EXECUTIVE SUMMARY:

The Internal Revenue code sections 6362 through 6399 originally implemented the Fed-State Cooperation program. These sections were repealed in 1990. They originally governed federal-state cooperation for collecting state individual income taxes through the federal tax system. Understanding the history of this program is helpful in fully understanding federal jurisdiction to collect tax within the exclusive jurisdiction of a constitutional state and the boundaries of the definition of “United States**” in 26 U.S.C. §7701(a)(9) and (a)(10). Materials discussing this subject are VERY rare, but the insights gleaned from study of this subject are precious.

The history of this program depends on the definition of “State” found in 4 U.S.C. §110(d), which includes only territories and possessions and not constitutional states.

4 U.S. Code § 110 – Same; definitions

(d) The term “State” includes any Territory or possession of the United States.

Judicial fiat alone extends the above definition to add constitutional states in violation of the separation of powers, as we explain in:

Microsoft Copilot: Legal Violations Resulting from Constitutional States acting as Federal Territories, FTSIG
https://ftsig.org/microsoft-copilot-legal-violations-resulting-from-constitutional-states-acting-as-federal-territories/

The Founding Fathers anticipated the cooperation (in REVERSE) that this program represented, as documented in the following, written by James Madison.

Federalist No. 45: “The Alleged Danger From the Powers of the Union to the State Governments Considered”
https://avalon.law.yale.edu/18th_century/fed45.asp

• Author: James Madison
• Published: January 26, 1788
• Key Theme: Reassures that federal powers, including taxation, will not overwhelm state sovereignty.

Relevant Passages:

Madison explains that while the federal government has the power to tax, states may be employed as administrative agents:

“The operations of the federal government will be most extensive and important in times of war and danger; those of the State governments, in times of peace and security. As the former periods will probably bear a small proportion to the latter, the State governments will here enjoy another advantage over the federal government.”

This implies that states retain administrative primacy, and federal taxation may rely on state cooperation or infrastructure, especially in peacetime.

Contextual Insight

• Madison’s argument supports the idea that federal taxation need not displace state mechanisms, and that states can serve as intermediaries.
• This principle underlies later statutory experiments like IRC §§6361–6365, which attempted to formalize federal collection of state income taxes—though ultimately repealed.

1. HISTORY:

1.1. What These Sections Were For

These sections were part of Subchapter E of Chapter 64, added by the State Tax Collection Act of 1972 (Public Law 92-512). Their purpose was to:

• Allow states to contract with the IRS to collect state individual income taxes on their behalf.
• Integrate state tax collection into the federal income tax return and payment process.
• Provide uniformity and efficiency for taxpayers filing in multiple states.

Key provisions included:

• §6361–§6365: Defined eligibility, agreements, procedures, and regulations for state participation.
• §6362: Specified which states qualified and under what conditions.
• §6363–§6365: Covered administrative rules, definitions, and authority for the Secretary of the Treasury to issue regulations.

1.2. Why They Were Repealed

• Repealed by: Omnibus Budget Reconciliation Act of 1990, Pub. L. 101–508, §11801(a)(45), effective November 5, 1990.
• Reason: The program was never implemented—no state ever entered into a collection agreement with the IRS.
• Concerns:
  • Administrative complexity
  • Constitutional questions about federal enforcement of state tax laws
  • Lack of state interest in ceding collection authority

1.3. Legacy and Implications

Their repeal underscores the limits of federal-state integration in tax administration, especially where state autonomy is constitutionally protected.

These sections represent a rare federal attempt to centralize state tax collection, which ultimately failed due to sovereignty and logistical concerns.

2. POSSIBLE REASONS FOR THE REPEAL

We speculate that the program was also repealed because:

1. No internal revenue districts exist within constitutional states where the IRS can lawfully enforce pursuant to 26 U.S.C. §7601.

2. The definition of “United States” in 26 U.S.C. §7701(a)(9) and (a)(10) does not expressly include areas within the exclusive jurisdiction of the states of the Union.

3. All district directors were eliminated by the IRS Restructuring and Reform Act of 1998
https://famguardian.org/Publications/IRSRRA98/IRSRRA98.htm

4. There are currently no Internal Revenue Districts remaining.

While these points reflect a jurisdictional and originalist interpretation of federal tax authority, they were not cited as reasons for the repeal of IRC §§6361–6365. The official repeal in 1990 was based on administrative non-use and lack of state participation—not constitutional or jurisdictional limitations.

2.1. Official Reason for Repeal

• IRC §§6361–6365 were repealed by the Omnibus Budget Reconciliation Act of 1990 (Pub. L. 101–508).
• The program was never implemented—no state entered into a collection agreement with the IRS.
• Treasury and IRS cited lack of interest, administrative complexity, and constitutional concerns about federal enforcement of state tax laws as practical barriers.

2.2. Jurisdictional Points: Doctrinal Analysis

Let’s examine each of the four points in light of statutory and regulatory history:

1. No Internal Revenue Districts in Constitutional States (26 U.S.C. §7601)

• §7601 authorizes IRS officers to canvass districts for taxable persons and objects.
• While internal revenue districts were historically defined, their administrative function was centralized after the 1998 IRS Restructuring.
• The statute does not restrict enforcement to federal enclaves; courts have upheld IRS jurisdiction within states under Article I and the Sixteenth Amendment.

2. Definition of “United States” in §7701(a)(9) and (a)(10)

• These definitions distinguish between:
  • (a)(9): “United States” = states + D.C.
  • (a)(10): “State” = any of the 50 states + D.C.
• They do not exclude constitutional states from federal jurisdiction; rather, they clarify scope for territorial application.
• Courts interpret these definitions functionally, not to exclude states from federal tax enforcement.

3. Elimination of District Directors (1998 Reform Act)

• The IRS Restructuring and Reform Act of 1998 abolished district director roles and replaced them with functional divisions (e.g., Wage & Investment, Small Business).
• This was an administrative reorganization, not a jurisdictional retreat.
• Enforcement authority was retained and reassigned to new roles.

4. No Internal Revenue Districts Remaining

• True in a formal administrative sense—districts were dissolved in 2000.
• However, §7601 remains active, and IRS enforcement continues via centralized and regional offices.
• The absence of districts does not negate statutory authority; it reflects modernization.

2.3. Summary

These points raise valid constitutional and statutory questions about the limits of federal enforcement and the nature of jurisdiction. However, the repeal of Subchapter E was driven by practical non-use, not these deeper jurisdictional critiques. That said, the reasons documented here aligns with a consent-based, originalist view of federalism that challenges administrative overreach.

3. RETENTION OF REGULATIONS THAT IMPLEMENTED THE PLAN

Regulations implementing these repealed statutes are STILL found in the CFR:

1. § 301.6362-1 Types of qualified tax.
2. § 301.6362-2 Qualified resident tax based on taxable income.
3. § 301.6362-3 Qualified resident tax which is a percentage of Federal tax.
4. § 301.6362-4 Rules for adjustments relating to qualified resident taxes.
5. § 301.6362-5 Qualified nonresident tax.
6. § 301.6362-6 Requirements relating to residence.
7. § 301.6362-7 Additional requirements.
8. § 301.6363-1 State agreements.
9. § 301.6363-2 Withdrawal from State agreements.
10. § 301.6363-3 Transition years.
11. § 301.6363-4 Judicial review.
12. § 301.6365-1 Definitions.
13. § 301.6365-2 Commencement and cessation of applicability of subchapter E to individual taxpayers.

The regulations at 26 C.F.R. §§301.6362–301.6365 remain in the Code of Federal Regulations (CFR) because they govern procedures and definitions that were once operative under Subchapter E, and their retention preserves legal clarity for historical application, unresolved liabilities, and archival reference.

2.1. Why These Regulations Persist Despite Repeal

Even though IRC §§6361–6399 were repealed in 1990, the corresponding regulations remain in the CFR for several reasons:

1. Historical Applicability

• These regulations still apply to taxable years prior to repeal, especially for:
  • Audits
  • Refund claims
  • Legal disputes
• For example, §301.6365-2 explains how the commencement or cessation of Subchapter E affects taxpayers depending on their fiscal year.

2. Legal Continuity

• The repeal of statutes does not automatically remove regulations unless explicitly rescinded.
• Regulations remain valid for interpreting past law and ensuring consistent treatment of historical cases.

3. Administrative Reference

• IRS and Treasury retain these rules for archival and procedural guidance, especially in litigation or FOIA contexts.
• They clarify definitions like “qualified resident tax” or “State agreement” that may appear in legacy documents or transitional provisions.

4. No Formal Removal Yet

• The Treasury Department has not issued a formal rescission of these specific regulations.
• Until such action is taken, they remain part of the CFR under Part 301 – Procedure and Administration, which includes many legacy provisions.

2.2. Example: §301.6365-2

This section outlines how Subchapter E’s applicability begins or ends for a state and its taxpayers, depending on calendar or fiscal years. It also notes that cessation does not affect rights or liabilities for years when the subchapter was active. See:

eCFR :: 26 CFR 301.6365-2 — Commencement and cessation of applicability of subchapter E to individual taxpayers.
https://www.ecfr.gov/current/title-26/chapter-I/subchapter-F/part-301/subpart-ECFR7d22b80601049d0/section-301.6365-2