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A Cheap And Nasty Scam Concerning TD 2313

A SCAM HAS LONG BEEN PERPETRATED upon the ‘tax honesty’ community by which only a selected and misleading portion of Treasury Decision 2313 is presented in order to support a nonsense argument that only foreign-related revenue is subject to the income tax. TD2312 is 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.

Here is the portion of TD 2313 that is presented in this scam:


Government Printing Office



(T.D. 2313)

Income Tax


Taxability 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.


Treasury Department

Office of Commissioner of Internal Revenue

Washington D.C., March 21, 1916



To 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 law.


            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 trade 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 scamsters point to this isolated excerpt and crow, “See!  Only the income of non-resident aliens is subject to the tax!” But of course, the word 'only' makes no appearance in what is presented. 

More importantly, the remainder of TD 2313 omitted by the scamsters, 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, 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 1040s.

Here is the omitted 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 the law.


            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

Commissioner of Internal Revenue



Approved, March 30, 1916:

Byron R. Newton,

Acting Secretary of the Treasury



AFTERWORD:  My initial view of the participants in what is discussed above was harsh.  Upon reflection, I have come to a more forgiving view, and no longer believe that every deployment of the edited TD 2313 is a deliberate fraud.  After all, no one wanting to argue that the income tax is confined to foreign-related revenue and who knew the actual text of TD2313 would draw attention to the TD for any reason.

Only those who can be shown to know better while still perpetrating the scam deserve condemnation for it, such as internet radio program host Dave Champion. On October 30, 2004, Champion 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.)


P.S.  The TD 2313 scam puts me in mind of another, similar misrepresentation deployed to serve the same silly "foreign" argument, 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.

However, 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 what would be a double taxation of the same "income".  To see this, it is necessary to read the section preceding Section 25, which, of course, those flogging the misunderstanding of Section 25 do not supply.

That preceding 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.

You can now see why those attempting to use the language of Section 25 to support their erroneous theories do not furnish that of Section 24 to their readers...