W-4 What?

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The New York Times reports that tax honesty movement arguments (see my article on the movement from Reason's May issue) regarding payroll withholding are becoming so pervasive that the American Payroll Association's (APA) annual conference had a speaker dealing with (and trying to debunk) them. (Briefly, the arguments say that according to U.S. Code Title 26, Subtitle C, Chapter 24, Section 3402(n), if you tell your employer not to withhold, they should oblige you.) Some managers, the speaker at the APA conference reports, feel threatened by people trying to get their employers to stop W-4 withholding from their paychecks:

Tax protesters "can be colorful characters who show up with a wheelbarrow full of documents" purporting to show that the tax laws are a trick, he said, comparing their "pseudo-legal arguments" to "the Unabomber's manifesto."

Payroll officials should be careful with such people, Mr. O'Toole warned. "They may not be very nice," he said. "They could be dangerous."

That prompted Dennis Carroll, who handles tax-denier claims by United States Postal Service workers, to announce, "I work behind three locked doors."

The story doesn't mention how dangerous the government can become to people who try to keep their own money by applying their own understanding of tax codes.

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  1. When I paid last year’s Massachusetts state taxes on my unemployment checks, I had to pay a fine because taxes were NOT withheld. Apparently, if you try to keep your money, so you can put it in the bank and make a little interest on it before giving it to the government, they WILL come after your ass.

  2. I’m confused – is withholding mandatory or not? (Leaving aside debates on the income tax itself.)

  3. The New York Times reports

    Heh, if only it were that simple. The fact is this is David Cay Johnston “reporting”. He’s been challenged on his reporting countless times by the targets of his stories. He writes, “With Internet promoters fanning the flames and enforcement shriveling, the claims of these “tax deniers” have become so widespread” they might actually be true[my words].

    I’ll wait to hear how they respond to this latest piece.

  4. Witholding itself is not mandatory. However, you must pay certian percentages of your yearly tax burden by certain dates. If you do not meet those dates and percentages, you’ll be penalized.

    Ask any self-employed person how much fun Quarterly Estimated Taxes are.

    Oh, this system also penalizes people who aren’t clairvoyant. If you recieve a huge taxable windfall late in the year, chances are your normal witholding won’t meet the QET guidelines, and you’ll be penalized for the heinous sin of receiving your windfall late in the year, whether you know about it beforehand or not.

  5. digamma,

    I believe SSI is – except for whatever self-employment you have (which you have to pay ~15% of in SSI if you are self-employed). Anyway, people adjust how much is witheld; or at least I do. In the past I’ve switched my amount around several times over a year.

  6. Fear not, the Soveirgn Citizens Against Numbering have a helpful FAQ about Social Security Number requirements.

    Just make sure you read the Disclaimer.
    Nothing contained in this FAQ should in any way be considered legal advise of any sort. This information is only intended as an encouragement and a guide for further research on the subjects discussed herein. Any and all interpretative comments represent the sole opinion of the author.

  7. Don`t protest the tax laws, learn them and know them.

    http://WWW.861.info

    Enough said.

  8. If we’re talking about wage income, which is the only thing this trade group is likely to be concerned with, the statute is very clear – employers are required to withhold income tax from employee wages, although if the wage is small enough, exemptions can make the amount withheld zero. Your obligation to make quarterly income tax payments is separate and distinct from the requirement that your employer withhold. There are exceptions, of course. Domestic employers (i.e. back when I had a nanny for my child) can withhold, but are not required to (speaking only of the employee’s income tax here, not other payroll taxes). The exception tax avoiders have in mind goes to an exemption from federal withholding if you had no income tax liability last year, and expect to have none this year. Income tax liability here means that you owe zero tax, not that you owed no additional tax with your 1040.

    This goes only to your employer’s obligation to withhold federal income taxes from your wages. You still have an obligation to pay any tax due that is not withheld, and if you don’t pay quarterly, you can expect to pay penalties, although typically if your total tax liability for the previous year was less than the amount you paid through withholding or quarterly payments this year, you don’t have to pay the penalty.

    This doesn’t mean the tax laws are fair, just that this portion of the tax code is actually more or less clearly written. I agree that it’s not fair that you are expected to make an interest-free loan to the government under threat of penalties if you underpay.

  9. I had to pay some $30.00 in penalties for not giving the government enough of my money up front in the year of the Bush tax cut. I was irate.

    If they owe you, they sure as heck don’t give you interest and penalties for the lost income you are owed.

    Stupid guv’mint.

  10. “Tax honesty” is one hell of a euphemism for lying and claiming you don’t owe any income tax, when in fact the law is clear in stating that you do. And if “tax honesty” liars are seriously asking a judge to rule that 26 U.S.C. 3402(n) requires employers to cease withholding taxes for any employee who asks them to stop, I have to wonder if they’ve even bothered to read that statute. All it says is that an employer “shall not be required” to withhold tax if a withholding exemption certificate is in effect stating that the employee did not have any income tax liability in the previous year and does not expect to in the current year. “Shall not be required” means just that – not required. It does not mean that the employer is obligated to honor that request, particularly if he knows or should know that the claim is bogus.

    Shame on you, Brian. Posting credulous crap like this does nothing to lower anyone’s taxes, rein in a runaway government, or accomplish any other libertarian goals Reason supposedly wants to advance. All it will do is to encourage people to do something stupid that will eventually land them in prison.

  11. Xrig,
    Do yourself a favor,go to http://www.861.info and download. They won`t put you in jail just for seeking the truth. Or maybe they will!

  12. I sort of admire these folks at the “tax honesty” movement, but one way or another the government will get its hands on your money. Finding supposed loopholes isn’t gonna work, they’ll either be ignored by judges hearing the case or some new law will be passed to “correct” said loophole.

  13. Matt,
    Maybe there is reason behind the loopholes.If there weren`t they would have “corrected” them years ago.
    Read the Constitution,then try to read title 26.
    It`s the biggest bunch of mombo JUMBO that was ever printed.
    The reason: CONTROL,CONTROL,CONTROL

    Taxpayer: I don`t know what to pay?
    IRS : Just do what you are told, and don`t try to read the code, it will confuse you.

  14. No, they won’t put you in jail for seeking the truth, or even for seeking out tax “honesty” dishonesty. They will, whoever, put you in jail for acting on that information.

  15. No, they won’t put you in jail for seeking the truth, or even for seeking out tax “honesty” dishonesty. They will, whoever, put you in jail for acting on that bogus information.

  16. Ouch, that’s got to be the worst typo I’ve made in years. Information vs. bogus information – big difference.

  17. Spoon fed IRS Information is not bogus? The IRS does not make laws, only the Congress has that charge.
    Check out 26 USC 7206 , which refers to the “willfulness” of falsefying your return.
    If you determine your taxable income under your personal reading of the code, you won`t go to jail.
    REF. 1991 Supreme Court decision in U.S. v
    Cheek ( 498 US 192)

  18. Hydroman,

    Don’t get me wrong…I’m rooting for them. But what chance do they really have? The deck is just stacked against them.

  19. matt: The deck wouldn’t be so stacked against them if David Cay Johnston would stop being the IRS mouthpiece and start being an objective reporter. If there were one, just one, story from Johnston that received the “cover treatment” in the NY Times that actively addressed the issues raise by the so called tax cheats then perhaps the perception that you can’t beat the IRS would at least have some visible bandages nullifying their immortal stature.

  20. Brennan,
    That will happen as soon as someone figures out how to polish a turd.

  21. Anyone who believes these people are idiots is correct. http://www.861.info is the epitomy of misinterpretation and application of law. Anyone who believes these people should be put in jail for being gullible and a harm to themselves.

    First of all, 26 USC 861 is not an exclusive list of taxable items…see Helvering v. Suffolk (104 F3d 505)

    Second, 26 USC 61 defines gross income and there is no getting around its definitions without a non-recognition rule applying.

    Third, 861 is concerned with foreign corporations and foreign persons doing business in the US.

    Fourth, any reasonably competent person with a half-ass legal or business education can tell you that you are all wrong.

    Fifth, don’t you think that the judges hate to pay taxes also?

    Sixth, Cheek v. US does not stand for the proposition that Hydroman says it does…it only deals with “good faith” understanding of objectively ambiguous language. Further, “willful violation” does not mean evil intent, it means a “voluntary violation of a known duty.” In complying with tax laws, one is expected to claim any income that fits within section 61’s (and others) definitions. If you forget, that is a voluntary act and you have “willfully” violated the law.

    Finally, if you truly believe http://www.861.info, I have a lot of property in Northwest Arkansas that I might be willing to part with at a reasonable price.

  22. matt,

    The 861 information has been gaining ground since the information was coherently presented on the www a few years back.

    So far you all are correct that the government has the power to ride rough shod over you.

    Still the information about 861 and its relation to the tax code has never been refuted (with cites) by the government. The government has never cited any law that disputes the 861 position. The best they could come up with in court is the “every one knows” argument. I suppose when every one knows something else the government will start losing cases. Actually so far it has won only onecase and that is up on appeal.

    In Illinois a State taxpayer defeated a criminal 861 tax case when the government couldn’t show where the income was taxable. All he asked in court was “show me the law”. Why is that case (and numerous other state cases) important? Because Illinois income tax law is based on -figure your Federal Tax, then send us x% of that amount (with various additional deductions allowed). Many state with income tax handle it this way.

    The tax code is pretty clear (once you figure out how to follow its convolutions). 861 is used to determine if your income is taxable. If your income is not taxable you don’t owe any money.

  23. M. Simon, what case. Where…give me the citation.

  24. Further you are all retarded for not looking at the title and chapter heading of 861

    Title 26. Internal Revenue Code (Refs & Annos)

    Subtitle A. Income Taxes (Refs & Annos)

    Chapter 1. Normal Taxes and Surtaxes (Refs & Annos)

    Subchapter N. Tax Based on Income from Sources Within or Without the United States

    Part I. Source Rules and Other General Rules Relating to Foreign Income (Refs & Annos)

    ? 861. Income from sources within the United States

  25. It is clear that the purpose of 861 is to keep foreign companies from using the US as a tax haven..

    Purpose

    Congress intended combined taxable income of a domestic international sales corporation (DISC) and its parent to be calculated generally in accordance with the principles of statute dealing with income from sources within the United States. Dresser Industries, Inc. v. C.I.R., C.A.5 1990, 911 F.2d 1128. Internal Revenue 4118

    Purpose of Revenue Act, 1936, ? 119(b), (d), which defined income from sources within and from without the United States was to classify sources of income by nature and location of activities of taxpayer or of his property which produced income. Commissioner of Internal Revenue v. Ferro-Enamel Corporation, C.C.A. 6 1943, 134 F.2d 564. Internal Revenue 3069

    Legislative purpose behind the Foreign Investors Tax Act of 1966 [see Short Title of 1966 Amendment note under this section] was to provide equality in taxation of income derived by foreign corporations doing business in United States and to prevent foreign corporations from using United States as a tax haven and avoid paying income tax altogether on large amounts of income. Bank of America, Nat. Trust and Sav. Ass’n v. Chaco, D.C.Guam 1976, 423 F.Supp. 409. Internal Revenue 4084

  26. Hydroman,
    861 arguments are lies. Enough said.

    The tax laws are clear enough, if you consider the sections in their context– as opposed to looking for a magical “gotcha!” clause that, when quoted out of context, seems to exclude you from liability.

    For example, I could quote 4 USC 1 and then spin it into a crazy theory that the US government no longer holds power in this country. But anyone who looked at section 2 would know that I was talking out my ass.

    Brian, stop spreading urban myths.

  27. “The story doesn’t mention how dangerous the government can become to people who try to keep their own money by applying their own understanding of tax codes.”

    Yeah, and I don’t think three locked doors would do any good, either.

  28. The obvious intent of Congress is to take your money. Courts have no interest in interpreting the law so that Congress doesn’t get at it, unless the Constitution has some explicit provision against it, and there aren’t many. I wouldn’t put any trust in a tax avoidance scheme that doesn’t work by being fabulously rich and having expensive lawyers tell you it’s got a 1/3 chance of getting past the IRS.

  29. In reviewing the comments, it appears to me that there are two separate issues being conflated. The first issue is whether taxation, as administered, is _legal_. The second issue is whether taxation, as administered, is _moral_. The key to differentiating these issues lies in first asking oneself the question: “are laws necessarily moral?” Slavery was _legal_, but was it _moral_?

    I think that tax protesters miss the boat entirely. Taxation is clearly legal. But, since I believe that all rights are _individual_ rights, which means that associations of individuals (as in ?governments?) possess no more rights than individuals possess, then the government has no more right to rob me than you do.

  30. Guys, Sec 3402 …says every employer making payment of wages shall deduct and withhold…

    Sec 3401 (a)For purposes of this chapter, the term “wages” means all remuneration…. except that such term shall not include remuneration paid– (8)(A) for services for an employer(other than the United States or an agency thereof)– (i) performed by a citizen of the United States if, at the time of payment of such remuneration, it is reasonable to believe that such remuneration will be excluced from gross income under section 911; or(ii)….
    Sec. 911. Citizens or residents of the United States living abroad.

    Now for that 861 thing: sec. 638 Continental shelf areas. For purposes of applying the provisions of this chapter(including sections 861(a)(3) and 862(a)(3)in the case of the performance of personal services) with respect to mines, oil and gas wells, and other natural deposits–
    Please people go buy an Internal Revenue Code
    http://www.RIAHOME.com to order 1-800-431-9025
    make sure you check out the footnotes where they deleted Alaska and Hawaii from most of the definitions of the term “United States”
    Now the problem that people have in the courts is that private employers are sending in sworn statements (w-2) that people have wages.
    In the instructions for filling out W-2 it says that the filer can is civilly liable for false information and those W-2’s are what is getting people in trouble. My opinion which is worthless go sue the fool who can’t read simple definitions. such as “wages” in 3401 and “United States” and “state” in 3121(e)(1)&(2)

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