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CHAPTER2.TXT
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Chapter 2:
Status and Jurisdiction
Understanding the status of the parties to the Brushaber
case is essential to understanding both the outcome, and the
Treasury Decision which followed soon after the Supreme Court's
landmark ruling in the case. Frank R. Brushaber filed his
original Bill of Complaint on March 13, 1914, within a year after
Philander C. Knox declared the 16th Amendment to be the supreme
law of the land. Addressing the judges of the District Court of
the United States for the Southern District of New York,
Brushaber began his complaint as follows:
Frank R. Brushaber, a citizen of the State of New York and a
resident of the Borough of Brooklyn, in the City of New
York, brings this his bill against Union Pacific Railroad
Company, a corporation and citizen of the State of Utah,
having its executive office and a place of business in the
Borough of Manhattan, in the City of New York, and the
Southern District of New York, in his own behalf and on
behalf of any and all of the stockholders of the defendant
Union Pacific Railroad Company who may join in the
prosecution and contribute to the expenses of this suit.
[emphasis added]
Right from the beginning, Frank Brushaber made an important
statement of fact which remained unchallenged at every level in
the federal courts. He identified himself as a citizen of the
State of New York and a resident of the Borough of Brooklyn, in
the City of New York. He did not identify himself as a "United
States** citizen" or as a "resident of the United States**". He
indicated that he lived and worked in New York State, outside the
District of Columbia and outside any territory, possession or
enclave controlled by the Congress of the United States**.
"Enclaves" are areas within the 50 States which are "ceded" to
Congress by the acts of State Legislatures (e.g. military bases).
The federal courts concluded that Brushaber, under the law,
was a "nonresident alien". He was "nonresident" because he lived
and worked outside the areas of land over which the Congress has
exclusive jurisdiction. The authority to have exclusive
jurisdiction over this land was granted to Congress by Article 1,
Section 8, Clause 17, and Article 4, Section 3, Clause 2 of the
Constitution. In this book, I will often refer to these areas of
land as "the federal zone". Brushaber was an "alien" because his
statement of citizenship was taken as proof that he was not a
citizen of the federal zone. He was not a "United States**
citizen", either through birth or naturalization, because the
term "United States**" in this context means only the federal
zone. Therefore, he was alien with respect to the District of
Columbia and the federal enclaves, territories and possessions
over which the Congress has exclusive legislative jurisdiction.
Page 2 - 1 of 8
The Federal Zone:
This may sound strange to the casual reader, but the law is not
referring to creatures from outer space. The law is referring to
the creation of lawyers.
Right from the beginning, Frank Brushaber also made an
important error which contributed to his ultimate downfall in the
case. He identified his opposition as a corporation chartered by
the State of Utah:
Your orator further shows that the defendant Union Pacific
Railroad Company is, and at all the times hereinafter
mentioned was, a corporation duly organized and existing
under and by virtue of the laws of the State of Utah, and a
citizen of the State of Utah ....
[from original Bill of Complaint, filed March 13, 1914]
This was incorrect. The Union Pacific Railroad Company was
originally created in the year 1862 by an Act of Congress. The
stated purpose of the corporation was to aid in the construction
of a railroad and telegraph line from the Missouri River to the
Pacific Ocean. This Act was passed on July 1, 1862 by the
Thirty-Seventh Congress, Second Session, as recorded in the
Statutes at Large, (December 5, 1859 to March 3, 1863 at Chapter
CXX, page 489). At that time, Utah had not yet been admitted as
a State of the Union. It was still a territory, i.e., a "federal
state", over which the Congress had exclusive legislative
jurisdiction.
Being a creation of Congress, the Union Pacific Railroad
Company was found to be a "domestic" corporation under the law.
This is another term which is very confusing to the casual
reader. In common, everyday language, the term "domestic" is
often used to mean "inside the country". For example, airports
are divided into different areas for domestic and foreign
flights, in order to allow Customs agents to inspect the baggage
and passports of passengers arriving on flights from foreign
countries. However, under federal tax law, the term "domestic"
does not mean "inside the country"; it means "inside the federal
zone" which is an area that is much smaller than the whole
country. Accordingly, a "foreign" corporation is a corporation
which was chartered by a government that is "outside the federal
zone". The federal zone consists of the enclaves, territories
and possessions over which the Congress of the United States**
has exclusive legislative jurisdiction. California is outside of
the federal zone, for example, and corporations which are
chartered in the State of California are foreign corporations
with respect to the federal zone. Similarly, corporations
chartered in France are likewise foreign corporations with
respect to the federal zone. It is simple, once you understand
the proper legal definitions of "foreign" and "domestic" in the
federal tax law.
Page 2 - 2 of 8
Status and Jurisdiction
The status of the two parties in the Brushaber case can,
therefore, be summarized as follows:
1. State Citizen Frank R. Brushaber was identified by his
court documents as a nonresident alien, as that term is
now defined in the Internal Revenue Code (Title 26,
United States Codes).
2. The Union Pacific Railroad Company was identified by
court documents as a domestic corporation, as that term
is now defined in the Internal Revenue Code (Title 26,
United States Codes).
Government Propaganda
The federal government has tried to confuse the implications
of Frank Brushaber's status by asserting that he was a French
immigrant. This is government propaganda, pure and simple. This
propaganda is designed to make us believe that Brushaber was
found to be an alien because he was born in France, not because
he declared himself to be a "citizen of the State of New York".
Accordingly, the federal officials responsible for this
propaganda are trying in vain to convince everyone that the 50
States are inside the federal zone, because they want us to
conclude that Frank Brushaber would have been a "U.S.** resident"
if he resided in New York, or a "U.S.** citizen" if he had been
born in New York. It is fairly easy (and fun) to defeat this
propaganda, because it is only make believe.
First of all, Frank Brushaber declared himself to be a
"resident of the Borough of Brooklyn, in the City of New York".
If New York State were inside the federal zone, and if Frank
Brushaber had been born in France, he most certainly would have
been an "alien", but a "resident" alien according to the
government's own rules. After the Supreme Court's decision, the
Treasury Department published a Treasury Decision (T.D. 2313)
which clearly identified Frank Brushaber as a nonresident alien
(see below, page 2-4 and also Appendix C).
Secondly, regardless of whether federal officials place New
York State inside or outside the federal zone, their French
immigrant theory would place Frank Brushaber in the category of
an alien who was lawfully admitted for permanent "residence".
Congress does have legislative jurisdiction over immigration and
naturalization. Being lawfully admitted for permanent residence
is also called the "green card test" (see next chapter). Again,
the government's own rules and regulations would have designated
Frank Brushaber as a "resident" alien. As we know, the Treasury
Department identified him as a nonresident alien. A native of
France would be a nonresident alien if he resided in France; he
would be a resident alien if he lawfully immigrated to America
under rules established by Congress. But no "green card" was in
evidence to prove that Brushaber was an immigrant, and current
"green cards" exhibit the words RESIDENT ALIEN in bold letters.
Page 2 - 3 of 8
The Federal Zone:
Thirdly, if Frank Brushaber had been a French immigrant who
applied for, and was granted U.S.** citizenship, quite obviously
he would have become a naturalized U.S.** citizen, no longer an
alien. Again, Congress does have jurisdiction over immigration
and naturalization. The government's own rules and regulations
would have designated Frank Brushaber as a U.S.** citizen.
Finally, Frank Brushaber identified himself as a "citizen of
the State of New York". Although a native of France would also
be an "alien" with respect to the federal zone, this is not how
Frank Brushaber identified himself to the federal courts. He
identified himself as a "citizen of the State of New York". On
the basis of this status as presented to the federal courts,
those same courts, and the Treasury Department thereafter,
concluded that he was a nonresident alien, not a U.S.** citizen
and not a U.S.** resident. To argue that he was a French
immigrant is to assume facts that were not in evidence. The
courts arrived at their decisions on the basis of facts that were
in evidence. Author and scholar Lori Jacques addresses the
French immigrant theory as follows:
... [I]t appears that a state citizen was identified as a
nonresident alien and taxed upon his unearned income
deriving from a domestic corporation. This conclusion is
possible because there would be no question that a person
who, for example, was born and domiciled in France and who
owned shares in Union Pacific Railway [sic] Co. would be
taxed as a nonresident alien. Only Mr. Brushaber, citizen
of New York State and stockholder, was considered in the
case decided by the Supreme Court, thus there was no basis
for the Secretary extending the decision to those not
parties to the action.
[A Ticket to Liberty, November 1990 edition, page 40]
[emphasis added]
In the final analysis, it doesn't really matter whether
Frank Brushaber was, in fact, a French immigrant or not. The
federal courts and the Treasury Department agreed that any person
claiming to be citizen and resident of New York was a nonresident
alien with respect to the federal zone. This is all we need to
know about the plaintiff's status. Now you see why the French
immigrant theory is really just propaganda. In later chapters,
the motive for this propaganda will become crystal clear.
Treasury Decision 2313
Soon after the Brushaber decision, and as a direct result of
that decision, the Office of the Commissioner of Internal Revenue
published Treasury Decision (T.D.) 2313 to clarify the meaning
and consequences of the Supreme Court's ruling. Volume 18 of the
Treasury Decisions was published for the period of January to
Page 2 - 4 of 8
Status and Jurisdiction
December of 1916 by Secretary of the Treasury W. G. McAdoo.
Treasury Decision 2313 was written to clarify the "... 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."
Frank Brushaber had purchased stock in the Union Pacific
Railroad Company. He was then paid a dividend on this stock.
The Union Pacific Railroad Company acted as a "withholding agent"
and withheld a portion of his dividend to pay the federal income
tax that was owed on that dividend. The term "withholding agent"
still has the same meaning in the current Internal Revenue Code.
Although he was a nonresident alien, Frank Brushaber received
income from a source that was inside, or "within" the federal
zone. The "source" of his income was a "domestic" corporation
because that corporation had been chartered by Congress.
The net result of his defeat by the Supreme Court was to
render as taxable the income from bond interest and stock
dividends issued by domestic corporations to nonresident aliens
like Frank Brushaber. A key paragraph from Treasury Decision
2313 is the following:
Under the decision of the Supreme Court of the United States
in the case of Brushaber v. Union Pacific Railway Co. [sic],
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.
[emphasis added]
Because Brushaber's income originated from a source "inside" or
"within" the United States**, where "United States**" means the
federal zone, the income was taxable. The "source" was the Union
Pacific Railroad Company, the issuer of the stock and the payor
of dividends. (The T.D. failed to spell the corporation's name
correctly.) The federal tax law then, as now, designates such a
dividend payor as the "withholding agent":
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 ....
[emphasis added]
This "withholding agent" must withhold a certain amount from the
dividend to cover the federal tax liability of the recipient.
The amount withheld is paid to the federal government. T.D. 2313
then went on to explain the use of Form 1040 in this situation:
Page 2 - 5 of 8
The Federal Zone:
The liability, under the provisions of the law, to render
personal returns ... 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.
[emphasis added]
For those of you who are interested, the complete text of
Treasury Decision 2313 can be found in Appendix C of this book.
Summary
The dual issues of status and jurisdiction are closely
intertwined. The federal government has a limited area over
which it exercises exclusive legislative jurisdiction, an area I
have called "the federal zone". Congress is not limited by the
constitutional restrictions on direct and indirect taxation
within the federal zone. The birth and residency status of
natural persons situate them either inside or outside that
jurisdiction. Citizens who were naturalized by federal courts
are situated inside that jurisdiction, regardless of where they
reside. Both citizens and residents of the federal zone are
liable for federal taxes on their worldwide income, no matter
where the source of that income. If you are not a citizen, then
you are an alien. If you are not a resident, then you are a
nonresident. Nonresident aliens pay taxes only on income which
is derived from sources that are inside the federal zone. If you
work for the federal government, your pay comes from a source
that is inside the federal zone.
Likewise, artificial "persons" like corporations are either
foreign or domestic. (It may appear strange at first, but a
corporation is also a "person" as that term is defined in the
Internal Revenue Code.) A corporation that is chartered by
Congress is domestic with respect to the federal zone. A
corporation that is chartered by one of the 50 States of the
Union is foreign with respect to the federal zone. A corporation
that is chartered by a foreign country like France is likewise
foreign with respect to the federal zone. Imagine what a
difference it would make if all individuals and corporations knew
and asserted their correct status with respect to the exclusive
legislative jurisdiction of the federal zone.
# # #
Page 2 - 6 of 8
Status and Jurisdiction
Reader's Notes:
Page 2 - 7 of 8
The Federal Zone:
Reader's Notes:
Page 2 - 8 of 8