Early Federal Taxation

For a brief chronology of federal taxation, see: www.treasurytaxsecrets.com/commons/articles/tline/tl63001.htm

Section 104 of the Act of June 30, 1864, ch. 173, 13 Stat 276.

A revenue act entitled "An Act To provide ways and means to meet war expenditures, and for other purposes", passed June 13, 1898 (?? Stat. 448), levied taxes on fermented liquors; bankers; brokers; commercial brokers; custom houses brokers; theaters, museums, and concert halls; circuses; public exhibition halls; bowling alleys and billiard tables; and tobacco, cigars, cigarettes, and snuff; and other things. […]

The 16th Amendment

The history of taxation within the United States and within the United States of America begins before the 20th Century, but for the purposes of this paper it is only necessary to pick up this history around the start of this century. Some Revenue Acts, abbreviated R.A. in the U.S. Code, were enacted by the U.S. Congress in 1928, 1937, 1939, 1940, and 1942. There were also War Revenue Acts enacted for World War II. There were Internal Revenue Acts in 1926, 1939, 1954, and 1986.

NOTE: Within the United States means within the geographical boundaries of the
District of Columbia, the Territories of the U.S., and U.S. possessions; this
does not include the 50 states. Without means outside of these boundaries.

For the Congressional explanation of what is taxed through the 16th amendment, see the article on this amendment in the The Constitution of the United States of America: Analysis and Interpretation.

The Classification Act of 1923

On March 4, 1923, Congress passed "The Classification Act of 1923" (42 Stat. 1488, Ch. 265, Pub.L. 516). The enacting clause read "An Act To provide for the classification of civilian positions within the District of Columbia and in the field services." This act is meant to apply only to federal government employees wherever they may work, in D.C. or elsewhere, "in the field". It was this act that defined the terms "employee", "compensation", "service", and "position". These definitions were in effect when the Internal Revenue Code of 1939 (I.R.C.) was enacted on February 10, 1939. Even though this classification act was later repealed (Oct. 28, 1949, ch. 782, title XII, § 1202 (1), (4), (5), (9), 63 Stat. 972, 973), those definitions, being in effect at the passage of the Internal Revenue Code, must be still in force for the Code, it not being possible to amend definitions after the fact to include subjects outside of the intent and scope of the original act. Therefore, you only are an "employee" who is paid "compensastion" for his "service" if you are in a government civilian service "position".

Internal Revenue Code of 1939

The Internal Revenue Code of 1939 (53 Stat. 1), cited as "I.R.C.", was enacted February 10, 1939. This act "is intended to include all general laws of the United States and parts of such laws, relating exclusively to internal revenue, in force of the 2d day of January 1939 (1) of a permanent nature and (2) of a temporary nature if embraced in said Internal Revenue Title. In furtherance of that purpose, all such laws and parts of laws codified herein, to the extent they relate exclusively to internal revenue, are repealed, effective, except as provided in section 5, on the day following the date of the enactment of this act." (Sec. 4(a)) This was simply a compilation of the many internal revenue laws into one title.

Public Salary Tax Act of 1939

The Public Salary Tax Act of 1939 (53 Stat. 574), passed April 22, 1939, amended section 22(a) of the Internal Revenue Code (of 1939) to amend the definition of "gross income" to "(includ[e] personal service as an officer or employee of a State, or any political subdivision thereof, or any agency or instrumentality of any one or more of the foregoing)". This act relates "to the taxation of the compensation of public officers and employees" (header, 53 Stat. 574), which term "officer or employee" includes "a member of a legislative body and a judge or officer of a court." (Sec. 210, 53 Stat. 577)
In section 4 of the act we find "The United States hereby consents to the taxation of compensation, received after December 31, 1938, for personal service as an officer or employee of the United States, any Territory or possession or political subdivision thereof, the District of Columbia, or any agency or instrumentality of any one or more of the foregoing , by any duly constituted taxing authority having jurisdiction to tax such compensation, if such taxation does not discriminate against such officer or employee because of the source of such compensation." (See 4 USC 111.) This allowed the States to tax federal employees.

District of Columbia Revenue Act of 1939

...

The Victory Tax

Prior to World War II, the common man was not affected by income tax. The income tax only applied to government officers and employees, and industries within the Constitutional scope of federal taxation (including 'vices' like liquor, cigarettes and billiards).

But during World War II, under war powers on October 21, 1942, Congress adopted the Victory Tax which applied to "every individual" in the several states. This act (56 STAT 884, Public Laws - Ch. 619, Sec. 172 (a)), Temporary Income Tax on Individuals, amended Chapter 1 of the Internal Revenue Code to levy the Victory Tax on Individuals (Subchapter D, §§ 450-476, 34 and 35), extending the scope of federal taxation into the several states and upon the American public within The United States of America and within the United States. The original intent of this Act was to levy the temporary Victory Tax upon the salaries of individuals working both within the United States and without the United States, i.e., within the (then) 48 states of The United States of America, to support the war effort.

The Individual Income Tax Act of 1944

This temporary "Victory Tax" was repealed by the "Individual Income Tax Act of 1944", Ch. 210, Public Law 315, Sec. 6, May 20, 1944. Thus, the scope of taxation returned to what is was prior to the Victory Tax, making 'individuals' in the states no longer subject to income tax. However, the U.S. Congress simply failed to inform the people within the states that the temporary Victory Tax had been repealed. Since payroll deduction had been created to collect the temporary Victory Tax, private employers continued to deduct income tax while the workers did not voice an objection to what they were not aware. Thus, the people began to be treated as if they were public employees employed by the United States and not as private Citizens within the states.
NOTE: private employers plus workers = private sector public employers (United States, etc) plus public employees = public sector

The Internal Revenue Code of 1954

The Internal Revenue Code of 1954 (68A Stat 3), was "An Act To revise the internal revenue laws of the United States". The provisions of this Act set forth as "Internal Revenue Title" may be cited as the "Internal Revenue Code of 1954", and was enacted at the City of Washington on Wednesday, January 6, 1954, and approved August 16, 1954, 9:45 a. m., E. D. T. (Does enacting according to daylight savings or war time indicate that the act was an emergency war-time measure? See Notes on Legal Time.) It also provided that the 'Internal Revenue Code enacted of February 10, 1939, as amended, may be cited as the "Internal Revenue Code of 1939"'.

The Tax Reform Act of 1968

"An Act to reform the internal revenue laws of the United States" (100 Stat. 2085) redesignated the 1954 Code to be cited as the "Internal Revenue Code of 1968". It was enacted October 22, 1986.

Question: If the I.R.S. send you a letter citing "IRC xxxx", to what must they be refering? ...

But in order to properly interpret the law, the first thing to remember is that terms, sometimes seemingly common terms, are defined in particular ways usually different from the common meanings in order to apply the law to which the definitions pertain in a precise manner. Codes of law are particularly bad about defining a term many times over and in slightly different ways throughout the titles and chapters. This redefining, if one is not careful, will lead one to make a wrong interpretation of the law.

Another thing to keep in mind is the definition of "include", "includes" and "including". "Include" is a restrictive word which means "to confine within, hold as in an enclosure, take in, attain, shut up, contain, inclose, comprise, comprehend, embrace, involve". The "[t]erm may, according to context, express an enlargement and have the meaning of and or in addition to, or merely specify a particular thing already included within general words theretofore used". "'Including' within statute is interpreted as a word of enlargement or of illustrative application as well as a word of limitation." (Quotes from Black's 6th) Therefore, "include", "includes", and "including" while they don't strictly exclude anything else, they only include things already within the meaning of the word in which "include" is used, and those things so included are limited to things of the same class or type. Which leads us to the next point.

Lastly, a legal principle of which to be aware is that in laws a list contains only one type of character, i.e., all members of this list are of the same type of character or are within the same category. For example, consider the definition of person in 26 USC § 7701 (1) given as -

Here we see "a trust, estate, partnership, association, company, or corporation" and understand them to all be artificial entities; we might think that "individual" means a man or a woman, but it doesn't. The "individual" in this definition must be of the same class as the other entities in the list - artificial. (This is discussed later.)

Here are various definitions of import to this issue.

CODE. - Black's 3rd

A collection or compednium of laws. A complete system of positive law, scientifically arranged, and promulgated by legislative authority. (Cites omitted.) A "Code" implies compilation of existing laws, systematic arrangement into chapters, subheads, table of contents, and index, and revision to harmonize conflicts, supply omissions, and generally clarify and make complete body of laws designed to regulate completey subjects to which they relate. Gibson v. State, 214 Ala. 38, 106 So. 231, 235.
A collection of laws and constitutions made by order of the Emperor Justinian is distinguished by the appelation of "The Code," by way of eminence. See Code of Justinian.
A body of law established by legislative authority, and intended to set forth, in generalized and systematic form, the principles of the entire law, whether written or unwritten, positive or customary, derived from enactment or from precedent. Abbott.
A code is to be distinguished from a digest. The subject-matter of the latter is usually reported decisions of the courts. But there are also digests of statutes. These consist of an orderly collection and classification of the existing statutes of a state or nation, while a code is promulgated as one new law covering the whole field of jurisprudence.
(Subheadings omitted.)

Code. - Black's 6th

A systematic collection, compendium or revision of laws, rules, or regulations (e.g., Uniform Commercial Code). A private or official compilation of all permanent laws in force consolidated and classified according to subject matter (e.g., United States Code). Many states have published official codes of all laws in force, including the common law and statutes as judicially interpreted, which have been compiled by code commissions and enacted by the legislatures (e.g. California Code). See also Codification.

Employ - Black's 3^rd

Employed - Black's 3^rd

Employed in this state (Property and assets in this state) - Words and Phrases

Employee – The Classification Act of 1923 (42 Stat. 1488)

Employee - 26 USC § 3401 (c)

Employee - 26 USC § 7608 (5) (B), subtitle F

Employee - Black's 3^rd

Employee - partial, Black's 4^th

Employee - partial, Black's 6th

Employer - 26 USC § 3401 (d)

1. the United States or any instrumentality thereof,
2. an individual who is a resident of the United States,
3. a partnership, if two-thirds or more of the partners are residents of the United States,
4. a trust, if all of the trustees are residents of the United States, or
5. a corporation organized under the laws of the United States or any State.

1. if the person for whom the individual performs or performed the services does not have control of the payment of wages for such services, the term "employer" (except for purposes of subsection (a)) means the person having control of the payment of such wages, and
2. in the case of a person paying wages on behalf of a nonresident alien individual, foreign partnership, or foreign corporation, not engaged in trade or business within the United States, the term "employer" (except for purposes of subsection (a)) means such person.

Employer - Black's 3^rd

Federal income tax return - (cite ???)

Fiduciary - 26 USC § 7701 (6)

INCOME. - Black's 3rd, pg. 944.

The return in money from one's business, labor, or capital invested; gains, profit, or private revenue. Braun's Appeal, 105 Pa. 415; Peole v. Davenport, 30 Hun (N. Y.) 177; In re Slocum, 169 N. Y. 153, 62 N. E. 130; Waring v. Savannah, 60 Ga. 99.
"Income" is the gain which proceeds from labor, business, or property; commercial revenue, or receipts of any kind, including wages or salaries, the proceeds of agriculture or commerce, the rent of houses, or the return on investments; or the amount of money coming to a person or corporation within a specified time, whether as payment for services, interest, or profit from investment, its usual synonyms being "gain," "profit," "revenue." Trefey v. Putnam, 116 N. E. 904, 907, 227 Mass. 522, L. R. A. 1917F, 806. Something derived from property, labor, skill, ingenuity, or sound judgment, or from two or more in combination, or from some other productive source. Stony Brook R. Corporation v. Boston & M. R. R., 260 Mass. 379, 157 N. E. 607, 610, 53 A. L. R. 700. An increase of wealth, out of which money may be taken to satisfy the the impositions laid thereon. Brown v. Long, 242 Mass. 242, 136 N. E. 188, 189.
"Income" is gain derived from capital, from labor, or from both combined; something of exchangeable value, proceeding from the property, severed from the capital, however invested or employed, and received or drawn by the recipient for his separate use, benefit, and disposal. Eisner v. Macomber 40 S. Ct. 189, 252 U. S. 189, 64 L. Ed. 521, 9 A. L. R. 1570; Goodrich v. Edwards, 41 S. CT. 390, 255 U. S. 527, 65 L. Ed. 758; Noel v. Parrott (C. C. A.) 15 F.(2d) 669, 672. Money or that which is convertible into money. State v. Wisconsin Tax Commission, 187 Wis. 539, 204 N. W. 481, 482.
"Income" means that which comes in or is received from any business or investment of capital, without reference to the outgoing wxpenditures; while "profits" generally means the gain which is made upon any business or investment when both receipts and payments are taken into account. "Income," when applied to the affairs of individuals, expresses the same idea that "revenue" does when applied to the affairs of a state or nation. People v. Niagara county, 4 Hill. (N. Y.) 20; Bates v. Porter, 74 Cal. 224, 15 P. 732.
"Income" us used in common parlance and in law in contradistinction to "capital." 31 C. J. 397. Income, when not derived from personal exertion, is something produced by capital without impairing such capital, the property being left intact, and nothing can be called income which takes away fro the property itself. Sargent Land Co. v. Von Baumbach (D. C.) 207 F. 423, 430. Income is something which has grown out of or issued from capital, leaving the capital unimpaired and intact. Gavit v. Irwin (D. C.) 275 F. 643, 645.

INCOME TAX. - Black's 3rd, pg. 944.

A tax on the yearly profits arising from property, professions, trades, and offices. 2 Steph. Comm. 573. Levi v. Louisville, 97 Ky. 394, 30 S. W. 973, 28 L. R. A. 480; Parker v. Insurance Co., 42 La. Ann. 428, 7 So. 599. An income tax is not levied upon property, funds, or profits, but upon the right of an individual or corporation to receive income or profits. Paine v. City of Oshkosh, 190 Wis. 69, 208 N. W. 790, 791. Under various constitutional and statutory provisions, a tax on incomes is sometimes said to be an excise tax and not a tax on property, Hattiesburg Grocery Co., v. Robertson, 126 Miss. 34, 88 So. 4, 5, 24 A. L. R. 748, nor on business, but a tax on proceeds arising therefrom, Young v. Illinois Athletic Club, 310 Ill. 75, 141 N. E. 369, 371, 30 A. L. R. 985. But in other cases an income tax is said to be a property and not a personal or excise tax; In re Ponzi (D. C.) 6 F.(2d) 324, 326; Commonwealth v. P. Horillard Co., 129 Va. 74, 105 S. E. 683, 684; Kennedy v. Commissioner of Corporations and Taxation, 256 Mass. 426, 152 N. E. 747, 748 (but see In re Opinion of the Justices, 77 N. H. 611, 93 A. 311, 313). An "excise tax" is an indirect charge for the privilege of following an occupation or trade, or carrying on a business; while an "income tax" is a direct tax imposed upon income, and is as directly imposed as is a tax on lnad. United States v. Philadelphia, B. & W. R. Co. (D. C.) 262 F. 188, 190.

Includes & including - 42 USC § 1301 (b)

Includes & including - 26 USC § 7701 (c)

Individual - Black's 3^rd

Individual – Black's 6^th

LABEL. - Black's 3rd

Anything appended to a larger writing, as a codicil; a narrow slip of paper or parchment affixed to a deed or writ, in order to hold the appending seal.
In the vernacular, the word denotes a printed or written slip of paper affixed to a manufactured article, giving information as to its nature or quality, or the contents of a package, name or the maker, etc. See Perkins v. Heert, 5 App. Div. 335, 39 N. Y. S. 223; Higgins v. Keuffel, 140 U. S. 428, 11 S. Ct. 731, 35 L. Ed. 470; Burke c. Cassin, 45 Cal. 481, 13 Am. Rep. 204; U. S. v. Skilken (D. C.) 293 F. 916, 919.
A copy of a writ in the exchequer. 1 Tidd, Pr. 156.

Person - 26 USC § 6651 & 26 USC § 7343

Person - 26 USC § 7701 (1)

Person - 26 USC § 6041A (d) (1)

Person - Black's 3^rd

Person - Black's 6^th

Position – partial, The Classification Act of 1923 (42 Stat. 1488)

Service – The Classification Act of 1923 (42 Stat. 1488)

Service - partial, 26 USC § 3231 (d) (1) (2) [Railroad Retirement Tax]

Service - partial, Black's 6th

Shall be construed - Words and Phrases

Sors - Black's 6th

Lat. In old English law, a principal lent on interest, as distinguished from the interest itself.
A thing recovered in action, as distinguished from the costs of the action.
In the civil law, lot; chance; fortune; hazard; a lot, made of wood, gold, or other material. Money borrowed, or put out at interest. A principal sum or fund, such as the capital of a partnership.

Source - Black's 6th

That from which any act, movement, information, or effect proceeds. A person or thing that originates, sets in motion, or is a primary agency in producing any course of action or result. An originator; creator; origin. A place where somthing is found or whence it is taken or derived. Jackling v. State Tax Comm., 40 N.M. 241, 58 P.2d 1167, 1171.

The source of income. Place where, or circumstances from which, income at issue is produced. Union Electric Co. v. Coale, 347 Mo. 175, 146 S.W.2d 631, 635.

Taxpayer - 26 USC § 7701 (14); note: "taxpayer" is not equivalent to "tax payer"

Trade or business - 26 USC § 7701 (26)

Trade or business - Black's 6th

Wages - 26 USC § 3121 (a)

Withholding agent - 26 USC § 7701 (16)

Within -

Without -

"Income within the meaning of the sixteenth Amendment is the fruit that is born of capital, not the potency of fruition. With few exceptions, if any, it is "income" as the word is known in the common speech of men." United States of America v. Safety Car Heating and Lighting Company (Jan. 6, 1936), hn. 5, 297 U. S. 88, 80 L. Ed. 500.

The Individual Firm

Check type of firm for which the work relationship is in question:
[ ] Individual [ ] Partnership [ ] Corporation [ ] Other (specify).

The "Individual" indeed is defined as a "firm". A "firm" is an incorporated trade or business of sole proprietorship; a company with one owner who holds all of the stock. ("Excess Profits Tax Amendments of 1941", 55 STAT 25, SEC. 8, Vol. 55, Part 1, 1941-1942 & "Second Revenue Act of 1940", 54 STAT 991, SEC. 740, Vol. 54, Part 1, 76th Congress, 2nd & 3rd Sessions, 1939-1940).

Also note that, according to Black's Law Dictionary, in corporation law, an officer of a corporation is included as an employee, in agreement with 26 USC § 3401 (c). This suggests that 26 USC (the IRC) is corporate law, which supports again the notion that an "individual" is not simply a flesh and blood man (or woman), but has a corporate nature.

The purpose of the above mentioned Form SS-8 is for employers to file to get a determination as to whether a worker is an employee for purposes of Federal employment taxes and income tax withholding. Department of the Treasury-Internal Revenue Service knows the difference between a "worker" and an "employee" as well that an "Individual" is an "Individual firm". (The Form SS-8 may be found through the IRS Internet web page at www.irs.ustreas.gov.) To determine whether a worker is an employee or not, many factors are considered, but the basic test is whether the worker has control over how he does his work and whether he's liable for it. A servant is not liable for his work, but the independent contractor is.

The courts have in the past attempted to go astray and create new definitions for the term "employee", i.e., lack uniformity of Federal court decisions applying the term "employee". The U.S. Congress has stated their unbroken intent to realistically apply the common-law rules to determine who is an employee. One exception is that an officer of a corporation is an employee. An independent contractor is excluded from the definition of an employee since the employer-employee relationship does not fulfill the common-law rules. ("Employment Taxes and Social Security Benefits - Status Quo", U.S. Code Congressional Service, Vol. 1, 1948, Chapter 468, Public Law 642, p. 449). Here the U.S. Congress considers the correct common-law definition of "employee" to be:

The usual common-law rule defining an "employee" is well stated in the Treasury's regulation:

Who are employees.--Every individual is an employee if the relationship between him and the person for whom he performs services is the legal relationship of employer and employee.
Generally such relationship exists when the person for whom services are performed has the right to control and direct the individual who performs the services, not only as to the result to be accomplished by the work but also as to the details and means by which that result is accomplished. That is, an employee is subject to the will and control of the employer not only as to what shall be done but how it shall be done.

Notice that this definition is dependent upon the term "services".

Excise Taxes and Reporting

21. Federal Insurance Contributions Act
22. Railroad Retirement Tax Act
23. Federal Unemployment Tax Act
23A. Railroad Unemployment Repayment Tax
24. Collection of Income Tax at Source on Wages
25. General Provisions Relating to Employment Taxes

Chapter 21 refers to common-law employees, and officers of corporations, and workers in certain services (IRC § 3121 (d)).
Chapter 22 refers to employees of rail carriers (see IRC § 3231 (b),(a),(g))
Chapter 23 refers to those receiving ...
Chapter 23A refers to those receiving railroad ...
Chapter 24 refers to federal government employees and officers of corporations.
Chapter 25 has miscellaneous provisions.

In each chapter above, no where is a tax levied on those who are not working for the federal government or one of its agencies or instrumentalities, or for a railroad (and even then not all work may be considered as "employment" - see IRC §§ 3121(c) and 3402(e); this is in agreement with the revenue acts already discussed. People working in the private sector (even as "employees") are not taxed by these chapters. And independent contractors are not mentioned in any way, so therefore are not taxed (even, it seems, if they were government employees doing independent contracting on the side).

What is "Compensation"?

Except for Federal and State employees and military service members, these are miscellaneous earnings to an employee and not regular wage payments. The fact that an employee may be required to turn over to his employer his compensation for services he rendered lets us know this compensation is not of the same type as consideration to an independent contractor who is payed for work rendered. The important thing to note is that nowhere are the salaries/wages of those working in the private sector claimed to be included in the term "compsensation". But, the salaries of government workers are included - after all, that's who the income taxes (and 16^th Amendment) targeted anyway.

Trick of the "Trade or Business"

Look at the definition for "trade or business" and contrast it to those of "trade" and "business". You will notice that the special term "trade or business" has the distinct characteristics of being done by a taxpayer and for profit. Just because one has a trade or a business does not make one a taxpayer; one must have already been a "taxpayer" who then started a trade or a business, which the IRC refers to by the magic phrase "trade or business".

The only power the United States has been given is the power to regulate interstate commerce. The United States has literally tyrannical dictatorial power over the District of Columbia, the Territories, and its possessions. The United States may rule over the trade and business activities within the United States in any fashion it chooses. The term "Taxpayer" occurs as early as 1928 ("Revenue Act of 1928", Title I (A) § 4, 45 STAT 795 , Part 1, 1927-1929) and included individual citizens of the United States and citizens of any possession of the United States. This taxpayer could operate his United States' "trade or business" both within and without the United States, but still continued to be liable for income taxes. The private Citizen who is a worker for a private business becomes a "Taxpayer" through the admission, either knowingly or unknowingly, that he is engaged in a "trade or business". This magic phrase creates for the United States taxpayers from those engaged in private trade or private business; apparently, when the worker admits to engaging in a "trade or business", it is construed by the United States that this new "Taxpayer" is a citizen and resident of the United States. Since a taxpayer may conduct business without the United States, e.g., within the United States of America, Internal Revenue Districts have apparently been created and offices established for the convenience of the taxpayers paying income tax.

What are "Reportable Payments"?

(1) Reportable payment.--The term "reportable payment" means--
(A) any reportable interest or dividend payment, and
(B) any other reportable payment.
(2) Reportable interest or dividend payment.--
(A) In general.--The term "reportable interest or dividend payment" means
any payment of a kind, and to a payee, required to be shown on a return
required under--
(i) section 6049(a) (relating to payments of interest)
(ii) section 6042(a) (relating to payments of dividends), or
(iii) section 6044 (relating to payments of patronage dividends)
but only to the extent such payment is in money.
(B),,,
(3) Other reportable payment.--The term "other reportable payment" means
any payment of a kind, and to a payee, required to be shown on a return
required under--
(A) section 6041 (relating to certain information at source)
(B) section 6041A (relating to certain payments of remuneration for services)
(C) section 6045 (relating to returns of brokers)
(D) section 6050A (relating to reporting requirements of certain fishing boat
operators), but only to the extent such payment is in money and represents a
share of the proceeds of the catch, or
(E) section 6050N (relating to payments of royalties).

Most of the listed payments are pretty clear, but what isn't clear is to what kind of payments sections 6041 and 6041A refer. Let's examine these sections.

Refer back to the definitions and you will see that "service" is not a catch-all term but for purposes of income tax law is only that rendered by an employee for his employer (a railroad carrier), or the service of a public servant. By contrast, an independent contractor does not render "service" because it is not under the employee-employer relationship.

An independent contractor apparently is not required to have either withholding nor backup withholding taken from his consideration since -

(1) he does not perform a service as defined;
(2) he is not an employee as defined by the U.S. Congress and the law;
(3) he receives neither wages, income, nor compensation.

Additionally, there are procedures for refunding money erroneously taken from ...***

"Service" is performed by those individuals who fulfill the common-law definition requirements for "employee". Therefore, an independent contractor who does not fulfill the common-law requirements to be an "employee" does not perform a "service". Further, a non-resident alien is subject to backup withholding unless the employer has a FORM W-8, Certificate of Foreign Status (or substitute), a FORM 1001, or a FORM 4224 on file for him or her. (Publication 1716 (2-95), IRS Publications). A non-resident alien is defined as, "One who is neither a resident nor a citizen of the United States. Citizenship is determined under the federal immigration and naturalization laws." (Black's 6^th). However, the definition of citizen of the United States as defined earlier does not include the workers living in the 50 states. One can never be a resident if he never inhabits that geographic area.

Reportable payments per the CFR

Employers are liable for payment of the employees income tax (26 USC § 3403) and are generally required to report these payments to Internal Revenue Service on Form W-2 or Form 1099.

Reportable Payments are: (26 CFR § 31.3406)
1. interest payments;
2. dividend payments;
3. patronage dividend payments;
4. barter exchanges and gross proceeds of sales of securities or commodities by
brokers;
5. payments by certain fishing boat operators;
6. payments of royalties;
7. withholding payments;
8. backup withholding payments.

Note that this list of things does not include payments for things like actual labor, but things where money is made from money. Payments are reported only when they are made in the course of your "trade or business" and you are engaged in a "trade or business" if you are already a "taxpayer" who operates for gain or profit. ("Nonprofit organizations" are subject to these reporting requirements, too.)

... Even 26 CFR §§ 31.6413(a)-1 & 2, which relate to refunding erroneously collected withholding by the payor, show that withholding only applies to FICA and wages (? of employee).

Reportable Payments:

So, reportable payments are only certain payments for interest and dividends, gains of other particular privileged activities, and payments by government "employees" (and corporate officers) engaging in "trade or business". Payments by anyone else or for things other than those listed are not included under the reporting requirement, and, additionally, cannot be subject to backup withholding (see Instruction for the Requester of Form W-9, Payments Exempt From Backup Withholding).

As an aside, refer to FORM 1099-MISC Instructions available through the IRS Internet web page at www.irs.ustreas.gov. Employers shall not be required to deduct and withhold any tax from employees incurring no income tax liability upon payment of wages. This is based upon the employee furnishing to the employer a withholding exemption certificate certifying that the employee -

6 USC § 3402 (n))
(1) incurred no liability for income tax imposed under subtitle A for his preceding taxable year, and
(2) anticipates that he will incur no liability for income tax imposed under subtitle A for his current taxable year.

So there are workers who are not liable for income tax and the Secretary prescribes the form to be used for this. Primarily for seasonal and intermittent employers, the requirement to file a "no liability" FORM 941 is discontinued. (TD 8229, 53 F.R. 35810, 9-15-88)

Taxpayers:

The authorization for income tax is found at 4 USC § 111 where "The United States consents to the taxation of pay or compensation for personal service as an officer or employee of the United States, a territory or possession or political subdivision thereof, the government of the District of Columbia, or an agency or instrumentality of one or more of the foregoing ...". This includes public employees but not private Citizens who are workers without the United States. Further, 26 USC § 6331 (a), Levy and distraint, authorizes a levy only upon "the accrued salary or wages of any officer, employee, or elected official, of the United States, the District of Columbia, or any agency or instrumentality of the United States or the District of Columbia, by serving a notice of levy on the employer." (as defined in 26 USC § 3401(d)). Again, this includes public employees and not workers within the 50 states. Continuing levy is made on the salary or wages of a taxpayer (26 USC § 6331 (e) (1)). "Taxpayer" here includes any officer, employee, or elected official, of the United States, the District of Columbia, or any agency or instrumentality of the United States or the District of Columbia. The substitution of the term "taxpayer" for the officer, employee, or elected official is a diversion since the taxpayer is of the definitions given in 26 USC § 6331 (a); definitions given in the origination continue throughout the section.

The substitution of "taxpayer" for the officer, employee, or elected official in 26 USC § 6331 is an example of a legal principle of substituting a term for a previously given definition, thus, the concise definition need not be defined in this manner elsewhere. The diversionary definition presented in the DEFINITIONS then becomes the common one displayed in the USC and IRC definitions sections.

Thus, the term "taxpayer" has been defined in the USC and CFR as --
including a citizen of the United States, and
including a resident alien, and
includes the non-resident alien engaging in "trade or business" within the United States.

Summary

Read the definitions carefully and be absolutely certain that you have found and know the definitions for the specific section of the USC, the CFR, Public Law, or Status-At-Large that you are studying.

corporation* -- in the definition of taxpayer, this corporation is one that is organized under the laws of the United States or its possessions (Puerto Rico, Virgin Islands, etc.) It has not been found to include corporations within any one of the 50 States, i.e., organized under the laws of any one of the 50 States.

It is suggested that the reader familiarize himself with the following:
26 CFR § 1.864-2: Trade or business within the United States
26 CFR § 1.861-4: Compensation for labor or personal services
26 CFR § 1.871-8: Taxation of nonresident alien individuals engaged in U.S. business or treated as having effectively connected income
26 CFR § 1.931-1: Citizens of the United States and domestic corporations deriving income from source within a certain possession of the United States.

Scan a CD ROM containing the USC, USCA, and/or CFR for definitions of:
(1) United States
(2) State

You will find that "State" does not mean the 50 states, i.e., the several States, and only rarely includes the 48 continental States.