Brushaber v. Union Pacific Railroad Company, 240 U.S. 1 (1916)

LINK TO CASE: https://scholar.google.com/scholar_case?case=5893140094506516673

DOCKET: You can read filings from the docket below:

1. Receipt
2. SDNY Equity E11-121 part 1
3. SDNY Equity E11-121 part 2
4. SDNY Equity E11-121 part 3

SIGNIFICANCE:

1. This was the first and only case we know of in SCOTUS in which someone filed as a nonresident alien and properly averred their civil status.
2. The output of this case was the famous Treasury Decision 2313 acknowledging Brushaber as a nonresident alien.
3. This case established that even in states of the Union, those investing in federal corporations are receiving a taxable privilege from a “U.S. source” under 26 U.S.C. 871(b).

We are not aware of any acknowledgement by the U.S. Supreme Court of 26 U.S.C. 871(b) from anything OTHER than federal corporations. State corporations, by the way, are NOT federal corporations. They may make a domestication election on IRS Form 8832, entitled “Entity Classification Election”. However:

1. That election only affects their status in relation to the IRS, and not anyone ELSE.
2. In the License Tax Cases, 72 U.S. 462 (1866) after the Civil War, the U.S. Supreme Court acknowledged that “Congress cannot establish a trade or business” in the United States*** [the exclusive jurisdiction of the constitutional states] in order to tax it”. This was in response to the first attempt by Congress during the Civil War to institute an income tax without the benefit of the Sixteenth Amendment, which came later in 1913.
3. Thus, a state corporation that makes a domestication election on IRS Form 8832 is not an office of the national government in relation to anyone domiciled physically within the exclusive jurisdiction of a Constitutional state.

Any other reading of the law on this subject violates the stated purpose of the Declaration of Independence, in which Thomas Jefferson wrote:

“He has erected a multitude of New Offices, and sent hither swarms of Officers to harrass our people, and eat out their substance.”

[Declaration of Independence, July 4, 1776; SOURCE: https://www.archives.gov/founding-docs/declaration-transcript]

Jefferson above was alluding to the INVASION of the states by federal officers. That is exactly what the “trade or business” scam does, because it is defined as “the functions of a public office”. That invasion is prohibited by Article 4, Section 4 of the Constitution:

United States Constitution

Section 4. Obligations of United States to States

The United States shall guarantee to every State in this Union a Republican Form of Government, and shall protect each of them against Invasion; and on Application of the Legislature, or of the Executive (when the Legislature cannot be convened) against domestic Violence.

[SOURCE: https://law.justia.com/constitution/us/article-4/]

4 U.S.C. 72 is the statutory implementation of the above prohibition:

4 U.S. Code § 72 – Public offices; at seat of Government

All offices attached to the seat of government shall be exercised in the District of Columbia, and not elsewhere, except as otherwise expressly provided by law.

(July 30, 1947, ch. 389, 61 Stat. 643.)

Connecting the dots between Pollock v. Farmers Loan and Trust, 157 U.S. 429 (1895), Sprinter v. United States, 102 U.S. 586 (1885), we can see that the existence of a FEDERAL nexus of taxation explains everything.

In Springer, the nexus already existed to the U.S. bond income but was EXTENDED to all of Springer’s earnings via Springer’s own self-assessment!

There was no nexus in the Pollock case. Pollock did not self-assess and Farmer’s Loan and Trust was a New York corporation, thus NOT “domestic” like Union Pacific Railroad.

Brushaber and Pollock (both Americans and Citizens of the State of New York) were both nonresident aliens relative to federal income tax jurisdiction.

Treasury recognized that Union Pacific was a federally domestic nexus, even though Brushaber had argued it was a Utah corporation and the Supreme Court did not bother explaining that Brushaber was mistaken, and that THIS was the REAL reason the SCOTUS could say that the income tax provisions were merely an exercise of power Congress had “from the beginning”.

The Union Pacific Railroad Company was originally created in the year 1862 by an Act of Congress. Act of July 1, 1862 ( Pacific Railroad Act), 12 STAT 489. The legislation authorized two railroad companies, the Union Pacific and the Central Pacific, to construct the lines.

“together with commissioners to be appointed by the Secretary of the Interior, and all persons who shall or may be associated with them, and their successors, are hereby created and erected into a body corporate and politic in deed and in law, by the name, style, and title of “The Union Pacific Railroad Company; ” and by that name shall have perpetual succession, and shall be able to sue and to be sued, plead and be impleaded, defend and be defended, in all courts of law and equity within the United States, and may make and have a common seal; and the said corporation is hereby authorized and empowered to layout, locate, construct, furnish, maintain, and enjoy a continuous railroad and telegraph, with the appurtenances,…”

The case, however says:

“Frank R. Brushaber, a citizen of the State of New York and a resident of the Borough of Brooklyn, in the City of New York, brings this his bill against Union Pacific Railroad Company, a corporation and citizen of the State of Utah, having its executive office and a place of business in the Borough of Manhattan, in the City of New York, and the Southern District of New York”

At the time of the creation of Union Pacific Railroad Company, Utah was a territory, and under the exclusive legislation jurisdiction of Congress. Frank thought the company was chartered in the State of Utah, a critical mistake.

Being a creation of Congress, the Union Pacific Railroad Company was found to be a “domestic” corporation under the law. In common, everyday language, the term “domestic” is often used to mean “inside the country”. For example, airports are divided into different areas for domestic and foreign flights, in order to allow Customs agents to inspect the baggage and passports of passengers arriving on flights from foreign countries. However, under federal tax law, the term “domestic” does not mean “inside the country”; it means “inside the federal corporation” . Accordingly, a “foreign” corporation is a corporation chartered by a government that is also an instrumentality of the national government.

So in the end the profit and gains made by a nonresident alien holding stock in a “domestic” corporation was taxable. See T.D. 2313.

1) Brushaber was a stock broker

2) Only dividends in question were Union Pacific railroad ( a federally organized domestic corp)

The reason the Union Pacific (a federally domestic corporation) dividends were at issue and not other earnings of Brushaber was either:

1) Brushaber owned stock ONLY in Union Pacific (unlikely, as he was a stockbroker by trade) OR

2) Union Pacific was the only company (of multiple companies from which Brushaber was paid a dividend) that withheld tax from his dividends (much more likely, or he would probably have sued any other company for the same reason.)

It seems most likely that Union Pacific was the ONLY federal corporation in Brushaber’s dividend stock portfolio, thus the only company that withheld income tax from his dividend under the then-new income tax provisions enacted by Congress in 1913.