Not Written for You: The Income Tax Hidden in Plain Sight
Part 12 of 13
The Loop That Locks It Down
Over the course of this series, we have examined the statutes, the definitions, the Treasury Decisions, the constitutional provisions, and the Supreme Court holdings that govern the federal income tax. Each post addressed one piece. This post connects them all.
The Constitutional Foundation
The income tax is an indirect tax — specifically, an excise. The Supreme Court said so in Brushaber (1916). Congress confirmed it in 1941, 1943, and 1980. The Court restated it in Moore v. United States (2024). An excise is a tax on the exercise of a government-granted privilege. If there is no privilege, there is no tax.
The Sixteenth Amendment did not create a new taxing power. It did not convert rights into privileges. It removed the apportionment requirement for "whichever incomes were otherwise taxable" — the Court's words in South Carolina v. Baker (1988). The income must first be subject to a proper excise before the Amendment has any effect.
The Statutory Definitions
The word "includes" in a statutory definition establishes a class. The items that follow it are the class. Only items of the same kind may be added. Unstated items outside the class are excluded. The Supreme Court confirmed this in Meese v. Keene (1987) and Colautti v. Franklin (1979).
The definition of "employee" at § 3401(c) includes officers, employees, and elected officials of the United States, a State, political subdivisions thereof, the District of Columbia, and their agencies and instrumentalities. The class is government workers. The definition of "employer" at § 3401(d) follows: any entity for which an "employee" performs services. The definition of "wages" at § 3401(a) completes the loop: remuneration paid by an "employer" to an "employee." Each definition depends on the others. Together, they form a closed system that describes a single class of persons.
The definition of "trade or business" at § 7701(a)(26) includes the performance of the functions of a public office. Every specific provision in § 162 — the section governing deductions for those carrying on a "trade or business" — addresses official government activity.
The Withholding Chapters
Chapter 3 addresses withholding on nonresident aliens and foreign corporations. Chapter 4 addresses withholding to enforce reporting on foreign accounts. Chapter 24 addresses collection of income tax at source on "wages" — as defined by the closed definitional loop above. No chapter addresses withholding on the domestic earnings of private-sector American citizens.
The Treasury Decisions
TD 8734 and TD 8881 — the Secretary's own pronouncements on withholding and reporting — deal exclusively with U.S. source income paid to foreign persons. Both place § 3402 (wage withholding), § 3405 (pension withholding), and § 3406 (backup withholding) within that foreign-person context.
Eleven Treasury Decisions — TDs 1928, 1953, 2013, 2090, 2109, 2131, 2313, 2401, 2402, 2815, and 2988 — state that Form 1040 is to be used by nonresident aliens with U.S. source income, or by their domestic agents. No Treasury Decision has ever directed an American citizen earning domestic income to file a Form 1040.
The Forms
A W-4 is a withholding certificate. It declares the filer's status as a person from whom tax should be withheld. The W-4 instructions reference Schedule A of Form 1040, and the two forms share the same OMB control number — because both address the same subject: the collection of income tax from persons within the class established by the code.
A W-9 is also a withholding certificate, as classified by the Secretary's own regulations. It is given to a withholding agent — defined at 26 CFR § 1.1441-7(a) as any person, U.S. or foreign, that has the control, receipt, custody, disposal, or payment of an item of income of a foreign person. Yet nothing on the face of the W-9 discloses what it is or to whom it connects the signer.
The "United States Person"
A reader might object: the code does mention "United States persons" in the withholding and reporting provisions. That is true. But every time it does, the US person is handling income that belongs to a foreign person — not earning domestic income of their own.
The term "United States person" is defined at § 7701(a)(30) as a citizen or resident of the United States, a domestic partnership, a domestic corporation, or certain trusts and estates. IRS Cumulative Bulletin 1997-44, the plain-English explanation of TD 8734, describes the US person's role this way:
At first glance, that appears to impose a requirement on a US person. But it appears inside a document that deals exclusively with U.S. source income belonging to foreign persons. The US person in that sentence is receiving income that belongs to a foreign person — acting as a domestic agent, intermediary, or flow-through entity. The Chapter 61 reporting (Form 1099) and the backup withholding (§ 3406) exist so the IRS can track that income as it moves through the domestic pipeline toward its foreign owner.
A US person, in the withholding context, is an American citizen or domestic entity that is part of a financial pipeline through which U.S. source income flows to its foreign destination. The W-9 exists so the withholding agent can determine whether the payee is a US person or a foreign person — and therefore whether to withhold under Chapter 3 or report under Chapter 61. That is the only context in which the term operates in the withholding and reporting provisions.
There is no statute, regulation, or Treasury Decision that requires a US person to withhold, report, or file anything with respect to that US person's own domestic income earned in the private sector. The provisions that are routinely applied to domestic Americans — W-2 reporting, W-4 withholding, 1099 reporting, Form 1040 filing — all trace back through the definitions and Treasury Decisions to the same foreign-person context.
The Definitions of "State" and "United States"
The definitions of "State" and "United States" in the provisions governing employment taxes enumerate only the District of Columbia and federal territories and possessions. They do not include the fifty states of the Union. When Congress wants to include the fifty states, it does — as it did in § 6103(b)(5)(A), using the word "means" and naming them explicitly.
The Loop
Every element points to the same class. The constitutional classification says there must be a privilege. The statutory definitions describe government workers paid by government entities. The Treasury Decisions place every withholding mechanism and every filing requirement within the context of foreign persons with U.S. source income. The definitions of "State" and "United States" limit the geographic reach to federal territory. The forms connect the filer to the class established by the definitions that control them.
There is no statute that imposes the income tax on American citizens earning domestic income in the private sector. There is no withholding chapter for them. There is no Treasury Decision directing them to file. There is no form designed for them. The law is internally consistent on this point from top to bottom.
The question is whether the people who tell you what the law requires have ever read it.
Next: Two questions. Five people to ask. The silence that answers both.
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