28
Feb
08

The 16th Amendment

Interesting. So according to all the law schools such as Cornell University, the “Sixteenth Amendment to the U.S. Constitution was ratified. It empowered Congress to tax “incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration,” and that “Not everyone, however, must file a return. The requirements for filing are found in 26 U.S.C. § 6011”

§ 6011 states that “(b) Identification of taxpayer: The Secretary is authorized to require such information with respect to persons subject to the taxes imposed by chapter 21 or chapter 24 as is necessary or helpful in securing proper identification of such persons.”

So hang with me, this is going to blow you face off…

So Chapter 24 says this of what constitutes a “wage.”
(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

And later on, “employee” is defined as.
(c) Employee: For purposes of this chapter, the term “employee” includes 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.

Wait…. WHOA! Hold the train! An employee is an officer, employee or elected official of the United States, a State, or any political subdivision, then I am an employee? Well, if that is how the IRS defines an employee, then I am not am employee! Are you? And if we look at who earns wages, subsection (a) states that only employees earn a wage. So, if I am not employee and do not earn a wage… why do I have money listed on my W2 under “wages.” Something here is wrong, very wrong!

So in a nut shell, not only are we not employees, or wage earners… we are not tax payers… And to prove my point, check out these fine Americans that stood up against the IRS and said, “I’m not going to pay taxes because, by the law, I do not owe taxes.” And they won, and they got all their money back. (And just to let you know, chapter 21 is the same thing, but for FICA taxes).

So the question now is… what are you going to do about this nugget of knowledge? Sit back and continue to pay taxes out of fear even though you know you don’t have to – or – stand up against a tyrannical government that has been stealing your money for years and years, even if it means that they might throw you in prison over it (which BTW, there is no law either that says that you must pay taxes…. or even file! Not that the government hasn’t enforced these imaginary laws).

To learn more, buy Cracking the Code: The Fascinating Truth About Taxation in America.

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67 Responses to “The 16th Amendment”


  1. 1 Publius
    28 February 2008 at 19:55

    Nice try! The whole “Taxes are not legal” community has individuals losing case after case after case. I too question the legality of an income tax, but the 16th amendemnt has been ajudicated by the Supreme Court as a legal amendment to the Constitution as is here referenced: According to the Supreme Court in Eisner v. Macomber, 252 U.S. 189 (1920), the 16th Amendment removed the requirement of apportionment for the direct income tax. If you are intent on opening this can of worms, please site some credible sources, the web link you supplied supports what you wrote, but cannot be validated, please provide something that is factual and can be validated. Thank-you, and I look forward to your response.

  2. 29 February 2008 at 02:37

    I was not implying that the 16th Amendment was not ratified in 1913 at all. Indeed, it was ratified, despite the many controversies that plague it.

    I have quoted Chapter 24 of the 26 USC, the very document that the IRS uses to determine who is – and who is not – a taxpayer.

    If citing the 26 USC, Chapters 21 and Chapter 24, is not a “credible source,” then I don’t know what is. What can I quote you that will be “credible”?

  3. 3 Publius
    4 March 2008 at 21:42

    I must apologize. When I first read your topic, I jumped at the title, I have been a Constitutional scholar for a while, just trying to learn what it says and understand it. The IRC is a valid source, my reference was to the website you linked, there is a lot of nice stuff there, but nothing that related to your title, at least from my misunderstanding, again, sorry for that. Back to the title though, if you are interested in debating the 16th, I would enjoy it very much, I have found it very confusing that a couple parts of the Constitution seem to imply that taxing the “working man” is not allowed, yet the 16th makes it appear that it is, based on the 16th amending the original document one must consider the Tax code legal. The question is which section of the original document was amended? Article 1 section 8 or Article 1 section 9, if not both, then doesn’t the Constitution contradict itself? I am of the opinion that both sections were amended and thus no contradiction exists, yet I can only find evidence that 1-8 was amended.

  4. 4 March 2008 at 22:32

    I figured my title threw you off, so no biggy at all. I just titled it that because that is the part of our law that most people believe is the part that gave authorization for our government to tax.

    Ar 1, Sec 8 – Powers of Congress: Says Congress can tax. However, it is a tax on excise of privilege. Does it really make sense to tax someone on just making a living? Taxes need to be optional to the buyer. I.e. corn has a $0.23 tax per ear, I don’t want to pay that extra tax, so I go grow corn out in my back yard. I have an option in that. I don’t have an option to earn a paycheck.

    Ar 1, Sec 9 – Limits of Congress: No capitation. No direct taxes. No taxes on goods exported from the States.

    So what did the 16th Amendment do? In my opinion… it just removed the apportionment requirement. Otherwise, we would be going, “Well, California you have 11.95% of the population, and Wyoming you have 0.17%. So California, you have to pay 11.95% of whatever taxes are needed, and Wyoming, you only need pay 0.17%.” Isn’t that problematic? What if all the rich people lived in Wyoming and all the poor people lived in California? Then the people in California would be getting the &@(% taxed out of them when the rich people in WY would not even feel that at all. That is the reason for the 16th, IMHO. I see no contradiction, but then again, I am not a Constitutional genius. If there was a contradiction, then I am pretty sure that the US Supreme Court would have ruled it to be unconstitutional.

  5. 5 John
    15 January 2009 at 08:14

    I sincerely wish that were true.

    The reason “wage” is defined in Chapter 24 is because FICA tax only applies to wages, as opposed to interest income or royalties. The “employee” definition INCLUDES, rather than LIMITS the definition to the officers of the U.S., elected officials, etc., because most people would not call a CEO of a corporation an employee. Most people would likely regard a CEO as an executive and thus not subject to FICA tax. This definition clarifies who pays the tax.

    Requirement to pay taxes:

    26 U.S.C. 1(c) – There is hereby imposed on the taxable income of every individual … a tax determined in accordance with the following table…

    Requirement to file:

    26 U.S.C. 6011(a) – General rule.–When required by regulations prescribed by the Secretary any person made liable for any tax imposed by this title, or with respect to the collection thereof, SHALL MAKE A RETURN OR STATEMENT according to the forms and regulations prescribed by the Secretary. Every person required to make a return or statement shall include therein the information required by such forms or regulations.

    Even if your theory was correct, it is entirely within the power of Congress to change the tax law at any time. In the past, Congress has been very quick to correct deficiencies and loopholes in the Code.

    Did you use this technique on State taxes, Federal, or both?

  6. 15 January 2009 at 08:43

    @John: Black’s law dictionary disagrees with you. The Supreme court cases disagree with you that the word includes is all encompassing.

    “In the interpretation of statutes levying taxes it is the established rule not to extend their provisions, by implication, beyond the clear import of the language used, or to enlarge their operations so as to embrace matters not specifically pointed out. In case of doubt they are construed most strongly against the government, and in favor of the citizen. United States v. Wigglesworth, 2 Story, 369, Fed. Cas. No. 16,690; American Net & Twine Co. v. Worthington, 141 U.S. 468, 474 , 12 S. Sup. Ct. 55; Benziger v. United States, 192 U.S. 38, 55 , 24 S. Sup. Ct. 189″ Gould v. Gould, 245 US 151 (1917)

    As for making a statement as per 26 U.S.C. 6011(a), where did I ever say that you don’t need to file? I filed a statement with the proper IRS forms and filed them on time.

    You are right that Congress can change the tax law at any time – and they have. However, every single time the Supreme Court has ruled that there has been “no significant changes.” This is not a loophole, this is being able to read the cryptic tax law and apply it to your life.

    I didn’t use any “technique.” I read the law and applied it to my situation for both my State and Federal taxes.

  7. 7 DJ
    15 January 2009 at 09:24

    @John: Please check out this link: http://www.losthorizons.com/tax/faq2.htm#TIAL.

    Also, here is this: The basic legal principle of “Inclusio unius est exclusio alterius”, (The inclusion of one is the exclusion of another. The certain designation of one person is an absolute exclusion of all others. … This doctrine decrees that where law expressly describes [a] particular situation to which it shall apply, an irrefutable inference must be drawn that what is omitted or excluded was intended to be omitted or excluded, Black’s Law Dictionary, 6th edition).

    As you can see, by using “INCLUDES” in the definition of “WAGE” the Congress has intentionally excluded the average working person, thus making only those engaging in “Federal Privilege” liable for the tax.

  8. 8 John
    15 January 2009 at 09:26

    The last sentences of your post in parenthesis – “there is no law either that says that you must pay taxes…. or even file!”

    You’re taking a few definitions out of context and mixing them from several different sources within the Code. Back up to Chapter 21 – FICA, Subsection A – Tax on Employees. There you will find the definitions find:

    (a) Old-age, survivors, and disability insurance.–In addition to other taxes, there is hereby imposed on the income of every individual a tax equal to the following percentages of the wages (as defined in section 3121(a)) received by him with respect to employment (as defined in section 3121(b))–

    3121(a) – Wages.–For purposes of this chapter, the term “wages” means all remuneration for employment, including the cash value of all remuneration (including benefits) paid in any medium other than cash; except that such term shall not include–

    3121(b) – Employment.–For purposes of this chapter, the term “employment” means any service, of whatever nature, performed (A) by an employee for the person employing him, irrespective of the citizenship or residence of either, (i) within the United States, or (ii) on or in connection with an American vessel or American aircraft under a contract of service which is entered into within the United States or during the performance of which and while the employee is employed on the vessel or aircraft it touches at a port in the United States, if the employee is employed on and in connection with such vessel or aircraft when outside the United States, or (B) outside the United States by a citizen or resident of the United States as an employee for an American employer (as defined in subsection (h)), or (C) if it is service, regardless of where or by whom performed, which is designated as employment or recognized as equivalent to employment under an agreement entered into under section 233 of the Social Security Act;…

    Just because you happened to be under the radar of the IRS this time, doesn’t mean you’ll be so lucky next time. But I don’t know your whole situation so I can’t comment further on what you have done or may have done.

  9. 9 DJ
    15 January 2009 at 10:24

    @John: 3121(e) State, United States, and citizen
    For purposes of this chapter—
    (1) State
    The term “State” includes the District of Columbia, the Commonwealth of Puerto Rico, the Virgin Islands, Guam, and American Samoa.
    (2) United States
    The term “United States” when used in a geographical sense includes the Commonwealth of Puerto Rico, the Virgin Islands, Guam, and American Samoa.

    Again, there is the LIMITING word, “INCLUDES”.

    Also, here is the definition as listed in Title 26 7701:
    (c) Includes and including
    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.

    Your reasoning is sound but you are not employing all the facts. As described in 3121, FICA withholding is applicable to those persons in the listed territories, NOT the average working person in America.

  10. 15 January 2009 at 11:02

    @John: “The last sentences of your post in parenthesis – “there is no law either that says that you must pay taxes… or even file!””

    Touche. I did say that, I apologize. I still believe that my original statement is primarily correct though.

    26 U.S.C. 6011(a) – General rule.–When required by regulations prescribed by the Secretary any person made liable for any tax imposed by this title, or with respect to the collection thereof, SHALL MAKE A RETURN OR STATEMENT according to the forms and regulations prescribed by the Secretary. Every person required to make a return or statement shall include therein the information required by such forms or regulations.

    It must be pointed out that it states “When required… any person liable for any tax… shall make a return.” So logically, if you are not liable, then you really shouldn’t have to file. Right? I would guess that not many people fall under this idea though as most of us have 401k’s and bank accounts. Since those places pay you interest then you need to report that. But if you were a hermit out in the middle of nowhere and just lived off the land, then I am not so sure you would really be “liable” for any taxes seeing as how you don’t even have any money.

    As for the rest, I think DJ has given you some good reading.

  11. 11 John
    15 January 2009 at 11:06

    @DJ: The very section you cite as proof that “includes” is a limiting word contradicts your explanation. “[S]hall NOT BE DEEMED to exclude other things otherwise WITHIN THE MEANING OF THE TERM DEFINED.” Thus, a “State” includes the 49, plus D.C. and territories. The inclusion of D.C. and territories expands the definition of “State,” rather than limiting it.

  12. 12 John
    15 January 2009 at 11:11

    @Kyle:

    You are correct that only a person liable for any tax shall make a return. This is due to our “progressive” tax scheme which only taxes gross income if an individual makes over a certain amount in any given year. However, you must still know the law to determine whether you individually are subject to a tax in a given year.

    Somewhat off-topic, I think you’ll find this article pretty interesting – http://www.taxfoundation.org/publications/show/23631.html

  13. 13 John
    17 January 2009 at 11:50

    No response?

  14. 17 January 2009 at 17:45

    @John: What are you wanting me to answer? I have evaluated my situation with what the law says and what the US Supreme Courts have ruled upon and I have determined that I do not owe State or Federal Income Taxes.

    As for the article. Interesting. But, I do not support it. It is wealth distribution, which I do not support at all.

  15. 15 John
    17 January 2009 at 22:21

    DJ cited the definition of “includes” from the Code. The basis for your determination that you don’t owe taxes because you don’t earn a “wage” and are not an “employee” are wrong.

  16. 18 January 2009 at 02:22

    How is that wrong? Prove it. If a law specifically defines something, how can you just ignore that?

  17. 17 John
    18 January 2009 at 06:14

    DJ cited a canon of statute construction – “inclusio unius est exclusio alterius” – which is correct, but only applies when the language is ambiguous and the definition is not internally defined. DJ also inadvertently cited the IRC section that defines “include” and “includes,” not realizing that it means the exact opposite of what he thinks. IRC 7701 says that “includes” never limits, only expands. In DJ’s example of “State,” we know what a State is (Arizona, California, New York, etc.) but we don’t call Puerto Rico or Guam a state, right? So IRC 3121(e) expands the definition of “State” as used in the IRC to include those territories for taxation purposes. IRC 7701 states that when “include” or “includes” is used in a definition, it does not exclude things otherwise within the meaning of the term defined. The term “State” has a certain definition outside of the Code, IRC 3121(e) expands the definition to include territories.

    You used the same reasoning that “includes” = “is” in defining “employee.” But IRC 7701 applies – generally, an employee is a person who works for another in return for financial or other compensation. IRC Chapter 24 expands the definition of “employee” to include an officer, employee or elected official of the United States, as well as any person who works for another in return for financial or other compensation.

  18. 18 January 2009 at 20:02

    @John: So here is the basis of our disagreement. 26 USC, § 7701(c) states,

    “Includes and including: 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.”

    So tell me – why would Congress define a term that maintains it’s normal meaning? Why would Congress write § 7701(c) to say, “Includes means includes” as you purport?

    What do you make of these cases in light of inclusio unius est exclusio alterius?

    “The [state supreme] court also considered that the word ‘including’ was used as a word of enlargement, the learned court being of the opinion that such was its ordinary sense. With this we cannot concur.” Montello Salt Co. v. Utah, 221 U.S. 452 (1911).

    “Where general words follow specific words in a statutory enumeration, the general words are construed to embrace only objects similar in nature to those objects enumerated by the preceding specific words.” Circuit City Stores v. Adams, 532 U.S. 105, 114-115 (2001)

    “…a word is known by the company it keeps (the doctrine of noscitur a sociis). This rule we rely upon to avoid ascribing to one word a meaning so broad that it is inconsistent with its accompanying words, thus giving unintended breadth to the Acts of Congress.” Jarecki v. G.K. Searle & Co., 367 U.S. 303, 307 (1961). Gustafson v. Alloyd Co. 513 U.S. 561 (1995)

    The matter is simple here. If Congress can make a simple and readable law in the same title, such as § 7701(a)(26) which states rather plainly, “(26) Trade or business: The term “trade or business” includes the performance of the functions of a public office.” Then why can’t they make § 7701(c) clear? The only conclusion that I can reach is… to be confusing.

    And with that said… like I said above…

    “In the interpretation of statutes levying taxes, it is the established rule not to extend their provisions by implication beyond the clear import of the language used, or to enlarge their operations so as to embrace matters not specifically pointed out. In case of doubt they are construed most strongly against the government and in favor of the citizen.” — Gould v. Gould, 245 U.S. 151, 153;

  19. 19 John
    18 January 2009 at 22:24

    Because courts have interpreted “includes” differently for different statutes. I don’t have the time to go though all the cases you cite, but I am familiar with many of them. It’s been a few years since I’ve read them! The IRC defines “includes” so courts don’t have to.

    Dunaway v. IRS, 124 T.C. 80 (2005), gives an excellent overview of “includes” as it applies to the Code. If you need me to post the relevant portion of the brief, I can, but it will take up a lot of space.

    Just my opinion, but I believe that the IRC uses “includes” rather than “means” so they don’t have to reinvent the wheel. If they had to precisely define every term, if possible at all, the Code would be much, much longer.

  20. 19 January 2009 at 02:27

    They don’t have to reinvent the wheel, which is the basis of why I ask they had to define the word “includes” in the first place. Any word that is undefined takes on the traditional dictionary meaning. Otherwise, we are stuck defining every word in a law. Not good.

    If includes = includes, then there is absolutely no reason to define it. Is there? But they DO. Why? I ask again…

    So tell me – why would Congress define a term that maintains it’s normal meaning? Why would Congress write § 7701(c) to say, “Includes means includes” as you purport?

    So that courts don’t have to? C’mon.

    After all these revisions they have never taken out something that could make it crystal clear. No, they have left it in, because the word does not mean the same as the traditional meaning.

    Please post Dunaway v. IRS, 124 T.C. 80 (2005).

    To me it seems that in Dunaway they were asking for things that were ouside of the items specifically called out in § 7430. That section allows for one to recover: (1) court costs [A], (2) expert witnesses [B.i], official reports [B.ii], and (3) attorney fees [B.iii]. The Dunaway’s were asking for extra for (a) their time lost to reasearch, (b) lost wages, (c) office supplies, (d) mileage/parking. The only thing that the Court awarded them was the office supplies.

    And I guess this is where you are getting this idea that “includes” is “all-encompassing.” It is my opinion that “includes” is not and cannot be described to mean “all-encompassing.” I think it can bent in the favor of the taxpayer if one can prove that is part of that heading.

    As with the Dunaway case it can be seen that the section in question, § 7430, is all about refunding litigation costs. If one can prove to the court that what you spent money on to win your suit, then that can be considered part of the litigation costs. You can’t prove to any court or any rational being that you had to spend the amount of time you did. You also can’t prove that you had to take off work. You also can’t ask for driving/parking when you could have done something such as take the bus. However, you can prove that you needed office supplies so that you could submit stuff to the court. THAT is what the court awarded them, and that is reasonable because it is still within the scope of litigation costs.

    I don’t think you can do that with people. When dealing with defining what people are subject to a law, you must be nothing short of specific.

  21. 21 John
    19 January 2009 at 06:17

    As I said before, different courts have interpreted “includes” as a limitation, sometimes as an expansion, sometimes an “also,” and sometimes a “means.” The IRC defined “includes” so there can be no misinterpretation by a court. The IRC wants “includes” only to expand on a definition.

    I did not say that “includes” is all-encompassing. Rather, it is a term of expansion for IRC purposes, not limitation. Here’s the holding of Dunaway: “We believe that the out-of-pocket costs for mileage and parking fees incurred by petitioner in order to attend the Court hearing herein are covered by the term ‘litigation costs’ under the language of section 7430(c)(1) that applies to Tax Court litigation. Section 7430(c)(1), defining reasonable litigation costs, does not contain an exclusive list of items recoverable as litigation costs, especially in light of the paragraph’s use of the word ‘includes’, as opposed to the word ‘means’.”

    As requested, the relevant portion of 124 T.C. 80:

    [I]t is helpful to consider how courts have interpreted the specific word “includes” in the context of a number of different statutory provisions. Generally, the word “includes” is interpreted by the courts as a word of enlargement, not of limitation. See, e.g., Fed. Land Bank v. Bismarck Lumber Co., 314 U.S. 95, 100, 62 S.Ct. 1, 86 L.Ed. 65 (1941) (the term “including” used in a section of the Federal Farm Loan Act of July 17, 1916, ch. 245, 39 Stat. 380, is not one of all-embracing definition but connotes simply an illustrative application of a general principle); Chemehuevi Indian Tribe v. Cal. State Bd. of Equalization, 757 F.2d 1047, 1054 (9th Cir.1985) (definitional term “includes” used in a section of the California Revenue and Taxation Code governing cigarette tax is one of enlargement, not of limitation), revd. on other grounds 474 U.S. 9, 106 S.Ct. 289, 88 L.Ed.2d 9 (1985); Heffner v. Ketchen, 50 Idaho 435, 296 P. 768, 770 (Idaho 1931) (the word “including” used in an Idaho tax lien statute is generally a term of enlargement, may be used as a word of addition, and indicates something not included, being sometimes used as equivalent to “also” or “and”).

    Of particular interest is the fact that the word “includes” as used in the Internal Revenue Code (or its predecessors) has been interpreted by the courts broadly. See, e.g., Fid. Trust Co. v. Commissioner, 141 F.2d 54, 57 (3d Cir.1944) (in view of section 1111(b), a trust was considered a transferee although section 526(f) of the Internal Revenue Code of 1932, ch. 209, 47 Stat. 257, defining transferee, did not enumerate trusts as part of the definition of “transferee”); Cannon v. Nicholas, 80 F.2d 934, 936 (10th Cir.1935) (“the word ‘including’ has various shades of meaning, sometimes of restriction and sometimes of enlargement” and as used in a predecessor of the Internal Revenue Code was not intended to limit distraint of delinquent taxpayer’s goods to those enumerated).

    Significantly, courts interpreting statutory language that utilizes both the word “includes” and the word “means” in different parts of the same statutory provision have held that those two words, in the context of such a juxtaposition, have different interpretations.

    Interpreting section 206 of the Revenue Act of 1926, ch. 27, 44 Stat. 17, the Supreme Court, in Helvering v. Morgan’s Inc., 293 U.S. 121, 55 S.Ct. 60, 79 L.Ed. 232 (1934), concluded that “includes” and “means” are to be interpreted differently when both are used in the same statutory provision. The Supreme Court interpreted the word “includes” to indicate that what follows contains general examples (i.e., not an exclusive list) and interpreted the word “means” to indicate that what follows contains the complete definition (i.e., an exclusive list).

    The natural distinction would be that where “means” is employed, the term [“means”] and [the language that follows] are to be interchangeable equivalents, and that the verb “includes” imports a general class, some of whose particular instances are those specified in the [language that follows the term “includes”].

    In the context of other nontax Federal statutes, when both words “includes” and “means” are used within the same statutory provision, courts have held that the word “includes” is a term of enlargement and extension and that the word “means” is a term of enumeration and limitation. Am. Sur. Co. v. Marotta, 287 U.S. 513, 517, 53 S.Ct. 260, 77 L.Ed. 466 (1933) (relating to Federal bankruptcy statute); Highway & City Freight Drivers, Dockmen & Helpers, Local Union No. 600 v. Gordon Transports, Inc., 576 F.2d 1285, 1289 (8th Cir.1978) (relating to Federal bankruptcy statute); Exxon Corp. v. Lujan, 730 F.Supp. 1535, 1545 (D.Wyo.1990) (relating to Department of Interior Federal regulatory *93 language), affd. 970 F.2d 757 (10th Cir.1992); Brown v. Scott Paper Worldwide Co., 143 Wash.2d 349, 20 P.3d 921, 926 (Wash.2001) (relating to State employment statute).

  22. 22 John
    19 January 2009 at 06:36

    I meant to include this footnote from 124 T.C. 80:

    We acknowledge that, in certain contexts, the words “includes” and “including” have been interpreted as words of limitation and confinement. See, e.g., Blankenship v. W. Union Tel. Co., 161 F.2d 168, 169 (4th Cir.1947) (“includes” as used in the Fair Labor Standards Act provision that the word “employee” includes any individual employed by employer is “a term of limitation indicating what belongs to a genus, rather than a term of enlargement”), citing Montello Salt Co. v. Utah, 221 U.S. 452, 31 S.Ct. 706, 55 L.Ed. 810 (1911); Television Transmission, Inc. v. Pub. Utils. Commn., 47 Cal.2d 82, 301 P.2d 862, 863 (Cal.1956) (“Although ‘includes’ is ordinarily not a word of limitation, a legislative declaration that ‘public utility’ includes those performing certain enumerated services is not a declaration that those performing other services, not encompassed by the services enumerated, are public utilities” subject to control and regulation by the Public Utilities Commission [citations omitted] ).

    Thus, it is important that the IRC define “includes” so that it has a fixed meaning and cannot be interpreted by a court as a word of limitation.

  23. 23 Bernard J. Sussman
    19 January 2009 at 08:42

    The Internal Revenue Code settles it by providing its own definition of “includes”:

    26 USC § 7701. DEFINITIONS.
    …..
    (c) INCLUDES and INCLUDING: 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.

    In other words, when the IRC says {in §7701(10)} that “The term ‘State’ shall be construed to INCLUDE the District of Columbia….” it means that, additional to counting the 50 States we ALSO count DC. And when it says {in §7701(3)} that “The term ‘corporation’ INCLUDES associations, joint-stock companies, and insurance companies” it means that, additional to counting the establishments which are conventional corporation we ALSO count associations, etc. which are not incorporated in the same way as the conventional corporations.

    If the IRC intends, as it occasionally does, to limit, rather than expand, a definition it might specify that the definition “includes only” as it does in § 7701(9).

  24. 24 DJ
    19 January 2009 at 09:55

    John,

    The definition I took from Title 26 supports my argument that “Includes and Including” are limiting. The structure of the definition supports it.

    “Includes and including: 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.”

    In the case of “State” in 3121, the TERM “STATE” is defined, and within the context of the definition it is LIMITED to US Territories. If “State” was to mean the fifty states, there would be no need to define it. Title 26 7701 says “(a) When used in this title, where not otherwise distinctly expressed or manifestly incompatible with the intent thereof— “

    3121 Distinctly expresses a definition for the term “STATE”. Had the Congress wanted to ADD the territories, 3121 would have been structured something like this: (1) State
    The term “State” includes The fifty states AND the District of Columbia, the Commonwealth of Puerto Rico, the Virgin Islands, Guam, and American Samoa.
    Instead, the Congress limited the definition of “State” in this Chapter to ONLY the mentioned territories.

    If the intent of the Congress was to use Includes and Including as expansive terms, the definition of “Includes and including” would be the same as shown here:

    From 28 USC 3003
    (a) Terms.— For purposes of this chapter—
    (1) the terms “includes” and “including” are not limiting;

    Or here

    From 11 USC 102
    (3) “includes” and “including” are not limiting;

    In Russello V. United States, the Supreme Court said; “[W]here Congress includes particular language in one section of a statute but omits it in another section of the same Act, it is generally presumed that Congress acts intentionally and purposely in the disparate inclusion or exclusion.”(Quoting)United States v. Wong Kim Bo, 472 F.2d 720, 722 (CA5 1972).

    By defining “State” as the Congress has in the IRC, they are explicitly limiting the Term, if, for example, the island of Taiwan were to become a US Territory tomorrow, the definition of “State” as used in 3121 would also apply to Taiwan since the TERM DEFINED lists territories, a new or additional territory is by design part of the definition of the Term Defined.

  25. 25 John
    19 January 2009 at 11:03

    DJ,

    I’m not sure how many more ways I can put this. It seems that we are reading the same definition of 7701 but coming out with opposite results. I’ll use the “State” example again. The term “State” has a definition outside of the IRC that is common. Everyone knows what the states are. IRC 7701 says that when “includes” is used in a definition, it does not exclude things otherwise within the meaning of the term defined. Thus, there is no need to define every word as it is commonly used outside of the IRC, rather, Congress just tailors certain words to achieve their objective.

    Following your logic, why would Congress in IRC 3121 define the United States as only the Commonwealth of Puerto Rico, the Virgin Islands, Guam, and American Samoa? Why wouldn’t Congress just call them the “Territories?”

  26. 26 Ecclesiastes
    19 January 2009 at 11:24

    See http://evans-legal.com/dan/tpfaq.html#includes for additional information on “includes” as it is used in the Internal Revenue Code.

  27. 27 DJ
    19 January 2009 at 15:36

    John,

    Here is some information which may clear up your misconceptions;

    1) “No capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or Enumeration herein before directed to be taken.”
    -United States Constitution, Article 1, Section 9

    So, federal capitations (taxes on normal, private-sector earnings) are prohibited…

    2) “The income tax is, therefore, not a tax on income [earnings] as such. It is an excise tax with respect to certain activities and privileges which is measured by reference to the income which they produce. The income is not the subject of the tax: it is the basis for determining the amount of tax.”
    -F. Morse Hubbard, Treasury Department legislative draftsman. House Congressional Record March 27th 1943, page 2580

    3) “…the requirement to pay [excise] taxes involves the exercise of privilege.”

    -United States Supreme Court, Flint vs. Stone Tracy Co. 220 U.S. 107 (1911)

    So, the tax is an excise on the exercise of privilege, not a tax on money…

    4) “PRIVILEGE: A particular benefit or advantage enjoyed by a person, company, or class beyond the common advantages of others citizens. An exceptional or extraordinary power of exemption. A particular right, advantage, exemption, power, franchise, or immunity held by a person or class, not generally possessed by others.”
    -Black’s Law Dictionary, 6th Ed.

    5) “The right to follow any of the common occupations of life is an inalienable right…”

    6) “It has been well said that ‘the property which every man has in his own labor, as it is the original foundation of all other property, so it is the most sacred and inviolable. The patrimony of the poor man lies in the strength and dexterity of his own hands, and to hinder his employing this strength and dexterity in what manner he thinks proper, without injury to his neighbor, is a plain violation of this most sacred property’.”
    -United States Supreme Court, Butcher’s Union Co. v. Crescent City Co., 111 U.S. 746 (1883)

    7) ”Included in the right of personal liberty and the right of private property- partaking of the nature of each- is the right to make contracts for the acquisition of property. Chief among such contracts is that of personal employment, by which labor and other services are exchanged for money or other forms of property”
    -United States Supreme Court, Coppage v. Kansas, 236 U.S. 1 (1915)

    So, working, earning money, being paid, etc., in the private sector are NOT privileges…

    8) “We are of opinion, however, that the confusion is not inherent, but rather arises from the conclusion that the 16th Amendment provides for a hitherto unknown power of taxation; that is, a power to levy an income tax which, although direct, should not be subject to the regulation of apportionment applicable to all other direct taxes. And the far-reaching effect of this erroneous assumption will be made clear by generalizing the many contentions advanced in argument to support it…”

    “[Taxation of “income” is] in its nature an excise entitled to be enforced as such unless and until it was concluded that to enforce it would amount to accomplishing the result which the requirement as to apportionment of direct taxation was adopted to prevent, in which case the duty would arise to disregard form and consider substance alone, and hence subject the tax to the regulation as to apportionment which otherwise as an excise would not apply to it” (That is, if the “income” tax ever comes to be administered as something other than an excise, or on something unsuited to an excise, the rule of apportionment must be applied.)
    -United States Supreme Court, Brushaber v. Union Pacific R. Co., 240 U.S. 1 (1916)

    9) “The provisions of the Sixteenth Amendment conferred no new power of taxation . . .”
    -United States Supreme Court, Stanton v. Baltic Mining Co., 240 U.S. 103 (1916)

    10) “The Sixteenth Amendment, although referred to in argument, has no real bearing and may be put out of view. As pointed out in recent decisions, it does not extend the taxing power to new or excepted subjects…”
    -United States Supreme Court, Peck v. Lowe, 247 U.S. 165 (1918)

    11) “The Supreme Court, in a decision written by Chief Justice White, first noted that the Sixteenth Amendment did not authorize any new type of tax, nor did it repeal or revoke the tax clauses of Article I of the Constitution, quoted above. Direct taxes were, notwithstanding the advent of the Sixteenth Amendment, still subject to the rule of apportionment and indirect taxes were still subject to the rule of uniformity.”
    -Howard M. Zaritsky, Legislative Attorney, American Law Division of the Library of Congress, Report No. 80-19A, entitled “Some Constitutional Questions Regarding The Federal Income Tax Laws”, page CRS-5 (1979)

    12) “The legislative history merely shows… …that the sole purpose of the Sixteenth Amendment was to remove the apportionment requirement for whichever incomes were otherwise taxable. 45 Cong. Rec. 2245-2246 (1910); id., at 2539; see also Brushaber v. Union Pacific R. Co., 240 U.S. 1, 17 -18 (1916).”
    -United States Supreme Court, South Carolina v. Baker, 485 U.S. 505 (1988)

    So, the 16th Amendment has nothin’ to do with nothin’ about any of the foregoing…

    13) “We must reject… …the broad contention submitted in behalf of the government that all receipts– everything that comes in– are income…”
    -United States Supreme Court, So. Pacific v. Lowe, 247 U.S. 330, (1918)

    All are from http://www.lost horizons.com, please check out the site, the author has done exhaustive research on the subject of taxation.

  28. 28 John
    19 January 2009 at 16:06

    Oh please.

    Did you give up on your “includes” is a limitation argument?

    I’m not here to argue conspiracies about the 16th Amendment. There’s plenty of literature out there already. Plenty of court rulings that have upheld taxes, too. All I know is that our income has been taxed continuously since 1913, and it isn’t going to change anytime soon.

  29. 29 DJ
    19 January 2009 at 17:01

    I am giving up nothing sir, I am merley providing information for you to clear up your misconceptions.

    Includes IS a limiting term as defined in the IRC, your failure to see that is due to no fault of mine.

    The “Income tax” has been around since 1862, the compensatioin a working person receives for their labor has NOT been taxed it wasn’t until 1943 that “withholding” started!

    I understand your reluctance to change what you believe, but the facts are the facts, in Title 26 3401 “Wage” is defined. If the common everyday meaning of the words within the definiton are what the common definition is, why then, are “Employee” and “Employer” further difined? The answer is, the terms have a SPECIFIC meaning when used in the tax code, same thing goes for “Stae” and “United States”. If my reasoning is incorrect, why then is “Trade or Businiess” defined in Title 26 as;
    “(26) Trade or business
    The term “trade or business” includes the performance of the functions of a public office.

    If Trade or business means what the common meaning of the is there would be no reason to define it.

    You are failing to read 7701(a) “(a) When used in this title, where not otherwise distinctly expressed or manifestly incompatible with the intent thereof—”

    7701 is telling you what the definitons of various terms are when the term is NOT defined elsewhere in the code. Terms such as State, United States, Employee, Trade or Business etc. are given very specific meanings in very specific areas of the code.

    I recommend you peruse the website I listed, there is some very good information regarding Taxation in America. Also, click on the link “These Americans” and see the proof for yourself.

  30. 30 John
    19 January 2009 at 18:17

    DJ,

    I don’t mean to be rude, but it seems you are either being willfully ignorant or delusional in support of your definition of “includes.” Simple reading comprehension. I have no idea how you can read that sentence defining “includes” in the IRC and come away thinking that it is a limiting term.

    How do you explain the Tax Court’s treatment of “includes” in post #21? And again, why would Congress define the United States as ONLY the Commonwealth of Puerto Rico, the Virgin Islands, Guam, and American Samoa when it could simply and accurately call them the “U.S. Territories?”

  31. 31 DJ
    20 January 2009 at 17:08

    John,

    The basic legal principle of “Inclusio unius est exclusio alterius”. Provides quite simply that INCLUDES is a limiting term. As I posted earlier, had the Congress desired the term to be expansive they would have defined Includes and Including as they did in Title 11 and 28 (reposted for your viewing pleasure);

    From 28 USC 3003
    (a) Terms.— For purposes of this chapter—
    (1) the terms “includes” and “including” are not limiting;

    Or here

    From 11 USC 102
    (3) “includes” and “including” are not limiting;

    In the context that the Congress has defined the term for Title 26, “Includes and Including” are limiting.

  32. 32 John
    20 January 2009 at 18:46

    DJ,

    26 U.S.C. § 7701(c): INCLUDES and INCLUDING: 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.

    I’m not convinced you’ve actually ever read that sentence. I’m not interested in this “debate,” if it can be called that, if you’re not interested in actually reading anything you cite.

    I’ll wait for Kyle to respond, at least he doesn’t talk in circles.

  33. 33 DJ
    21 January 2009 at 01:05

    John,

    Your inability to comprehend what is written is astounding!

    Maybe this will help your comprehension;

    Author Ralph Whittington cites Treasury Decision (“T.D.”) 3980 as his justification for joining the restrictive school. According to his reading of this T.D., the Secretary of the Treasury has adopted a restrictive meaning by stating that “includes” means to “comprise as a member”, to “confine”, to “comprise as the whole a part”. This was the definition as found in the New Standard Dictionary at the time this T.D. was published:

    “(1) To comprise, comprehend, or embrace as a component part, item, or member; as, this volume includes all his works, the bill includes his last purchase.”

    “(2) To enclose within; contain; confine; as, an oyster shell sometimes includes a pearl.”

    It is defined by Webster as follows:

    “To comprehend or comprise, as a genus of the species, the whole a part, an argument or reason the inference; to take or reckon in; to contain; embrace; as this volume includes the essays to and including the tenth.”

    The Century Dictionary defines “including,” thus: “to comprise as a part.”

    [Treasury Decision 3980, January-December, 1927]
    [Vol. 29, page 64, emphasis added]

  34. 34 John
    21 January 2009 at 05:40

    DJ,

    No, it doesn’t help because it is not the law. Who is Ralph Whittington and why should I care?

    How do you explain the Tax Court’s treatment of “includes” in post #21? And again, why would Congress define the United States as ONLY the Commonwealth of Puerto Rico, the Virgin Islands, Guam, and American Samoa when it could simply and accurately call them the “U.S. Territories?”

  35. 35 Ecclesiastes
    21 January 2009 at 06:28

    “Inclusio unius est exclusio alterius” does not allow us to ignore the plain meaning of IRC section 7701(c), and it does not command us to abandon common sense.

    If IRC section 3401(c) really limited the meaning of “employee” to government employees and corporate officers, then other provisions of section 3401 would make no sense. For example, section 3401(a) excludes amounts paid to domestic servants in private homes. But how many domestic servants in private homes are government employees or corporate officers?

    Reading section 3401 in its entirety, it is clear that Congress intended “wages” and “employee” to have broad meanings and not narrow ones.

  36. 36 John
    21 January 2009 at 08:10

    DJ,

    I really shouldn’t bother, but I looked up Treasury Decision 3980. Here’s the holding of T.D. 3980:

    It seems to us that the language “INCLUDING a reasonable allowance for obsolescence” is but a part of and an ENLARGEMENT of the previous phrase of the said subsection (7) relating to exhaustion, wear and tear, and that the first part of the sentence was intended to cover the subject-matter thereof. It does not add a new kind of deduction, but merely PERMITS THE INCLUSION of an additional element, namely, obsolescence of such property used in the business as is subject to exhaustion, wear and tear. The allowance for obsolescence was intended to be in connection with the allowance for exhaustion, wear and tear, that being at times insufficient to restore the proper basis of capital values.

    (emphasis mine)

    Got any more bullshit arguments?

  37. 21 January 2009 at 08:27

    @John: Let me point out what I think is important here about 26 U.S.C. § 7701(c):

    “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.”

    Pair that with this…

    “…a word is known by the company it keeps (the doctrine of noscitur a sociis). This rule we rely upon to avoid ascribing to one word a meaning so broad that it is inconsistent with its accompanying words, thus giving unintended breadth to the Acts of Congress.”
    Jarecki v. G.K. Searle & Co., 367 U.S. 303, 307 (1961). Gustafson v. Alloyd Co. 513 U.S. 561 (1995)

    As has been pointed out here on this post, it is law to define terms that do not hold the normal (common) definition. When a word is defined in a law, Congress is specifically stating, “This word does not hold the same definition as you would find in Webster’s dictionary – thus, we are going to define it here for you.”

    With that said, as many of you here are claiming, 7701(c) says, “The terms ‘includes’ and ‘including’ when used in a definition contained in this title shall not be deemed to exinclude other things otherwise within the meaning of the term defined” when the double negative is removed, correct? My guess is that your answer is yes.

    This makes no sense in light of what I just said about it being law to define words that do not maintain their original common definition.

    As with the Dunaway case, one can see that the court awarded the Dunaway’s certain things of which they could prove to be part of their litigation costs, as was stated in the heading of that section. In other words, the word “includes” can be expansive in nature in that case because one can argue that buying paper is part of your litigation costs – and that is what they were awarded money for. This is because as it is stated in the Jarecki v. G.K. Searle & Co. case above, office supply costs were able to be shown to be in the same scope of litigation costs.

    Moving onto other sections of Title 26, especially where it designates who is who, I don’t think we can do that. Let’s say that one says, “Bring a fruit basket that includes an apple.” I think that logically one can conclude that a fruit basket should encompass many different types of fruit, and most definitely have one apple in that mix. In that case, the word includes is expansive. The word apple is kept company by the word fruit. Furthermore, fruit is fruit.

    However, there are two very different types of employees. Anyone that has been in the military knows that there is military people/employees and there is civilian people/employees. As a military person you cannot do certain things that a civilian employee can do. Yet, by the common definition of an employee, that is anyone who works for someone else or some entity. By definition, a civilian and a soldier are both employees. Right? In a broad sense, there is the Federal employee (which encompasses military) and the civilian employee. Right?

    So, if we are going to define a group of people that are to be defined as being employees we have a couple choices
    (a) Don’t define employee in the law. The word employee is defined as anyone working for someone else or an entity. This encompasses everyone. As 3401(c) specifically calls out… “…officer, employee, or elected official of the United States…” If you work (for monetary gain) then you are an employee.
    (b) Define employee and list every single job that is included. Too long and crazy , not feasable unless the list is VERY specific.
    (c) Define employee and list a general category of a group. This is what the IRC does. All it lists for employee is federally privileged jobs. It doesn’t say, “officials, servers, and valet drivers” which encompasses the private and federal sectors.

    So since you say that the listed employees (the ones after “including”) had to be listed because they are handled differently. So since the common definition of an “employee” is “one who works”… are we to believe that these people listed are not people who work? Is that why we needed to include them on the list of people who are employees? That seems kind of crazy to me and I don’t buy it.

  38. 21 January 2009 at 08:51

    @Ecclesiastes: Is it really common sense to define something to mean what it is commonly defined as. In my world, no… that crazy. If they insist on defining an employee as “anyone who works,” then define it as such! But they don’t, so there must be another reason.

    As you seem to have casually missed, DJ has stated that if the meaning was “clear” as you say, then it would be stated as 28 USC 3003. But is it not. Why is 7701 not stated clearly like it is in 28 USC 3003? Answer me that please.

    @ John: You are bordering on getting your comments deleted. I appreciate your debating but you comments are becoming condescending and I simply am not going to let you spew your holier-than-though bullshit on my blog. If you want to debate then debate like a grownup. If you cannot, the please divert your attention to http://www.liberalforum.org where talk like that is accepted. You have shown your hot head more than once just on this post. This is your warning.

    As for TD 3980… Why is what DJ stated wrong fellas? Simply put, the TD 3980, in part reads, in regards to the word “includes”:

    “(1) To comprise, comprehend, or embrace…(2) To enclose within; contain; confine…But granting that the word “including” is a term of enlargement, it is clear that it only performs that office by introducing the specific elements constituting the enlargement. It thus, and thus only, enlarges the otherwise more limited, preceding general language…The word “including” is obviously used in the sense of its synonyms, comprising; comprehending; embracing.” – Treasury Decision 3980, Vol 29, January-December, 1927, pgs 64 and 65.

    Why is it then that the TD 3980 specifically states “to embrace” and “to enclose within” and “comprising” and “embracing” is what “includes” is to mean? It sounds like all of those terms are limiting, not expansive to me.

    Why are you picking one part that supports your point but ignoring the same document that argues the opposite that of which DJ quoted?

  39. 39 John
    21 January 2009 at 09:03

    Kyle,

    Sorry if you were offended. I cited the holding of TD 3980, while DJ only took one part of the “includes” discussion that fit his reasoning. If you read the entire opinion, it is clear that the Secretary weighs both sides of the debate and comes to the conclusion that “includes” is an enlarging term.

    Please address posts #21 and 22.

    BTW – IRC 7701 was promulgated in 1954

  40. 21 January 2009 at 09:12

    @John: I did address posts 21/22. Please read before posting.

    Furthermore, please please refrain from using your $3.81 words here. Talk stupid to me since that is how you view me.

  41. 21 January 2009 at 09:19

    @John: Well, I don’t have the entire TD 3980, and you seemingly do, so please post.

  42. 42 John
    21 January 2009 at 09:27

    Promulgated = enacted.

    I assumed from your previous posts that you were familiar with such legal terms.

    T.D. 3980:

    UNITED STATES CIRCUIT COURT OF APPEALS, EIGHTH CIRCUIT.

    Red Wing Malting Co., plaintiff in error, v. Levi M. Willcuts, Collector of
    Internal Revenue, etc., defendant in error.
    In error to the District Court of the United States for the District of
    Minnesota.
    [November 5, 1926]
    KENYON, Circuit Judge, delivered the opinion of the court.
    This is an action brought by the Red Wing Malting Co., a corporation, plaintiff in error (designated for convenience as plaintiff), against Levi M. Willcuts, collector of internal revenue for the district of Minnesota, defendant in errror (designated for convenience as defendant), for the recovery of $29,893.44 income and profits taxes alleged to have been erroneously assessed for the fiscal year ending August 31, 1918, and which were paid by plaintiff.
    Plaintiff prior to the advent of prohibition was engaged in the business of manufacturing barley malt and selling the same to brewers engaged in the manufacture of fermented malt liquors. That was its sole business. Its market was destroyed as a result of the prohibition amendment and the Acts of Congress relating to the manufacture and sale of intoxicating liquors.
    There is no dispute as to the facts. We set forth a number of the court’s findings thereon, as follows:
    “That on March 1, 1913, the plaintiff had built up a large and profitable business and had a good will of large value. That at said date, namely, March 1, 1913, the good will of the plaintiff’s business was worth the sum of $153,618.75.
    “11. That by reason of the Acts of Congress and the presidential proclamations thereunder, the business and trade of plaintiff, built up over a number of years, was totally destroyed, for although the plaintiff still had the right to manufacture its malt, its customers were, by said Acts of Congress and presidential proclamations thereunder, all put out of business and prohibited by law from using the products of this plaintiff. That as a result of this action the market for plaintiff’s products was wholly destroyed and as a result plaintiff closed its plant and ceased all manufacturing operations in May, 1918. That in December, 1918, plaintiff sold its plant, including its real estate, machinery, and equipment, to the Fleischmann Yeast Co., under a contract, for $150,000.
    “12. That as plaintiff was forced out of business by reason of the foregoing facts the good will of said business went with it and ceased to be.”
    For the fiscal year ending August 31, 1918, the Commissioner of Internal Revenue determined plaintiff’s taxable net income to be $120,536.42. Plaintiff claims that in arriving at its taxable net income for said fiscal year a deduction for obsolescence of good will in the sum of $153,618.75, being the entire March 1, 1913, agreed value of its good will, should have been deducted. This would have left no taxable income for that year. Plaintiff seeks to recover the total income and profits taxes paid by it for said year.
    The district court held against the contention of the plaintiff, and from that holding this writ of error is prosecuted. The issue presented is a narrow and precise one, viz, Is plaintiff in computing its taxable net income for the fiscal year ending August 31, 1918, entitled to a deduction on account of obsolescence or loss of good will?
    The statute involved is the Revenue Act of 1918 (40 Stat. L., 1057, 1077). The particular portions thereof are parts of section 234(a), reading as follows:
    “That in computing the net income of a corporation subject to the tax imposed by section 230 there shall be allowed as deductions:
    * * * * * * *
    “(4) Losses sustained during the taxable year and not compensated for by insurance or otherwise;
    * * * * * * *
    “(7) A reasonable allowance for the exhaustion, wear and tear of property used in the trade or business, including a reasonable allowance for obsolescence.”
    It is the theory of plaintiff that the phrase in subsection (7) of said statute, “including a reasonable allowance for obsolescence,” created a new and additional tax deduction to the “exhaustion, wear and tear” clause of said subsection.
    It is the contention of defendant that an allowance for obsolescence under the statute is merely supplementary to the allowance for “exhaustion, wear and tear,” in those cases where by reason of economic circumstances the allowance for “exhaustion, wear and tear” based upon the estimated normal period of utility would be insufficient to restore to the taxpayer the cost of the capital investment. That the allowance for obsolescence applies only to property of a depreciable character. It will thus be seen that the matter presented raises legal questions of far-reaching importance.
    Plaintiff contends that the Treasury Department has established an interpretation of the various Acts relating to depreciation for the purpose of arriving at taxable income through Office decisions, Treasury decisions, an Advisory Tax Board, the Committee on Appeals and Review, and that such construction has been that obsolescence of intangible property is permissible as a deduction in arriving at taxable income.
    Article 163 of Regulations 45, promulgated by the Treasury Department construing the Revenue Act of 1918, is as follows:
    “Depreciation of intangible property.–Intangibles, the use of which in the trade or business is definitely limited in duration, may be the subject of a depreciation allowance. Examples are patents and copyrights, licenses and franchises. Intangibles, the use of which in the business or trade is not so limited, will not usually be a proper subject of such an allowance. If, however, an intangible asset acquired through capital outlay is known from experience to be of value in the business for only a limited period, the length of which can be estimated from experience with reasonable certainty, such intangible asset may be the subject of a depreciation allowance, provided the facts are fully shown in the return or prior thereto to the satisfaction of the Commissioner. There can be no such allowance in respect of good will, trade names, trade-marks, trade brands, secret formulae, or processes.”
    This would seem to indicate the attitude of the Treasury Department at that time. It is true that after the promulgation of this regulation the Internal Revenue Bureau recognized for a time at least deductions for obsolescence of good will, the taxpayer having the burden of proving the beginning and end of the claimed obsolescence period. The deduction for good will was recognized only where it was assignable as distinguished from good will attached to the owning or carrying on of the business, or connected with the premises on which the business was conducted. No allowance for good will was recognized where it would be valuable in another business after the termination of the business in which the taxpayer was engaged.
    The case of Rock Spring Distilling Co. (2 B. T. A., 207) was a case considering somewhat the question of obsolescence of good will, and the Board held there was no such thing under the Revenue Act of 1916. It does not decide that such deduction was permissible under the Act of 1918. We have been unable to find any decision of the Board of Tax Appeals passing directly upon the question of whether under the Act of 1918 a deduction could be allowed for obsolescence of good will.
    In the decision on the appeal of the Brevoort Hotel Co. case before the Committee on Appeals and Review, and in its holdings as to hotels operating bars, there is language justifying the claim that a good will value may be established, for the loss of which an allowance for obsolescence may be made as distinct from the good will of the hotel. In the hotel cases may be noted the following language of the opinion:
    “It is, therefore, held that hotels which can establish a good-will value which might have been assigned separate and distinct from the good will of the hotel, are entitled to obsolescence for the loss of their good will due to national prohibition legislation.”
    We have examined the references in the brief of plaintiff to the Cumulative Bulletins of the Treasury Department and the tax rulings contained therein bearing on this question, the holdings of the Committee on Appeals and Review, and the decisions of the Tax Appeals Board, and conclude that either side to this controversy may find some comfort therein.
    Courts have respect for and give weight to departmental construction of a statute, although such construction is not controlling. (22 Cyc., 1606; Baltzell v. Mitchell, 3 F. (2d), 428.) Certainly, however, there has been no such consistent and uniform construction of the statute in question as to be persuasive with the court or of appreciable assistance. Nor do we see much force in the claim that Congress has reenacted in 1921, 1924, and 1926, the section under consideration substantially as in the Act of 1918, and thereby has acquiesced in the interpretation by the Treasury Department of the congressional intent as to obsolescence of good will as a tax deduction entity. There is no decision of the Treasury Department construing the Act of 1918 as authorizing a deduction for obsolescence of good will as a separate and distinct entity, nor is there any such definite and uniform construction of provisions in other statutes to warrant a conclusion that Congress was adopting any particular construction of the Treasury Department. The very claim here was denied by the Committee on Appeals and Review. It may as well be argued therefore that Congress in reenacting the section after such action of the Treasury Department has adopted its conclusion. Further, the Revenue Act of 1926, containing section 234(a)7 in substantially the same form as in the Revenue Act of 1918, was enacted after the decision of the lower court in the case at bar. Therefore, if there was a practice of the Treasury Department relied on in conflict with said decision, there would be no substance in the claim that Congress-had ratified, by passing the Revenue Act of 1926, the practice of the Bureau. We content ourselves with saying that in the confusion of rulings of the Solicitors of the Treasury Department and the various boards created therein to pass on tax questions, or the decisions of the Board of Tax Appeals, no long-continued and uniform construction of the statute here involved can be found. Therefore we pretermit this phase of the matter, calling attention to the language of the Supreme Court of the United States in Iselin v. United States (270 U. S., 245, 251 [T.D. 3846, C. B. V-1, 365]):
    “It suggests that these facts imply legislative recognition and approval of the executive construction of the statute. But the construction was neither uniform, general, nor long continued; neither is the statute ambiguous. Such departmental construction can not be given the force and effect of law. Compare United States v. Falk & Brother (204 U. S., 143); National Lead Co. v. United States (252 U. S., 140, 146).”
    The only case cited or that we have been able to find which bears directly on the question at issue is Haberle Crystal Springs Brewing Co. v. Jesse W. Clarke, Collector of Internal Revenue. A referee’s opinion therein construes the statute as contended for by plaintiff. It is of note that the opinion of said referee has not as yet been adopted by the United States District Court of the Northern District of New York, where the case is pending. The case of Kentucky Tobacco Products Co. v. Lucas, Collector of Internal Revenue (5 Fed. (2d), 723), refers to the statute in question, but does not discuss the proposition here raised.
    We are satisfied this case is one of first impression, and the question is squarely before this court as to the construction of subsection (7) of section 234(a) of the Revenue Act of 1918.
    Some legal propositions argued are assumedly beyond controversy, e. g.,
    (a) A statute should receive a natural and not a strained construction, and its plain, obvious and rational meaning should be adhered to. (Lynch v. Alworth-Stephens Co., 294 Fed., 190.)
    (b) Tax laws if doubtful are to be construed in favor of the taxpayer. (Gould v. Gould, 245 U. S., 151; United States v. Merriam, 263 U. S., 179.)
    (c) The term property in the Act under consideration is not used in a restricted sense. (Lynch, Executrix, etc., v. Alworth-Stephens Co., 267 U. S., 364.)
    (d) Good will is property of an intangible nature, and the term property includes good will. (28 Corpus Juris, 730; Metropolitan Bank v. St. Louis Dispatch Co., 149 U. S., 436; The Coca-Cola Bottling Co. v. The Coca-Cola Co., 269 Fed., 796; Washburn v. National Wall-Paper Co. et al., 81 Fed., 17.)
    (e) Good will has no existence except in connection with a continuing business. (Kaufmann v. Kaufmann (Pa.), 86 Atl., 634; Metropolitan Nat. Bank v. St. Louis Dispatch Co. et al., 36 Fed., 722.)
    (f) It may be bought and sold in connection therewith as an incident thereof. (Camden v. Stuart, 144 U. S., 104; The Coca-Cola Bottling Co. v. The Coca-Cola Co., 269 Fed., 796, 805; Commonwealth v. Kentucky Distillerics & Warehouse Co. (Ky.), 116 S. W., 766; Sawilowsky v. Brown, 288 Fed., 533.)
    With these general propositions in mind we proceed to a discussion of the statute in question. No difficulty arises as to the first part of subsection (7) of section 234(a), “a reasonable allowance for the exhaustion, wear and tear of property used in the business.” That is clear enough as defining the deduction. The controversy is over the part of the subsection following these words, viz, “including a reasonable allowance for obsolescence.” Does this provide for a new, distinct, deduction, or is it so attached and related to the previous phrase in subdivision (7) that it applies only to such property used in the business as is subject to exhaustion, wear and tear? The case relied on by plaintiff is Haberle Crystal Springs Brewing Co. v. Clarke, Collector of Internal Revenue (heretofore referred to), in the United States District Court, Northern District of New York, and the opinion of the referee in said case is attached as an appendix to plaintiff’s brief. Plaintiff there claimed it was entitled under the 1918 statute to a reasonable allowance for the obsolescence of its good will, liquor licenses, and national plant, for which items no deductions were allowed in the computation of the tax which the plaintiff paid, and the referee there held that good will was property used in the business within the meaning of subsection (7) of section 234(a) of the Revenue Act of 1918, and that the purpose of the language of the statute as to allowance for obsolescence was to create a new and additional deduction. The position taken by the referee is presented with clearness and fortified by substantial reasoning, and states that theory of construction as well, we think, as it can be done.
    We are, however, unable to reach the same conclusion. If it had been intended by the Congress to create a new and additional deduction not connected with property used in the business subject to “exhaustion, wear and tear,” it would have been very easy for Congress, instead of using the word, “including,” to have said, “a reasonable allowance for exhaustion, wear and tear and obsolescence of property used in the business.” That would have made the matter clear.
    The first part of the subsection provides for a deduction in arriving at tax income for the depreciation by exhaustion, wear and tear of property used in the business. Depreciation was the matter sought to be remedied in order to restore to the owner the basis of original value. It is perfectly apparent that an allowance for depreciation due to exhaustion, wear and tear of property might not sufficiently provide for the restoration of capital over the period of useful life of an asset, and it might be entirely inadequate to effect restoration of the March 1, 1913, value thereof. The meaning of the word “including” as used in the statute is important. It evidently refers to the preceding part of the subsection, and must be recognized as occupying a significant and important place. It can not be brushed aside and ignored. This court should not attempt to write new language into the statute, nor ignore language there used, but must endeavor from the language of the statute itself to arrive at the meaning of the Congress. This word has received considerable discussion in opinions of the courts. It has been productive of much controversy. The word “include” is defined in the New Standard Dictionary as follows:
    “(1) To comprise, comprehend, or embrace as a component part, item, or member; as, this volume includes all his works; the bill includes his last purchase;
    “(2) To enclose within; contain; confine; as, an oyster shell sometimes includes a pearl.”
    It is defined by Webster as follows:
    “To comprehend or comprise, as a genus of the species, the whole a part, an argument or reason the inference; to take or reckon in; to contain; embrace; as, this volume includes the essays; to and including the tenth.”
    The Century Dictionary defines “including,” thus: “to comprise as a part.”
    Perhaps the most interesting discussion of the word “including” is found in Montello Salt Co. v. State of Utah (221 U. S., 452). There the court referred to and discussed some of the cases where the word “including” had been under consideration. For instance, the court pointed out in Brainard v. Darling (132 Mass., 218), “that a legacy of $100, ‘including money trusteed at a certain bank,’ could not be construed as meaning that the sum of $100 was in addition to the sum in bank.” Also in Henry’s Executor v. Henry’s Executor (81 Kentucky, 342), “a bequest of $14,000, ‘including certain notes,’ was held to mean that the notes formed a part of the $14,000 and were not in addition thereto.” Also the case of Neher v. McCook County (11 S. Dak., 422) (78 N. W., 998), where “it was held that a certain section of the laws of the State which provided that the sheriff’s fees should be $16 for summoning a jury, ‘including mileage,’ did not entitle him to mileage in addition to the $16.” And the Supreme Court after its reference to these cases says of the case before it, “The court also considered that the word ‘including’ was used as a word of enlargement, the learned court being of opinion that such was its ordinary sense. With this we can not concur. It is its exceptional sense, as the dictionaries and cases indicate. We may concede to ‘and’ the additive power attributed to it.” We refer to a few other cases.
    In Sullivan Machinery Co. v. United States (168 Fed., 561) the word “including” used in the Tariff Act was construed as a word of addition. In Maben v. Rosser et al. (Okla.) (103 Pac., 674, 676), the court discussing the meaning of the word “including” says:
    “This word has also been defined as having an accumulative sense and as classing that which follows with that which has gone before.”
    In Kennedy v. Industrial Accident Commission of California et al. (Cal.) (195 Pac., 267, 271) the court says:
    “‘Including’ is not a word of limitation. Rather it is a word of enlargement, and in ordinary signification implies that something else has been given beyond the general language that precedes it. * * * As here employed, the word ‘including’ is used to express the idea that the specific power to review, grant or regrant, diminish, increase, or terminate an award upon the ground that the disability has recurred, increased, diminished, or terminated– particular power specifically referred to in the section of the present act–is but a part of the larger and more comprehensive power conferred by the more general language of the immediately preceding clause of the section.”
    In Dumas v. Boulin (La.) (1 McGloin, 275, 278) it is pointed out that the word “include” has two shades of meaning. The court says, “‘Include’ has two shades of meaning. It may apply where that which is affected is the only thing included, and it is also used to express the idea that the thing in question constitutes a part only of the contents of some other thing. It is more commonly used in the latter sense.”
    That the word “includes” is a word of enlargement is held in Fraser v. Bontel et al. (Cal.) (119 Pac., 509); Cooper v. Stinson (5 Minn., 522); Calhoun v. Memphis & P. R. Co. (4 Fed. Cas., 1045).
    Perhaps the most lucid statement the books afford on the subject is in Blanck et al. v. Pioneer Mining Co. et al. (Wash.) (159 Pac., 1077, 1079), namely, “the word ‘including’ is a term of enlargement and not a term of limitation, and necessarily implies that something is intended to be embraced in the permitted deductions beyond the general language which precedes it. But granting that the word ‘including’ is a term of enlargement, it is clear that it only performs that office by introducing the specific elements constituting the enlargement. It thus, and thus only, enlarges the otherwise more limited, preceding general language. * * * The word ‘including’ introduces an enlarging definition of the preceding general words, ‘actual cost of the labor,’ thus of necessity excluding the idea of a further enlargement than that furnished by the enlarging clause so introduced. When read in its immediate context, as on all authority it must be read, the word ‘including’ is obviously used in the sense of its synonyms ‘comprising; comprehending; embracing.”‘
    It seems to us that the language “including a reasonable allowance for obsolescence” is but a part of and an enlargement of the previous phrase of the said subsection (7) relating to exhaustion, wear and tear, and that the first part of the sentence was intended to cover the subject-matter thereof. It does not add a new kind of deduction, but merely permits the inclusion of an additional element, namely, obsolescence of such property used in the business as is subject to exhaustion, wear and tear. The allowance for obsolescence was intended to be in connection with the allowance for exhaustion, wear and tear, that being at times insufficient to restore the proper basis of capital values.
    The history leading up to the enactment of subsection (7) of section 234(a) of the 1918 Act is important. The Excise Tax Act of 1909 permitted deduction of “a reasonable allowance for depreciation of property, if any.” Regulations of the Treasury Department provided that the deduction should be the loss “that arises from exhaustion, wear and tear, or obsolescence out of the uses to which the property is put.” The United States District Court for the Northern District of California in San Francisco & P. S. S. Co. v. Scott, Collector (253 Fed., 854, 855), discussed depreciation as used in that statute, and said:
    “It is intended to cover the estimated lessening in value of the original property, if any, due to wear and tear, decay, or gradual decline from natural causes, inadequacy, obsolescence, etc., which at some time in the future will require the abandonment or replacement of the property, in spite of ordinary current repairs.”
    The Revenue Act of 1913 had this provision, “a reasonable allowance for depreciation by use, wear and tear of property, if any.”
    The regulations under this Act recognized the interpretation put upon the word “depreciation” under the previous Act, and made an allowance for obsolescence “out of the uses to which the property is put.”
    The 1916 Act dropped the word “depreciation” and the deduction permitted was “a reasonable allowance for the exhaustion, wear and tear of property arising out of its use or employment in the trade or business.” After that there was no basis for a deduction for obsolescence, as the depreciation deduction under the 1916 Act excluded obsolescence.
    When the Revenue Act of 1918 was before the Congress the House wrote a provision the same as in the 1916 and 1917 Acts providing an allowance for “exhaustion, wear and tear,” of property. The Senate adopted an amendment substituting the word “depreciation” for “exhaustion, wear and tear.” In conference the word “depreciation” was stricken out, the words “exhaustion, wear and tear,” restored, and the words “including a reasonable allowance for obsolescence” included. In this form the bill passed. It would seem quite apparent therefore that Congress was not intending to add a new and independent deduction. It was merely trying to provide the restoration of capital value of a depreciable asset over the period of its useful life by allowing something known as obsolescence as an additional element to exhaustion, wear and tear. This legislative history sustains, we think, the conclusion to which we are forced, that the phrase, “including a reasonable allowance for obsolescence” is one of specification and enlargement; that it is closely connected with and relates to the subject-matter of the other phrase of said subsection (7), and applies only to such property therein designated used in the business as is subject to exhaustion, wear and tear.
    That leads to the query, Is good will such property?
    Good will is property of an intangible nature. It differs from such intangibles as patents, copyrights, licenses and franchises, because while in a certain sense it inheres in and is used in the business, it is not subject to depreciation, as that term is commonly understood and commonly used in the statutes. The Supreme Court of the United States in Metropolitan Bank v. St. Louis Dispatch Co. (149 U. S., 436, 446), says:
    “Undoubtedly, good will is in many cases a valuable thing, although there is difficulty in deciding accurately what is included under the term. It is tangible only as an incident, as connected with a going concern or business having locality or name, and is not susceptible of being disposed of independently. Mr. Justice Story defined good will to be ‘the advantage or benefit, which is acquired by an establishment, beyond the mere value of the capital, stock, funds, or property employed therein, in consequence of the general public patronage and encouragement which it receives from constant or habitual customers, on account of its local position, or common celebrity, or reputation for skill or affluence, or punctuality, or from other accidental circumstances or necessity, or even from ancient partialities or prejudices.’ Story Part. Sec. 99.”
    The opinion of the referee in the case hereinbefore referred to, relied upon by plaintiff, of Haberle Crystal Springs Brewing Co. v. Jesse W. Clark, Collector of Internal Revenue, so holds, because the referee says, “ordinarily it has an indefinite existence and value.”
    Opinions of expert accountants are not without value in considering the peculiar nature and status of good will in business. In Montgomery’s “Auditing Theory and Practice,” we find the following enlightening paragraph:
    “This asset is in a class by itself. The question of depreciation certainly can not be applied to it as to other items. If earnings decline for any reason, the value of good will declines correspondingly, because by its very nature its value depends on earnings of a certain amount being maintained. Good will, however, always appears, or should appear, on the balance sheet as a separate item, and well-established practice permits it to appear at cost, irrespective of fluctuations which affect its value. As a matter of fact, its actual value changes from day to day, and there would be so much uncertainty in any attempt to adjust its book value that by common consent it is left alone, except in cases where earnings are unusually large, and it is considered advisable to write it off. In such cases the very fact of there being sufficient earnings to write it off would justify its retention, whereas earnings not up to expectations, and insufficient to enable a concern to write it off, would indicate that its book value is inflated. As good will does not suffer wear and tear, does not become obsolescent, is not used up in the operation of the business, depreciation, as such, can not be charged against it. * * *
    “While good will does not depreciate, it is constantly liable to fluctuations. Good will is not usually written off, and the question of the amount at which it shall stand in the balance sheet was not formerly deemed to be within the scope of the auditor’s work, but the present range of an auditor’s duties compels him to give serious thought to this item.”
    In “Higher Accountancy Principles and Practice” (under supervision of William Arthur Chase), the following:
    “The increased or decreased value of the good will does not show in any ordinary profit and loss account. Its growth can not be attributed to any particular year.
    “In a private concern good will is only ascertainable by actually selling the business. In case of a public company the good will is known from day to day.
    “The whole question of good will is a difficult one, because each case stands by itself.”
    From “Modern Accounting,” by Henry Rand Hatfield:
    “But in valuing good will for the inventory the limitation of its value to its cost must be most rigorously observed. It has been seen that the restriction of inventory value to cost price is of rather general application, but its force is much greater when the goods to be valued are immaterial. No one would object to the inclusion in the inventory of treasure trove even though it cost the finder nothing. But good will is rigorously excluded unless it has been secured at a cost. Hence it is recognized as legitimate for the purchaser of good will to include it among his assets, but accounting practice prudently, though perhaps illogically, forbids the firm which created the good will to place in the balance sheet any value on the clientele which it has built up and which it could at any moment sell for a large sum.”
    We are satisfied there can be no wear or tear of good will, or exhaustion thereof by use, and even should we assume that good will separate and distinct from tangible property is property used in the business, section 234(a), subsection (7), of the 1918 Revenue Act limits the allowance for obsolescence to such property as is susceptible to exhaustion, wear and tear by use in the business, and good will is not such property.
    We turn therefore to the question of whether the allowance claimed can be made under section 234(a), subsection (4). It is suggested in the reply brief of plaintiff that if defendant’s argument be conceded to be correct as to the obsolescence feature of the statute, this court could decide the case under the loss section, section 234(a), subsection (4), hereinbefore set out, and it is claimed that under the pleadings the requested allowance could be granted under that subsection as a loss sustained in plaintiff’s fiscal year ending August 31, 1918.
    Defendant in its brief states:
    “Plaintiff and defendant agree that unless a deduction for obsolescence of good will is authorized by section 234(a)7 of the Act plaintiff’s claim must of necessity be denied.”
    Apparently this statement is incorrect. However, the case was tried and determined principally upon the question of the construction of section 234(a), subsection (7). We refer to this suggested proposition briefly.
    We have heretofore pointed out that good will has no existence separate and apart from an established business. With the termination of that business it is ended. While a capital asset, it is not the subject of purchase, sale or assignment separate from the business itself. It is not an assignable asset distinct from the business. It is different in this respect from such intangibles as patents, contracts, or franchises which may be sold. When a business is disposed of its value and realized selling price may be enhanced by the existence of good will. If sold at a loss the loss of good will is reflected in the transaction. The claim is somewhat novel therefore and rather startling that loss of good will can be made the subject of an independent claim for a tax deduction separate and distinct from the business of which it is an incident.
    When the property of the Red Wing Malting Co. was sold at a depreciated value by reason of prohibition the loss of good will was reflected in the general loss. This loss might possibly be a basis for a deduction under section 234(a), subsection (4) of the statute. We are not advised whether or not such allowance has been made. To hold that a claimant is entitled to segregate good will from the property and business to which it is attached as an incident and from which it is inseparable and permit a separate deduction for its loss might result in a double deduction and have far-reaching consequences. If the court is to open the door to claimants for tax deductions under the statute for the loss of good will apart from the tangible property with which it is connected, the right should clearly appear from the statute. We think it does not so appear. While we have indicated our view of the matter, we are not confident that this question is before us. It does not appear from the record that any claim under subsection (4) for refund covering the loss of good will as a sustained loss during the taxable year was presented to the Commissioner of Internal Revenue prior to bringing this action and a refund requested. The application for refund does not appear in the record. Such application is a condition precedent to the jurisdiction of this court in matters of this character. The precise ground upon which the refund is demanded must be stated in the application to the Commissioner, and we think if that is not done a party can not base a recovery in the court upon an entirely different and distinct ground from that presented to the Commissioner. We have reached the conclusion that the action of the trial court in dismissing plaintiff’s petition and rendering judgment for defendant was correct, and the same is affirmed.

  43. 21 January 2009 at 09:37

    @John: Thank you. I will read this later. I just got off work.

    But no. I’m not a lawyer. I’m just an average-joe that believes that the taxes as is against what the Founding Fathers wanted this country to be about and thus made the Constitution to reflect that. DJ has pointed this out too, but you (of course) just discounted him as a “conspiracy theorist.” What was cited, I believe to be true. But then again, it may just be DJ and I that still believe that the Constitution is the supreme law of the land and that it has merit in such situations as this.

  44. 44 DJ
    21 January 2009 at 09:51

    John,

    “The allowance for obsolescence was intended to be in connection with the allowance for exhaustion, wear and tear, that being…”
    -From your post, clearly the expansion of what was INCLUDED was LIMITED!

    “But granting that the word ’including’ is a term of enlargement, it is clear that it only performs that office by introducing the specific elements constituting the enlargement.
    -From TD 3980, again LIMITING the expansion.

    Inclusio unius est exclusio alterius. The inclusion of one is the exclusion of another. The certain designation of one person is an absolute exclusion of all others. … This doctrine decrees that where law expressly describes [a] particular situation to which it shall apply, an irrefutable inference must be drawn that what is omitted or excluded was intended to be omitted or excluded. (emphasis added)

    Places omitted from the definitions of “State”, “States” and “United States” were intended to be omitted (like California, Maine, Florida and Oregon).(emphasis added)

    “Got any more bullshit arguments?”
    I thought the debate was going rather well John. Why the attitude?

    @Ecclesiastes,

    Had the Congress intended to include every occupation of the private sector, the language in 3401(c) would not have been needed at all.

    So lets apply the canon of statutory construction “ejusdem generis”
    Under “ejusdem generis” canon of statutory construction, where general words follow the enumeration of particular classes of things, the general words will be construed as applying only to things of the same general class as those enumerated. (emphasis added)

    Quite simply, the Congress willfully and deliberately limited those who are “employees” to federal subjects. The “domestic servant in private homes” you mentioned EXCLUDES a maid or housekeeper of an employee (as defined in 3401) from being taxed; the “whatever source derived” language could be expanded to encompass the Public Officials servants since the “source” of the renumeration paid to the servant is the Federal Government (Hence Federal Privilege).

    This also supports the SCOTUS decisions mentioned in post #27
    -United States Supreme Court, Butcher’s Union Co. v. Crescent City Co., 111 U.S. 746 (1883)
    -United States Supreme Court, Coppage v. Kansas, 236 U.S. 1 (1915)
    showing that Private sector occupations are NOT federal privilege and therefore NOT subject to the “income tax”.

  45. 45 John
    21 January 2009 at 10:06

    Kyle,

    Don’t get me wrong, I’m about as libertarian as you. The founding fathers may not have wanted to tax the people, but later generations did. If the constitution was amended to give the government the power to tax, then it must by definition be constitutional.

  46. 46 Ecclesiastes
    21 January 2009 at 18:49

    kylehuwer stated: “As has been pointed out here on this post, it is law to define terms that do not hold the normal (common) definition.”

    That’s not true. “[T]he words of statutes–including revenue acts–should be interpreted where possible in their ordinary, everyday senses.” Crane v. Commissioner of Internal Revenue, 331 U.S. 1, 6 (1947); Malat v. Riddell, 383 U.S. 569, 571 (1966).

    You want to read the definition of “employee” as being something different than what is generally understood to be employee, and your sole support for that proposition is that the statement in section 3401(c) that “the term ’employee’ includes an officer, employee, or elected official” of the United States or a state (etc.) should be read as saying that the term employee includes ONLY government employees and officials, which is a meaning completely contrary to its usual meaning, and completely inconsistent with the rest of section 3401 which, as I have explained before, becomes meaningless or nonsensical if “employee” is limited to people paid by governments.

    And, in order to do that, you have to completely disregard section 7701(c) and rely on words taken out of context from old court decisions, while rejecting the conclusions of more recent court decisions.

    Your argument is based on faulty premises and fails at every step.

  47. 47 Ecclesiastes
    21 January 2009 at 19:21

    There is more than one way to define a term (word or phrase) in a statute.

    One way is to describe exactly what you want the term to mean.

    Another way is to say, “I want this word to mean what you would normally expect it to mean, plus one or two other things that maybe you didn’t expect it to mean.”

    In the case of the word “employee,” there are hundreds of years of court decisions defining what is or what is not an “employee” for the purpose of (among other things) determining the liability of the employer for the acts of the employee, and an “employee” is not just anyone who is paid to work. And Congress was satisfied with that common-law definition of “employee,” except that, for purposes of withholding income tax from wages, Congress wanted to make sure a few other people who aren’t usually considered to be “employees” at common-law (such as elected officials) were included in the meaning of “employee” for wage withholding purposes. So Congress writes 3401(c), relying on section 7701(c) to make sure that no one will be silly enough to think that Congress ever meant for “employee” to mean ONLY government officials.

    The fact that you would have written a statute differently isn’t reason to believe that the statute doesn’t mean what it actually says.

    And both section 3401(c) and 7701(c) mean what they say.

    (And did I mention that 3401(c) only applies to withholding from wages? “Compensation for services” is still included in gross income in section 61 regardless of whether or not the person receiving the compensation is an “employee.”)

  48. 21 January 2009 at 20:41

    Ecclesiastes states at 21 January 2009 at 6:49 pm

    kylehuwer stated: “As has been pointed out here on this post, it is law to define terms that do not hold the normal (common) definition.”

    That’s not true. “[T]he words of statutes–including revenue acts–should be interpreted where possible in their ordinary, everyday senses.” Crane v. Commissioner of Internal Revenue, 331 U.S. 1, 6 (1947); Malat v. Riddell, 383 U.S. 569, 571 (1966).

    What? It seems that it specifically states “where possible.” This means that if they say “Eat fish” and fish is not defined, then we can pick whatever animal is commonly called a fish to eat. This doesn’t mean that if a word is defined as an “eel” we should go eat whatever fish we want. Crane v. Commissioner of Internal Revenue does not say “[T]he words of statutes–including revenue acts–should be interpreted in their ordinary, everyday senses.” Big difference.

    If you are going to say that there are hundreds of years of cases determining what an employee is then….. POST THEM.

  49. 21 January 2009 at 20:44

    Ecclesiastes states at 21 January 2009 at 7:21 pm:

    There is more than one way to define a term (word or phrase) in a statute.

    One way is to describe exactly what you want the term to mean.

    Another way is to say, “I want this word to mean what you would normally expect it to mean, plus one or two other things that maybe you didn’t expect it to mean.”

    And again, this is the COMMON definition of “includes” and “including,” is it not?

  50. 21 January 2009 at 20:53

    John states at 21 January 2009 at 10:06 am:

    If the constitution was amended to give the government the power to tax, then it must by definition be constitutional.

    Under what amendment? Haven’t the courts stated on numerous cases that the 16th amendment did not offer the government any new power of taxation?

    “The provisions of the Sixteenth Amendment conferred no new power of taxation” United States Supreme Court, Stanton v. Baltic Mining Co., 240 U.S. 103 (1916)

  51. 21 January 2009 at 21:18

    I do want to take a minute to thank all that have come to my blog. I don’t know your intentions of being here and debating me, but I do appreciate the conversation (and the traffic). Hopefully you can come to read other posts that I put on. I would like that a lot.

    On a side note… I have gone back through and redid all my posts to make it show all my comments show up in the light grey. A couple of times I wasn’t logged on when I posted, so if the page looks weird, then that may be why.

  52. 52 John
    22 January 2009 at 08:45

    Kyle,

    Although you were addressing Ecclesiastes in post #49, I believe the discussion of “includes” from posts #21 and #22 address your concern. Courts have interpreted “includes” differently, even if “includes” has an ordinary meaning. Since IRC 7701 was enacted, there has been no need to interpret “includes” because the IRC defines it. Thus, there can be no misinterpretation by the courts as to what “includes” means when used in Title 26.

    As for the 16th Amendment, the courts did indeed say and mean that there was no new power of taxation. However, one must look at the context. The courts had already recognized Congress’s power to tax income. Here is the complete quote: ““by the previous ruling [in Brushaber] it was settled that the provisions of the 16th Amendment conferred no new power of taxation, but simply prohibited the previous complete and plenary power of income taxation possessed by Congress from the beginning from being taken out of the category of indirect taxation to which it inherently belonged, and being placed in the category of direct taxation….”

    The quote is explained well by Bowers, Collector v. Kerbaugh-Empire Co., 271 U.S. 170, 173-174 (1926): “The Sixteenth Amendment declares that Congress shall have power to levy and collect taxes on income, ‘from whatever source derived’ without apportionment among the several states, and without regard to any census or enumeration. It was not the purpose or the effect of that amendment to bring any new subject within the taxing power. Congress already had the power to tax all incomes. But taxes on incomes from some sources had been held to be ‘direct taxes’ within the meaning of the constitutional requirement as to apportionment. The Amendment relieved from that requirement and obliterated the distinction in that respect between taxes on income that are direct taxes and those that are not, and so put on the same basis all incomes ‘from whatever source derived.’”

  53. 22 January 2009 at 18:12

    John states at 22 January 2009 at 8:45 am:

    Although you were addressing Ecclesiastes in post #49, I believe the discussion of “includes” from posts #21 and #22 address your concern.

    And I responded to 21/22 in post 37 and then later reminded you in post 40. Since you have overlooked this TWICE now, I am starting to wonder if you are reading anything I say. But then again, you seemingly think I’m an idiot so I guess that seems proper of you to do…

  54. 54 John
    22 January 2009 at 18:25

    Kyle,

    You seemed to overlooked the part where the court cites incidents where “includes” has been interpreted as both an enlargement and a limitation. Your post #37 does not address that.

  55. 22 January 2009 at 18:29

    Again, I’m stoooopid, so please explain…

    “by the previous ruling [in Brushaber] it was settled that the provisions of the 16th Amendment conferred no new power of taxation, but simply prohibited the previous complete and plenary power of income taxation possessed by Congress from the beginning from being taken out of the category of indirect taxation to which it inherently belonged, and being placed in the category of direct taxation….”

    It states “the 16th Amendment conferred no new power of taxation” — OK Check….

    “power of income taxation possessed by Congress from the beginning from being taken out of the category of indirect taxation” — OK, so power that Congress held from the beginning was that of INDIRECT taxation. OK, I’ll buy that.

    “to which it inherently belonged” — Again, good deal. Congress has the power to levy indirect taxes it seems.

    “and being placed in the category of direct taxation…” — And then moved into direct taxation?

    OK, so we have Congress that has the power to tax, indirectly. They can’t tax directly. Taxing incomes is a direct tax. The 16th didn’t give any new power of taxation. And it states that it moved a income tax “to which it inherently belongs” and made it a direct tax?

    Your quote now seems unconstitutional.

  56. 22 January 2009 at 18:37

    (sigh) Are you a troll John? I am really beginning to wonder. You reply within 15 minutes of every post.

    John at 22 January 2009 at 6:25 pm:

    You seemed to overlooked the part where the court cites incidents where “includes” has been interpreted as both an enlargement and a limitation. Your post #37 does not address that.

    I do address that…

    So, if we are going to define a group of people that are to be defined as being employees we have a couple choices
    (a) Don’t define employee in the law. The word employee is defined as anyone working for someone else or an entity. This encompasses everyone. As 3401(c) specifically calls out… “…officer, employee, or elected official of the United States…” If you work (for monetary gain) then you are an employee.
    (b) Define employee and list every single job that is included. Too long and crazy , not feasable unless the list is VERY specific.
    (c) Define employee and list a general category of a group. This is what the IRC does. All it lists for employee is federally privileged jobs. It doesn’t say, “officials, servers, and valet drivers” which encompasses the private and federal sectors.

    Option (a) is expansive. Option (b) is neither. Option (c) is limiting.

  57. 22 January 2009 at 18:42

    @John: Furthermore, I recognize that the word is limiting in the Dunaway case. I didn’t deny it as you are trying to make it seem. WTF.

    What I explained in #37 is that there is a REASON for the term to be EXPANSIVE.

  58. 58 John
    22 January 2009 at 18:50

    I don’t appreciate being mocked. I never said or implied that you were stupid. Like you said earlier, I’d rather debate without the attitude.

    Prior to the Supreme Court’s decision in Pollock v. Farmers’ Loan & Trust Co., 158 U.S. 601 (1895) all income taxes had been considered to be excises (indirect taxes) required to be imposed with geographical uniformity; such taxes were not required to be apportioned by state according to population (as are direct taxes).

    In the case of Pollock, the Supreme Court declared certain income taxes — taxes on income from property under the Wilson-Gorman Tariff Act of 1894 — to be unconstitutionally unapportioned direct taxes. The Court reasoned that a tax on income from property should be treated as a tax on “property by reason of its ownership,” and should therefore be required to be apportioned.

    After Pollock, while income taxes on wages (as indirect taxes) were still not required to be apportioned by population, taxes on interest, dividends and rent income were required to be apportioned by population. The Pollock ruling made the source of the income (e.g., property versus labor, etc.) relevant in determining whether the tax imposed on that income was deemed to be “direct” (and thus required to be apportioned among the states according to population) or, alternatively, “indirect” (and thus required only to be imposed with geographical uniformity).

    The 16th Amendment overruled the effect of Pollock. That essentially means that when imposing an income tax, the Congress may impose the tax on income from any source without having to apportion the total dollar amount of tax collected from each state according to each state’s population in relation to the total national population. In Abrams v. Commissioner, 82 T.C. 403 (1984), the United States Tax Court stated: “Since the ratification of the Sixteenth Amendment, it is immaterial with respect to income taxes, whether the tax is a direct or indirect tax. The whole purpose of the Sixteenth Amendment was to relieve all income taxes when imposed from [the requirement of] apportionment and from [the requirement of] a consideration of the source whence the income was derived.”

    The courts have interpreted the Sixteenth Amendment as standing for the rule that the Amendment allows a direct tax on “wages, salaries, commissions, etc. without apportionment.” Parker v. Commissioner, 724 F.2d 469, 84-1 U.S. Tax Cas. (CCH) paragr. 9209 (5th Cir. 1984); United States v. Connor, 898 F.2d 942, 90-1 U.S. Tax Cas. (CCH) paragr. 50,166 (3d Cir. 1990); Perkins v. Commissioner, 746 F.2d 1187, 84-2 U.S. Tax Cas. (CCH) paragr. 9898 (6th Cir. 1984); White v. United States, 2005-1 U.S. Tax Cas. (CCH) paragr. 50,289 (6th Cir. 2004), cert. denied, ____ U.S. ____ (2005); Granzow v. Commissioner, 739 F.2d 265, 84-2 U.S. Tax Cas. (CCH) paragr. 9660 (7th Cir. 1984); Waters v. Commissioner, 764 F.2d 1389, 85-2 U.S. Tax Cas. (CCH) paragr. 9512 (11th Cir. 1985); United States v. Buras, 633 F.2d 1356, 81-1 U.S. Tax Cas. (CCH) paragr. 9126 (9th Cir. 1980).

  59. 59 John
    22 January 2009 at 18:52

    Trolls usually hit and run

  60. 22 January 2009 at 19:00

    When I post and you ignore what I say… or brush it away because your “evidence” is more correct, yeah, I take offense to that. You have yet to recognize anything I say as having any merit.

    You come here and belittle my visitors. You post so quickly that I DO wonder if you are a troll. Yes, trolls do usually hit and run; however, for you to come here so often and so quickly, I DO wonder what your vested interest in this debate is.

  61. 61 akseeker
    25 January 2009 at 00:39

    John wrots:The courts have interpreted the Sixteenth Amendment as standing for the rule that the Amendment allows a direct tax on “wages, salaries, commissions, etc. without apportionment.”

    And that’s true: “wages, salaries, commissions, etc. …” as defined in 26 USC.

  62. 62 DJ
    26 January 2009 at 14:47

    If the definition of “Employee” was the common definition the “average” American understood it to be, it would wold not have to be defined at all and the “includes” argument would be unnecessary. The 3401 definition of employee uses “includes” and then “adds” some government affiliated jobs, as some here are arguing, why then, does Title 26 3121 define “employee” this way: “(d) Employee
    For purposes of this chapter, the term “employee” means—
    (1) any officer of a corporation; or
    (2) any individual who, under the usual common law rules applicable in determining the employer-employee relationship, has the status of an employee; or” (emphasis added)

    The word is defined in one place to mean the the common law definition SPECIFICALLY and then in the same chapter it holds the same meaning again??? That makes no sense. The 3401 definition is LIMITED to the listed positions.

  63. 63 DJ
    26 January 2009 at 15:16

    If the definition of “employee” is in fact expansive, why would Title 26 section 6331(a) be worded as limited as it is?

    (a) Authority of Secretary
    If any person liable to pay any tax neglects or refuses to pay the same within 10 days after notice and demand, it shall be lawful for the Secretary to collect such tax (and such further sum as shall be sufficient to cover the expenses of the levy) by levy upon all property and rights to property (except such property as is exempt under section 6334) belonging to such person or on which there is a lien provided in this chapter for the payment of such tax. Levy may be made 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 of the United States or the District of Columbia, by serving a notice of levy on the employer (as defined in section 3401(d)) of such officer, employee, or elected official. If the Secretary makes a finding that the collection of such tax is in jeopardy, notice and demand for immediate payment of such tax may be made by the Secretary and, upon failure or refusal to pay such tax, collection thereof by levy shall be lawful without regard to the 10-day period provided in this section. (emphasis added)

    If 3401 were expansive as many of you have suggested, 6331(a) would have been worded as such “Levy may be made upon the accrued salary or wages of any employee…” instead the Levy power is LIMITED to government workers only, not to private sector workers.

    If only government workers can have a Levy made upon them, it is logical then to reason that only government workers are the employees described in 3401.

  64. 64 Ecclesiastes
    26 January 2009 at 20:44

    Section 6331(a) is not “limited.” It authorizes the Secretary (i.e., the IRS) to levy on “all property and rights to property,” which is about as broad as it can get.

    The U.S. Supreme Court has explained the explicit reference to federal salaries as follows:

    “Nor is there merit in petitioner’s contention that Congress, by specifically providing in 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 had held in Smith v. Jackson, 246 U.S. 388, that a federal disbursing officer might not, in the absence of express congressional authorization, set off an indebtedness of a federal employee 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 6331 was enacted to overcome that difficulty and to subject the salaries of federal employees to the same collection procedures as are available against all other taxpayers, including employees of a State.”

    Sims v. United States, 359 U.S. 108, 112-113 (1959), (emphasis added).

  65. 65 DJ
    26 January 2009 at 21:03

    Your quote mentions Federal and State employees, NOT Private sector workers. Also two members of Congress have pointed out that 6331 as written excludes private sector employees.

    Also, what about the verbiage in 3121?

  66. 66 Ecclesiastes
    27 January 2009 at 21:30

    Your quote mentions Federal and State employees, NOT Private sector workers.

    Are “private sector workers” the same as “privately employed wage earners”?

    And the quote also refers to “all other taxpayers, including employees of a State,” which implies that there are taxpayers who are not employees of a State and who are not federal employees.

    Also two members of Congress have pointed out that 6331 as written excludes private sector employees.

    Cite? (That’s a somewhat-polite way of saying “Do you have any verifiable proof because I think you’re lying.”)

    Also, what about the verbiage in 3121?

    One man’s verbiage is another man’s meat.

    Edit: KH for formatting.

  67. 67 DJ
    27 January 2009 at 22:09

    Lying? That’s just rude! My apologies for for not pasting the letters, but implying I am lying is uncalled for!
    Shaw6331a.jpg
    hertel.jpg
    Congress_Hertel

    The second and third are the same letters, one is significantly clearer.

    I have never implied a “taxpayer” could not be someone other than a Federal employee or a State employee for that matter. From Title 26 7701 “(14) Taxpayer
    The term “taxpayer” means any person subject to any internal revenue tax.”

    Many people can be defined as a taxpayer; a person receiving SS, a Postal worker, A Congressman, the list goes on and on, but a private sector worker is not an employee and may not necessarily be a taxpayer as defined.


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