Lawfully Avoiding Backup Withholding under 26 U.S.C. §3406

1. Introduction

Those who claim to be “nonresident aliens” not engaged in a “trade or business” are sometimes subjected to unlawful backup withholding by ignorant financial institutions and private employers who refuse to read and obey the law as written.  This section will provide tools and procedures to fight such forms of involuntary servitude and THEFT under the color of law. 

The IRS website contains the following articles on Backup withholding:

1. Backup Withholding
   https://www.irs.gov/businesses/small-businesses-self-employed/backup-withholding
2. Fast facts to help taxpayers understand backup withholding
   https://www.irs.gov/newsroom/fast-facts-to-help-taxpayers-understand-backup-withholding
3. Backup withholding “B” Program
   https://www.irs.gov/businesses/small-businesses-self-employed/backup-withholding-b-program
4. Backup withholding “C” Program
   https://www.irs.gov/businesses/small-businesses-self-employed/backup-withholding-c-program

2. Summary of Backup Withholding Requirements

Below is a summary of the requirements for backup withholding:

1. The definition of “wages” in 26 U.S.C. §3401(a) describes them as:
   “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—”.
   1.1. If you aren’t an “employee” 26 U.S.C. §3401(c) as most people aren’t, then you can’t therefore earn “wages“. That “employee” works for Uncle Sam and is lawfully elected or appointed under 5 U.S.C. §2105.
   1.2. Filing a W-4 under 26 U.S.C. §3401(p) as a private worker also doesn’t MAKE you a STATUTORY “employee” under 26 U.S.C. §3401(c) either, because what you earn does not fall in the definition of “specified federal payment” that would be eligible for such an election. In fact, doing so is the crime of impersonating a public officer in violation of 18 U.S.C. §912.
2. The definition of “gross income” in 26 U.S.C. §61 does NOT include earnings from your own labor. The closest thing is “compensation for services”, but that term is only defined in the context of Railroad retirement in 26 C.F.R. §31.3121(e)-1. So you don’t earn “compensation for services” and therefore your earnings from labor are not includible in “gross income“. If your earnings from labor aren’t taxable as “gross income”, then why even report them or withhold income tax on them, other than of course to FOOL you into donating them to a public use by “effectively connecting” them?:
   https://famguardian.org/TaxFreedom/CitesByTopic/CompensationForServices.htm
3. Only done by “employers”, because it comes under Subtitle C: Employment Taxes. Recipients of the payments must therefore be EMPLOYEES, not ordinary business associates or customers of financial institutions.
   3.1. It therefore appears to be relate to reporting and withholding on fringe benefits received in connection with “employment” WITHIN the “United States” federal corporation that is therefore connected with a “trade or business”/public office.
   3.2. There is no such thing as “employment” outside the government of the “United States” per
   3.2.1. 26 C.F.R. §31.3401(a)(6)-1(b) in the case of income tax.
   3.2.2. 26 C.F.R. §31.3121(b)-3(c)(1) in the case of Social Security.
   3.2.3. The definition of “employee” in 26 U.S.C. §3401(c), which means a government worker only.
   3.3. They want you to mistakenly BELIEVE that the “United States” they are talking about is the GEOGRAPHICAL “United States” but we have seen NO evidence which would prove this and PRESUMPTION about what it means is a violation of due process.
4. Required by:
   4.1. 26 U.S.C. §3406.
   4.2. 26 C.F.R. §31.3406-0 through 26 C.F.R. §31.3406(j)-1.
5. Withholding set at 24% of “reportable payments”.  See 26 C.F.R. §31.3406(a)-1(a).
6. “reportable payments” are payments connected with a trade or business of the PAYER, not the PAYEE, which means a public office in the government, pursuant to:
   6.1. 26 U.S.C. §3406(b).
   6.2. 26 U.S.C. §6041.  All information returns filed or reported must be connected with a “trade or business” as required by paragraph (a) of this section. The PAYOR is the one engaged in the “trade or business” and not the PAYEE. That means only government entities exercising “the functions of a public office” can lawfully report.
   6.3. 26 U.S.C. §6049 in the case of interest payments
   6.4. 26 U.S.C. §6042 in the case of dividend payments
   6.5. 26 U.S.C. §6044 in the case of patronage dividends
7. None of the regulations talk about the “trade or business” requirement.  It is ONLY found in 26 U.S.C. §6041(a), which is where the obligation to report is established.
8. Backup withholding is specifically prohibited:
   8.1. On reportable payments that qualify for the documentary evidence rule found in 26 C.F.R. §1.6049–5(c)(1) or (4).
   8.2. For amounts already subject to withholding of 30%.
9. Amounts withheld are “treated as if they were wages paid by an employer to an employee (and amounts deducted and withheld under this section shall be treated as if deducted and withheld under section 3402).” This means they are subject to the SAME restrictions as “wage” reporting and withholding:
   
   26 U.S. Code § 3406 – Backup withholding
   (h)Other definitions and special rules
   (10)Coordination with other sections
   
   For purposes of section 31, this chapter (other than section 3402(n)), and so much of subtitle F (other than section 7205) as relates to this chapter, payments which are subject to withholding under this section shall be treated as if they were wages paid by an employer to an employee (and amounts deducted and withheld under this section shall be treated as if deducted and withheld under section 3402).
10. Since amounts are treated as “wages”, then In order to earn “wages”, those not acting as “employees” must make an election by filing a W-4 as identified in 26 U.S.C. §3402(p). If they never made such an election, amounts received therefore cannot be “wages” as indicated and it would be illegal and a FRAUD to withhold or report under this section or to treat the payment as being subject to backup withholding.

3. Avoiding Backup Withholding as a Nonresident Alien Member

There are three levels of equivocation one encounters in challenging backup withholding:

1. Equivocating common law “employees” with STATUTORY “employees” under 26 U.S.C. §3401(c). You can be a PRIVATE “employee” without being a STATUTORY “employee”. The fact that “includes” is used in the definition of STATUTORY “employee” doesn’t mean that PRIVATE workers can be arbitrarily added. They have to be listed SOMEWHERE in the code to allow that, and they aren’t. Under the rules of statutory construction and interpretation, they are therefore purposefully EXCLUDED:
   https://ftsig.org/special-language/includes-including/
2. Equivocating “nonresident aliens” who are aliens with those who are nationals. Aliens throughout the COUNTRY are subject to backup withholding but nationals are not.
3. Equivocating the LEGAL “United States” as a corporation with the GEOGRAPHICAL “United States”. The case of Brushaber v. Union Pacific Railroad only dealt with U.S. Source payments as those originating from federal corporations.
4. Equivocating the two GEOGRAPHICAL “United States” with each other: the District of Columbia defined in the Code with the one defined in the Constitution. Constitutional “United States” withholding only deals with aliens. Federal zone “United States” only deals with corporations.

Before a payment can be subject to backup withholding under 26 U.S.C. §3406:

1. You must CONSENT to actually BE an “employee” as defined. The following proves that you are NOT if you don’t consent:
   PROOF OF FACTS: You’re Not the “Employee” mentioned in 26 U.S.C. 3401(c), FTSIG
   https://ftsig.org/proof-of-facts-youre-not-the-employee-mentioned-in-26-u-s-c-3401c/
2. You must be an “employee” through a lawful appointment or election in 5 U.S.C. §2105 and cannot unilaterally ELECT yourself into an “employee” status without criminally impersonating a public officer in violation of 18 U.S.C. §912. There is NO DIFFERENCE between “being treated AS IF you are an employee and actually BEING an employee” from a legal perspective.
3. The earnings must be “reportable”, which means the “payor” must be engaged in the “trade or business”/public office franchise as required by 26 U.S.C. §6041. Private employers are NOT engaged in a “public office”, and certainly not within the United States federal corporation.
4. The earnings must be a “U.S. Source” collected within the jurisdiction of the United States federal corporation in the above list. There is no such thing as “employment” outside the “United States****” (government) per:
   4.1. 26 C.F.R. §31.3401(a)(6)-1(b) in the case of income tax.
   4.2. 26 C.F.R. §31.3121(b)-3(c)(1) in the case of Social Security.
   4.3. The definition of “employee” in 26 U.S.C. §3401(c), which means a government worker only.
5. The earnings must be paid by an “employer” to an “employee” WITHIN the “United States” government and not a private company. There is not such thing as “employment“, “employers“, or “employees” outside the United States federal corporation/government except by ELECTION which you as a private human or private company should never make and which no law PERMITS you to to make. This is consistent with the definition of “employee” in 5 U.S.C. §2105 and the fact that Social Security Numbers are issued only to “employees” under 20 C.F.R. §422.103 in connection with “employment“.
6. If you do not or cannot lawfully CONSENT to treat your earnings as “wages” as required by 26 U.S.C. §3402(p) then you can’t therefore be subject to backup withholding or reporting.
   6.1. What you earn except in rare cases does not satisfy the definition of “specified federal payment” in 26 U.S.C. §3402(p)(1)(C).
   6.2. Thus even WITH your consent, you cannot elect to call your private earnings a “payment of wages by an employer to an employee” described in 26 U.S.C. §3402(p)(1)(A). It would be fraud to do so.

No authoritative caselaw we have seen helps with resolving the above forms of equivocation. It doesn’t seem necessary anyway given how clear the above is. This is a Third Rail Issue to maximize federal revenue. So you have to apply the above criteria to explain to your business associates that “backup withholding” doesn’t apply.

“Nonresident aliens” receiving payments from non-governmental entities cannot lawfully become the subject of backup withholding per item 3 above.  If a financial institution or private employer indicates that they want to do it anyway we suggest:

1. 26 U.S.C. §3406 also authorizes backup withholding in the case of those who refuse to provide a TIN. The requirement to FURNISH a TIN is described in 26 C.F.R. §301.6109-1(b).  Those who are “non-resident non-persons” as identified in that section are not listed as having a requirement.  Neither are “nonresident alien individuals” who are NOT engaged in a “trade or business”.  Therefore, by the rules of statutory construction, they are not required to deduct, withhold, or report.

“Expressio unius est exclusio alterius.  A maxim of statutory interpretation meaning that the expression of one thing is the exclusion of another.  Burgin v. Forbes, 293 Ky. 456, 169 S.W.2d. 321, 325; Newblock v. Bowles, 170 Okl. 487, 40 P.2d. 1097, 1100.  Mention of one thing implies exclusion of another.  When certain persons or things are specified in a law, contract, or will, an intention to exclude all others from its operation may be inferred.  Under this maxim, if statute specifies one exception to a general rule or assumes to specify the effects of a certain provision, other exceptions or effects are excluded.”

[Black’s Law Dictionary, Sixth Edition, p. 581]

2. If the payer gives you guff when you say you don’t have to provide a TIN and are not eligible, give them the following:

Why It is Illegal for Me to Request or Use a “Taxpayer Identification Number”, Form #04.205 https://sedm.org/Forms/04-Tax/2-Withholding/WhyTINIllegal.pdf

3. If the payer gives you guff about whether you are or can choose to be a “non-resident non-person”:

3.1. Show them the Affidavit of Citizenship, Domicile, and Tax Status, Form #02.001, which proves that you are a “nontaxpayer” who doesn’t need to withhold or deduct because you earn no “gross income” and your estate is a “foreign estate” as described in 26 U.S.C. §7701(a)(31).Show them the definition of “individual” in 26 C.F.R. §1.1441-1(c)(3) and ask them to prove that you meet the definition of “individual”.  They won’t be able to prove it so they can’t impose a requirement to provide either a number or withhold.

3.2. Show them 26 U.S.C. §871, which only taxes earnings of “nonresident alien individuals”, not “non-resident non-persons”. Only when “nonresident aliens” take privileged deductions are they described as “individuals” in 26 U.S.C. §873. If you say you aren’t taking deductions, then you aren’t a privileged “individual”.

3.3. Show them the following, which proves that you have an unalienable right to declare and establish any civil status you want and that a failure to respect that status constitutes a violation of your First Amendment right of freedom from compelled association:

Your Exclusive Right to Declare or Establish Your Civil Status, Form #13.008 https://sedm.org/Forms/13-SelfFamilyChurchGovnce/RightToDeclStatus.pdf

3.4. Remind them that all franchises are contracts and that contracts are unenforceable in the presence of duress.   Insist on your right to not be compelled to contract with the government by being forced to engage in federal franchises such as the “trade or business” franchise or that of a government “employee”.  This is covered further in the following:

Government Instituted Slavery Using Franchises, Form #05.030 https://sedm.org/Forms/05-MemLaw/Franchises.pdf

4. Showing them the legal authorities described above.

5. Submitting an AMENDED IRS Form W-8BEN to a withholding agent.  This causes them to not be able to withhold:

“Foreign persons who provide Form W–8BEN, Form W–8ECI, or Form W–8EXP (or applicable documentary evidence) are exempt from backup withholding and Form 1099 reporting.”

[IRS Publication 515 (2000), p. 3]

The phrase “(or applicable documentary evidence)” above  also covers the following form we prefer over the STANDARD IRS Form W-8BEN:

Affidavit of Citizenship, Domicile, and Tax Status, Form #02.001 https://sedm.org/Forms/02-Affidavits/AffCitDomTax.pdf

6. Using the following forms to educate them above what a “trade or business” and to prove that you aren’t engaged in one:

6.1. Demand for Verified Evidence of “Trade or Business” Activity: Information Return, Form #04.007
https://sedm.org/Forms/04-Tax/0-CorrErrInfoRtns/DmdVerEvOfTradeOrBusiness-IR.pdf

6.2. The “Trade or Business” Scam, Form #05.001
https://sedm.org/Forms/05-MemLaw/TradeOrBusScam.pdf

If you are a “nonresident alien” or “foreigner”, DO NOT use the STANDARD IRS Form W-8BEN because it contains “words of art” that will prejudice your status and make you look like a “taxpayer” as described in section 5 of the following:

About IRS Form W-8BEN, Form #04.202 https://sedm.org/Forms/04-Tax/2-Withholding/W-8BEN/AboutIRSFormW-8BEN.htm

Instead use either of the following:

1. Affidavit of Citizenship, Domicile, and Tax Status, Form #02.001
   https://sedm.org/Forms/02-Affidavits/AffCitDomTax.pdf
2. AMENDED IRS Form W-8BEN
   http://sedm.org/Forms/04-Tax/Withholding/W-8BEN/IRSFormW8BENAmendeds.pdf

For further details on backup withholding, see the following resources:

1. Income Tax Withholding and Reporting Course, Form #12.004-contains a summary of all withholding and reporting requirements, including backup withholding.  Present this to your private employers and financial institutions if they are unsure of the law
   http://sedm.org/Forms/FormIndex.htm
2. Federal and State Withholding Options for Private Employers, Form #09.001
   https://sedm.org/Forms/09-Procs/FedStateWHOptions.pdf