IRS pamphlets and brochures are not
-- and cannot be -- Law. The Constitution doesn't authorize the IRS
to make Law. The IRS is an administrative agency only, a part of the
executive branch of our three-branch government and not a part of
the legislative branch. Under the Constitution, only the legislature
can pass laws for citizens within the States of the Union. As an
executive branch agency, the IRS is empowered solely with the duty
of carrying out the Laws that Congress writes and codifies as the
Internal Revenue Code.
The
reality is that the practice of the average tax professional is
based upon a mindset, namely the belief that certain practices must
be true, simply because "we've always done it this way".
Such beliefs persist even though the professional has never actually
read the Law for himself. One example of this mindset is the false
belief that payroll tax withholding in the workplace is required by
law.
The
Facts In Capsule Summary
Here,
then, in capsule summary is the actual situation, as it exists today
with regard to business owners and workers in the American
workplace. Remember to go look it up for yourself after I show you
where to find it. Here are the facts:
1.
There is no legal requirement for any American citizen to obtain,
have, or use a Social Security Number for any purpose whatsoever,
including employment.
2.
The government cannot by law assign a SSN to a citizen or force him
to use one; in order for a citizen to have a SSN assigned to him,
either he or his parent or legal guardian must have applied for one
-- and there is no legal requirement to apply.
3.
There is no legal requirement for a business owner to submit a Form
W-4 to a prospective worker.
4.
There is no legal requirement for a business owner to demand or to obtain a SSN from a citizen who wants to work
for him.
5.
There is no legal requirement for a citizen to sign a Form W-4 and
have taxes withheld from his paycheck.
6.
There is no legal requirement for a business owner to apply for,
have, or use an Employer Identification Number (EIN).
7.
Both the SSN and the EIN are forms of Taxpayer Identification
Numbers (TIN). The only entities required by law to have and use a
TIN are nonresident aliens and foreign corporations, both of which
are FOREIGNERS.
Now,
those statements have no doubt left you surprised and skeptical,
perhaps very skeptical. Remember; keep a fully open mind until you
have looked up the Law for yourself.
A
Pair Of Modern Originals
To
illustrate the above, let's consider the situations of a pair of
modern if original Americans: Samuel and Thomas. Students of early
American history will no doubt find these names familiar. Sam and
Thom are both private, self-reliant individuals who ask for and
expect nothing from government. They aren't interested in subsidized
retirement under social security, in subsidized shelter in the form
of government housing allowances, in subsidized eating in the form
of government-issued food stamps, in subsidized health care in the
form of medical subsidies, in subsidized debt in the form of
veterans and small business loans or in any other benefits of
government wealth redistribution.
Since
governments inherently never have any money of their own, all
so-called "government benefits" must be taxed from some
and given to others who have applied for their "fair
share" of such wealth redistribution. Sam and Thom simply want
to be left alone by government to enjoy their right to keep their
earnings -- the fruits of their personal "Pursuit of
Happiness". They choose as private citizens to care for
themselves and their families without assistance from federal
welfare handouts collected from unwitting fellow citizens such as
social security.
Sam
is a modern day business owner who wishes simply to hire others and
pay them for the hours they work. He has no desire to be an unpaid
bookkeeper and work for government for free. Today, we would call
Sam a "common law employer". Thom chooses not to start his
own business and prefers to go to work for Sam. Thom has no desire
to receive government assistance of any kind and is prepared to take
care of his family and of himself in retirement, just as generations
of his ancestors did before him. Today, we would call Thom a
"common law employee".
When
asked whether it is possible for Sam and Thom simply to enter into a
contractual agreement for Thom's services with no W-4 on file and no
"payroll taxes" withheld, the average tax professional
would likely say "no". When asked whether Sam, in order to
hire Thom, is required by Law to obtain an EIN, the average tax
professional would insist that he must. But what if Sam doesn't want
an EIN?
No
matter, his tax professional will say, he's required to apply for
one, probably because one of the most common functions of
accountants and C.P.A.'s is to hand new business owners an IRS Form
SS-4 "Application For Employer Identification Number".
Unfortunately, due to the incomplete education of our nation's tax
professionals combined with the unwillingness of officials of the
IRS to show the public the facts, the truth has not been
forthcoming. This presentation was written to overcome this
deficiency. Let's look at the situation logically.
If
the government is so eager to get Sam and every other every business
owner to number themselves, why do they ask them to apply for a
number? Why don't they just assign each one a number as soon as he
goes into business? If Sam is required to present Thom a W-4 for him
to sign, why is it titled "Employee's Withholding Allowance
Certificate"? Why not "Employee's Withholding Requirement
Certificate"? Could the W-4 just be some sore of private
permission slip between Sam and Thom?
For
his part, what if Thom doesn't have a SSN because neither he nor his
parents ever applied for one? Many Americans never applied for a SSN
and many more today are not applying for one for their children,
having come to the realization that a truly free person can never be
numbered. "After all", so their reasoning goes, "if
my child wants to number himself, he can make that decision someday
when he becomes an adult".
What
if Thom was once assigned a SSN, but, as tens of thousands of
Americans have already done, although unreported in the news, he has
since revoked the application and no longer has a valid SSN to use?
If he has no SSN assigned to him, then what does he enter in the box
on the Form W-4 that asks for his number? He can't leave the box
blank since that might be construed as an omission. The only thing
he can honestly enter is "N-O-N-E", none!
What
if Thom doesn't want Sam to "get in the middle" as an
uncompensated bookkeeper for government? What if he just wants to
stick all that he earns each week in his pocket and choose whether
or not to "do business" with the IRS according to his own
understanding of the Law, which is really none of Sam's business?
What
if Sam likes this idea since he would then not have to "kick
in" 50% matching co-FICA on Thom's wages or assume the other
burdens of bookkeeping and tax withholding relating to Thom's
working for him?
Do
Sam and Thom have these choices? The vast majority of fee-based tax
professionals will insist that they do not, and they are all
mistaken. The fact is that if Thom submits the proper paperwork to
Sam to stop tax withholding under section 1.1441-5 of the Code of
Federal Regulations for Title 26, Internal Revenue Code, and if Sam
obeys the Law and stops withholding income taxes from Thom, then it
will be Thom's sole responsibility to determine whether or not he in
fact owes the income tax and has a requirement to file a return. We
will see what the law says in this regard in a little while.
Form
W-4 Not Required By Law Within The Union States
The
reality is that accountants, C.P.A.'s and personnel department staff
at virtually ever workplace in America are trained and conditioned
to believe that the W-4 is a required return and so they hand one to
each prospective worker to complete, sign and submit. The fact is
that there is no code section or implementing Treasury regulation --
none whatsoever -- that requires a business owner to present a Form
W-4 to a prospective worker, nor is there any legal requirement for
the prospective worker to complete, sign and submit the Form W-4 to
the business owner even if provided with one. It's simply done as a
matter of common practice within the workplace and not as a matter
of Law, although the prevailing mindset is that it's required.
Indeed, it's a rare employer who understands the Law well enough to
hire the worker who does not volunteer to submit a W-4.
The
W-4 form is a "withholding allowance certificate", just as
it's name says. Upon completion of the W-4 by the worker and its
acceptance by the business owner, a voluntary withholding agreement
is entered into by both parties under which employment taxes are
withheld and paid into the Treasury by the employer, who by Law,
becomes the actual taxpayer in the transaction since it is he who is
holding the withheld funds.
Since
Article 1, Section 2, Clause 3 and Article 1, Section 9, Clause 4 of
the Constitution forbid direct taxation of a citizen, the only means
of collecting the employment tax from a citizen is by way of a Form
W-4, which, as we shall see, the law refers to a the "Voluntary
Withholding Agreement". The W-4 form provides a space for the
name and EIN of an employer but, of course, only of the employer who
has volunteered to number himself. The W-4 also provides a space for
the name and EIN of the worker, but again, only of the worker who
has volunteered to number himself.
SSN
Not Required Of A Citizen
There
is a mindset prevalent in America today that absolutely everyone
must have a social security number, or "SSN", and must
give it to whomever asks for it, including to an employer on a Form
W-4. The fact is that there is not now nor has there ever been any
law in existence which requires a citizen living and working within
the 50 States of the Union to have or use a SSN for any purpose
whatsoever, including to obtain employment. No doubt that statement
may come as a great surprise to the accountants, CPA's and other tax
professionals who may read or listen to this.
It
would certainly appear as if the SSN is required of every citizen
given that it's become the de facto personal identifier for every
purpose from giving blood to renting a video. However, the
surprising truth is that, if you write to the Social Security
Administration and ask if you are required by law to have and use a
SSN, they will respond: "The Social Security Act does not
require an individual to have a social security number to live and
work in the United States, nor does it require an SSN simply for the
purpose of having one. However, if an individual works without an
SSN, we cannot properly credit the earnings for the work
performed." This is their standard response. You may wish to
write to them yourself for your own copy. The fact is that this has
always been true.
Here's
what the law says with regard to the assignment of SSN's. All United
States law is categorized into 50 "titles" of Law known as
the United States Code, abbreviated as "USC", and covers a
wide range of topics. These are the statutes passed into Law by the
legislature. The law can be read at any law library, at many large
city libraries, on CD-ROM from the Government Printing Office, and
at many locations on the Internet's World Wide Web.
The
Social Security Act is codified in Title 42 of the United States
Code. Section 405(c)(2)(B)(i) states under subparagraph (I) that the
Secretary of the Social Security Administration will assign SSN's to
aliens -- meaning to foreigners -- at the time of their lawful
admission to the United States and, under subparagraph (II), to:
"... any individual who is an applicant for or recipient of
benefits under any program financed in whole or in part from Federal
funds."
That's
the Law, exactly as written, and I encourage you to go look it up
and read it for yourself. Nonresident aliens, meaning foreigners,
are assigned Social Security Numbers upon lawful entry into the U.S.
and all other "applicants", meaning Citizens of the 50
Union States, are assigned numbers upon application.
And
what method does a citizen use to apply for a SSN for himself or for
his child by using Social Security Administration Form SS-5
"Application For Social Security Account Number".
The
Code of Federal Regulations for Title 20 states at section
422.103(b)(1), titled "Applying for a number": "An
individual needing a social security number may apply for one by
filing a signed Form SS-5 ... at any social security office, and
submitting the required evidence ...".
SSN's
are also assigned to newborns whose parents request a number for
their child by checking off the appropriate approval box on hospital
paperwork. The Social Security Administration issues arm-twisting
instructions to hospital personnel to attempt to persuade the parent
to say "yes". If, in spite of the parents' explicit
instructions, the hospital keys "yes" in their computer,
resulting in the issuance of a SSN to the newborn and the parent
then timely and strenuously objects, the record of the application
for the number will be expunged.
Because
applying for an EIN or SSN by a citizen is strictly voluntary, one
who does so presumably wishes to participate in social security and
other federal welfare entitlement schemes. In other words, if you
want to register to participate in social welfare programs, you must
line up and take a number! But there is no requirement to do so.
On
Office of Management And Budget (OMB) Standard Form 83, there are
three boxes which an agency of the executive branch may check when
requesting OMB approval of a particular form --
"Voluntary", "Required to obtain or retain a
benefit" and "Mandatory". On their application to OMB
for approval of the SS-5 form, the Social Security Administration
checked "Required to obtain or retain a benefit".
In
a letter written on January 10, 1986, a Ms. Penny Payton, a claims
representative with the Sioux Falls office of the Social Security
Administration, wrote to a citizen of South Dakota stating:
"Social Security is a voluntary system in that no one is
required to get a number." Ms. Payton also added: "...a
person with no Social Security Number would have no taxable
income." One cannot help but wonder whether honest government
employees like Ms. Payton retain their jobs after writing such
letters.
EIN
Not Required Of A Citizen/Business Owner
There
also exists today in America the widespread belief that a citizen
who wishes to hire other citizens must first obtain an employer
identification number, or "EIN". The fact is that this is
equally untrue and always has been. The EIN is applied for on IRS
Form SS-4, titled "Application For Employer Identification
Number".
Section
301.6109-1 of the Code of Federal Regulations (CFR) for Title 26,
Internal Revenue Code states at paragraph (d)(2)(i): "Any
person required to furnish an employer identification number must
apply for one, if not done so previously, on Form SS-4. A Form SS-4
may be obtained from any office of the Internal Revenue Service
...".
To
those unfamiliar with the law, this section might sound like a
requirement to apply. It states, "any person required to
furnish an EIN ...", without stating who this "any
person" who "must apply" actually is. Is it the
citizen? If every business owner in America were required to apply
for an EIN, wouldn't you expect this section to instead read:
"Every American citizen who operates or plans to start a
business and hire other citizens is required to have and use an
EIN", or some such language?
If
we examine section 301.6109 in its entirety, we discover that the
only person required by law to obtain a TIN is a foreign person,
referred to in the regulations as a "U.S. Person". Section
301.6109-1(b), titled "Requirement to furnish one's own
number" states under subparagraph (1) titled "U.S.
persons": "Every U.S. person who makes under this title a
return, statement, or other document must furnish its own taxpayer
identifying number as required by the forms and the accompanying
instructions".
Subparagraph
(2) goes on to reveal: "The provisions of paragraph (b)(1) of
this section regarding the furnishing of one's own number shall
apply to the following foreign persons."
It
then goes on to list all of the foreign persons required to provide
a TIN, however there is no listing of a citizen. The astute observer
will note that both Form SS-5 "Application For Social Security
Number" and Form SS-4 "Application For Employer
Identification Number" have the word "application" in
their titles.
In
other words, they are to be used by applicants. However, as we shall
see, there can be no legal requirement to apply. By volunteering to
use an employer identification number, or "EIN", the
covered employer imposes upon himself the requirement to withhold
employment tax from covered employees, thereby adopting the
unwelcome role of uncompensated bookkeeper for government.
In
this new capacity, he must then undertake the time-intensive demands
and burdensome costs of payroll bookkeeping, bank deposits, filings
of state and federal tax forms and so forth, none of which make him
any money or expand his business.
"Voluntary"
Does Not Mean "Mandatory"
To
"apply" means "to make application for" or
"to request". In other words, an application is a
consensual, voluntary act made of one's own free will and consent.
If consent were absent with regard to a given act, then clearly that
act could not be said to be voluntary. Mandatory, meaning
"required" or "compelled by force of Law", is
the exact opposite of voluntary. Clearly an act cannot be both
voluntary and mandatory at the same time, nor can it be partially
voluntary and partially mandatory. An act is either voluntary or
mandatory: there is no in between, just as one cannot be partially
dead or partially pregnant. If Party A has the legal authority to
force Party B to volunteer to do something, then clearly Party B's
participation can never be said to be voluntary.
If
you will stop to recall, all applications you have ever filled out
in your life, whether for a driver's license, a loan, a library
card, a fishing permit, a SSN or an EIN, required your signature.
Can you be forced to enter your signature on anything if you don't
want to? Can your signature ever be anything but voluntary?
Clearly,
the answer is no. The only way you could be forced to apply for
anything would be if a pen were forced into your hand, your arm
wrestled down to the table and your signature forcibly obtained.
Obviously, no one, in or out of government, has compelled any of the
hundreds of millions of Americans who have ever applied for a SSN or
EIN to do so. All have applied for their very own government numbers
of their own free will and volition. Of course, they did so
believing that they had no choice; that their compliance was
mandatory.
If
you're struggling to understand this, ask yourself: If having either
a SSN or an EIN were in fact mandatory, why would applications exist
to apply for them? Put differently, if there were a legal
requirement for a citizen to have either type of number, why would
there be any application procedures or forms to apply on at all? Why
wouldn't the government just serially number everyone without trying
to persuade them to apply?
If
the government could simply issue each citizen a TIN without any
involvement on the citizen's part whatsoever, obviously there would
be no need for application forms or procedures. The number would
simply be thrust upon you with no participation on your part in the
numbering process. Since, as we have seen, a TIN is required of a
foreigner only, one would have to ask whether the government has
been forthright and honest with its citizens in informing them of
the truth about all this. Actually, if it were discovered that the
government has been luring its citizens into applying for numbers
when none were required, that would be disturbing enough.
However,
the fact of the matter is that the Internal Revenue Service can only
establish records in its computer databases for any entity that has
volunteered to number itself with a "taxpayer identification
number". Since both the SSN and the EIN are taxpayer
identification numbers, presumably the party that volunteers to
number itself must want to be a taxpayer. The reality is that many
thousands of Americans of all ages -- from toddler to senior citizen
-- have never applied for a SSN and most of these folks have never
been contacted by the IRS their entire lives. Likewise, many
Americans long ago started and continue to this day to operate their
own businesses and hire others without obtaining an EIN.
If
it were discovered that the government has been deliberately
withholding the truth all these years by luring its free citizens
into volunteering to become taxpayers by making it appear that TIN's
are required of them, that would constitute constructive fraud. The
IRS makes frequent use of the expression "voluntary
compliance" which of course is meaningless since the two terms
"voluntary" and "compliance" are direct polar
opposites. To believe otherwise would be to accept the kind of
"doublespeak" of which George Orwell wrote in his novel,
"1984".
The
Law Says "Request", Not "Demand"
The
legal authority does exist for the "payor of income" to
"request" a TIN from another person, however there is no
authority to demand or to obtain a TIN from a citizen. Here's what
the law actually says: 26 Code of Federal Regulations for Title 26,
Internal Revenue Code, states in pertinent part at section
301.6109-1(c), titled, "Requirement to furnish another's
number":
"Every
person required under this title to make a return, statement, or
other document must furnish such taxpayer identifying numbers of
other U.S. persons and foreign persons ... as required by the forms
and the accompanying instructions ... If the person making the
return, statement, or other document does not know the taxpayer
identifying number of the other person ... such person must request
the other person's number. The request should state that the
identifying number is required to be furnished under authority of
law. When the person making the return, statement, or other document
does not know the number of the other person, and has complied with
the request provision of this paragraph ... such person must sign an
affidavit on the transmittal document forwarding such returns,
statements, or other documents to the Internal Revenue Service, so
stating.".
So
we see that when an employer submits a Form W-4 to a prospective
worker, he is actually complying with the above "request"
provision within the law. When he files a transmittal document such
as a Form W-4 or W-2 with the IRS on behalf of another person and
does not know the TIN of that person, the Law merely requires him to
request the number. He has no authority to demand or obtain it! If
the number is not forthcoming, he is to attach an affidavit to the
transmittal document stating that he requested the number and has
thereby complied with the Law.
The
correct procedure is not to leave the space on the transmittal
document requesting a TIN blank, not to enter all zeros or nines and
not to enter a false number or someone else's number which would
constitute fraud, but to print "N-O-N-E". Two examples of
common transmittal documents are Forms 1099 and W-2.
Of
course, most employers believe that they are breaking the Law and
will be subject to fees, fines or other penalties if they fail to
obtain a SSN, and therefore will not hire a worker if he fails to
provide it. Their ignorance of the Law is usually reinforced by the
ignorance of their accountant and other tax professionals, virtually
none of whom have ever read the Law. Interestingly, the W-4 is the
only form made available by the IRS on which a citizen or resident
alien can submit his SSN to the participating employer.
Why
Would A Free Citizen Want A SSN, Anyway?
Since
we see that there is no legal requirement for a citizen to have a
SSN or EIN, why then would he apply for one? Presumably because he
wants and desires the benefits of having such a number. And what
might such benefits be?
Among
others, to become eligible to make contributions towards vesting in
government welfare programs and thereby eligible to receive benefits
such as social security, Medicare, school lunch, agricultural
subsidies, subsidized housing, school and business loans, free milk,
free cheese, free medical care, food stamps, and so forth.
However,
the citizen's participation in all such entitlement programs is
strictly voluntary. The worker who wishes to make such voluntary
contributions must first give permission to the person he works for
to withhold his contributions. The IRS makes this easy by providing
a handy permission slip known as the Form W-4, titled
"Employee's Withholding Allowance Certificate".
The
very use of the word "allowance" in the title is a clear
indication that the W-4 is permissive, and indeed, there is in fact
no Law in existence requiring either business owner OR worker to use
a W-4, although that fact will no doubt amaze many. The top of the
W-4 states: "... give the certificate to your
employer...". If the W-4 were a required return, wouldn't the
IRS at least want a copy, let alone the original? But no, the IRS
instructs the worker to "give the withholding certificate to
your employer", NOT to us! That fact alone should be proof
enough that the W-4 is not a required return. Most business owners
simply stick signed W-4's in a drawer.
Code
section 3402(p)(3) titled "Authority for other voluntary
withholding" states: "The Secretary is authorized by
regulations to provide for withholding -- (A) from remuneration for
services performed by an employee for the employee's employer which
(without regard to this paragraph) does not constitute wages, and
(B) from any other type of payment with respect to which the
Secretary finds that withholding would be appropriate under the
provisions of this chapter, if the employer and employee, or the
person making and the person receiving such other type of payment
agree to such withholding. Such agreement shall be in such form and
manner as the Secretary may by regulations prescribe. For purposes
of this chapter (and so much of subtitle F as relates to this
chapter), remuneration or other payments with respect to which such
agreement is made shall be treated as if they were wages paid by an
employer to an employee to the extent that such remuneration is paid
or other payments are made during the period for which the agreement
is in effect."
Note
the wording in sub-sections (b)(1)(ii) and (iii) of this regulation:
"...an employee who desires to enter into an agreement"
and "request for withholding", "desires
withholding" and "mutually agree upon", all of which
clearly and unambiguously show the voluntary nature of the entire
withholding system. The significance of a Form W-4 "Employee's
Withholding Allowance Certificate" is clearly explained in this
regulation which states: "The furnishing of such Form W-4 shall
constitute a request for withholding,"
Further
evidence of the voluntary nature of the Form W-4 agreement between
business owner and worker is provided under section 31.3402(p)-2 of
the Code of Federal Regulations for Title 26, Internal Revenue Code,
which states in pertinent parts: "An agreement under section
3402(p) shall be effective for such period as the employer and
employee mutually agree upon. However, either the employer or the
employee may terminate the agreement prior to the end of such period
by furnishing a signed written notice to the other."
So
we see that a citizen can terminate the W-4 -- the Voluntary
Withholding Agreement -- at any time by giving written notice to the
employer. Of course if the Voluntary Withholding Agreement, meaning
the W-4, is not given to the business owner in the first place,
there is no need for the worker to submit a written termination.
Examining
The Federal Constitution
In
light of all this, let's stop for a moment and examine the actual
supreme Law itself. Because this presentation deals, not with
opinion or speculation, but with facts, truth and the written Law,
let us review some basic terms and concepts within the Law. To
understand the Law, we must begin with the Constitution itself since
it is the highest law of the land. If it's been a while since you've
read the Constitution, I suggest that you get out your family copy
to refer to during this presentation.
Under
Article VI, the Constitution declares itself to be the supreme Law
of the land.
Because
of this "supremacy clause", no ordinary act of the
legislature -- that is, of Congress -- can overturn or override the
Constitution. All laws made by Congress must be in conformity to the
Constitution, otherwise, as the courts have held many times, such
acts of the legislature are void. The Constitution can only be
amended through the amendment process as called for under Article V.
The
Constitution created our form of government, which is not a
Democracy as many have been taught, but a constitutional republic.
Although the Constitution has been amended 26 times in its history,
it has never been amended out of existence or replaced with any
other foundational document. Therefore, it is still in as full force
and effect right this very moment as it was when the ninth state,
New Hampshire, ratified it as the supreme Law of the land on June
21, 1788. Any Act of Congress -- by which I mean any Law -- which
does not conform 100% to the Constitution is automatically
unconstitutional and therefore void. As we see, the tax Laws of the
united States are 100% in conformity with the Constitution, a fact
which would no doubt surprise many.
Under
our constitutional republic, the rights of the minority are
protected from the tyranny of pure democracy, otherwise known as
"the majority". In other words, a majority of the People
cannot vote away the rights of the minority, not even of a single
individual. One hallmark of a constitutional republic is that all
Law is a written Law so that a citizen can look it up and understand
it for himself. Otherwise, laws could be passed in secret in the
middle of the night and the citizen could have no way of knowing his
duties and obligations under the Law.
The
Law must also be written in plain English so that the citizen of
average intelligence can read and understand it, otherwise, as the
courts have repeatedly stated, it must be held "void for
vagueness". A Law can have one, and only one, clear and
unambiguous meaning. In other words, it cannot be subject to
interpretation. If a given Law could be interpreted, meaning that
two different people could understand it to have two different
meanings, it would automatically be void for vagueness. After all,
how could 12 jurors otherwise agree on what the laws says or means?
This is an important concept for you to grasp since this
presentation sticks solely to the written tax Laws that are
currently "on the books" right now.
Americans
have been conditioned to believe that the tax Laws are beyond the
comprehension of mere mortals, which is why they believe we must
have licensed financial professionals to protect us from our own
bewilderment and ignorance.
Income
Tax: Direct Or Indirect?
Now
that you have an understanding of Law itself, let's stop and
summarize what we've stated so far:
*
A citizen living within the Union States is not required by Law to have or use a
SSN.
*
If said citizen wants an SSN, he must apply for one -- and all applications can
only ever be voluntary.
*
Since he's not required to have a SSN, there's no Law requiring him
to provide one in order to go to work for another citizen.
*
And the citizen business owner for whom he would work is authorized
only to "request" a number from him, not to demand or
obtain it, nor is the business owner himself required to apply for
or use an EIN.
*
If he wants an EIN, he must apply for one and, again, all
applications are voluntary.
In
order to understand the provisions within the law which allow for
the stopping of tax withholding in the workplace, let's first look
at the limited authority to tax a citizen given to Congress within
the Constitution. Once we understand this, the tax laws that are on
the books right now will begin to make sense.
The
Constitution authorizes only two forms of taxation: direct taxes and
indirect taxes. Article 1, Section 2, Clause 3 states that:
"... direct taxes shall be apportioned among the several states
which may be included within this Union ...". You will note
that it does not say "among the citizens", but "among
the several states", from which we see that the property of the
citizen cannot be taxed directly by the federal government.
The
Supreme Court confirmed this in their decision in the 1895 case
Pollock v. Farmers' Loan & Trust Company in which they stated:
"... the Constitution ... prohibits Congress from laying a
direct tax on the revenue from property of the Citizen without
regard to State lines ... taxes on personal property, being a direct
tax ... the income of personal property, are likewise direct
taxes."
Congress
can pass an Act to raise a certain sum of money for a specific
purpose, then apportion that bill to the States for them -- not
Congress -- to collect according to the limitations of their
respective State constitutions. Article 1, Section 9, Clause 4
explains how this bill is to be divided among the States in stating:
"... no direct tax shall be laid unless in proportion to the
census or enumeration hereinbefore directed to be taken".
Since
population can shift from State to State over time, a national
census is conducted every 10 years to count citizens and readjust
the basis for apportionment. There are currently 435 representatives
in the House of Representatives. Therefore, a State with 2
representatives such as New Hampshire would owe 2/435ths of the
bill, while a state with 10 representatives such as Massachusetts,
would owe 10/435ths of the bill. Congress lays direct taxes and the
States collect them.
Five
direct taxes have been laid in our nation's history -- none in this
century -- although Congress could do so again at any time to
balance the budget or for any other constitutionally lawful reason.
Indirect
Taxes
The
other type of tax which Congress can impose is an indirect tax.
Article 1, Section 8, Clause 1 states: "Congress shall have
power to lay and collect taxes, duties, imposts and excises"
and that all such taxes must be "uniform throughout the United
States."
Excises
taxes are indirect taxes which, unlike direct taxes, can be both
laid and collected by Congress through agencies of its creation such
as the IRS. So is the income tax a direct or an indirect tax?
Congressional
Research Service report #79-131, written in 1979 by Legislative
Attorney, Howard Zaritsky, and titled "Some Constitutional
Questions Regarding The Federal Income Tax Laws", confirms:
"... it is clear that the income tax is an "indirect"
tax ... subject to the rule of uniformity, rather than the rule of
apportionment."
A
The
Supreme Court ruled in the 1920 case Eisner v. Macomber that income
may: ".. be defined as the gain derived from capital, from
labor, or from both combined." In other words, if I hire you
out at $15 per hour and pay you $10 per hour, then the $5 per hour
profit on your labor is the source of my income. Such profit would
not be taxable to you, but may be taxable to me as profit derived
from the taxable source, which is your labor.
Of
course, for this to be true, we couldn't both be living and working
with one of the 50 States of the Union, otherwise Article 1, Section
2, Clause 3 would be violated. We'd have to be living and working
abroad in a U.S. possession or territory or in a foreign country
under a current tax treaty.
This
is what Congress meant by their use of the term "source"
in the 16th Amendment which states that "The Congress shall
have power to lay and collect taxes on incomes, from whatever source
derived, without apportionment among the several States, and without
regard to any census or enumeration."
The
16th Amendment Changed Absolutely Nothing!
Many
Americans believe that the 16th Amendment changed the Constitution
to authorize a direct income tax on the wages of a U.S. citizen.
However the Supreme Court closed the door on this erroneous
understanding in their decision in the 1916 case Stanton v. Baltic
Mining. In the Stanton case, the high Court stated that the 16th
conferred ".. no new power of taxation", but merely
".. prohibited the ... power of income taxation possessed by
Congress from the beginning from being taken out of the category of
indirect taxation to which it inherently belonged ...".
Since
the 16th did not repeal those sections of the Constitution which
require that all direct taxes be apportioned among the States,
therefore the Congress, and its administrative agency, the IRS,
still to this day lacks the constitutional authority to directly tax
the wages of a U.S. citizen.
The
Founders of our nation read and understood Matthew 17, verses 24
through 27. We suggest you look these verses up for yourself. Based
on their clear understanding of Natural Law and Natural Rights, the
Founders intended that American citizens remain free of internal
taxation and that foreigners only be taxed for the privilege of
doing business within the States of the Union.
The
foreigner was to be taxed at ports of entry on goods, including
investments, imported into the united States. This is in fact the
federal taxing scheme as it actually exists "on the books"
today and can be summarized simply as "citizens abroad and
foreigners here at home". This same scheme has existed since
the day George Washington took office.
Examining
The Internal Revenue Code
Now
that we've taken a brief overview of the constitutionality of the
federal taxing scheme, let's look at the taxing laws, or statues,
themselves. Title 26, abbreviated "26 USC", encompasses
the entire Internal Revenue Code, also abbreviated "IRC"
for short, and covers all Laws pertaining to taxation within over
9,000 code sections.
A
regulation is a rule enacted by an agency of the Executive Branch to
administer and enforce a Law passed by Congress and to specify
penalties for violators. Regulations correspond to their related
statutes and are found in the Code of Federal Regulations,
abbreviated "CFR". Tax regulations are issued, or
promulgated, by the Department of the Treasury which oversees the
Internal Revenue Service.
In
order to understand the Internal Revenue Code which encompasses far
more than just "income" taxes , one must first understand
the subdivision of the code. The code is currently divided into 11
subtitles, the first 5 of which, subtitles A through E, each cover
different categories of taxation.
Subtitle
A is the income tax, Subtitle B covers estate and gift taxes,
Subtitle C covers the wage or employment tax for social security
purposes, Subtitle D covers miscellaneous excise taxes, and Subtitle
E covers alcohol, tobacco, and "certain other excise
taxes".
Subtitles
F through K pertain to procedure, administration, general provision,
definitions, etc.
Each
subtitle is totally distinct and separate with regards to the type
of tax it covers and the enforcing provisions within one subtitle do
not apply to any other.
The
term "taxpayer" is a one-word legal term with no space
between "tax" and "payer" and is defined in
subtitle F under code section 7701(a)(14) as "Any person
subject to any internal revenue tax".
In
order to become the taxpayer liable to pay a particular type of tax,
a liability for that tax must first arise from written statute
within that subtitle. Subtitle A, "income" tax is found in
chapters 1-6 of the code. The employment, or social security, tax is
covered under subtitle C of the code within chapters 21-24. These
two taxes have nothing whatsoever to do with each other under the
Law, as can be seen by the fact that an entire subtitle -- B -- lies
between them and has nothing to do with either. Therefore, a citizen
or resident alien becomes liable for income or employment tax under
completely separate and distinct circumstances.
Who
Actually Owes The Income Tax?
There
is only one code section within all of subtitle A "income"
tax, or indeed within the entire Internal Revenue Code for that
matter, making any "person" liable to pay the income tax.
The word "person" itself is defined at section 7701(a)(1)
and may be, not just a flesh-and-blood human being, but a
corporation, a partnership, or other artificial entity. In other
words, both IBM and the individual citizen are equal legal persons
under the law.
The
person made liable to pay the income tax is identified under code
section 7701(a)(16) as the "withholding agent", meaning
the American agent or representative of a foreigner doing business
within this country. The withholding agent is made liable under code
section 1461 to withhold from a nonresident alien under code section
1441, from a foreign corporation under section 1442 and from a
foreign tax exempt organization under section 1443.
There
is no code section within subtitle A or indeed anywhere else within
the entire width and breadth of the Internal Revenue Code that
authorizes the withholding of income tax from the citizen living and
working within the 50 States of the Union. None whatsoever. This
will no doubt shock and astonish most tax preparers, although that
does not change the facts that it's none the less true. No such code
section exists.
Remember,
we are dealing here with Law, not with opinions or beliefs or
mindsets. As stated earlier, the law is a written law: if there were
a liability to withhold income tax from the citizen within the 50
States of the Union, it would have to state so somewhere in the Law.
However, a careful scrutiny of the code will confirm that such a
code section simply cannot be found -- it's just not there.
This
can be confirmed for yourself by performing a computer search for
such terms as "income", "liable",
"liability" and "citizen" through the entire
Internal Revenue Code available on CD-ROM from several sources,
including from the Government Printing Office and many sites on the
World Wide Web.
Note
that, under the Law, it is the withholding agent who becomes the
actual taxpayer -- the payer of the income tax -- and must pay it
into the Treasury, although it is not a tax on his own income, but a
tax on the income of the foreigner that is being withheld and paid
on the foreigner's behalf.
Since
we have been discussing income, it might be useful to look at what
income actually is and examine the code sections that impose the
income tax and require the filing of returns.
The
Term "Income" Is Not Defined In The Code
Surprisingly,
with regard to income tax, Congress has carefully avoided defining
the thing being taxed! "Income" is never defined anywhere
in the entire Internal Revenue Code.
"Gross
income" and "taxable income" are defined, however if
you research the regulations for "taxable income", meaning
gross income minus allowable deductions, under 26 Code of Federal
Regulations at section 1.861-8(e)(11)(f), you will discover that, in
order to have taxable income from sources within the United States,
those sources must all be foreign.
This,
of course, completely in keeping the same pattern we have already
mentioned: the federal income taxing scheme since day one is still
"citizens abroad and foreigners here at home".
In
the case Stapler v. U.S., the Supreme Court ruled that income is not
a wage or compensation for any type of labor. In Doyle v. Mitchell
Brothers, the high Court ruled: "Whatever difficulty there may
be about a precise and scientific definition of income, it imports
something entirely distinct from principal or capital either as a
subject of taxation or as a measure of the tax; conveying rather the
idea of gain or increase arising from corporate activities ... We
must reject ... the broad contention submitted in behalf of the
government that all receipts, everything that comes in ... are
income ...".
In
Conner v. United States, the high court ruled: "... The meaning
of income in its everyday sense is gain ... the amount of such gain
recovered by an individual in a given period of time ... whatever
may constitute income, therefore, must have the essential feature of
gain to the recipient. This was true when the 16th Amendment became
effective ... Congress has taxed income not compensation.".
The
high Court is therefore saying that to go to work for someone else,
exchanging your hours for compensation, is a like-kind exchange: one
unit of labor given in exchange for one unit of compensation
received. Therefore, there is no gain and no income. It is also
instructive to note that these decisions of the Court have never
been overturned and stand to this day.
The
mandate of the IRS is to collect as much tax as possible, no matter
what, so one might keep this motive in mind when observing whether
or not the IRS usually upholds the law as written. As mentioned
earlier, the IRS refers to the duty to pay the income tax as
"voluntary compliance". But as I covered earlier, how can
compliance ever be voluntary?
Since
the Law is not applied generally but is always limited in its
application, the question of whether or not the income tax is
mandatory or voluntary is actually superfluous. The question is one
of jurisdiction: who and under what circumstances does the Law
apply? In other words, who is being taxed, where, when involved in
what activity and over what period of time?
The
fact is that the income tax under Subtitle A is not
"voluntary" as some have asserted. If you are the
withholding agent, as was covered earlier, you must withhold income
tax from the foreigner doing business in this country and pay it
into the Treasury. There is nothing voluntary about it.
Income Tax Is Mandatory -- Employment Tax Is Voluntary
With
regard to the tax on wages under Subtitle C, otherwise known as the
employment or social security tax, certain legal requirements may be
considered mandatory, but only for the "employer", who is
the actual payer of the wages, and even then, only if both
"employer" and "covered employee" have
voluntarily agreed via voluntary application on Form W-4 to
participate in the entitlement programs.
Since,
as stated earlier, there is no legal requirement for a citizen to
have a SSN in order to live and work in the U.S. or simply for the
sake of having one; no legal requirement to enter a SSN on Form W-4,
and; no legal requirement for a business owner to obtain an EIN in
order to hire workers, neither party -- "employee" or
"employer" -- can be compelled to participate in the
entitlement programs, hence compliance under Subtitle C is correctly
said to be voluntary.
With
regard to income tax, while it is true that code section 1461 is the
only section to be found within all of subtitle A making any person
liable to pay the income tax, code section 1 does impose the income
tax on some unspecified "individual".
Identifying
The Mysterious, Unspecified "Individual"
This
individual may be a married person, a single person, a head of
household, and so forth. In fact, the language of code section 1
will be familiar to anyone who has ever read the instruction booklet
that accompanies Form 1040 each year. Code section 6012(a) makes
this same unspecified "individual" liable to file a return
to report income.
Presumably,
since the code does not specify, this "individual" must be
the citizen living and working within the States of the Union.
Otherwise, why would piles of Form 1040 crop up in banks, post
offices and libraries each spring? Why would the IRS mail a return
to one who filed it last year?
It
shocks many to discover upon examination of the Code of Federal
Regulations for Title 26 that the "individual" referenced
in code sections 1 and 6012(a) is NOT the citizen working within the
States of the Union, but one with foreign sources of income only.
As
stated earlier, the citizen living within the states of the union
would owe income tax if withholding from a foreigner, however this
would be a tax on the foreigner's income not on the citizen's,
although the citizen-withholding agent would be liable to pay it. He
would also owe the income tax if he had investment or dividend
income from certain foreign sources within foreign countries with
which the united States has a current tax treaty. He would also be
liable for the income tax if working abroad in a foreign country
under a current tax treaty with the United States and earning above
the annual $70,000 exclusion. However, if the typical American has
never engaged in any of the above activities he has in fact never
paid -- and is not now paying -- the income tax!
This
comes as a great surprise to most Americans when they discover the
truth within the Law and is no doubt the reason why the IRS refers
to the filing of a Form 1040 as "voluntary compliance" and
"self-assessment". The logical question such a stunned and
disbelieving American would immediately ask is: "If I haven't
been paying the income tax, then what have I been paying?"
"I've certainly paid thousands of dollars of SOMETHING all
these years!"
The
answer is that he has been paying the employment tax and swearing it
to be income to him. And how is this swearing accomplished? On a
Form 1040. You see, the 1040 form bears a perjury clause which makes
it an affidavit on which the filer swears that all material facts
contained on the form are true and correct. Since he swears this to
be so under the pains and penalties of perjury, he commits a felony
if he makes a false statement or misrepresents amounts of income and
expenses on the return. Mere failure to file a return is a
misdemeanor, a far less serious charge than a felony.
From
the IRS' point of view, it is of no concern whether or not the Law
is being misapplied since, once the 1040 is sworn to and filed, it
becomes prima facie evidence of a liability for foreign income tax.
The IRS relies upon this sworn testimony which is why they don't
return the check with a note explaining the error.
It
is also worth mentioning that if you have voluntarily filed Form
1040 in the past, you have created a legal presumption of a
requirement where none may actually exist under the Law. Under these
circumstances, the IRS will expect the former filer to continue
filing unless he rebuts the presumption that he is required to file.
This reversal of jurisdiction is accomplished by means of an
Affidavit of Revocation and Rescission as explained at various sites
on the Internet.
Who
Must File Returns?
With
regard to the filing of returns, the only filing requirement for our
as yet unspecified "individual" under Subtitle A
"income" tax is found in code section 6012(a), as
mentioned earlier. An examination of the regulations underlying
section 6012(a) reveals that the 1040 form is actually a
non-primary, non-required return -- a worksheet, actually, to be
attached to the front of Form 2555, titled "Foreign Earned
Income".
As
proof of the above, under the 1980 Paperwork Reduction Act, the
Office of Management and Budget (OMB) must review and approve any
agency form that requests and collects information from a citizen.
OMB must compare the regulations which the agency -- in this case,
the Department of the Treasury -- claims as its authority for the
form to determine if the form is indeed authorized by law. It OMB
approves the form, it assigns an OMB approval number to be displayed
clearly in the upper right hand corner of the approved form.
Under
26 Code of Federal Regulations, part 600 to end, also known as the
Parallel Table of Authorities, OMB assigned the same approval
control number to both Treasury regulations 1.1-1 and 1.6012-0.
These are the corresponding regulations to code sections 1 and
6012(a) which I mentioned earlier. Again, both of these regulations
refer to some unspecified "individual" -- presumably a
citizen -- upon whom income tax is imposed and who must make returns
of income.
The
number OMB assigned to these two code sections and to their
regulations is "1545-0067". "1545" is the
standard agency prefix assigned to all IRS forms and
"0067" is the OMB approval number assigned to a specific
return. The question is, which return? If indeed every citizen in
America is the unspecified "individual" upon whom the
income tax is imposed under section 1 and required to file returns
under section 6012(a), one would naturally expect to find OMB number
"1545-0067" displayed on Form 1040.
But
it's not. The 1040 form bears OMB approval control number
"1545-0074". Clearly there is a discrepancy here. Please
take out any past copy of Form 1040 and confirm this for yourself.
Out of literally thousands of IRS forms, the only form bearing OMB
approval control number "1545-0067" is Form 2555, titled
"Foreign Earned Income." The top of Form 2555 states
"for use by U.S. citizens" The 1040 form is titled
"U.S. Individual Income Tax Return".
Why
is the 1040 not titled "U.S. Citizen Income Tax Return"?
Apparently, the IRS does know the distinction between an individual
and a citizen after all.
The
top of Form 2555 instructs the filer to "attach to Form
1040", by which we see that the 1040 is a supplemental
worksheet to be attached behind the required Form 2555. There's no
place on Form 2555 for numbers. It simply allows you to state where
you were working abroad, whether you were renting or owned a home,
etc.
As
further proof of the above, Treasury Decision 2313 was issued in
1916 to "collectors of internal revenue" and clarifies
that the Form 1040 individual income tax return is to be used only
by the U.S. representative of a nonresident alien receiving interest
and/or dividends from the stock of domestic corporations on behalf
of that alien. Treasury Decision 2313 has not been overturned to
this day.
Stopping
Tax Withholding
Now
that we have seen that most Americans have never actually paid a
dime in income tax, we need to examine the employment tax to see who
owes it and how they became liable to pay it.
Subtitle
C encompasses Chapters 21-24 of the Internal Revenue Code and is
where employment, or social security, taxes are covered. It is of
interest to note that, unlike subtitle A which imposes the income
tax on the individual with foreign source income, there is no code
section in all of subtitle C which imposes the employment tax
directly from the written statute itself. The employment tax is
self-imposed by the citizen who wishes to become a covered employee
by using a SSN, presumably because he wishes to build credits
towards vesting in welfare entitlement programs such as social
security, Medicare and so forth.
Now
let's look at the proper paperwork within the law to stop
withholding of income and employment tax in the workplace. IRS
Publication 515 contains a statement the IRS probably hopes most
Americans never see. Under the main heading "Withholding
Exemptions and Reductions" and within the paragraph titled
"Evidence of Residence", the IRS states the following in
speaking to the payer of income, such as the business owner:
"If an individual gives you a written statement stating that he
or she is a citizen or resident of the United States, and you do not
know otherwise, you do not have to withhold tax under the rules
discussed in this publication. Instead, get Publication 15, Circular
E, Employer's Tax Guide."
Obviously,
if the citizen were ever liable for the withholding of income tax,
this statement would never need to appear in print anywhere. With
regard to the suggestion to obtain Circular E, our friends at the
IRS fail to clarify that the Employer's Tax Guide has to do with
employment taxes under subtitle C of the code, and has nothing
whatsoever to do with the withholding of the income tax under
subtitle A, which is the subject of Publication 515. Of course, the
IRS would never use such devious and misleading language on purpose,
would it?
The
Law supporting the above statement in Publication 515 is found at
section 1.1441-5 of the Code of Federal Regulations for Title 26, in
which a U.S. withholding agent is authorized to accept a statement
of citizenship from a citizen.
Under
the Law, the withholding agent is to retain the original of the
statement of citizenship and to send a copy with a transmittal
letter, not to the local IRS service center, but to the service
center in Philadelphia only. This is understandable since
Philadelphia is the IRS' international, or foreign tax office and
the income tax, as we shall see, is an excise tax on foreign income
only. For a copy of Publication 515, call the IRS forms distribution
center at 1-800-TAX-FORM or download it from their Internet web site
at http://www.ustreas.gov.
Some
claim that the proper way to stop withholding is to mark a Form W-4
"exempt." This is incorrect. The Law allows only students
and certain members of the clergy to claim exemption from
withholding on Form W-4 since, under certain circumstances, they may
be eligible for entitlement benefits without having contributed
themselves. If the W-4 is marked "exempt", the IRS'
Questionable W-4 Computing Center in Detroit, Michigan ordinarily
will not prosecute for fraud but will simply write and instruct the
business owner to withhold at the rate of single: zero.
Many
working Americans have successfully stopped tax withholding upon
presenting the statement of citizenship and accompanying paperwork
to the business owner. Of course, a great many more have been
refused their right to take home 100% of the fruits of their labor,
due to many business owners' refusal to accept and forward the
statement of citizenship to Philadelphia, no doubt due to their fear
of the IRS and reliance upon undereducated tax professionals who
tend to believe that, if they haven't seen it before, it cannot be
true.
If
this is the case, there are Non-Covered Worker Contracting services
which will accept the statement of citizenship so that the worker
will achieve his objective: namely, to take home 100% of his
paycheck. And the benefit to the business owner is that he is
relieved of the costs of Workers' Compensation and 50% matching
co-FICA on the worker. In fact, upon discovering the advantages of
contracting out for the employment of a worker, many business owners
have become so enthusiastic that they've encouraged all of their
other employees to do likewise!
One
common concern voiced by workers who become intrigued with the idea
of taking home 100% of their paycheck but remain as yet unfamiliar
with the law goes something like this: "But if I don't have
taxes withheld during the year, what will I do next April
15th"? As we have seen, there is no requirement under the law
for a citizen to file returns to report his own domestic income.
"Covered
Employment"
The
Social Security tax is covered under chapter 21 of the Internal
Revenue Code, titled: "Federal Insurance Contributions
Act". But who is covered and where?
Section
3121(e)(2) of the code states: "For purposes of this chapter --
The term "United States" when used in a geographical sense
includes the Commonwealth of Puerto Rico, the Virgin Islands, Guam
and American Samoa." In law, the term "includes" is
always restrictive, never expansive. In other words, it's restricted
to ONLY what is listed and no more.
As
proof of the above, code section 7655 titled "cross
references" states: "(a) Imposition of tax in possessions.
For provisions imposing tax in possessions, see -- (1) Chapter 2,
relating to self-employment tax; (2) Chapter 21, relating to the tax
under the Federal Insurance Contributions Act."
Clearly
this section shows the application of both the self-employment tax
and the FICA tax imposed under Chapters 2 and 21 to be limited to
"possessions", namely Puerto Rico, Virgin Islands, Guam,
and America Samoa as listed in IR Code section 3121(e}(2) defining
the term "United States".
Section
3403 titled "Liability for tax" states: "The employer
shall be liable for the payment of the tax required to be deducted
and withheld under this chapter, and shall not be liable to any
person for the amount of any such payment." This section
usually erroneously convinces non-government employers that they are
personally liable to pay to the IRS the amount the withholding
tables specify even if they do not withhold the money from their
employees' pay.
Non-government
employers rarely understand that the term "employer" used
in this section does not apply to them because the term
"employer" as defined in the withholding provisions, means
only Federal government related agencies and instrumentalities as
listed in section 3401(c). Even then, withholding applies only
within the four island possessions and then only when there is a
voluntary mutual agreement for withholding requested by the
"employee" and agreed to by the "employer".
In
a letter dated January 24, 1996 to a constituent, Congresswoman
Barbara Kennelly admits: "... Section 3(a) of H.R. 97
(legislation she was sponsoring) defining the word state, and 26
U.S. Code 3121(e) are ... not the same ... The term state in 26 U.S.
Code 3121(e) specifically includes only the named U.S. territories
and possessions of the District of Columbia, Puerto Rico, the Virgin
Islands, Guam and American Samoa ...".
Because
of these facts there is no way a non-government employer within the
fifty states can be required to withhold tax under Chapter 24. He
cannot be "liable" for payment of the tax unless he
voluntarily acts as an unpaid tax collector for the government. The
FICA tax imposed on workers under the provisions of Section 3101 is
a territorial income tax which applies only in the four island
possessions.
The
regulations implementing the withholding provisions in the IR Code
clearly show that all withholding is voluntary for all individuals,
both government employees, (under 3402(p)(l)(A) and non-government
(under 3402(p)(3)) workers. In order to institute withholding, a
voluntary request must be made by the employee and acceptance must
be made by the employer.
The
bottom line is that there is no legal requirement for the common law
business owner within the 50 union States to become an uncompensated
bookkeeper for government, unless he likes working for free. And the
citizen-worker can take home 100% of his paycheck unless he wants to
be eligible for government welfare.
The
employer who volunteers to obtain and use an EIN actually converts
his constitutionally protected status from common law employer to
statutorily defined "covered" or "participating"
employer. Likewise, the employee who volunteers to obtain and use an
SSN converts his constitutionally protected status from common law
employee to statutorily defined "covered" or
"participating" employee. Here is what the law says with
regard to covered employment.
The
Code of Federal Regulations for Title 20, at section 404.1001 states
at paragraph (a)(2): "If you are an employee, your covered work
is called 'employment'."
Section
404.1001(a)(3) states: "If your work is 'employment' your
covered earnings are called 'wages'."
Section
404.1003 states: "Employment means, generally, any service
covered by social security performed by an employee for his or her
employer."
Section
404.1041(a) states: "The term "wages" means
remuneration paid to you as an employee for employment unless
specifically excluded."
So
we see that covered employment is the legally defined condition of
receiving covered earnings from a covered employer as compared to
non-covered employment which is simply common law employment, that
is, the exercise of one's basic right to work without having monies
withheld as contributions towards government welfare schemes.
The
business owner who is not making use of an EIN is simply a common
law employer while the employee who is not making use of a SSN is
simply a common law employee.
Property
Rights Protected In Our Constitutional Republic
Clearly,
the distinction between employee and "covered employee" is
not merely one of semantics, but one which reaches to the very
bedrock of American Liberty since all socialist wealth
redistribution schemes in our republic can only be 100% voluntary!
The reason this is true is because one's labor is the ultimate form
of personal property and the federal Constitution expressly
prohibits the taking of private property for public use without just
compensation under the 5th Amendment.
Simply
stated, money cannot be taken by government from one citizen without
his consent and given to another citizen without robbery occurring,
regardless of whether or nor such takings are couched behind phrases
like "fair share", "entitlements", and
"social policy". In order for money to be exacted from
citizen A and given via government to citizen B, the consent of
citizen A must first be obtained.
The
bottom line is that the citizen who wishes to work for another
citizen is not required by Law to have his most private property --
the fruits of his labor -- withheld from him before he can receive
it, and redistributed through federal and state give-away programs
to other citizens who may not be as productive.
Covered
employment, although an entangling web which imposes many burdens
upon both covered employer and covered employee, is voluntary since
there is no legal requirement to enter the web. To repeat: the
citizen who wishes to start his own business is not required by Law
to function as an uncompensated bookkeeper for government. He must
volunteer into this status of unpaid servitude. Such noble
volunteerism has come back to haunt many a small businessperson who
fell behind in making deposits of withheld payroll taxes.
Such
withholdings are called "trust funds" and the IRS is
particularly aggressive in going after the hapless business owner
who dips into such withholdings to cover the costs of other business
operations.
Introducing
"Non-Covered Worker Contracting"
What
business owners need, although most are still unaware of the
arrangement, is the form of working relationship known as
Non-Covered Worker Contracting, which simply means the exercise of
one's constitutionally protected right to contract. Welcome to the
world of American Contractor Services.
Employment
contracting reaches down to the most basic principles of the
American experiment in individual liberty and self-government with
its built-in constitutional protections of individual rights.
Namely, under what conditions are you truly a free man or woman? If
someone else -- government, for example -- can take a portion of
your property without your permission, can you truly be free?
The
answer is both yes and no. As Supreme Court Justice Fields stated in
the 1883 Supreme Court case Butchers' Union Company v. Crescent City
Company: "It has been well said that the property which every
man has in his own labor, as it is the original foundation of all
other property, so it is the most sacred and inviolable."
One's
own life is unarguably the most personal form of property. And of
what does one's life consist? Of a limited number of hours which,
once passed, can never be relived. Because one's labor involves the
sale of one's hours -- of one's very life -- for compensation, it
can logically be said that without control over the disposition of
one's own labor, one is not in control over the disposition of one's
life and cannot truly be said to be in a condition of Liberty.
Anything
less than 100% Liberty is some percent of slavery, or involuntary
servitude, which is prohibited under the 13th Amendment to the
Constitution. Translated, this simply means that if you don't have
total control over your personal property including your labor, you
don't fully control your own life and Liberty. You are controlled by
someone else.
Rights
Cannot Be Taxed!
All
rights come from God, not from man or his agents in government and
rights cannot be taxed. For example, consider your God given right
to life. Can it be taxed? Of course not. If it could, the tax could
be raised so high as to force you to give up your life due to your
inability to pay the tax. Obviously such a proposition is ludicrous.
The
license to form a corporation, partnership or other such entity,
however, is a privilege granted by government, meaning by man --
specifically, by those men and women in the legislatures who write
the laws affecting such artificial entities. A corporation can not
only be taxed, it can be regulated according to the pleasure of the
legislature and taxed high enough to force it into certain types of
behavior. In this manner, legislatures routinely manipulate the
levers of political control.
The
Founders and Framers of our nation recognized that one's right to
contract was a basic, elementary right which preceded even the
forming of our Constitution, which is why Article 1, Section 10 of
the Constitution states: "No State shall pass any Law impairing
the Obligation Of Contracts".
This
simply means that any citizen of one of the current 50 States of the
Union enjoys the unalienable right to contract with another citizen,
absent fraud or the intent to commit fraud, with no interference by
or "partnership" with government. He can start his own
business and contract with any other citizen for labor, goods or
services and no act of the legislature can impair his right to do
so.
What
does it mean to contract with another citizen for one's labor? Quite
simply, to go to work for someone else, exchanging the hours of
one's life for compensation. This is a like-kind exchange: one unit
of labor given in exchange for one unit of compensation received.
Therefore, there is no gain: there is complete parity in the
exchange since neither party benefits unevenly.
Each
receives exactly the same from the other, however the form or
substance of the compensation can be whatever is agreeable to both
parties as a medium of exchange and can take the form of green
pieces of paper called Federal Reserve Notes, of real money in the
form of gold and silver coin, or of some other physical substance
such as firewood, food or whatever.
Since
the right to contract for one's labor is an inherent God-given right
and not a privilege, the worker logically has the inherent right to
keep 100% of the compensation he receives for the performance of the
service or product he provides. If this is true, and it is, then
where does the income tax, which is the second plank Karl Marx'
"Communist Manifesto" -- a blueprint for communism -- fit
into a constitutionally limited republic such as ours? The answer is
that it doesn't.
The
primary reason why all democracies throughout history have failed is
that the majority of the citizens eventually discovered that they
could elect those politicians who would guarantee them the greatest
share of wealth from the public trough. America's Founders knew and
understood this. Perhaps, through information such as you have just
learned, their vision will finally prevail.
High
Court Forbids Congress To Legislate Socialism
Interestingly,
the Supreme Court addressed this issue precisely in the case
Railroad Retirement Board vs. Alton Railroad Company, decided May 6,
1935. Congress had passed an act to provide for the retirement of
railroad workers and the Court declared it unconstitutional,
stating:
"The
catalog of means and actions which might be imposed upon an employer
in any business, tending to the comfort and satisfaction of his
employees, seems endless. Provisions for free medical attendance and
nursing, for clothing, for food, for housing, for the education of
children, and a hundred other matters might with equal propriety be
proposed as tending to relieve the employee of mental strain and
worry. Can it fairly be said that the power of Congress to regulate
interstate commerce extends to the prescription of any or all of
these things? Is it not apparent that they are really and
essentially related solely to the social welfare of the worker, and
therefore remote from any regulation of commerce as such? We think
the answer is plain. These matters obviously lie outside the orbit
of Congressional power."
In
other words, Congress has no constitutional authority to legislate
for the social welfare of the worker.
Roosevelt
Gets Social Security Passed As A Treaty
Three
months later, in order to sidestep the high Court, the Social
Security Act that President Franklin D. Roosevelt signed on August
14th, 1935, was treaty based. As incredible as the truth actually
is, this act was imposed on aliens only, yet hundreds of millions of
unwitting Americans have since obtained a SSN and contributed
towards retirement benefits under treaty based legislation.
Roosevelt knew that the Supreme Court would have no objection to
treaty-based legislation which taxed American citizens in their own
country only when they volunteer to apply for government benefits.
You
see, treaties are between governments, not citizens, therefore a
treaty between the united States and a foreign country would affect
the conduct of the citizen when he's an alien in the other country
with whom the treaty exists, but has no bearing on the citizen when
in his own country. To believe otherwise would be ludicrous. How,
for example, could French law sweep across the Atlantic ocean and
down into a farm house in Kansas to dictate to Farmer Brown and his
wife how they must lawfully conduct themselves?
Of
course, that doesn't prevent the Browns from volunteering to be
covered under a treaty-based program when in their own country.
Although the social security program requires TIN's of foreigners
only, the citizen can elect to number himself and participate in
government handout schemes.
Am
I My Brother's Keeper?
If
you have always leaned towards or supported liberal give-away and
spending programs, please don't misunderstand what I am saying or
misconstrue me as hard-hearted. Nothing could be further from the
truth. All rational societies in man's history have provided to take
care of those less fortunate, by which I
mean to say those who are disabled or otherwise incapable of
caring for themselves as opposed to those who are simply unwilling
to work.
If
your neighbor is in need of a pair of shoes and you have an extra
pair, you can give them to him of your own free will. That's called
charity and has existed since mankind's earliest days in many forms,
including personal giving, community and church volunteerism and
private philanthropy. But if, however noble my motives may be, I
come to your house and take a pair of shoes from you without your
consent at gunpoint or under threat of fines or incarceration in
order to give them to someone else, that's still robbery. It is no
less robbery if the robber is named government.
If
you believe that government should be in the public charity
business, the federal government offers many voluntary programs such
as social security into which you can contribute and from which you
can collect with no robbery involved because they're all voluntary.
Of course, the legislature may borrow your contributions in the
meantime and spend them to bail out their private banker friends,
study the sex life of the tse tse fly, travel on pork barrel
"good will" expeditions to tropical vacation atolls ,
etc., and basically forget all about you and your
"retirement".
Unfortunately,
the government has for the most part neglected to explain the
voluntary aspect of social security to its taxpaying constituents.
Most Americans don't realize that no federal benefits are paid
automatically, they must be applied for. Even a retiree who wishes
to begin receiving social security payments must apply for the
benefits. In order to become eligible to receive, you first must
have given, although both ends of the pipeline are voluntary. You
apply for the number, a voluntary act; you then apply for permission
to use the number and be withheld from when you work, another
voluntary act; and, finally, you apply for permission to receive
benefits, another voluntary act.
In
order for the Social Security Administration to keep track of how
many contributions are being accumulated, or credited, towards such
benefits, a unique number must be assigned to each taxpayer so that
his records will not be confused or combined with those of any other
taxpayer. Since the IRS is tasked by Congress with the job of
collecting all taxes, including the social security tax, the IRS has
a space on virtually all of its forms that request the TIN of the
person making out the form. Most IRS forms require a signature in
order to be filed, and as mentioned earlier, a signature can only
ever be voluntary. Furthermore, virtually all IRS forms contain a
penalty of perjury clause, which is further evidence of their
voluntary nature, since, under the 4th Amendment to the
Constitution, no one can be compelled to produce books and records
unless under court order and even then, cannot be forced to testify
as a witness against himself under the 5th Amendment.
Since
the Constitution protects the right of one citizen to "contract
out" his labor to another citizen, neither federal nor state
government can interfere with this basic and unalienable right. Such
contracting is called "employment contracting" and not
only relieves the business owner of all of the burdens of payroll
bookkeeping, it allows the worker to take home 100% of his weekly
paychecks with no taxes withheld.
Movie
Star Introduces Tax Withholding As Crowds Cheer
At
this point, it would be useful to take a look at the history behind
tax withholding. The Victory Tax Act was enacted in 1942 at the
outset of World War II. The Victory Tax was a direct tax on income
and therefore in violation of Article 1, Section 2, Clause 3 of the
United States Constitution, however, the constitutionality of the
tax was never challenged.
The
Victory Tax was first introduced to the American people by Disney
Studios' star property, Donald Duck, in a color cartoon commissioned
by the Department of the Treasury and titled "The Spirit Of
'43". That's right, Donald Duck. Remember what you are about to
learn the next time you visit a Disney theme park (and why is this
not depicted in an "animatronic" exhibit?)
This
short color film ran for an extended period as a leader to popular
motion pictures of the era shown in movie theatres nationwide. In a
time prior to the advent of television, movie going was a common and
popular pastime, with most Americans going to the movies at least
once each week. By various estimates, over 60 million Americans
viewed a reluctant Donald Duck being converted into an eager, tax
paying duck who would allow taxes to be withheld "to defeat the
Axis". A Gallup poll indicated that the film affected 37% of
all American taxpayers' willingness to pay the Victory Tax.
Due
to its sophisticated displays of anti-Nazi symbolism, audiences
stood and cheered at the film's end with patriotic fervor and any
American at that time who argued the constitutionality of the
Victory Tax would no doubt have been strung up from the nearest
streetlight as a Nazi sympathizer. The end result of this effective
propaganda campaign by the Treasury Department is that over
39,000,000 Americans were persuaded to pay the voluntary Victory Tax
as a patriotic contribution towards the war effort.
The
Victory Tax Act was renewed in 1944 and was to expire upon the
cessation of hostilities, yet remains in effect today, codified
under the Internal Revenue Code at code section 3402 in subtitle C.
You see, when Roosevelt's war (some still call it World War II) was
over, Washington simply could not let go of its newfound riches --
the payroll tax the public had been conditioned to accept. The
"baby boom" generation would not even question it.
Top
Banker Reveals: "Taxes For Revenue Are Obsolete"
The
concept of wage tax withholding was actually introduced by Beardsley
Ruml, then Chairman of the powerful New York branch of the Federal
Reserve Bank of New York. Mr. Ruml called his proposed withholding
scheme "the Ruml pay-as-you-go plan". In 1946, Mr. Ruml
wrote a paper titled "Taxes For Revenue Are Obsolete"
which he read before the American Bar Association and was published
in the January 1946 issue of American Affairs magazine.
In
this article, he revealed that the real reason for the income tax is
to protect the buying power of a paper money that is no longer
backed by gold or silver. Mr. Ruml explained that, by transferring
purchasing power from the people to the government, the income tax
offers a safety valve through which inflationary spending can be
released. By ladling excess paper from circulation through
confiscatory taxation, the hyperinflation that would ordinarily
result from fractional reserve banking can be delayed.
For
those who may be interested, the true, hidden purpose for the income
tax is revealed thoroughly in a two-hour video titled "The
Truth Behind The Income Tax" and can be ordered directly from
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It
is interesting to note that today's wage tax withholding which is a
continuation of the Ruml pay-as-you-go scheme was designed not by an
official of the federal government, but the most influential
American banker of his day. This fact alone should reveal the true
nature of the symbiotic relationship between the banker and the
taxman.
The
OMB approval control number which is displayed in the upper right
corner of IRS Form W-4 is "1545-0010". A tracing of this
number under the tax regulations will reveal that the sole authority
for the Form W-4 is code section 3402 which is found in Chapter 24
of subtitle C of the code and deals with employment tax only. As
stated above, 3402 is the current codification of Mr. Ruml's
withholding scheme.
Where
Do Your Tax Dollars Really Go?
And
where do the income taxes that are collected actually go? In 1982,
President Ronald Reagan formed The President's Private Sector Survey
On Cost Control, an independent panel of 160 of the country's top
business leaders headed by Peter Grace and known as The Grace
Commission, in order to find ways to cut federal spending.
In
their report submitted to President Reagan on January 15, 1984, this
blue-ribbon panel stated the following, quoting directly from page
12 of their report:
"Resistance
to additional income taxes would be even more widespread if people
were aware that one-third of all their taxes are consumed by waste
and inefficiency in the Federal government as previously identified.
With two-thirds of everyone's personal income taxes wasted or not
collected, 100% of what is collected is absorbed solely by interest
on the federal debt ... in other words, all individual income tax
revenues are gone before one nickel is spent on the services
taxpayers expect from the government."
This
illustrious private panel reported that not one dollar of personal
income tax collected by the IRS goes to pay for government services,
but actually goes to pay the interest on our "debt" to the
Federal Reserve. President Reagan thanked the Grace Commission for
their report and then shelved it. None of the recommended measures
to cut billions in government spending were implemented.
So
we see that the income tax goes to pay the interest on our debt to
the Federal Reserve. Of course this corresponds perfectly with what
Beardsley Ruml explained was the true purpose of the income tax --
to protect and prop up the buying power of paper money.
Protecting
Your Property
A
properly educated employment contracting company will uphold and
protect the property rights of a citizen. It will accept the proper
paperwork under the federal regulations as will be explained shortly
and will not withhold income or employment tax. It will insist that
due process be preserved with regard to claims by third parties and
will dishonor an IRS or state "Notice of Levy" if not
accompanied by a Warrant of Distraint from a court of competent
jurisdiction.
Section
6331 of the Title 26, Internal Revenue Code, states that it is
lawful for the Secretary to collect taxes by means of a levy only
after Demand for Payment has been sent to the person liable.
However, the IRS routinely violates the law by never bothering to
send a proper Demand for Payment to a citizen. Instead, they fool
the business owner into accepting a Notice of Levy which is not a
proper, lawful levy.
The
business owner honors the non-levy and sends the withheld monies to
the IRS. This common and unfortunate practice occurs since most
employers and their attending tax professionals never bother to read
the Law.
Internal
Revenue Code section 6331 title "Levy and Distraint" is
the only code section defining against whom levy may be made. When
the IRS sends out a Form 668-W, Notice Of Levy, on the reverse of
the notice they start with paragraph 6331(b), and deliberately omit
printing paragraph 6331(a), the definition of whom levy can legally
be made against.
Paragraph
(a) states: "Levy may be made upon the accrued salary or wages
of any officer, employee, or elected official, of the United States,
[or] the District of Columbia ... by serving a notice of levy on the
employer ... of such officer, employee, or elected official."
Section
6331 is the only authority in the entire IR Code that provides for
the levy of wages and salaries etc., and the limitation of that
authority should be rather obvious since it pertains only to certain
officers, employees, and elected officials of the government. In
other words, there exists no authority under Law for the IRS to levy
on the wages of a working citizen who is not an "... officer,
employee, or elected official, of the United States, [or] the
District of Columbia ...".
The
Legal Reference Guide For Revenue Agents, states at section 331.1:
".. it should be born in mind that a levy requires that the
property levied upon be brought into legal custody through seizure
... it cannot be emphasized too strongly that constitutional
guarantees and individual rights must not be violated...". Of
course, most agents never bother to read their own employee manual
and just do what their supervisors tell them to do. Many agents upon
discovering the truth become troubled at their actions and quit.
Perhaps such realizations contribute to the IRS' annual 40% employee
turnover.
In
the case United States v. O'Dell, the Circuit Court of Appeals for
the Sixth District stated on March 10, 1947 that a "... levy
requires that property be brought into legal custody through
seizure... and that mere notice is insufficient". The court
also stated that the method for accomplishing a levy is the issuing
of a Warrant of Distraint, the making of the bank or employer a
party, then serving them with a Notice of levy, a copy of the
Warrant of Distraint, and a Notice of Lien.
26
United States Code at section 6335(a) under Notice of Seizure
confirms this in stating: "As soon as practicable after seizure
of property, notice in writing shall be given by the Secretary to
the owner of the Property ...". In other words, the Law with
regard to levy clearly states that the property to be levied upon
must first be in the possession of the United States. Seizure must
precede levy and only property subject to forfeiture can be seized,
namely items manufactured for resale under subtitle E of the
Internal Revenue Code which covers alcohol, tobacco and firearm
products exclusively.
The
"Court Order" is a requirement for the levy procedure
because it establishes the validity of the IRS's claim to the third
party to whom the levy is presented, namely the bank manager or
business owner. Proper procedures assure the third party that the
lien and subsequent levy have been executed in a lawful manner.
The
"Court Order" also protects the third party from a
liability which may arise under the Code of Federal Regulations for
Title 26, Internal Revenue Code, at section 301.6332-1(c) which
states in part: " ... Any person who mistakenly surrenders to
the United States property or rights to property not properly
subject to levy [i.e., the bank manager] is not relieved from
liability to a third party who owns the property...".
A
bank manager or business owner is a fiduciary with the
responsibility for protecting the private property of his customer
or worker, namely the monies in his possession. Unfortunately,
virtually everyone, including most bank managers and business
owners, assume that the IRS has the absolute authority to do
absolutely anything it wants to.
A
responsible contracting company understands that, in our nation of
Law, the responsibility of the individual -- including the employer
-- is to know the Law that authorizes his or her individual actions,
and ignorance of the Law is no excuse.
If
the business owner knowingly breaks the law by honoring an IRS
Notice of Levy without the proper accompanying court documents, he
is in violation of the state property Law of "theft by
conversion" or unauthorized use of funds. This is a felony
offense under State law, and one that business owners who review
this presentation should consider carefully.
A
responsible contracting company would never honor an IRS Notice of
Levy on its face without also receiving a copy of the Notice of Lien
and the Warrant of Distraint from a court of competent jurisdiction
as the Law requires.
Protecting
The Privacy Of The Worker
Here's
an example of how a knowledgeable Non-Covered Worker Contracting
company can protect a worker’s privacy. Tax preparers routinely
fire off an IRS Form 1099 to any person whom they consider to be a
subcontractor. Of course, that's not what the Law says.
If
you were to research the OMB approval control number on Form 1099
back to the Code of Federal Regulations, you will discover that it
goes to two code sections only: 1041 and 3042. Both of these code
sections have to do with employment tax exclusively and have nothing
whatsoever to do with income tax.
If
a contracted worker/client gives a properly educated contracting
company a written statement that he is not a voluntary participant
in subtitle C employment withholding, the contracting company will
not issue him a 1099, therefore there will be no copy of the 1099
send to the IRS.
Taking
Control Of One’s Financial Affairs
Today,
more and more Americans are taking their personal and business
affairs into their own hands and relying less and less upon
licensed, fee-based professionals in all fields. One example of this
is seen in the area of health and medicine.
A
large segment of the public now exhibits a healthy mistrust of
licensed medical professionals and has come to embrace alternative,
holistic and other natural forms of healing, many of which can be
practiced at home. The days of putting Marcus Welby, M.D. on a
pedestal and blindly following his every utterance are long past.
In
similar fashion, the public is growing increasingly skeptical of
lawyers, C.P.A.'s, accountants, financial planners, tax preparers
and government-licensed professionals in general, and is learning
more and more to trust their own good judgment to cake care of their
own business affairs without depending upon licensed professionals
of all types, including our professional legislators in Congress,
virtually all of whom are members of the private labor union known
as the Bar Association.
It
has not escaped the public that Congress has succeeded in putting
America nearly $6 trillion “dollars” into debt as of this
writing, while escalating taxes to the breaking point for most
American families. The public has watched these career legislators
"fudge the numbers" and create the appearance of balancing
the government's books by raiding the so-called "trust
funds", year after year.
To
date, Congress has borrowed -- let's call it what it really is --
stolen, every dime not just from the social security trust fund, but
from the retirement trust funds for current government employees and
veterans of our armed services as well. All of these funds have been
sucked dry with nothing left behind but non-negotiable government
bonds. Any private business person who got caught doing likewise
would end up in jail alongside the junk bond kings.
For
an autopsy of the entire swindle, pick up a copy of Martin Gross's
paperback "The Government Racket: Washington Waste From A To
Z". One is reminded of the quote attributed to Samuel Clemens,
a/k/a author "Mark Twain": "There is no distinctly
native, American criminal class, except Congress".
The
only way the beneficiaries of these trust funds including tomorrow's
social security recipients can ever be paid is through reduced
benefits, increased taxes or, most likely, both. Most Americans do
not realize that they have no actual, individual contract with the
government for social security benefits, nor do they have any actual
"account".
Social
security is not a contract, but a political promise and Congress
could renege on all payments tomorrow morning if they voted to do
so.
In
short, the public has witnessed its trusted representatives to
Congress abdicate their solemn responsibility as fiduciaries of
these taxpayer monies, spending them instead to bail out the private
S&L's, to provide loans and outright giveaways through the
International Monetary Fund to rescue the economies of Mexico,
Russia and, lately, a host of Pacific Rim nations.
The
public has seen the investment portfolio managers of many of
America's private corporations, from the smallest companies to major
Fortune 500 conglomerates, rob their own employee retirement funds
to finance advertising and marketing campaigns. How do they get away
with this? Because they know they can turn to the Federal Pension
Guarantee Corporation trust fund to bail them out with taxpayer
dollars. Of course, this trust fund is already in the red too, which
should cause any cautious person with a 401(k) or other pension plan
to scrutinize the activities of his pension fund manager.
Increasingly,
America's workers are coming to realize that the monies withheld
from their paychecks each week to be managed by a spendthrift
Congress could better be privately invested by themselves towards
their own retirement, under their own direct supervision and
control. Indeed, today's worker is highly motivated not to
contribute to failing federal welfare schemes. Just recently, social
security has been denounced in Forbes Magazine and others as a
"Ponzi scheme". One wag has suggested that a statue of
Italian immigrant, Charles Ponzi, father of the Ponzi pyramid
scheme, should be erected in the main lobby of the Social Security
building in Baltimore!
Even
Dorcas Hardy, former Social Security Commissioner under President
Reagan and author of the book Social Insecurity was quoted in the
December 1995 Reader's Digest as saying: "There is no prospect
that today's younger workers will receive all the Social Security
and Medicare benefits currently promised them".
A
recent research report titled The Financial Outlook for Social
Security and Medicare, published by the Congressional Research
Service as report number 92-608, dated July 31, 1992, uses the word
"insolvent" over two dozen times. Write to your
Representative and request a copy of the full report.
Given
the truth of the above, many Americans are now asking themselves:
"Why on earth am I contributing to this Black Hole each week?
I'll never see these monies again as long as I live! If only there
were some alternative." As a result of such realizations, many
Americans have concluded that they are more than capable of handling
their own personal and business affairs. Some of these
"affairs" include providing for their own retirement.
Others include providing for their own health and dental coverage as
well as provisions for their own automobile allowances, insurance
and other day-to-day miscellaneous expenses. In short, these people
want to take full control over the monies they receive in their
paycheck.
Conclusion
That
concludes this presentation. I hope you’ve found it useful. We've
learned the many disadvantages of covered employment, the relative
advantages of employee leasing, and the superior advantages of
Non-Covered Worker Contracting. I thank you for your interest in
preserving the American way of life as envisioned by our nation's
Founders and the Framers of the Constitution, many of whom
sacrificed everything to protect the rights to individual liberty
which you now enjoy, including your right to contract with other
citizens without being forced to participate in the type of
socialist wealth redistribution envisioned by Karl Marx. I hope
you've learned a little about property rights and due process.
Remember, go look up the Law!
A
Personal Invitation
American
Contractor Services (ACS) believes in the unregulated right to work
for a living without government intervention. As their new National
Spokesperson, I could not agree more. If you, Dear Reader -- whether
a business owner or a worker--, agree with their viewpoint, they
invite you to contract your labor through them. They provide service
to Americans in all 50 States and take pride in their
professionalism. To have an Independent Representative contact you
and review your present situation and objectives, contact their
office via their web site at http://www.americancontracting.com
and ask for Jim.
Independent
Representative Opportunity
American
Contractor Services also offers an outstanding opportunity to work
from home, part or full time. An Independent Representative (IR)
receives ongoing weekly commissions (paid monthly) as a percentage of the service
fee ACS charges for administering each payroll cycle. An IR is
responsible for his or her own expenses and has no
"territories"-all of America is the opportunity, with
millions of small businesses and tens of millions of workers waiting
to hear from our IR's! Because
American Contractor Services follows the law as written, they do not
require a SSN from their IR's, nor do they withhold taxes or issue a
1099 or W-2. And they pay cash.
IR
COMMISSION EXAMPLE #1 -- Marion is an IR for ACS. She signs up Joe,
a medical technician who is contracting with his employer through
ACS at the rate of F$40 per hour.
Joe works, on average, 50 hours per week and earns F$2,000
weekly. Since he works
50 weeks per year, his combined annual earnings are F$100,000. For
as long as Joe stays at his present job contracting through ACS (or
continues to contract through ACS even if he changes jobs), Marion
will receive an ongoing weekly commission of F$20 (1.0% X F$2,000,
paid monthly), for annual commissions on this one account of
F$1,000. Remember, she receives this for signing up Joe just once!
All Marion needs to do is to sign up one more "Joe" each
week on average for 50 weeks to reach a total annual commission
level of F$50,000(!), the equivalent of approximately F$73,533
annually that Marion would have to earn on a W-4 withholding basis,
since the average amount deducted from the average American's
paycheck is 38%.
IR
COMMISSION EXAMPLE #2 -- Scott is an IR for ACS. He approaches Bob,
the owner of Multi-State
Machine Company. Bob
sees the value of getting completely out of the payroll withholding
employment scheme and asks Scott to conduct a lunchtime seminar for
Bob's workers. Scott signs up 6 of Bob's tool-and-die workers who
contract for an average of F$20 per hour each over an average
50-hour work week. The combined payroll for all 6 workers is
therefore F$6,000 per week; the
annual payroll is F$300,000. ACS pays Scott an ongoing weekly
commission of F$60 (1.0% X F$6,000, paid monthly, for combined
annual commissions of F$3,000 on just this one business account! How
many other machine shops are there across America that need this
information? All Scott needs to do is to sign up one of them (or the
equivalent payroll volume) on average each week for 50 weeks to
enjoy total annual commissions of
F$150,000, the equivalent of over F$220,000 annually on a W-4
withholding basis.
Thank You For Reading
Given that the Internal Revenue Service is the
Article II (executive branch) office tasked with the duty of
enforcing our nation's tax laws exactly as written (as
evidenced by the clear intent of Congress displayed in the Internal
Revenue Code), why is the preceding clear-cut information NOT prominently displayed on the IRS web site?
Why are there no Public Service Announcements on radio and
television? Perhaps
budget cuts have something to do with this egregious oversight. Then
again, perhaps not. Thanks for reading, and God bless.
Yours
For Liberty In Our Lifetime,
Gordon Phillips