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Frequently Asked Questions Page Two

READ EVERYTHING THAT FOLLOWS CAREFULLY AND THOROUGHLY

Although material on this page is organized topically, don't assume that you can identify what you should read by picking among the topics.  Some material which is very important to a complete understanding of one subject area may be found in several different places.

READ THE WHOLE PAGE!

Every individual is responsible for his or her own overall education, conclusions and decisions, regardless of what may be read here.  Also, those who find their way here but have not yet read 'Cracking the Code-The Fascinating Truth About Taxation In America' might find much of what follows cryptic and/or confusing.

Read the book.

No other source of information on this subject will suffice-- in fact, most will simply make the truth difficult to understand.

Indeed, even those who HAVE read the book should be wary in regard to other sources of information.  Many tax "theorists" and soapbox orators have studied CtC themselves and have incorporated elements (or even a great deal) of what they have learned into their own presentations.  Thus, such presentations may appear on the surface to be soundly based.  However, since these partial-adopters have also clung to elements (or even a great deal) of their original misunderstanding, they continue to promote much error-- which is now just better concealed, or more convincingly presented, than before.  Click here for more on this.

If needed, click here for a brief review of the truth about the income tax.

A Lost Horizons "Income" Tax-related Site Map

The following links will take you to the indicated FAQ topic area (but everyone is strongly encouraged to read this whole page-- material located in one topic area can often significantly help in understanding the nuances of a different topic area):

Recent Changes In The Appearance Of Form 4852

About "Natural" Versus "Artificial" Persons

About "Excess Social Security and Tier 1 RRTA Tax Withheld"

There IS "A Law", And This Is How It Works

A Thumbnail Sketch Of The "Income" Tax Reporting And Determination Process

Does It Matter If I...

Regarding Capital Gains, Etc.

Does Filing Initiate An "Administrative Proceeding"?

What About Getting Loans?

Is It Necessary To Make Legal Arguments In A Filing?

Does Submitting A W-4 Make One Into An "Employee" (Or Constitute An Election To Be Treated As One)?

A "Wage" By Any Other Name Is Still Taxed The Same...

Does Using Federal Reserve Notes Make An Activity Taxable?

What About Being Licensed?

Are Activities As A Public School Teacher Subject To The Tax?

Frequently Asked Questions Page One

Q.  The new Form 4852 is different from the one in the appendix of CtC.  Is this significant?

Yes, and here's why:

EVEN WHILE MAKING TENS OF THOUSANDS OF GOVERNMENT ADMISSIONS TO THE CONTRARY in response to CtC-educated filings over more than ten years now, and even through repeated form revisions over that period, the US Treasury Department persisted in accompanying its "Form 4852 [substitute for incorrect or missing Forms W-2 or 1099-R]" with language suggesting that the form could only be used by "taxpayers", and that to use the form, or to report withheld amounts, was to declare (or agree) that "taxable income" had been paid. At long last, this misleading language has been withdrawn and replaced, in a tacit admission of the truth about both matters.

The faulty and misleading language had never appeared in the actual declaratory content of the form, of course. Instead, both false ideas were conveyed by inviting assumptions from phrasing in the "instructions" published with the form.

For instance, the "Purpose of Form" instruction accompanying prior versions declared that, "Form 4852 is completed by taxpayers or their representatives..." The casual reader was thereby invited to assume an "only" in that declaration, even though none actually appears.

Also carefully kept out of the form's declaratory content, and thus never crossing the line into directly implying that adverse inferences attend the use of the form as a legal matter while still being predictably misleading, language in the "Line-by-line" portion of the previous versions' instructions read, "Line 4. Enter the year the taxpayer had taxable income from which Federal taxes were withheld..."

In addition to appearing merely in the instructions and plainly reflecting self-serving assumptions about who would be using 4852s (in harmony with the revenue-hungry state's default position that any given economic activity is of the taxable variety unless and until declared otherwise by the actor), neither of these misleading expressions were definitive or pre-emptive. As noted above, there was no "only" in this language.

But at the same time, the retention of this misleading wording even after a growing number of Americans began using 4852s to rebut allegations of the receipt of "income", and despite several revisions of the form-- including revisions of the instructions-- each plainly in direct response to this new application of the form, was unquestionably a deliberate effort to corruptly encourage uncertainties and anxieties about this use of the form. Happily, some honest individual or group at the Treasury Department couldn't stomach the deception any longer, and a few months ago, the 4852 was revised yet again, this time with the misleading language removed.

(It's possible that honesty had nothing to do with this new, improved revision... Perhaps the change occurred due to virtuous push-back by CtC warriors.

No one has ever faced an assertion that 4852s couldn't properly be used as the CtC-educated use them. But some have had occasion to debunk a ridiculous assertion that amounts can only be withheld from "income" payments, and that therefore declaring that amounts have been withheld is to declare that "income" has been paid, made by an IRS or DOJ hack floundering about for an adverse argument in a legal contest. See some discussion of this subject here.

This latter "argument" is so patently untenable and embarrassing even just to read or hear-- and so readily debunked by simply inserting a big red "properly" into it, as, "amounts can only properly be withheld from "income" payments..."-- that someone in a position of authority may well have commanded that it be abandoned. After all, to trot out such a desperate argument, or even just to allow it to be suggested by the 4852 instruction language, is to more overtly admit to having no argument against a CtC-educated claimant than to simply say nothing...)

SO, LET'S LOOK AT HOW THE 4852 WAS BEFORE CtC and how it was changed in several revisions intended to discourage the educated CtC community (even while its members' claims continued to be routinely honored). Then we'll look at what it has now become in a tacit admission of the CtC-revealed truths the state still finds hugely inconvenient to its unbridled ambitions but no longer dares to deny in this fashion.

At the time of CtC's publication in 2003 the 1998 version of the form was the current version. Page 1 of that form-- the only page at which anyone HAD to look, since it's the one with all the "action" elements-- presented nothing at all capable of affecting one's view of the form's utility. Here is the bottom portion of that page, where we find the only text on the page which is not part of one of the fields to be completed:

1998 4852 page 1

On page 2 of the form we find the old portions of text which are the subject of our discussion, and which were, pre-CtC, not unreasonable in their inclusion. After all, pre-CtC, it is likely that the form would never have been used other than by someone who believed both expressions to be apt and unremarkable:

1998 4852 page 2

At the end of 2005, after the IRS had begun to be inundated with CtC-educated filings as word of the liberating truth about the tax spread, Form 4852 was revised. The "Paperwork Reduction Act" notice was shouldered off page 1 by the misleading "Purpose of Form" language (and some additional somewhat-discouraging-appearing material brand new for this revision). This change was plainly intended to deceive and discourage the growing army of newly awakened and upright ex-coppertops:

2005 4852 page 1

At the same, time, a slight change was made in the "Line 4" instruction which remained on page 2 ("the taxpayer" is replaced by "you"):

2005 4852 page 2

By early 2007, CtC-educated claimants were recovering all their money in ever-greater numbers. This was both for the simple reason that the liberating truth about the tax continued to rapidly spread, and because in April of 2006, the government had launched a new, transparently corrupt effort to discourage that spread which predictably backfired due to its particulars constituting unmistakable evidence of both the accuracy of CtC's information and the importance of that information being acted upon by every grown-up American with a smidgen of common-sense and love of country.

Still in its reflexive stonewall mode, the government rolled out another revision of Form 4852, retaining the misleading "Purpose of form" language on page 1 and adding penalty warnings which had never appeared anywhere on the form or its instructions in the past:

2007 4852 page 1

Page 2 of the form was essentially unchanged other than as necessary to account for the fact that some line numbers on the form had been changed. The misleading "line 4" language remained the same.

The return of improperly-withheld and -paid-in amounts by the federal and, by then, 33 state tax agencies and treasury departments ratcheted up during the subsequent several years. Within a year of this 2007 revision just the tiny fraction of these refunds generously furnished to me for posting and sharing with the world had reached a pace averaging $83,000.00 per month.

However, rather than just face the facts like a man and reconcile itself to the unchallengeable legal reality it was quietly acknowledging with every refund check, the government doubled-down, as is its reflex. In late 2008, after years of internal proposals to try to charge me with something in order to frighten people away from CtC-- each of which was declined by the IRS's own  "criminal division"-- and despite its failure to secure a real grand jury indictment, the DOJ "tax division" in Washington produced an unsigned "indictment" charging me with not really believing that my earnings don't qualify as "wages" (under a special tax-law "perjury" provision). A suitably manipulated show-trial followed a year later, resulting in a foreordained conviction.

As with the similarly-bogus, similarly truth-emphasizing "civil lawsuit" attack, this criminal assault just galvanized truth-fueled, truth-spreading American men and women. Even after I checked in at a federal prison, refunds based on what I was charged with not believing to be true continued to be demanded, and continued to issue forth, week after week.

Again desperate to frighten the people away from the inescapable, but oh, so inconvenient truth, the feds cranked out yet another revision of Form 4852 in late 2010. (It's worth noting at this point that prior to 1998, Form 4852 had not had a single revision of any of the varieties discussed here in all its prior 24 year history. A number of forms had been issued during those years--see here, here, here, here, here and here-- but the changes in all these cases simply involved some tweaking of the formatting, responses to the OMB-numbering requirements introduced in the 1980s, and the addition of pension-return applications.)

The 2010 revision again retained on page 1 the misleading, misstated "Purpose of form" language and kept the beginning of the threatening "penalty" section front-and-center. New was a chunk of actual gibberish, apparently added by a bureaucracy in such a lather to order the tide to recede that either no time was spent proof-reading the work or the level of desperation had reached the point at which resort was being made to sheer confusion. Look at the second highlighted paragraph (below the "Purpose of form" language, which remained as it had been in prior versions):

2010 4852 page 1

Enjoy this. ON THE FORM 4852 IN YOUR HAND you are advised to contact the IRS so that... it can send you a Form 4852...? Somehow, I suspect that if a CtC-educated person were to climb through this looking-glass and get an IRS agent on the phone what he or she would receive would be nothing helpful. But I'm a cynic by nature (well, by experience, really).

Anyway, this gibberish was the sole addition and apparent reason for the 2010 revision. The material on page 2, the "Line 4: Enter the year you received taxable income from which federal income taxes were withheld" included, remained virtually identical to the corresponding instructions on the page 2 accompanying the 2007 form:

2010 4852 page 2

SO, QUITE A LITTLE CAMPAIGN TO DISCOURAGE, INTIMIDATE AND CONFUSE educated Americans from successfully making their inconvenient rebuttals and reclamations over the first ten years since CtC first revealed the liberating truth in 2003!

FINALLY, though, someone has found him-or-herself obliged to excise the overt, egregiously-misleading "Purpose of form" and "Line 4" language previously clung-to on these forms over all those years and through all those revisions.

 Finally, the effort to falsely imply that the Form 4852 is only for use by "taxpayers" (and to falsely imply that use of the form supports a presumption of self-endorsed "taxpayer" status) has been abandoned.

 Finally, the effort to falsely imply that "withholding" can, as if by a law of nature, only be applied to "taxable income" (and to falsely imply that reporting amounts withheld implies an agreement that what they were withheld from was "taxable income", whether the "wages" variety or any other) has been abandoned.

That long-standing misleading language has FINALLY been replaced with new expressions acknowledging that NON-"taxpayers" also can and do use these forms, and that reporting amounts withheld says nothing whatever about the propriety of that withholding, or the legal character of what it was withheld from.

In August of 2013-- exactly ten years after the publication of CtC, the Department of the Treasury replaced previous versions of Form 4852 with its new, much-improved model, acknowledging every CtC--thing about these forms. Here is page 1, with the new, straightforward "Purpose of form" language:

2013 4852 page 1

Here is page 2 of the new form, with the new, no-longer-flogging-the idiotic-withholding-argument "Line 4" language:

2013 4852 page 2

It's about time.

P.S. In 2014, the signature line was removed from the form. Not a significant change, in my view, as a form attached to a 1040 is covered by the 1040 attestation anyway.

 

Q. You say in your foreword (7th edition and earlier): "Corporate managers, though, are warned that this book does not directly address the peculiarities of the "income" tax as it applies to artificial persons."  Does this mean that "income" means something different for artificial persons than what it means for "natural persons"?

A.  Not at all.  "Artificial persons" are relevantly viewed by the law in precisely the same fashion as "natural persons", and both are taxed on the same activities, and nothing but the same activities. "Income" means the same thing for both; and the gains of artificial persons are not "income" simply because the one enjoying the gain is an artificial person, even in the case of a federally-created artificial person (although it is almost certainly the case that pretty-much every gain enjoyed by most federally-created or controlled artificial persons will be from the conduct of a taxable activity).

The "disclaimer" language you cite simply reflects the fact that I devote very little of CtC to discussing how state-chartered corporations (or LLCs, etc.) are made to appear to be federal or federally-controlled corporations ("domestic corporations", or "corporations organized under the laws of the United States", etc.).  (See this for additional material on this topic.)

 

Q.  Is the "Excess Social Security and Tier 1 RRTA Tax Withheld" line on a 1040 the proper place for reporting or reclaiming what is withheld from non-"wage" earnings under the names "Social Security and/or Medicare taxes" (and should "Form 843" be used for this purpose)?

A.  No.  The following explanation of what that line IS for (and what "Form 843" is for, as well) is taken from the IRS online "Tax Topics" collection, topic #608:

Most employers must withhold social security tax from your wages. Certain government employers (some federal, state, and local governments) do not have to withhold social security tax.

If you work for a railroad employer, your employer must withhold Tier 1 railroad retirement (RRTA) tax and Tier 2 RRTA tax.

If you had more than one employer and your total wages were over the wage base limit for the year, too much social security tax or Tier 1 RRTA may have been withheld. The wage base limit for the year can be found in the Form 1040 Instructions. If you had more than one railroad employer, and your total compensation was over the maximum amount of wages subject to Tier 2 RRTA, too much Tier 2 railroad retirement (RRTA) tax may have been withheld. If you had too much social security tax or Tier 1 RRTA withheld, you may be able to claim the excess as a credit against your income tax. If any one employer withheld too much social security or RRTA tax, you cannot claim the excess as a credit against your income tax. Your employer should make an adjustment of the excess for you. If the employer does not make an adjustment, you can use Form 843 (PDF), Claim for Refund and Request for Abatement to claim a refund.

If you are claiming excess social security or Tier 1 RRTA tax withholding, from having 2 or more employers, you cannot file 1040EZ. You must file Form 1040 (PDF) or Form 1040A (PDF). To claim a refund of the Tier 2 RRTA tax, use Form 843 (PDF). If you are filing a joint return, you cannot add any social security or RRTA tax withheld from your spouse's income to the amount withheld from your income. You must figure the credit separately for both you and your spouse to determine if either of you had excess withholding.

For details, including how to compute the amount of excess credit, refer to Publication 505, Tax Withholding and Estimated Tax.

To clarify: The "Excess Social Security and Tier 1 RRTA Tax Withheld" line on a 1040-- and "Form 843"-- are for the use of those who DID receive "wages", but had the FICA or Tier 1 RRTA sur-tax applied to more of those "wages" than it should have been.  The sur-tax only applies to "wages" up to a certain amount (currently $94,200).  Those who had the sur-tax applied to "wage" receipts above that amount can use the "Excess Social Security and Tier 1 RRTA Tax Withheld" line to claim a refund of that excess amount withheld.  See an 'Every Which Way But Loose' episode touching at least obliquely on this subject here.

 

A Thumbnail Sketch Of The "Income" Tax Reporting And Determination Process

A helpful summary of certain core "income" tax dynamics

At the close of the reporting period (December 31st, in most cases), payers considering themselves obliged to issue taxable activity reports create and execute one or more of the various "information return" reports (W-2s, 1099s and K-1s, mostly), sending one copy to federal, state and/or local tax agencies, and one copy to the person about whom the document makes its allegations.

Having thus been put on notice that allegations of having received "income" have been reported to the government(s) to whom any resulting tax would be owed, the reportee either:

A. Lets the allegations go without response-- thus inviting the tax agency (we'll just focus on the federal system, now) to:

  • presume them correct and true;

  • to create a "SFR" "module" in order to calculate the resulting tax liability (without going into the legitimacy of doing so in any particular case-- if no response has been made to "income" allegations, a door has been left pretty wide open for all manner of presumptions about the legal status of the reportee);

  • and to claim ownership of any withheld or paid in amounts up to that calculated liability, and/or (eventually) issue an appropriate "Notice of Deficiency" for any outstanding balance.

(NOTE: The agency is also thus invited to impose available statutory sanctions, such as a "failure to file" penalty, for instance.  This is because the requirement to file-- which generally arises upon receipt of a threshold amount of "income"-- and jurisdiction for the imposition of sanctions have been presumptively established by the allegations of the taxable activity report and the failure of the reportee to rebut them after being put on notice.) 

or

B. Responds to the allegations by filing a valid (that is, accurate, honest, and self-consistent) return which either:

1. Acknowledges the reported taxable activity ("income"), claims appropriate deductions, credits, exemptions etc., calculates the resulting tax liability and self-assesses,

or

2. Corrects or rebuts the reported "income" amount(s), claims appropriate deductions, credits, exemptions etc. (if applicable and relevant), calculates the resulting tax liability and self-assesses (very possibly resulting in an assessed liability of $0.00 and a claim for the return of everything withheld or paid-in).

(NOTE: Returns rebutting allegations of the receipt of "wages" and/or "trade or business"-generated "income" simultaneously rebut jurisdictional presumptions which could otherwise be supported by those allegations.)

In the case of B(1) or B(2), the IRS can then:

a. Issue a refund check or credit (if the self-assessed amount is less than the amount withheld, paid in, carried forward, or otherwise available for crediting for that period-- thus resulting in an "overpayment");

b. Bill the filer for any balance due if the amount assessed on the return is more than the amount withheld, paid in, carried forward, or otherwise available for crediting for that period;

or

c. Make a determination that the amount self-assessed is deficient and issue a "Notice of Deficiency"-- but only on the basis of the rate of tax having been incorrectly applied to the amount of "income" shown on the return (through math and/or deduction/exemption/credit reduction errors).

It will be noted that each of these latter IRS response options are confined to calculations based on the amount of "income" reported on the return.  When a return has indeed been filed, the agency has no authority to do otherwise.  This is why when it wishes to thwart an educated American (which is to say, when it wishes to evade the tax laws and the required issuance of properly-claimed refunds), the IRS will try to deny the relevant return was ever filed.

Toward that end, the agency has actually gone so far as to deny ever having received the returns of some educated filers whose returns made claims the agency did not wish to honor-- an, "Our junk-yard dog must've eaten your tax return!" routine.  This only delays the inevitable for a brief time, of course, while the filer walks a copy in to the local office and personally oversees having it stamped as received, or otherwise secures incontrovertible evidence of the agency receiving the filing.

Thus, alternative ploys are becoming more common when the IRS wishes to evade the law.  One is a simple declaration that the return is "frivolous" (under the statutory definition at 26 USC 6702-- a status which, when accurate, means the return can be treated as though never filed, according to current doctrine), in the hope that the filer will back down in confusion and fear.  (Click here for more about this revealing ploy, which would obviously never be attempted if the law provided for any other means of defeating a claim, and here for a series of case-studies of CtC Warriors who have dealt with this, and other tax-agency ploys.)  Then the agency will follow up with with the steps outlined earlier in section "A."

Another is to invite the filer to abandon his testimony, by proposing alternative numbers on a convenient form which the filer can sign under penalty of perjury and thus adopt as a modification of his previously-filed return-- as though what had been filed must simply have been a big mistake, from which the filer will surely back down (in confusion and fear).

CtC-educated Americans do not back down in confusion and fear, of course...

 

Q.  Does it matter if multiple returns are sent to a tax agency at the same time (or in the same envelope), as opposed to one at a time (either by mailing date or packaging)?

A.  It is hard to imagine why any such detail would make a bit of difference, absent some published request by the agency that things be done in a particular way for bureaucratic processing purposes (personally, I've never seen an official request in this regard, although I've also never looked...).  Best way to find out, if this is really a concern, is to call the relevant agency and ask, I would think.

That said, I understand that this question reflects the notion that one should strive to avoid "standing out", presumably based on the view that tax agencies are unscrupulous and will target for harassment and resistance even perfectly proper filings and claims that come to their attention. But this notion itself reflects a misunderstanding of just what exercising one's right to introduce one's testimony into the record (or simply claim a return of one's property)-- and, more broadly, standing up for the rule of law-- is all about.  Subterfuge, or the wish to be "off the radar screen", has no place in the upholding of the law.  Tricks and shadows are for those doing wrong, not for those doing right.  (See www.losthorizons.com/tax/Highlights.htm for some related material.)

 

Q.  I've read through your book and searched the website for information on how to possibly report capital gains and dividends from non-national banks. My first thought is capital gains are only paid by taxpayers not non-taxpayers but I really don't know.

A.  In order to qualify as "income", any gain, however labeled, must be of the same general legal character as anything else that so qualifies.  That is, in order to qualify as "income" any gain must be a consequence of the (profitable) benefit of the exercise of a federal privilege, power or property (which may, of course, be an "exercise by proxy" in the form of an investment in an entity which is doing the "exercising" directly).

By the way, anyone can potentially be a "taxpayer".  It is not the character of the actor that makes gains taxable (even though because of their nature some actor's gains will always be of a taxable character), it is the character of the gains that makes an actor into a "taxpayer" (insofar as-- and only insofar as-- those particular gains are concerned).

 

Q.  Am I stuck in an "administrative proceeding" with the tax agency once I file a return?

A.  Quite the contrary.  Filing an accurate, proper return on which less than the exemption amount of "income" is declared establishes that one IS NOT in an administrative proceeding with the relevant tax agency.  This is why tax agencies try so hard to induce everyone to let the agency disregard the filed return, using any means necessary from elaborate efforts to suggest the returns are somehow defective (and that the agency is authorized to make such determinations unilaterally!) to the frankly comical claim that, "The return must have gotten lost in the mail, Mr. Smith!"  (See the 'Every Which Way But Loose' collection for more on this.)

On the other hand, those who declare having received more than the exemption amount of "income" on a return-- or don't file, and allow "information return" allegations of having received more than the exemption amount of "income" to prevail by default-- ARE stuck in such a proceeding.  These unfortunates have become "taxpayers" subject to such proceedings due to (and to the extent of) those declarations or unanswered allegations.

 

Q. What about getting loans?  Lenders usually ask to see tax returns.  Won't accurate tax returns which show no (or little) "income" make it impossible to get a loan?

A.  Actually, lenders and others who provide earnings-related financial services don't have any interest in how much "income" anyone does or doesn't make, generally (although there may be some federal financial service entities specifically providing "income"-related services that would be exceptions to this, I suppose).  Financial services folks are really only interested in how much money one makes, because that's what matters where one's ability to repay a loan, or one's qualification for aid, or whatever, is concerned.

A number of CtC Warriors have had this issue arise.  They have found that the folks with whom they are dealing are perfectly happy to accept alternatives to tax returns for documentation of earnings, such as pay stubs, affidavits, bank statements and so forth.

In the face of truly mindless resistance to alternatives one might consider submitting complete tax returns, but particularly including rebuttal instruments such as forms 4852 and rebuttals to 1099s, K-1s and so forth which would help make clear that the 1040 form is not a declaration of having not received money, but only of having not received "income". W-2s could also be presented, with a notation to the effect that while the inherent characterization of the payments reported on the forms as being from taxable activities is disputed and rebutted, the forms serve as evidence of the payee's receipt of money in the amounts shown.

 

Q.  Is there any need or virtue to including legal arguments in a filing supporting or justifying what is being reported?

A.  In a word, no.  Once a testimonial declaration as to the factual matters with which the filing is concerned is made (by way of the return) and appropriate testimonial declarations in rebuttal of any allegations that amounts were received during the relevant period as a consequence of engaging in a taxable activity (by way of affidavits in response to "information returns", such as Forms 4852, or corrective responses to 1099s, etc.), the tax agencies are required as a matter of law to accept that testimony as definitive and final.

Further, even if the agencies were NOT required to accept the filer's testimony, a tax agency/government that wishes to assert a competing claim to what has been established by the filer's declarations would bear every burden of proving its claim. Unless someone has already conceded the point in his or her filed return, or given it up by default through non-filing, the burden of proving that IT has a claim to withheld money is ALWAYS on the government in any dispute situation.  The return will have formally asserted the filer's continuing ownership and right to possess that property:

“Even if you do not otherwise have to file a return, you should file one to get a refund of any Federal income tax withheld.”

From the instructions for the 2002 Form 1040

***

26 CFR 301.6402-3 Special Rules applicable to income tax

(a) In the case of a claim for credit or refund filed after June 30, 1976--

(1) In general, in the case of an overpayment of income taxes, a claim for credit or refund of such overpayment shall be made on the appropriate income tax return.

...

(5) A properly executed individual, fiduciary, or corporation original income tax return or an amended return (on 1040X or 1120X if applicable) shall constitute a claim for refund or credit within the meaning of section 6402 and section 6511 for the amount of the overpayment disclosed by such return (or amended return).

***

Senator Clark: "Of course, you withhold not only from taxpayers but nontaxpayers."

Mr. Hardy: "Yes."

...

Senator Danaher: "I have only one other thought on that point. In the event of withholding from the owner of stock and no taxes due ultimately, where does he get his refund?"

Mr. Friedman: "You're thinking of a corporation or an individual?"

Senator Danaher: "I am talking about an individual."

Mr. Friedman: "An individual will file an income tax return, and that income tax return will constitute an automatic claim for refund."

Excerpted from a Withholding Tax hearing on August 21 and 22, 1942 before a subcommittee of the Committee on Finance, United States Senate, during the 77th Congress, Second Session, on data relative to withholding provisions of the 1942 Revenue Act. Missouri Democratic Senator Bennett Clark, Connecticut Republican Senator John A. Danaher and testifying witnesses Charles O. Hardy of the Brookings Institution and Milton Friedman of the Treasury Department Division of Tax Research.

The filer does not have to prove his ownership and right to that property-- it never stops belonging to him unless and until a competing claim could be, and is, proven both: 1.) to be possible (that is, until it is proven that he actually engaged in a relevant taxable activity) and 2.) to have been asserted in a legally meaningful way (that is, until it is proven that a valid assertion of the government's contrary alleged claim can be, and has been, made in a legally meaningful way). See this for more on "asserted in a legally meaningful way".

Further, this same dynamic applies anytime a tax agency suggests that it gets to assume ownership of anyone's property (either by taking that property or by keeping it) in the face of a proper assertion of ownership and claim for refund by the annual filer.  "We changed your account [to our benefit]...", for instance, doesn't mean anything unless preceded by, "We proved that you did something making you beholden to us for $x.xx, that we have the authority to assert our claim despite your relevant filed return(s) and self assessment(s), and that we did, in fact assert that claim in a legally meaningful manner."Otherwise, it's really just, "We're implying that we have some god-like authority to assume ownership of whatever we wish, and we hope you've been sufficiently brow-beaten and confused by the life-long conditioning to which we have subjected you to imagine that this could be true..."

(NOTE: See 'About 1040s And Claiming Refunds' in CtC for more on this subject.)

 

Q.  Does filling out a W-4 make one into an "employee", and one's pay into "wages", or amount to a voluntary election to be treated as an "employee" (and having one's pay treated as "wages")?

A.  The completion and submission of a W-4 doesn't make someone not engaging in taxable activities into someone who is (nor does it constitute an election to be so treated as though one were engaged in such activities).  After all, filling out a W-4 doesn't constitute the completion of a federally-connected civil service application or an oath of office, or becoming an officer of a federal or federally-controlled corporation...

Thus, for one who is not actually an "employee" the completion of the form must be presumed to be entirely prospective in nature, providing in advance for the theoretical possibility (however remote) that one's relationship with the company to which one presents the form might somehow become that of "employer" and "employee" at some unknown point in the future (while otherwise being legally irrelevant).  Whether or not such a theoretically-possible change actually takes place at any point is reflected in the content of one's filing concerning each past year.

That said, the submission of a W-4 without a qualifying declaration COULD serve to support inaccurate presumptions about the nature of one's activities.  See 'W-4s- The Blind Leading The Blind...' in CtC and what you find here for more on this.

 

Q.  Does using Federal Reserve Notes (FRNs) make an activity taxable?

A.  In a word, no.

CREATING FRNs might be the exercise of a federal privilege or power, but using them certainly is not, any more than using the interstate highway system or getting scanned by the TSA at an airport are taxable activities, or make anything you do on your trip a "taxable activity". No such things are specified as taxable in any law. Nor could they be, as each would make the income tax an improper capitation in that any of these (and especially the "using FRNs" one) would effectively lay the tax on all economic activity.

Further, "gain" is an integral requirement of "taxable" and there is no "gain" from the use of FRNs because of some speial characteristic of the notes, whether accepting them or paying with them (other than as their creator). If anything, someone being paid FRNs is thereby inherently losing value, due to the inflation to which the notes are inherently vulnerable.

On the other hand, being paid with FRNs IS a measure of economic activity in the normal sense of the term and is a receipt of value, however much one might feel their issuance to be Constitutionally invalid. Whatever else may be said about FRNs, they ARE claims against the assets of their issuer, as is plainly declared in 12 USC § 411:

"Federal reserve notes, to be issued at the discretion of the Board of Governors of the Federal Reserve System for the purpose of making advances to Federal reserve banks through the Federal reserve agents as hereinafter set forth and for no other purpose, are authorized. The said notes shall be obligations of the United States and shall be receivable by all national and member banks and Federal reserve banks and for all taxes, customs, and other public dues. They shall be redeemed in lawful money on demand at the Treasury Department of the United States, in the city of Washington, District of Columbia, or at any Federal Reserve bank."

Clearly, receiving FRNs is no different from receiving any other medium of exchange in any sense relevant to the tax.

Further still, the law specifically says that what someone engaging in taxable activity gets paid in doesn't matter. It isn't the being paid, or what one is being paid with that matters, it's what one did for which one is being paid that matters.

See 'A "Wage" By Any Other Name Is Taxed The Same' in 'Was Grandpa Really a Moron?' for more about this; also see the definition of "gross income" as interpreted by the Treasury Department at 26 CFR § 1.61-1(a)

"(a) General definition. Gross income means all income from whatever source derived, unless excluded by law. Gross income includes income realized in any form, whether in money, property, or services. Income may be realized, therefore, in the form of services, meals, accommodations, stock, or other property, as well as in cash." (emphasis added);

and the definition of "wages" at 3401(a):

"(a) Wages
For purposes of this chapter, the term “wages” means all remuneration (other than fees paid to a public official) for services performed by an employee for his employer, including the cash value of all remuneration (including benefits) paid in any medium other than cash..." (emphasis added).

When one combines this with the fact that other portions of law specifically provide that some payments to "employees" for services performed for an "employer" DON'T qualify as 'wages" and are NOT subject to the tax, and do so without a qualifying specification negating these exceptions of taxable status if payment is made in FRNs, it is clear that not only does no provision of law support the proposition that use of FRNs is taxable, but the structure of the law positively contradicts this notion.

 

Q.  Is it a privileged, taxable activity to act economically as a "licensed this or that"?

A.  A license is permission to engage in the licensed activities for, or with, the licensor. That is, if one acquires a license from a state to perform some activity (such as a plumber's license) the only privilege that can be being conveyed by the license is that of performing the activity for the state. After all, it's obvious that anyone has a right to sell plumbing services to anyone else generally, and doing so isn't exercising any privilege.

Consequently, activity performed for the licensing entity is potentially taxable by that entity as the exercise of privilege (though it may or may not actually be taxed-- for instance, it may be that the only actual tax applied in connection with licenses issued by one of the several states may be the fees associated with getting and maintaining the license). At the same time, the same activity performed by the same person elsewhere would remain just an activity of common right, not subject to that privilege tax as such. Even performing the activity for someone who insisted on the performer having such a license in order to be hired would not make that performance into the conduct of a privilege granted by the licensing entity.

Sensibly or not, such insistence is common, because licenses have historically been seen as implying superior skill or as evidence that the licensee has met some tested level of quality. Those able to do so have always advertised their positions as "dressmaker to the Queen" or "licensed to argue cases before the King's bar", figuring it gave them a leg-up on the competition in marketing themselves to others. The notion, I imagine, is the sub-textual suggestion that "the King" or "the Queen" can afford, or will always insist upon, the best, so someone to whom they've granted license to do business with the apparatus of the state must really be good. Those seeking services often buy into these notions, and insist that their service-providers be able to exhibit licenses. But the fact that someone is "licensed" to do privileged work doesn't make work one has every common right to do into something taxable by the licensor.

By the way, a significant legal doctrine rears its head in connection with licensure. As observed by a court in an 1869 ruling concerning a challenge in part to the Constitutionality of the power of the government under section 49 of the revenue act of 1868 to "examine all persons, books, papers, accounts and premises", and to compel persons to appear, and to produce books and records, in order to ascertain the correctness of a return (In re Meador, 16 F. Cas. 1294 (ND Ga. 1869)):

And here a thought suggests itself. As the Meadors, subsequently to the passage of this act of July 20, 1868, applied for and obtained from the government a license or permit to deal in manufactured tobacco, snuff and cigars, I am inclined to be of the opinion that they are, by this their own voluntary act, precluded from assailing the constitutionality of this law, or otherwise controverting it. For the granting of a license or permit-- the yielding of a particular privilege-- and its acceptance by the Meadors, was a contract, in which it was implied that the provisions of the statute which governed, or in any way affected their business, and all other statutes previously passed, which were in pari materia with those provisions, should be recognized and obeyed by them. When the Meadors sought and accepted the privilege, the law was before them. And can they now impugn its constitutionality or refuse to obey its provisions and stipulations, and so exempt themselves from the consequences of their own acts?

Of course, even under this doctrine the government actions to which the licensee could be said to have agreed by implicit contract must be confined to those concerning the exercise of the privilege granted, not any and all activity of the licensee period. That is, the government can (under this doctrine) freely examine the books of the licensee in which his sales, etc., under the permissions of the license are made (which is to say, those to the licensing entity), and not his sales to the general public for which no license is needed (even though what is being sold is exactly the same as what he is licensed to sell to the government).

In fact, in the later case of Stanwood v. Green, 1870 U.S. Dist. Lexis 279 (1870) which dealt with the same subject, the court explicitly draws the distinction between the two classes of otherwise identical activities, acknowledging that a target of an examination summons need only produce that portion of his business records concerned with his taxable activities (see the discussion of this ruling in the "NOTES" section of this page). But no one should be surprised if a pretext will be seen by virtue of a license under which the government claims the need and right to examine ALL business activities concerning the object of the license anyway, in order to ensure that the taxable portion of these activities are accurately reported...

 

Q. Are activities as a public school teacher subject to the tax?

A. If a public school teacher's activities are as a federal school teacher, such as those discussed here, they would be potentially subject to the "income tax" (I say "potentially" because not all "income" is actually always subjected to the tax, even though it qualifies). The personal services of public school teachers rendered in the capacity of "an officer or employee of a State, or any political subdivision thereof, or any agency or instrumentality of the foregoing," are also included-- where "State" is defined as in the discussion of the Public Salary Tax Act of 1939 on pp. 70-72 of CtC. By the same token, this would exclude public school teachers who are NOT of these varieties (which is to say, any working for a union-state school-district).

The parameters are not expanded or affected by federal grants or other federal foot-prints littering the halls of public schools not meeting the criteria outlined above. Just as the benefit of federal privilege exercised by an otherwise private business makes the business's profits potentially taxable, but not the earnings of the workforce-- even though possibly being paid straight out of money secured from the feds, the institutions (such as the school districts or schools themselves) which receive education-related grants and other benefits might themselves be subject to obligations and liabilities thereby (and not only tax-related obligations and liabilities), but this doesn't reach further to penalize or encumber the work-force. THEIR relations are just with the institution, not the institution with which their institution has relations.

 

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