EDITORIAL:
The term "personal service" is nowhere defined in 26 U.S.C. and defined only once in the Treasury Regulations. Below is the only definition, and note that it is connected with a "trade or business", which is defined in 26 U.S.C. §7701(a)(26) to include the performance of the functions of a public office.
26 C.F.R. §1.469-9 Rules for certain rental real estate activities.
(b)(4) PERSONAL SERVICES. Personal services means any work performed by an individual in connection with a trade or business. However, personal services do not include any work performed by an individual in the individual's capacity as an investor as described in section 1.469-5T(f)(2)(ii).
Personal services is work performed as an AGENT or OFFICER of the U.S. Inc. federal corporation defined in 28 U.S.C. §3002(15)(A). In effect, it is services performed as a Kelly Girl for Uncle. As such, it is NOT the earnings of you personally, but your corporate parent. While working as said officer of U.S. Inc., you are WITHIN the LEGAL "United States" but not the statutory geographical United States. The OFFICE you serve in has a domicile in the District of Columbia under Federal Rule of Civil Procedure 17, while the OFFICER does NOT and usually has a foreign domicile within a constitutional state. These distinctions are made clear in:
- 26 U.S.C. §6413.
- 26 C.F.R. §301.7701(b)-2(c), which establishes the distinction between the "tax home" of an OFFICE v. that of the OFFICER serving in said office.
United States Glue Co. v. Town of Oak Creek, 247 U.S. 321 (1918) below establishes that corporations can take deductions for the cost of DELIVERYING personal services. The 1040NR form, however, doesn't provide a way to do the same thing. Deducting the cost of producing your own labor on a 1040NR is ordinarily done by exclusions using an attachment with the return. Procedures for doing this are included in:
- How to File Returns, Form #09.074** (Member Subscriptions)
- Procedures to File Returns, Form #09.075** (Member Subscriptions)
IRS instructions for preparing the 1040NR returns deliberately do not include procedures for excluding the cost of labor. You have to figure it out yourself. You CANNOT take EXCLUSIONS for labor on the 1040, because YOU aren't the one providing the "personal services". Rather, an OFFICE you volunteered for is doing so. Therefore, the only way you can exclude the cost of producing your own human labor from the tax filing is as a nonresident alien filing a 1040NR return.
Block 1a of the 1040NR return has a place to enter "Total amount from Form(s) W-2, box 1 (see instructions)". But those amounts are entered in the "effectively connected" section, which means you DONATED them to a public use, a public office, and a public purpose. If you chose NOT to donate them, that amount should be zero AND the W-2's filed against you should NOT be attached to the form and should be rebutted with the W-2CC. Nonresident aliens working for a "foreign employer" are cannot perform "personal services" and thus cannot earn reportable income:
- 26 U.S.C. §861(a)(3)(C)(i) says that employees working for nonresident aliens in the United States (U.S. Inc) is not income from sources in the United States. That is because they aren't working for "U.S. Inc.". "Domestic" means the corporation not the geography.
- 26 U.S.C. §864(b)(1)(A) excludes "personal services" from "trade or business" earnings for a foreign employer for nonresident alien individuals, foreign partnership, or foreign corporation not engaged in trade or business within the United States.
- Earnings of nonresident aliens are expressly EXCLUDED rather than EXEMPTED from STATUTORY "wages" as defined in 26 U.S.C. §3401(a) because all services performed outside the STATUTORY "United States**" as defined in 26 U.S.C. §7701(a)(9) and (a)(10) (federal zone) and the CORPORATION "United States" as a legal fiction. Therefore, not subject to "wage" withholding of any kind for such services per:
3.1. 26 C.F.R. §31.3401(a)(6)-1(b) in the case of income tax.
3.2. 26 C.F.R. §31.3121(b)-3(c)(1) in the case of Social Security.Under that last item 3 above, even if you received a W-2 from a reporting "employer", you as a "nonresident alien" could NOT enter those reported "wages" onto the 1040NR line 1a, because they would be "excluded" and the W-2 would be in error. Statutory "U.S. persons", however, have no such exclusion and have to report EVERYTHING reported on the W-2 on line 1a of the 1040.
On the other hand, EVERYTHING on the 1040 is connected to a "trade or business" because it is subject to "trade or business" deductions under 26 U.S.C. §162. Thus, you don't have the choice of "effectively connecting" the earnings and cannot avoid putting them on the 1040. So filing 1040 as a "U.S. person" under 26 U.S.C. §7701(a)(30) makes it IMPOSSIBLE to not include everything you earn from labor on the tax return or to deduct any portion of it. A "U.S. person" is, in fact, someone with a "tax home" in the District of Columbia, REGARDLESS of where they actually live or are domiciled. They represent an OFFICE domiciled in the District of Columbia. A "tax home" is where the OFFICE is treated as being domicile, not where YOU are domiciled. See 26 C.F.R. §301.7701(b)-2(c).
Amounts reported on the W-2 are for "wages", which are defined in 26 U.S.C. §3401(a):
26 U.S. Code § 3401 - Definitions
(a)Wages
For purposes of this chapter, the term “wages” means all remuneration (other than fees paid to a public official) for services performed by an employee for his employer, including the cash value of all remuneration (including benefits) paid in any medium other than cash; except that such term shall not include remuneration paid—
The "employee" is defined above in 26 U.S.C. §3401(c) and 5 U.S.C. §2105(a) as an employee of the U.S. government, not a private worker. If you don't rebut the presumption created by the W-2 that you are working voluntarily as a Kelly Girl public officer, then you are presumed to be such a whore and need to send kickbacks to your pimp in the District of Columbia.
Proof that Involuntary Income Taxes on Your Labor are Slavery, Form #05.055 (OFFSITE LINK) -SEDM
Pay for Personal Services Performed (IRS Website)
Source of Income- Personal Service Income (IRS Website)
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)]
United States Glue Co. v. Town of Oak Creek, 247 U.S. 321 (1918)
"Corporations are allowed to make certain deductions from gross income, including amounts paid for personal services of officers and employees and other ordinary expenses paid out of income in the maintenance and operation of business and property, including a reasonable allowance for depreciation, losses not compensated for by insurance or otherwise, taxes, etc. These need not be further mentioned, beyond saying that the intent and necessary effect of the act is to tax not gross receipts but net income;"
[United States Glue Co. v. Town of Oak Creek, 247 U.S. 321, 324 (1918)]"The difference in effect between a tax measured by gross receipts and one measured by net income, recognized by our decisions, is manifest and substantial, and it affords a convenient and workable basis of distinction between a direct and immediate burden upon the business affected and a charge that is only indirect and incidental."
[United States Glue Co. v. Town of Oak Creek, 247 U.S. 321, 328 (1918)]
Estate of Neumann, v. Commissioner of Internal Revenue, 9 T.C. 1120 (U.S.T.C. 1947)
"Personal services" means more than mere labor performed, and includes skill, science, and other work or management resulting from the service of a person. See Hoyt v. White, 46 N.H. 45; Yost v. Scott County Commissioners, 25 Minn. 366.”
Under the law of Pennsylvania, where a married woman's earnings become her separate property, it was held that the wife's earnings need not be in the [**13] form of a salary, but could be a share of the profits from the business in which she was engaged. Berkowitz v. Commissioner, 108 Fed. (2d) 319.
“In E. T. 20 (1947), Internal Revenue Bulletin No. 23, p. 15, the Commissioner, in interpreting section 811 (e) (2) of the Internal Revenue Code, ruled that, where the decedent and his surviving wife were engaged in a mercantile business in which the wife rendered regular, substantial, and gainful personal services, property of the marital community shown to have been economically attributable to her personal services in such business was "compensation for personal services actually rendered by the surviving spouse," and this would be so whether she was gainfully employed independently or in a joint enterprise. Furthermore, that the words "compensation" and "personal services" in the statute were used in a comprehensive sense and not restricted to salary or wages.”
[Estate of Neumann, v. Commissioner of Internal Revenue, 9 T.C. 1120 (U.S.T.C. 1947)]
26 U.S.C. §61 - Gross income defined
26 U.S. Code § 61 - Gross income defined
(a)General definition
Except as otherwise provided in this subtitle, gross income means all income from whatever source derived, including (but not limited to) the following items:
(1)Compensation for services, including fees, commissions, fringe benefits, and similar items;
[EDITORIAL: "Serivces" are always performed by a "person" OTHER than the one being taxed for and profitting from it. You do NOT provide "services" for YOURSELF and your labor in earning a living is not subject to tax, unless you:
- Are STUPID enough to call it "personal services" on a tax return, which is a code name for work performed as a Kelly Girl on loan from Uncle through a VOLUNTARY partnership with Uncle called a "trade or business".
- Work in a constitutional state and yet falsely think you are in the statutory geographical "United States". Click here for definitions of "United States", which don't include states of the Union.
- Claim "U.S. person" status, which is a public officer, in which case the work is again performed as a public officer working for Uncle as a Kelly Girl and on loan to the person you are working for. In that capacity, you are acting as an agent and officer of the national government WITHIN the U.S. Inc. Federal Corporation, rather than within the statutory geographcial "United States". See "U.S. Person" Position, Form #05.053]
26 U.S.C. §861 Income from Sources Within the United States
(a)(3) "...Compensation for labor or personal services performed in the United States shall not be deemed to be income from sources within the United States if-
(C) the compensation for labor or services performed as an employee of or under contract with--
(i) a nonresident alien..not engaged in a trade or business in the United States..."
26 U.S.C. §864(b)(1) Definitions and Special Rules
TITLE 26 > Subtitle A > CHAPTER 1 > Subchapter N > PART I > § 864
§ 864. Definitions and special rules
(b) Trade or business within the United States
For purposes of this part, part II, and chapter 3, the term “trade or business within the United States” includes the performance of personal services within the United States at any time within the taxable year, but does not include—(1) Performance of personal services for foreign employer
The performance of personal services—(A) for a nonresident alien individual, foreign partnership, or foreign corporation, not engaged in trade or business within the United States, or
(B) for an office or place of business maintained in a foreign country or in a possession of the United States by an individual who is a citizen or resident of the United States or by a domestic partnership or a domestic corporation, by a nonresident alien individual temporarily present in the United States for a period or periods not exceeding a total of 90 days during the taxable year and whose compensation for such services does not exceed in the aggregate $3,000.
26 C.F.R. §1.864-2: Trade or business within the United States
[Code of Federal Regulations]
[Title 26, Volume 9]
[Revised as of April 1, 2006]
From the U.S. Government Printing Office via GPO Access
[Page 293-299]
TITLE 26--INTERNAL REVENUE
CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY
(CONTINUED)
PART 1_INCOME TAXES--Table of Contents
Sec. 1.864-2 Trade or business within the United States.(a) In general.
As used in part I (section 861 and following) and part II (section 871 and following), subchapter N, chapter 1 of the Code, and chapter 3 (section 1441 and following) of the Code, and the regulations thereunder, the term ``engaged in trade or business within the United States'' does not include the activities described in paragraphs (c) and (d) of this section, but includes the performance of personal services within the United States at any time within the taxable year except to the extent otherwise provided in this section.
(b) Performance of personal services for foreign employer--
(1) Excepted services. For purposes of paragraph (a) of this section, the term ``engaged in trade or business within the United States'' does not include the performance of personal services--
(i) For a nonresident alien individual, foreign partnership, or foreign corporation, not engaged in trade or business within the United States at any time during the taxable year, or
26 C.F.R. §1.162-7 Compensation for personal services.
(a) There may be included among the ordinary and necessary expenses paid or incurred in carrying on any trade or business a reasonable allowance for salaries or other compensation for personal services actually rendered. The test of deductibility in the case of compensation payments is whether they are reasonable and are in fact payments purely for services.
(b) The test set forth in paragraph (a) of this section and its practical application may be further stated and illustrated as follows:
(1) Any amount paid in the form of compensation, but not in fact as the purchase price of services, is not deductible. An ostensible salary paid by a corporation may be a distribution of a dividend on stock. This is likely to occur in the case of a corporation having few shareholders, practically all of whom draw salaries. If in such a case the salaries are in excess of those ordinarily paid for similar services and the excessive payments correspond or bear a close relationship to the stockholdings of the officers or employees, it would seem likely that the salaries are not paid wholly for services rendered, but that the excessive payments are a distribution of earnings upon the stock. An ostensible salary may be in part payment for property. This may occur, for example, where a partnership sells out to a corporation, the former partners agreeing to continue in the service of the corporation. In such a case it may be found that the salaries of the former partners are not merely for services, but in part constitute payment for the transfer of their business.
(2) The form or method of fixing compensation is not decisive as to deductibility. While any form of contingent compensation invites scrutiny as a possible distribution of earnings of the enterprise, it does not follow that payments on a contingent basis are to be treated fundamentally on any basis different from that applying to compensation at a flat rate. Generally speaking, if contingent compensation is paid pursuant to a free bargain between the employer and the individual made before the services are rendered, not influenced by any consideration on the part of the employer other than that of securing on fair and advantageous terms the services of the individual, it should be allowed as a deduction even though in the actual working out of the contract it may prove to be greater than the amount which would ordinarily be paid.
(3) In any event the allowance for the compensation paid may not exceed what is reasonable under all the circumstances. It is, in general, just to assume that reasonable and true compensation is only such amount as would ordinarily be paid for like services by like enterprises under like circumstances. The circumstances to be taken into consideration are those existing at the date when the contract for services was made, not those existing at the date when the contract is questioned.
(4) For disallowance of deduction in the case of certain transfers of stock pursuant to employees stock options, see section 421 and the regulations thereunder.