Changes to the IRC in employee/employer definitions
I have searched for the original pleadings in the case without success.
I am not sure what the importance of Brushaber's state citizenship is, but since he is alleged to have been from New York and the headquarters of the Union Pacific Railroad was in New York, it is possible that the case was originally filed in a New York state court and not a federal district court. The court apparently considered him to have standing, since it did not rule based on that issue. That court then dismissed the case for failure to state a claim and Brushaber obviously appealed directly to the Supreme Court because of the constitutional question. The certiorari crap we deal with today did not exist then in the same form.
The case was not directly about income tax. The railroad was a federally chartered corporation and thus subject to the 1909 corporate excise tax. It paid dividends on its stock or corporate bonds and was obligated by the 1913 income tax law to withhold taxes from those dividends before payment to the stock or bond holders. Brushaber objected to this, possibly because he objected to double taxation (corporate and individual) or possibly because he read and understood the 1913 income tax law correctly and figured that he was not subject to it as a state citizen or as an alien (depending on which he was). It could be that he figured that as a nonresident alien (citizen of a state and not of a federal area) he would owe no income tax and thus did not want the corporation to withhold the tax and make it necessary for him to file for a refund. This is just my personal guess.
The Treasury Decision issued as a result of this case ( T.D. 2313) considered Brushaber a "nonresident alien," and since he apparently lived in New York, he was not a nonresident alien for the reason that he was not a U.S. citizen and lived in another nation. Even if he was not a U.S. citizen, the fact that he was living in New York would have made him a resident alien. Thus his classification as a nonresident alien had to be because he did not live in the District of Columbia or a federal territory or possession. This is one of the many reasons cited by the article at the Family Guardian site (http://famguardian.org/Subjects/Taxes/ChallJurisdiction/Definitions/21Points.htm) to show that the term "states" in most of 26 USC does not refer to the several states of the union.
It is interesting that the 1909 corporation tax was NOT an income tax but an excise tax with the amount of tax measured by the amount of the corporation's net income. This tax was on FEDERAL corporations as an excise on the PRIVILEGE of being chartered by the federal government and has been sneakily expanded to state chartered corporations with no apparent authority. The Supreme Court defined "income" as "corporate profit" and as a "return on capital." Later the court said the the definition of "income" as it applied to the 1909 corporation tax was also the same in every income tax law later passed by Congress and that Congress, having used the term "income" in the 16th Amendment, had made its definition and interpretation the province of the Supreme Court and could not, therefore, create a definition for the term "income." The IRS regularly ignores this. One way it has ignored this is to create a definition for "gross income."
- 26 CFR § 1.1402(c)-3 Employees.
(a) General rule.
Generally, the performance of service by an individual as an employee, as defined in the Federal Insurance Contributions Act (Chapter 21 of the Internal Revenue Code) does not constitute a trade or business within the meaning of section 1402(c) and §1.1402(c)1. However, in six cases set forth in paragraphs (b) to (g), inclusive, of this section, the performance of service by an individual is considered to constitute a trade or business within the meaning of section 1402(c) and §1.1402(c)1. (As to when an individual is an employee, see section 3121 (d) and (o) and section 3506 and the regulations under those sections in part 31 of this chapter (Employment Tax Regulations).)
The 6 cases are not cohesive and include newspaper vendors, sharecroppers [isn't it nice to see we tax the poorest of the poor!!], employees of a foreign government, ministers and members of a religious order, gov't employees paid solely on a fee basis, and most commercial fisherman.
§ 1.861-4 Compensation for labor or personal services.
(a) Compensation for labor or personal services performed wholly within the United States.
(1) Generally, compensation for labor or personal services, including fees, commissions, fringe benefits, and similar items, performed wholly within the United States is gross income from sources within the United States.
(i) The labor or services are performed by a nonresident alien individual temporarily present in the United States for a period or periods not exceeding a total of 90 days during his taxable year,
(ii) The compensation for such labor or services does not exceed in the aggregate a gross amount of $3,000, and
(iii) The compensation is for labor or services performed as an employee of, or under any form of contract with
( a ) A nonresident alien individual, foreign partnership, or foreign corporation, not engaged in trade or business within the United States, or
( b ) An individual who is a citizen or resident of the United States, a domestic partnership, or a domestic corporation, if such labor or services are performed for an office or place of business maintained in a foreign country or in a possession of the United States by such individual, partnership, or corporation.
(2) As a general rule, the term "day", as used in subparagraph (1)(i) of this paragraph, means a calendar day during any portion of which the nonresident alien individual is physically present in the United States.
(3) Solely for purposes of applying this paragraph, the nonresident alien individual, foreign partnership, or foreign corporation for which the nonresident alien individual is performing personal services in the United States shall not be considered to be engaged in trade or business in the United States by reason of the performance of such services by such individual.
(4) In determining for purposes of subparagraph (1)(ii) of this paragraph whether compensation received by the nonresident alien individual exceeds in the aggregate a gross amount of $3,000, any amounts received by the individual from an employer as advances or reimbursements for travel expenses incurred on behalf of the employer shall be omitted from the compensation received by the individual, to the extent of expenses incurred, where he was required to account and did account to his employer for such expenses and has met the tests for such accounting provided in §1.16217 and paragraph (e)(4) of §1.2745. If advances or reimbursements exceed such expenses, the amount of the excess shall be included as compensation for personal services for purposes of such subparagraph. Pensions and retirement pay attributable to labor or personal services performed in the United States are not to be taken into account for purposes of subparagraph (1)(ii) of this paragraph.
(5) For definition of the term "United States", when used in a geographical sense, see sections 638 and 7701(a)(9).
Section 638 is not very straightforward. But "United States" is simply defined in 26 USC 7701 as:
(9) United StatesThe term "United States" when used in a geographical sense includes only the States and the District of Columbia.
[This provides rule making authority for 26 CFR 1, 300, and 301]
I have discovered that many important jewels of info are often found
in the "not this" sections, especially the 1400 sections.
They can't be quite as evasive and vague when trying to
describe that which is not, as compared to the "includes."
--- In firstname.lastname@example.org, "Barry" <bear@...> wrote:
> I got an email saying the following:
> I'm presently trying to put together some research for an upcoming local
> State tax hearing which caused me to review the code. I was surprised to
> find some changes that seem to be an attempt at expanding the
> definitions of the terms in 3121 of the code. "Trade or Business" has
> been removed to its own rather long section- 162 and the definitions of
> "employee" have been changed to include "common law definitions." At CFR
> § 31.3121(d)-1 Who are employees there is a many pages description
> of who is an employee that doesn't seem to define an employer but
> describes pretty much any usual relationship as regular people use the
> terms. Please, check out these changes and maybe you can say on the list
> what you think they mean and how they might affect us!
> I haven't made time to do this, but, I thought I would submit it
> here and see if anyone else has seen this problem and dealt with it.
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