Not Written for You: The Income Tax Hidden in Plain Sight
Part 8 of 13
The Secretary Speaks
In Part 7, we established that the income tax is an excise — a tax on the exercise of a government-granted privilege. We asked: what is the privilege? The answer is not found in an IRS publication or a newspaper editorial. It is found in Treasury Decisions.
A Treasury Decision is an official and binding pronouncement by the Secretary of the Treasury. It declares the Secretary's interpretation of Congress's statutes, implements the law in light of court decisions, and binds every officer and employee of the Treasury Department — including the IRS. Treasury Decisions synthesize the authority of all three branches of government: the statutes Congress wrote, the holdings the courts issued, and the executive determination of how to carry them out.
Two Treasury Decisions are central to this discussion.
Treasury Decision 8734
The title of TD 8734 is "Section 1441 — Withholding of Tax on Nonresident Aliens." Its subtitle is "26 CFR 1.1441-1 — Requirement for the Deduction and Withholding of Tax on Payments to Foreign Persons."
TD 8734 is 123 pages long. Every word pertains exclusively to the deduction and withholding of tax on payments to foreign persons. No other subject is addressed.
In the background section, speaking of how the withholding procedures relate to information reporting and other collection mechanisms, TD 8734 states:
Read that carefully. The Secretary of the Treasury — the highest executive authority in the nation on matters of taxation — is stating, in a Treasury Decision that deals exclusively with foreign persons, that wage withholding under § 3402, backup withholding under § 3406, and withholding on pensions under § 3405 are all withholding regimes that apply to payments made to foreign persons.
These are the same mechanisms applied to the paycheck of every working American. The Secretary says they belong in a document about foreign persons.
Treasury Decision 8881
TD 8881 is entitled "Revisions to Regulations Relating to Withholding of Tax on Certain U.S. Source Income Paid to Foreign Persons and Revisions of Information Reporting Regulations." Like TD 8734, it pertains exclusively to U.S. source income paid to foreign persons.
On page 143, speaking of U.S. source income paid to a foreign person in the form of wages, TD 8881 states:
Section 3402 is the sole command for wage withholding in the entire tax code. We read it in Part 5. The Secretary is placing that command squarely within the context of income paid to a foreign person.
On page 204, speaking of the forms to be used, TD 8881 states that items required to be reported on a Form W-2 include those required "solely by reason of § 1.6041-2 (relating to return of information for payments to employees)." That regulation commands employers to file a Form W-2 with the IRS concerning income tax withheld from an employee's paycheck — and it appears inside a Treasury Decision that addresses only foreign persons.
The Question No One Has Answered
Since the enactment of the income tax in 1913, how many Treasury Decisions state that wage withholding under § 3402 is to be conducted upon the domestic earnings of an American citizen working in any of the fifty states?
The answer is zero. In more than a century, no Secretary of the Treasury has ever issued such a directive.
Next: If there is no Treasury Decision authorizing withholding on private-sector Americans, is there at least a withholding chapter in the code written for them? The answer reveals a silence that is louder than any statute.
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