Why Your Government is Either a Thief or You are a "Public Officer" for Income Tax Purposes, Form #05.008 (OFFSITE LINK) -proves that all "taxpayers" are public officers in the U.S. government and if they are human, also statutory but not common law "employees".
Revenue Rule 2006-18, I.R.B. 2006-15, March 16, 2006
REV. RUL. 2006-18 , I.R.B. 2006-15, MARCH 16, 2006
Rev. Rul. 2006-18
Frivolous tax returns; only certain persons subject to federal income tax. This ruling emphasizes to taxpayers, promoters, and return preparers that all individuals are subject to federal income tax. Any argument that Forms W-2 only record and report payments made to federal employees, or that only federal employees or residents of the District of Columbia or federal territories and enclaves earn wages subject to tax, has no merit and is frivolous.
PURPOSE
The Service is aware that some taxpayers are claiming that only federal employees and persons residing in Washington, D.C. or federal territories and enclaves are subject to federal tax. These taxpayers may attempt to avoid their federal tax liability by submitting a Form 4852 (Substitute for W-2, Wage and Tax Statement, or Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.) to the Internal Revenue Service with a zero on the line for the amount of wages received. These taxpayers may also file tax returns showing no income and claiming a refund for withheld income taxes. The Service is also aware that some promoters market a book, package, kit or other materials that claim to show taxpayers how they can avoid paying income taxes based on this and other meritless arguments.
This revenue ruling emphasizes to taxpayers, promoters, and return preparers that all individuals are subject to federal income tax. This revenue ruling also provides that the terms “employee” and “wages” carry the meanings given to them in the Internal Revenue Code, regulations, and publications of the Internal Revenue Service. Under the Internal Revenue Code, wages include any compensation received due to the performance of services as an employee, and the term employee includes any individual for whom the legal relationship between the individual and the person for whom the individual performs services is the legal relationship of employer and employee. All wages are included in gross income for purposes of determining federal income tax liability, and are also subject to federal employment taxes. Any argument that Forms W-2 only record and report payments made to federal employees, or that only federal employees or residents of the District of Columbia or federal territories and enclaves earn wages subject to tax, has no merit and is frivolous.
The Service is committed to identifying taxpayers who attempt to avoid their federal tax obligations by taking frivolous positions. The Service will take vigorous enforcement action against these taxpayers and against promoters and return preparers who assist taxpayers in taking these frivolous positions. Frivolous returns and other similar documents submitted to the Service are processed through the Service’s Frivolous Return Program. As part of this program, the Service determines whether taxpayers who have taken frivolous positions have filed all required tax returns, and computes the correct amount of tax and interest due, and determines whether civil or criminal penalties should apply. The Service also determines whether civil or criminal penalties should apply to return preparers, promoters, and others who assist taxpayers in taking frivolous positions, and recommends whether an injunction should be sought to halt these activities. Other information about frivolous tax positions is available on the Service website at www.irs.gov.
ISSUE
Whether only federal employees and persons residing in Washington, D.C. or federal territories and enclaves are subject to federal income and employment taxes.
FACTS
Taxpayer A either 1) requests, by submitting a Form W-4, Employee’s Withholding Allowance Certificate, that his employer not withhold any amount of federal tax from wages earned, or 2) prepares a Form 4852 (Substitute for W-2) showing no wages received. In addition, taxpayer A either fails to file a return, or files a return with zero income claiming all withholding as a refund. Taxpayer A claims that he is not an “employee” and does not receive “wages” subject to federal income tax, as those terms are as defined in the Internal Revenue Code. Taxpayer A contends that the federal government can only legally demand an “income” tax from federal employees and persons residing in Washington, D.C. or federal territories and enclaves. Therefore, Taxpayer A claims that he does not have to pay “income” taxes — which Taxpayer A asserts also include employment taxes such as Federal Insurance Contributions Act (FICA) taxes — to the federal government.
LAW AND ANALYSIS
Section 3401(a) provides that “wages” include all remuneration for services performed by an employee for his employer. Section 3121(a) provides a similar definition of wages for FICA tax purposes. The argument that only federal employees and persons residing in Washington, D.C. or federal territories and enclaves are subject to tax is based on a misinterpretation of section 3401(c), which defines “employee” and states that the term “includes an officer, employee or elected official of the United States, a State, or any political subdivision thereof . . . .” Section 31.3401(c)-1 of the Employment Tax Regulations provides that the term “employee” includes every individual performing services if the relationship between that individual and the person for whom he performs such services is the legal relationship of employer and employee. Section 7701(c) states that the use of the word “includes” “shall not be deemed to exclude other things otherwise within the meaning of the term defined.” Thus, the word “includes” as used in the definition of “employee” under § 3401(c) is a term of enlargement, not of limitation. Courts have recognized that federal employees and officials are among those within the definition of “employee,” which also includes private citizens. See Sullivan v. United States, 788 F.2d 813, 815 (1st Cir. 1986) (contention that taxpayer was not an “employee” is meritless, section 3401(c) does not limit withholding to the persons listed therein); United States v. Latham, 754 F.2d 747, 750 (7th Cir. 1985) (under section 3401(c), the category of “employee” includes privately employed wage earners; the word “includes” is a term of enlargement not of limitation, and the reference to certain entities or categories is not intended to exclude all others); Pabon v. Commissioner, T.C. Memo. 1994-476 (1994) (taxpayer’s frivolous position that she was not subject to tax because she was not an employee of the federal or state governments warranted sanctions of $2,500).
The employment tax withholding provisions do not affect whether wages are gross income. Section 61 provides that compensation for services is includable in gross income. Whether the compensation for services is in the form of wages, or in some other form, is irrelevant. The amount is still subject to income tax. All employees, not just federal employees and those living in federal territories and enclaves, are subject to income and employment taxes.
HOLDING
Federal income tax laws do not apply solely to federal employees and persons residing in the District of Columbia, or federal territories and enclaves, and any contrary contention is frivolous. The terms “employee” and “wages” as used by the Internal Revenue Code apply to all employees, unless specifically exempted by the Internal Revenue Code. The income tax withholding provisions do not affect whether an amount is gross income.
CIVIL AND CRIMINAL PENALTIES
The Service will challenge the claims of individuals who attempt to avoid or evade their federal tax liability. In addition to liability for the tax due plus statutory interest, taxpayers who fail to file valid returns or pay tax based on the argument that Forms W-2 only record and report payments made to federal workers, or that only federal employees or residents of federal territories and enclaves earn wages, face substantial civil and criminal penalties. Potentially applicable civil penalties include: (1) the section 6662 accuracy-related penalties, which are generally equal to 20 percent of the amount of tax the taxpayer should have paid; (2) the section 6663 penalty for civil fraud, which is equal to 75 percent of the amount of taxes the taxpayer should have paid; (3) a $500 penalty imposed under section 6702 when the taxpayer files a document that purports to be a return but that contains a frivolous position or suggests a desire by the taxpayer to delay or impede the administration of Federal income tax laws; (4) the section 6651 additions to tax for failure to file a return, failure to pay the tax owed, and fraudulent failure to file a return; and (5) a penalty of up to $25,000 under section 6673 if the taxpayer makes frivolous arguments in the United States Tax Court.
Taxpayers relying on this frivolous position also may face criminal prosecution under: (1) section 7201 for attempting to evade or defeat tax, the penalty for which is a significant fine and imprisonment for up to 5 years; (2) section 7203 for willful failure to file a return, the penalty for which is a significant fine and imprisonment for up to a year; (3) section 7206 for making false statements on a return, statement, or other document, the penalty for which is a significant fine and imprisonment for up to 3 years.
Persons, including return preparers, who promote this frivolous position and those who assist taxpayers in claiming tax benefits based on frivolous positions may face civil and criminal penalties and also may be enjoined by a court pursuant to sections 7407 and 7408. Potential penalties include: (1) a $250 penalty under section 6694 for each return or claim for refund prepared by an income tax return preparer who knew or should have known that the taxpayer’s position was frivolous (or $1,000 for each return or claim for refund if the return preparer’s actions were willful, intentional or reckless); (2) a penalty under section 6700 for promoting abusive tax shelters; (3) a $1,000 penalty under section 6701 for aiding and abetting the understatement of tax; and (4) criminal prosecution under section 7206, for which the penalty is a significant fine and imprisonment for up to 3 years, for assisting or advising about the preparation of a false return, statement or other document under the internal revenue laws.
DRAFTING INFORMATION
This revenue ruling was authored by the office of the Associate Chief Counsel (Procedure and Administration), Administrative Provisions and Judicial Practice Division. For further information regarding this revenue ruling, contact that office at (202) 622-7950 (not a toll-free call).
5 U.S.C. §2105: Employee
TITLE 5 > PART III > Subpart A > CHAPTER 21 > § 2105
§ 2105. Employee(a) For the purpose of this title, “employee”, except as otherwise provided by this section or when specifically modified, means an officer and an individual who is—
(1) appointed in the civil service by one of the following acting in an official capacity—
(A) the President;
(B) a Member or Members of Congress, or the Congress;
(C) a member of a uniformed service;
(D) an individual who is an employee under this section;
(E) the head of a Government controlled corporation; or
(F) an adjutant general designated by the Secretary concerned under section 709 (c) of title 32;(2) engaged in the performance of a Federal function under authority of law or an Executive act; and
(3) subject to the supervision of an individual named by paragraph (1) of this subsection while engaged in the performance of the duties of his position.(b) An individual who is employed at the United States Naval Academy in the midshipmen’s laundry, the midshipmen’s tailor shop, the midshipmen’s cobbler and barber shops, and the midshipmen’s store, except an individual employed by the Academy dairy (if any), and whose employment in such a position began before October 1, 1996, and has been uninterrupted in such a position since that date is deemed an employee.
(c) An employee paid from nonappropriated funds of the Army and Air Force Exchange Service, Army and Air Force Motion Picture Service, Navy Ship’s Stores Ashore, Navy exchanges, Marine Corps exchanges, Coast Guard exchanges, and other instrumentalities of the United States under the jurisdiction of the armed forces conducted for the comfort, pleasure, contentment, and mental and physical improvement of personnel of the armed forces is deemed not an employee for the purpose of—
(1) laws administered by the Office of Personnel Management, except—
(A) section 7204;
(B) as otherwise specifically provided in this title;
(C) the Fair Labor Standards Act of 1938;
(D) for the purpose of entering into an interchange agreement to provide for the noncompetitive movement of employees between such instrumentalities and the competitive service; or
(E) subchapter V of chapter 63, which shall be applied so as to construe references to benefit programs to refer to applicable programs for employees paid from nonappropriated funds; or(2) subchapter I of chapter 81, chapter 84 (except to the extent specifically provided therein), and section 7902 of this title.
This subsection does not affect the status of these nonappropriated fund activities as Federal instrumentalities.(d) A Reserve of the armed forces who is not on active duty or who is on active duty for training is deemed not an employee or an individual holding an office of trust or profit or discharging an official function under or in connection with the United States because of his appointment, oath, or status, or any duties or functions performed or pay or allowances received in that capacity.
(e) Except as otherwise provided by law, an employee of the United States Postal Service or of the Postal Rate Commission is deemed not an employee for purposes of this title.
(f) For purposes of sections 1212, 1213, 1214, 1215, 1216, 1221, 1222, 2302, and 7701, employees appointed under chapter 73 or 74 of title 38 shall be employees.
26 C.F.R. §31.3401(c)-1 Employee:
"...the term [employee] includes officers and employees, whether elected or appointed, of the United States, a [federal] State, Territory, Puerto Rico or any political subdivision, thereof, or the District of Columbia, or any agency or instrumentality of any one or more of the foregoing. The term 'employee' also includes an officer of a corporation."
26 U.S.C. §3401(c) Employee
For purposes of this chapter, the term ''employee'' includes [is limited to] an officer, employee, or elected official of the United States, a State, or any political subdivision thereof, or the District of Columbia, or any agency or instrumentality of any one or more of the foregoing. The term ''employee'' also includes an officer of a corporation.
26 C.F.R. §31.3401(c )-1
"Generally, physicians, lawyers, dentists, veterinarians, contractors, subcontractors, public stenographers, auctioneers, and others who follow an independent trade, business, or profession, in which they offer their services to the public, are not employees."
8 Federal Register, Tuesday, September 7, 1943, §404.104, pg. 12267
Employee:“The term employee specifically includes officers and employees whether elected or appointed, of the United States, a state, territory, or political subdivision thereof or the District of Columbia or any agency or instrumentality of any one or more of the foregoing.”
[8 Federal Register, Tuesday, September 7, 1943, §404.104, pg. 12267]
Black's Law Dictionary, Sixth Edition, p. 517:
Elected. The word "elected," in its ordinary signification, carries with it the idea of a vote, generally popular, sometimes more restricted, and cannot be held the synonym of any other mode of filling a position.
[Black's Law Dictionary, Sixth Edition, p. 517]
Black's Law Dictionary, Sixth Edition, p. 99:
Appointment. The designation of a person, by the person or persons having authority therefor, to discharge the duties of some office or trust. In re Nicholson's Estate, 104 Colo. 561, 93 P.2d 880, 884.
Office or public function. The selection or designation of a person, by the person or persons having authority therefor, to fill an office or public function and discharge the duties of the same. The term "appointment" is to be distinguished from "election." "Election" to office usually refers to vote of people, whereas "appointment" relates to designation by some individual or group. Board of Education of Boyle County v. McChesney, 235 Ky. 692, 32 S.W.2d 26, 27.
[Black's Law Dictionary, Sixth Edition, p. 99]
Black's Law Dictionary, Sixth Edition, p. 1082:
Office. A right, and correspondent duty, to exercise a public trust. A public charge or employment. An employment on behalf of the government in any station or public trust, not merely transient, occasional, or incidental. The most frequent occasions to use the word arise with reference to a duty and power conferred on an individual by the government; and, when this is the connection, "public office" is a usual and more discriminating expression. But a power and duty may exist without immediate grant from government, and may be properly called an "office;" as the office of executor. Here the individual acts towards legatees in performance of a duty, and in exercise of a power not derived from their consent, but devolved on him by an authority which quoad hoc is superior....
[Black's Law Dictionary, Sixth Edition, p. 1082]
5 U.S.C. §8501(1)(D): "Federal service"
TITLE 5 > PART III > Subpart G > CHAPTER 85 > SUBCHAPTER I > § 8501
§ 8501. DefinitionsFor the purpose of this subchapter—
(1) “Federal service” means service performed after 1952 in the employ of the United States or an instrumentality of the United States which is wholly or partially owned by the United States, but does not include service (except service to which subchapter II of this chapter applies) performed—
(D) outside the United States, the Commonwealth of Puerto Rico, and the Virgin Islands by an individual who is not a citizen of the United States;
(3) “Federal employee” means an individual who has performed Federal service;
26 C.F.R. §1.1402(c )-3: Employee
Title 26: Internal Revenue
PART 1—INCOME TAXES
TAX ON SELF-EMPLOYMENT INCOME
§ 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).)
Metcalf Eddy v. Mitchell, 269 U.S. 514, 517 (1926)
LEXIS HEADNOTES
A tax on compensation for personal service is in substance and effect a tax on gross receipts. It may be that here the distinction lies. United States Glue Co. v. Oak Creek, 247 U.S. 321. There is no sound basis for any distinction between income from personal services resulting from an official appointment and income from personal services resulting from a [****6] contractual employment, and still less basis for a distinction between "regular and permanent" officers and employees, and those whose services are acquired, whether by appointment or by contract, to perform a specific task. The compensation of such instrumentalities is inseparably connected with the instrumentalities.
OPINION
We think it clear that neither of the plaintiffs in error occupied any official position in any of the undertakings 520*520 to which their writ of error in No. 183 relates. They took no oath of office; they were free to accept any other concurrent employment; none of their engagements was for work of a permanent or continuous character; some were of brief duration and some from year to year, others for the duration of the particular work undertaken. Their duties were prescribed by their contracts and it does not appear to what extent, if at all, they were defined or prescribed by statute. We therefore conclude that plaintiffs in error have failed to sustain the burden cast upon them of establishing that they were officers of a state or a subdivision of a state within the exception of § 201(a).
An office is a public station conferred by the appointment of government. The term embraces the idea of tenure, duration, emolument and duties fixed by law. Where an office is created, the law usually fixes its incidents, including its term, its duties and its compensation. United States v. Hartwell, 6 Wall. 385; Hall v. Wisconsin, 103 U.S. 5. The term "officer" is one inseparably connected with an office; but there was no office of sewage or water supply expert or sanitary engineer, to which either of the plaintiffs was appointed. The contracts with them, although entered into by authority of law and prescribing their duties, could not operate to create an office or give to plaintiffs the status of officers. Hall v. Wisconsin, supra; Auffmordt v. Hedden, 137 U.S. 310. There were lacking in each instance the essential elements of a public station, permanent in character, created by law, whose incidents and duties were prescribed by law. See United States v. Maurice, 2 Brock. 96, 102, 103; United States v. Germaine, 99 U.S. 508, 511, 512; Adams v. Murphy, 165 Fed. 304.
Nor do the facts stated in the bill of exceptions establish that the plaintiffs were "employees" within the meaning of the statute. So far as appears, they were in the position of independent contractors. The record does 521*521 not reveal to what extent, if at all, their services were subject to the direction or control of the public boards or officers engaging them. In each instance the performance of their contract involved the use of judgment and discretion on their part and they were required to use their best professional skill to bring about the desired result. This permitted to them liberty of action which excludes the idea of that control or right of control by the employer which characterizes the relation of employer and employee and differentiates the employee or servant from the independent contractor. Chicago, Rock Island & Pacific Ry. Co. v. Bond, 240 U.S. 449, 456; Standard Oil Co. v. Anderson, 212 U.S. 215, 227; and see Casement v. Brown, 148 U.S. 615; Singer Mfg. Co. v. Rahn, 132 U.S. 518, 523.
We pass to the more difficult question whether Congress had the constitutional power to impose the tax in question, and this must be answered by ascertaining whether its effect is such as to bring it within the purview of those decisions holding that the very nature of our constitutional system of dual sovereign governments is such as impliedly to prohibit the federal government from taxing the instrumentalities of a state government, and in a similar manner to limit the power of the states to tax the instrumentalities of the federal government. See, as to federal taxation on state instrumentalities, Collector v. Day, 11 Wall. 113; United States v. Railroad Co., 17 Wall. 322; Pollock v. Farmers' Loan & Trust Co., 157 U.S. 429, 585, 586; Ambrosini v. United States, 187 U.S. 1; Flint v. Stone Tracy Co., 220 U.S. 107; see cases holding that the Sixteenth Amendment did not extend the taxing power to any new class of subjects, Brushaber v. Union Pacific R.R. Co., 240 U.S. 1; Peck & Co. v. Lowe, 247 U.S. 165, 172; Eisner v. Macomber, 252 U.S. 189; Evans v. Gore, 253 U.S. 245, 259. And, as to state taxation on federal instrumentalities, see McCulloch v. Maryland, 522*522 4 Wheat. 316; Dobbins v. Commissioners of Erie County, 16 Pet. 435; The Banks v. The Mayor, 7. Wall. 16; Weston v. The City Council of Charleston, 2 Pet. 449, 467; Farmers Bank v. Minnesota, 232 U.S. 516; Choctaw & Gulf R.R. v. Harrison, 235 U.S. 292; Indian Oil Co. v. Oklahoma, 240 U.S. 522; Gillespie v. Oklahoma, 257 U.S. 501.
Just what instrumentalities of either a state or the federal government are exempt from taxation by the other cannot be stated in terms of universal application. But this Court has repeatedly held that those agencies through which either government immediately and directly exercises its sovereign powers, are immune from the taxing power of the other. Thus the employment of officers who are agents to administer its laws (Collector v. Day; Dobbins v. Commissioners of Erie County, supra), its obligations sold to raise public funds (Weston v. The City Council of Charleston, supra; Pollock v. Farmers' Loan & Trust Co., supra), its investments of public funds in the securities of private corporations, for public purposes (United States v. Railroad Co., supra), surety bonds exacted by it in the exercise of its police power (Ambrosini v. United States, supra), are all so intimately connected with the necessary functions of government, as to fall within the established exemption; and when the instrumentality is of that character, the immunity extends not only to the instrumentality itself but to income derived from it (Pollock v. Farmers' Loan & Trust Co.; Gillespie v. Oklahoma, supra,) and forbids an occupation tax imposed on its use. Choctaw & Gulf R.R. Co. v. Harrison, supra; and see Dobbins v. Commissioners of Erie County, supra.
When, however, the question is approached from the other end of the scale, it is apparent that not every person who uses his property or derives a profit, in his dealings with the government, may clothe himself with immunity from taxation on the theory that either he or his 523*523 property is an instrumentality of government within the meaning of the rule. Thomson v. Pacific Railroad, 9 Wall. 579; Railroad Co. v. Peniston, 18 Wall. 5; Baltimore Shipbuilding Co. v. Baltimore, 195 U.S. 375; Gromer v. Standard Dredging Co., 224 U.S. 362, 371; Fidelity & Deposit Co. v. Pennsylvania, 240 U.S. 319; Choctaw, O. & G.R.R. Co. v. Mackay, 256 U.S. 531.
As cases arise, lying between the two extremes, it becomes necessary to draw the line which separates those activities having some relation to government, which are nevertheless subject to taxation, from those which are immune. Experience has shown that there is no formula by which that line may be plotted with precision in advance. But recourse may be had to the reason upon which the rule rests, and which must be the guiding principle to control its operation. Its origin was due to the essential requirement of our constitutional system that the federal government must exercise its authority within the territorial limits of the states; and it rests on the conviction that each government, in order that it may administer its affairs within its own sphere, must be left free from undue interference by the other. McCulloch v. Maryland, supra; Collector v. Day; Dobbins v. Commissioners of Erie County, supra.
In a broad sense, the taxing power of either government, even when exercised in a manner admittedly necessary and proper, unavoidably has some effect upon the other. The burden of federal taxation necessarily sets an economic limit to the practical operation of the taxing power of the states, and vice versa. Taxation by either the state or the federal government affects in some measure the cost of operation of the other.
But neither government may destroy the other nor curtail in any substantial manner the exercise of its powers. Hence the limitation upon the taxing power of each, so far as it affects the other, must receive a practical 524*524 construction which permits both to function with the minimum of interference each with the other; and that limitation cannot be so varied or extended as seriously to impair either the taxing power of the government imposing the tax (South Carolina v. United States, 199 U.S. 437, 461; Flint v. Stone Tracy Co., supra, at 172,) or the appropriate exercise of the functions of the government affected by it. Railroad Co. v. Peniston, supra, 31.
While it is evident that in one aspect the extent of the exemption must finally depend upon the effect of the tax upon the functions of the government alleged to be affected by it, still the nature of the governmental agencies or the mode of their constitution may not be disregarded in passing on the question of tax exemption; for it is obvious that an agency may be of such a character or so intimately connected with the exercise of a power or the performance of a duty by the one government, that any taxation of it by the other would be such a direct interference with the functions of government itself as to be plainly beyond the taxing power.
It is on this principle that, as we have seen, any taxation by one government of the salary of an officer of the other, or the public securities of the other, or an agency created and controlled by the other, exclusively to enable it to perform a governmental function, (Gillespie v. Oklahoma, supra,) is prohibited. But here the tax is imposed on the income of one who is neither an officer nor an employee of government and whose only relation to it is that of contract, under which there is an obligation to furnish service, for practical purposes not unlike a contract to sell and deliver a commodity. The tax is imposed without discrimination upon income whether derived from services rendered to the state or services rendered to private individuals. In such a situation it cannot be said that the tax is imposed upon an agency of government in any technical sense, and the tax itself cannot be deemed 525*525 to be an interference with government, or an impairment of the efficiency of its agencies in any substantial way. Railroad Co. v. Peniston; Gromer v. Standard Dredging Co.; Baltimore Shipbuilding Co. v. Baltimore; Fidelity & Deposit Co. v. Pennsylvania; Choctaw, O. & G.R.R. Co. v. Mackey, supra.
As was said by this Court in Baltimore Shipbuilding Co. v. Baltimore, supra, in holding that a state might tax the interest of a corporation in a dry dock which the United States had the right to use under a contract entered into with the corporation:
"It seems to us extravagant to say that an independent private corporation for gain created by a State, is exempt from state taxation either in its corporate person, or its property, because it is employed by the United States, even if the work for which it is employed is important and takes much of its time." (p. 382.)
And as was said in Fidelity & Deposit Co. v. Pennsylvania, supra, in holding valid a state tax on premiums collected by bonding insurance companies on surety bonds required of United States officials:
"But mere contracts between private corporations and the United States do not necessarily render the former essential government agencies and confer freedom from state control." (p. 323.)
These statements we deem to be equally applicable to private citizens engaged in the general practice of a profession or the conduct of a business in the course of which they enter into contracts with government from which they derive a profit. We do not suggest that there may not be interferences with such a contract relationship by means other than taxation which are prohibited. Railroad Co. v. Peniston, supra, at p. 36, recognizes that there may. Nor are we to be understood as laying down any rule that taxation might not affect agencies of this character in such a manner as directly to interfere with the 526*526 functions of government and thus be held to be void. See Railroad v. Peniston, supra, page 36; Farmers Bank v. Minnesota, supra, p. 522; Choctaw & Gulf Railway Co. v. Harrison, supra, p. 272.
But we do decide that one who is not an officer or employee of a state, does not establish exemption from federal income tax merely by showing that his income was received as compensation for service rendered under a contract with the state; and when we take the next step necessary to a complete disposition of the question, and inquire into the effect of the particular tax, on the functioning of the state government, we do not find that it impairs in any substantial manner the ability of plaintiffs in error to discharge their obligations to the state or the ability of a state or its subdivisions to procure the services of private individuals to aid them in their undertakings. Cf. Central Pacific Railroad v. California, 162 U.S. 91, 126. We therefore conclude that the tax in No. 183 was properly assessed.
[Metcalf Eddy v. Mitchell, 269 U.S. 514, 517 (1926)]
Rutan v. Republican Party of Illionois, 497 U.S. 62 (1990)
“The restrictions that the Constitution places upon the government in its capacity as lawmaker, i.e., as the regulator of private conduct, are not the same as the restrictions that it places upon the government in its capacity as employer. We have recognized this in many contexts, with respect to many different constitutional guarantees. Private citizens perhaps cannot be prevented from wearing long hair, but policemen can. Kelley v. Johnson, 425 U.S. 238, 247 (1976). Private citizens cannot have their property searched without probable cause, but in many circumstances government employees can. O’Connor v. Ortega, 480 U.S. 709, 723 (1987) (plurality opinion); id., at 732 (SCALIA, J., concurring in judgment). Private citizens cannot be punished for refusing to provide the government information that may incriminate them, but government employees can be dismissed when the incriminating information that they refuse to provide relates to the performance of their job. Gardner v. Broderick, [497 U.S. 62, 95] 392 U.S. 273, 277 -278 (1968). With regard to freedom of speech in particular: Private citizens cannot be punished for speech of merely private concern, but government employees can be fired for that reason. Connick v. Myers, 461 U.S. 138, 147 (1983). Private citizens cannot be punished for partisan political activity, but federal and state employees can be dismissed and otherwise punished for that reason. Public Workers v. Mitchell, 330 U.S. 75, 101 (1947); Civil Service Comm'n v. Letter Carriers, 413 U.S. 548, 556 (1973); Broadrick v. Oklahoma, 413 U.S. 601, 616 -617 (1973).”
[Rutan v. Republican Party of Illinois, 497 U.S. 62 (1990)]
Mcnally v. United States, 483 U.S. 350 (1987)
When a person is being paid a salary for his loyal services, any breach of that loyalty would appear to carry with it some loss of money to the employer - who is not getting what he paid for. Additionally, "[i]f an agent receives anything as a result of his violation of a duty of loyalty to the principal, he is subject to a liability to deliver it, its value, or its proceeds, to the principal." Restatement (Second) of Agency 403 (1958). This duty may fulfill the Court's "money or property" requirement in most kickback schemes.
Sims v. U.S.,
359 U.S. 108, 79 S.Ct. 641 (1959)
Although not disputing these principles, petitioner advances two arguments in support of his claim that the statutes do not authorize a levy on the accrued salaries of employees of a State. First, he contends that a State is not a ‘person’ within the meaning of s 6332, and, second, he argues that Congress, by specifically authorizing in s 6331 a levy ‘upon the accrued salary or wages of any officer, employee, or elected official, of the United States, the District of Columbia, or any agency or instrumentality’ thereof, but not similarly specifically authorizing levy upon the accrued salaries or wages of *112 employees of a State, evinced its intention to exclude the latter from such levies.
Though the definition of ‘person’ in s 6332 does not mention States or any sovereign or political entity or their officers among those it ‘includes' (Note 3), it is equally clear that it does **645 not exclude them. This is made certain by the provisions of s 7701(b) of the 1954 Internal Revenue Code that ‘The terms ‘includes' and ‘including’ when used in a definition contained in this title shall not be deemed to exclude other things otherwise within the meaning of the term defined.' 26 U.S.C. (Supp. V) s 7701(b), 26 U.S.C.A. s 7701(b). Whether the term ‘person’ when used in a federal statute includes a State cannot be abstractly declared, but depends upon its legislative environment, State of Ohio v. Helvering, 292 U.S. 360, 370, 54 S.Ct. 725, 727, 78 L.Ed. 1307; State of Georgia v. Evans, 316 U.S. 159, 161, 62 S.Ct. 972, 973, 86 L.Ed. 1346. It is clear that s 6332 is stated in all-inclusive terms of general application. ‘In interpreting federal revenue measures expressed in terms of general application, this Court has ordinarily found them operative in the case of state activities even though States were not expressly indicated as subjects of tax.’ Wilmette Partk Dist. v. Campbell, 338 U.S. 411, 416, 70 S.Ct. 195, 198, 94 L.Ed. 205, and cases cited. We think that the subject matter, the context, the legislative history, and the executive interpretation, i.e., the legislative environment, of s 6332 make it plain that Congress intended to and did include States within the term ‘person’ as used in s 6332.
Nor is there merit in petitioner's contention that Congress, by specifically providing in s 6331 for levy upon the accrued salaries of federal employees, but not mentioning state employees, evinced an intention to exclude the latter from levy. The explanation of that action by Congress appears quite clearly to be that this Court has held in Smith v. Jackson, 246 U.S. 388, 38 S.Ct. 353, 62 L.Ed. 788, that a federal disbursing officer might not, in the absence of express congressional authorization, set off an indebtedness of a federal employee *113 to the Government against the employee's salary, and, pursuant to that opinion, the Comptroller General ruled that an ‘administrative official served with (notices of levy) would be without authority to withhold any portion of the current salary of such employee in satisfaction of the notices of levy and distraint.’ 26 Comp.Gen. 907, 912 (1947). It is evident that s 6331 was enacted to overcome that difficulty and to subject the salaries of federal employees to the same collection procedure as are available against all other taxpayers, including employees of a State. [NOTE: If they signed a W-4 or filed a return or didn't argue against being called "taxpayers" or used a federal identifying number, then they definitely were federal "employees" because all "taxpayers" are "public officers"]Accordingly we hold that ss 6331 and 6332 authorize levy upon the accrued salaries of state employees for the collection of any federal tax.
FN3. 26 U.S.C.(Supp. V) s 6332, 26 U.S.C.A. s 6332, provides:
‘(a) Requirement.-Any person in possession of (or obligated with respect to) property or rights to property subject to levy upon which a levy has been made shall, upon demand of the Secretary or his delegate, surrender such property or rights (or discharge such obligation) to the Secretary or his delegate, except such part of the property or rights as is, at the time of such demand, subject to an attachment or execution under any judicial process.
‘(b) Penalty for violation.-Any person who fails or refuses to surrender as required by subsection (a) any property or rights to property, subject to levy, upon demand by the Secretary or his delegate, shall be liable in his own person and estate to the United States in a sum equal to the value of the property or rights not so surrendered, but not exceeding the amount of the taxes for the collection of which such levy has been made, together with costs and interest on such sum at the rate of 6 percent per annum from the date of such levy.
‘(c) Person defined.-The term ‘person,’ as used in subsection (a), includes an officer or employee of a corporation or a member or employee of a partnership, who as such officer, employee, or member is under a duty to surrender the property or rights to property, or to discharge the obligation.'[Sims v. U.S., 359 U.S. 108, 79 S.Ct. 641 (1959)]
26 C.F.R. §31.3306(i)-1: Who are employees
TITLE 26--INTERNAL REVENUE
CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY (CONTINUED)
PART 31_EMPLOYMENT TAXES AND COLLECTION OF INCOME TAX AT SOURCE--Table of Contents
Subpart D_Federal Unemployment Tax Act (Chapter 23, Internal Revenue Code of 1954)
Sec. 31.3306(i)-1 Who are employees.(a) Every individual is an employee if the relationship between him and the person for whom he performs services is the legal relationship of employer and employee. (The word ``employer'' as used in this section only, notwithstanding the provisions of Sec. 31.3306(a)-1, includes a person who employs one or more employees.)
(b) Generally such relationship exists when the person for whom services are performed has the right to control and direct the individual who performs the services, not only as to the result to be accomplished by the work but also as to the details and means by which that result is accomplished. That is, an employee is subject to the will and control of the employer not only as to what shall be done but how it shall be done. In this connection, it is not necessary that the employer actually direct or control the manner in which the services are performed; it is sufficient if he has the right to do so. The right to discharge is also an important factor indicating that the person possessing that right is an employer. Other factors characteristic of an employer, but not necessarily present in every case, are the furnishing of tools and the furnishing of a place to work, to the individual who performs the services. In general, if an individual is subject to the control or direction of another merely as to the result to be accomplished by the work and not as to the means and methods for accomplishing the result, he is an independent contractor. An individual performing services as an independent contractor is not as to such services an employee. Individuals such as physicians, lawyers, dentists, veterinarians, construction contractors, public stenographers, and auctioneers, engaged in the pursuit of an independent trade, business, or profession, in which they offer their services to the public, are independent contractors and not employees.
Black’s Law Dictionary, Abridged 6th Edition, p. 1230:
Public Office. Essential characteristics of a ‘public office’ are:
(1) Authority conferred by law,
(2) Fixed tenure of office, and
(3) Power to exercise some of the sovereign functions of government.
(4) Key element of such test is that “officer is carrying out a sovereign function’.
(5) Essential elements to establish public position as ‘public office’ are:
(a) Position must be created by Constitution, legislature, or through authority conferred by legislature.
(b) Portion of sovereign power of government must be delegated to position,
(c) Duties and powers must be defined, directly or implied, by legislature or through legislative authority.
(d) Duties must be performed independently without control of superior power other than law, and
(e) Position must have some permanency.”
[Black’s Law Dictionary, Abridged 6th Edition, p. 1230]
Lawson v. Spirit AeroSys., No. 18-1100-EFM, at *22, 2023 U.S. Dist. LEXIS 104486 (D. Kan. June 15, 2023)
"The average, individual employees has little but his labor to sell or to use to make a living. He is often in urgent need of selling it and in no position to object to boiler plate restrictive covenants placed before him to sign. To him, the right to work and support his family is the most important right he possesses. His individual bargaining power is seldom equal to that of his employer. Moreover, an employee ordinarily is not on the same plane with the seller of an established business. He is more apt than the seller to be coerced into an oppressive agreement. Under pressure of need and with little opportunity for choice, he is more likely than the seller to make a rash, improvident promise that, for the sake of present gain, may tend to impair his power to earn a living, impoverish him, render him a public charge or deprive the community of his skill and training. ”
[Lawson v. Spirit AeroSys., No. 18-1100-EFM, at *22, 2023 U.S. Dist. LEXIS 104486 (D. Kan. June 15, 2023)]