FOREWORD: My initial view of the participants in what is discussed below was unmitigatedly harsh. Upon reflection, I have come to a more forgiving perspective, and no longer believe that anyone who has vigorously deployed the edited TD 2313 is guilty of deliberate fraud or ill-intent After all, the actual text of TD 2313 not only does not support the point for which the edited portion is presented, but does, in fact, discredit the entire 'argument' on behalf of which that edited portion is used. No one pushing that 'argument' who knew the text of TD 2313 in its entirety would draw attention to the decision for any reason, and particularly not in such a fashion as to taint his or her research or integrity credentials when the subterfuge was inevitably discovered.
Thus, while I had initially described "a scam being perpetrated within the 'tax honesty' community", I have changed this to "a scam being perpetrated upon the 'tax honesty' community"; and now reserve my harsh condemnation solely for whatever lurker-in-the-shadows it is that first crafted and introduced this cheap and nasty scam.
(There is one explicit exception to the benefit of this reasoning of which I am aware: Internet radio program host Dave Champion, who, on October 30, 2004, presented only the edited and misleading portion of TD 2312 as discussed below, and then was so shameless as to say, “I know some of the wording of that gets long… but…but I thought of editing it down, but…but I didn’t want to do that. I wanted you to hear the whole rambling bit. This one actually… it’s a photocopy out of the book, out of the Treasury… the book that contains the various Treasury Decisions… These are all original books, by the way, from the years that I’m reading to you… They’re very old… you can only find them in a law library.” Get audio here. Either Champion was casually lying about the trip to the law library, etc.-- perhaps as part of an effort to cheaply create an image as a serious researcher-- or he really DID go to the trouble he says he did, and then deliberately lied about TD 2313.)
Furthermore, this exculpatory reasoning is only applicable to past participation in this scam. Those who have continued to participate since the following material was posted and distributed on October 13th, 2004 (or who have failed to repudiate their past participation) are not entitled to its benefit.
A Cheap And Nasty Scam
It has come to my attention that a scam is being widely perpetrated upon the ‘tax honesty’ community. It involves the presentation of only a selected portion of Treasury Decision 2313-- the decision by which the effect of the Supreme Court’s ruling in Brushaber v. Union Pacific RR. Co. was incorporated into the federal revenue regulatory structure.
The portion of TD 2313 thus presented appears (or is used, at least) to support the contention that only “foreign” related receipts are taxed under the law. What is left off the doctored citation is the portion of the decision that directly contradicts this claim.
Here is the portion of TD 2313 that is presented in this scam:
of interest from bonds and dividends on stock of domestic corporations
owned by nonresident aliens, and the liabilities of nonresident aliens
under section 2 of the act of October 3, 1913.
of Commissioner of Internal Revenue
D.C., March 21, 1916
collectors of internal revenue:
Under the decision of the Supreme Court of the United States in
the case of Brushaber v. Union Pacific Railway [sic] Co., decided
January 24, 1916, it is hereby held that income accruing to nonresident
aliens in the form of interest from the bonds and dividends on the stock
of domestic corporations is subject to the income tax imposed by the act
of October 3, 1913.
Nonresident aliens are not entitled to the specific exemption
designated in paragraph C of the income-tax law, but are liable for the
normal and additional tax upon the entire net income "from all
property owned, and of every business, trade, or profession carried on
in the United States," computed upon the basis prescribed in the
The responsible heads, agents, or representatives of nonresident
aliens, who are in charge of the property
owned or business carried on within the United States, shall make a
full and complete return of the income therefrom on Form 1040, revised,
and shall pay any and all tax, normal and additional, assessed upon the
income received by them in behalf of their nonresident alien principals.
The person, firm, company, copartnership, corporation,
joint-stock company, or association, and insurance company in the United
States, citizen or resident alien, in whatever capacity acting, having
the control, receipt, disposal, or payment of fixed or determinable
annual or periodic gains, profits, and income of whatever kind, to a
nonresident alien, under any contract or otherwise, which payment shall
represent income of a nonresident alien from the exercise of any
or profession within the United States, shall deduct and withhold from
such annual or periodic gains, profits, and income, regardless of
amount, and pay to the officer of the United States Government
authorized to receive the same such sum as will be sufficient to pay the
normal tax of 1 per cent imposed by law, and shall make an annual return
on Form 1042.
The participants in the fraud point to this isolated excerpt and crow, “See! Only the income of non-resident aliens is subject to the tax!” (A less heavily flogged, but just as erroneous assertion regarding the purposes and limitations of the Form 1040 finds sustenance here as well.) Even without proceeding to what TD 2313 actually says in its entirety, these assertions are an effort to exploit a juvenile (but unfortunately not uncommon) error of logic. It will be observed that the word 'only' makes no appearance in what is presented. Thus, to draw the conclusions so triumphantly offered is like walking into a department store and, upon seeing a sign directing handicapped customers to use the elevators to reach the second floor, concluding that ONLY the handicapped are permitted to use the elevators; or that ONLY handicapped customers are permitted to visit the second floor. Neither of these things can be shown by the evidence cited, and both are contrary to common sense. The same is true of the conclusions suggested by those misrepresenting TD 2313.
fact, it is not necessary to discuss what conclusions can, or cannot, be
speculatively drawn from the language of the decision. Reading through the remainder of TD 2313 makes clear that not only does
the decision not support the claim that only non-resident aliens
are taxed under the law, but it actually and specifically declares what
is more-or-less the opposite: Citizens and residents are both taxed
(just as is said in the law, by the way), but by virtue of this decision
and the ruling upon which it is based, non-resident aliens ARE ADDED to
the ranks of those taxed, and all three groups are instructed to use
is the remainder of Treasury Decision 2313 (pay particular attention to
the first and fifth paragraphs of this portion of the decision):
The normal tax shall be withheld at the source from income
accrued to nonresident aliens from corporate obligations and shall be
returned and paid to the Government by debtor corporations and
withholding agents as in the case of citizens and resident aliens, but
without benefit of the specific exemption designated in paragraph C of
Form 1008, revised, claiming the benefit of such deductions as
may be applicable to income arising within the United States and for
refund of excess tax withheld, as provided by paragraphs B and P of the
income-tax law, may be filed by nonresident aliens, their agents or
representatives, with the debtor corporation, withholding agent, or
collector of internal revenue for the district in which the withholding
return is required to be made.
That part of paragraph E of the law which provides that "if
such person * * * is absent from the United States, * * * the return and
application may be made for him or her by the person required to
withhold and pay the tax * * *" is held to be applicable to the
return and application on Form 1008, revised, of nonresident aliens.
A fiduciary acting in the capacity of trustee, executor, or
administrator, when there is only one beneficiary and that beneficiary a
nonresident alien, shall render a return on Form 1040, revised;
but when there are two or more beneficiaries, one or all of whom
are nonresident aliens, the fiduciary shall render a return on Form
1041, revised, and a personal return on Form 1040, revised, for each
nonresident alien beneficiary.
The liability, under the provisions of the law, to render
personal returns, on or before March 1 next succeeding the tax year, of
annual net income accrued to them from sources within the United States
during the preceding calendar year, attaches to nonresident aliens as in
the case of returns required from citizens and resident aliens.
Therefore, a return on Form 1040, revised, is required except in
cases where the total tax liability has been or is to be satisfied at
the source by withholding or has been or is to be satisfied by personal
return on Form 1040, revised, rendered in their behalf.
Returns shall be rendered to the collector of internal revenue
for the district in which a nonresident aliens carries on his principal
business within the United States or, in the absence of a principal
business within the United States and in all cases of doubt, the
collector of internal revenue at Baltimore, Md., in whose district
Washington is situated.
Nonresident aliens are held to be subject to the liabilities and
requirements of all administrative, special, and general provisions of
law in relation to the assessment, remission, collection, and refund of
the income tax imposed by the act of October 3, 1913, and collectors of
internal revenue will make collection of the tax by distraint,
garnishment, execution, or other appropriate process provided by law.
So much of T.D. 1976 as relates to ownership certificate 1004,
T.D. 1977 (certificate Form 1060), 1988 (certificate Form 1060), T.D.
2017 (nontaxability of interest from bonds and dividends on stock), T.D.
2030 (certificate Form 1071), T.D. 2162 (nontaxability of interest from
bonds and dividends on stock) and all rulings heretofore made which are
in conflict herewith are hereby superseded and repealed.
This decision will be held effective as of January 1, 1916.
W. H. Osborn
of Internal Revenue
Approved, March 30, 1916:
Byron R. Newton,
Secretary of the Treasury
In most cases, participation in this fraud involves no direct personal culpability. Most, if not all, of those who have spread this lie have done so without knowing the truth. They will have merely copied the work of others and presented it as fact, without ever independently verifying their assertions, or even suspecting the need to do so. However, as the complete text of TD 2313 has been floating about on the internet for years (and is available from any decent law library), this presentation of half the story is at best a reflection of poor research and verification practices. Everything else asserted by the same voices must be considered suspect, at least.
is entitled to his or her own opinion about what the facts might mean
(up to a point...),
but no one is entitled to parse, massage, or neglect those facts.
That these things have been done as part of the struggle against just such practices on
the part of the government is more than just reckless and
counter-productive. It is also an embarrassing irony.
(NOTE: The actual meanings of the terms “non-resident alien”, “citizen”, “resident”, and others used in TD 2313 and in the ‘arguments’ discussed here are outside the scope of this commentary; and are largely superfluous to the practical application of the “income” tax scheme in any case. Those interested in understanding that scheme should read ‘Cracking the Code- The Fascinating Truth About Taxation In America’.)
P.S. The TD 2313 scam puts me in mind of another, similar misrepresentation deployed to serve the same advocacy, which involves Section 25 of the Revenue Act of 1916. The section is presented alone, and is used to argue that the act of 1916 fundamentally altered the objects identified in the previous act of 1913 as subject to the "income" tax. I'll not discuss this in any detail here-- for those who have not been subjected to it, it is enough to expose the trick. What follows is for the benefit of those who have been taken in by this tawdry little subterfuge:
Contrary to the assertions of those seeking to bolster the '861' misunderstanding, Section 25 of the 1916 act merely ensures that nothing already assessed under the previous act (1913) gets assessed again under the new one, in a double taxation of the same "income". It is necessary to read the preceding section in order to understand Section 25. That section, Section 24, establishes that anything already assessed under the 1913 act (and thus out of the purview of the new 1916 version, per Section 25) was still due and owing. In other words, the 1913 act's provisions still applied to any "income" upon which the tax had been assessed prior to the adoption of the 1916 version; any "income" which had escaped assessment up to and beyond that point would be assessed under the 1916 act.
SEC. 24. That Section II of the Act approved October third, nineteen hundred and thirteen, entitled "An Act to reduce tariff duties and to provide revenue for the Government, and for other purposes," is hereby repealed, except as herein otherwise provided, and except that it shall remain in force for the assessment and collection of all taxes which have accrued thereunder, and for the imposition and collection of all penalties or forfeitures which have accrued or may accrue in relation to any of such taxes, and except that the unexpended balance of any appropriation heretofore made and now available for the administration of such section or any provision thereof shall be available for the administration of this title or the corresponding provision thereof.
SEC. 25. That income on which has been assessed the tax imposed by Section II of the Act entitled "An Act to reduce tariff duties and to provide revenue for the Government, and for other purposes," approved October third, nineteen hundred and thirteen, shall not be considered as income within the meaning of this title: Provided, That this section shall not conflict with that portion of section ten, of this title, under which a taxpayer has fixed its own fiscal year.
Unsurprisingly, those attempting to use the language of Section 25 to support their erroneous theories do not furnish that of Section 24 to their readers.
Comments Regarding Other Misunderstandings Of The Law