By Dan Meador 2003-10-20
Please refer to these items on
the Law Research & Registry web page.
The complete 31 CFR Part 215, which includes the standard
state-federal piggybacking agreement for administration of qualified state
resident and nonresident income taxes;
The state-federal memorandum of understanding for investigation of
abusive tax shelters; and
A model Freedom of Information Act request that can be revised to
secure copies of agreements and supplemental memorandums of agreement that your
state has with the Commissioner of Internal Revenue or the Internal Revenue
Before getting to the meat of the
subject, I would suggest that everybody interested in unraveling who is and
isn’t liable for state and federal income and employment taxes, and proper
administration of those taxes, download several items from his or her state tax
agency web page and state general government resource pages:
State individual income tax forms (also download business income
tax forms if you own your own business or are otherwise
Instructions for applicable income tax forms;
State income tax rules or regulations;
The state open records act; and/or
The state administrative procedures act.
Instructions for state income tax
forms, and regulations for state income tax laws (frequently called rules and/or
notices), should clearly state that federal income tax liability must be
determined prior to state income tax liability being determined. This may be
stated in various ways, but most if not all state, county and municipal income
tax liability is predicated on federal. If you’re not liable for federal income
tax, you’re not liable for state; if you aren’t required to file a federal
return, you’re not required to file a state return.
It follows that responsibility
for determining whether or not you are liable for state, federal, county and/or
municipal income taxes lies primarily with the “delegate” of the Secretary of
the Treasury (“delegate” as defined at 26 U.S.C. §
The pivotal Internal Revenue Code
section that controls determination of liability is 26 U.S.C. § 6001: The
Secretary or his Delegate must provide notice to anybody who is liable for any
given tax imposed by internal revenue laws of the United States, or for
collecting any given tax imposed by internal revenue laws of the United States.
This may be done by publishing implementing regulations for taxing and liability
statutes applicable to the status and fact circumstance of those who are liable,
or providing direct written notice.
The Administrative Procedures Act
(5 U.S.C. §§ 551-559) and Internal Revenue Service procedural regulations (26
CFR Part 601) provide the basics for the manner in which the Secretary or his
delegate must go about establishing liability.
The advocate of a position bears
the burden of proof; the determination, ruling or whatever must be based on
documents in the hard-copy case file and whatever testimony there is. Review
particularly, 5 U.S.C. §§ 556 & 557 and 26 CFR §§ 601.105 & 601.106. The
decision-maker is required to issue findings of fact and conclusions of law
adequate to resolve contested issues.
I’ve repeatedly addressed several
collateral issues, two of which I’ll briefly reiterate here: (1) The Internal
Revenue Service is not the delegate of the Secretary of the Treasury, as the
term “delegate” is defined at 26 U.S.C. § 7701(a)(12)(A); and (2) there are no
internal revenue districts in States of the Union.
Article I § 8, clause 18 of the
U.S. Constitution requires Congress to enact all laws that create offices and
prescribe operation of government where the Constitution itself doesn’t create
the office or entity and prescribe duties. Congress did not legislatively create
the Internal Revenue Service or IRS’ predecessor, the Bureau of Internal Revenue
(37 F.R. 20960, Oct. 5,
1972). Therefore, IRS does not have the status of an office,
department or bureau of Government of the United
States. Not where States of the
Union are concerned.
The Treasury Financial Management
Service is technically the “delegate” of the Secretary of the Treasury for
purposes of 26 U.S.C. § 7701(a)(12)(A). FMS operates under dual delegations of
authority from the Secretary of the Treasury and the Director of the Office of
Management and Budget. FMS capacity is constructively evidenced by authorities
for the Treasury/FMS system of records .014, “Debt Collection Operations System
– Treasury/FMS” (66 F.R. 44210, Aug.
The Internal Revenue Service
provides certain functionary or ministerial duties under FMS direction. Some of
the particulars are covered in Volume I of the Treasury Financial Manual, which
is available on the FMS web page. http://www.fms.treas.gov/
All law is by nature
geographical, which is to say, whatever law any legislative body enacts extends
to and applies exclusively within the geographical limits of the legislative
authority. In the complex federal system, Congress has several “geographical”
capacities. The capacity most relevant to States of the
Union and people within States of the
Union is authority vested in Congress by Article I § 8 of
the Constitution. The Tenth Amendment prohibits Congress from going beyond
enumerated powers when enacting legislation applicable to States of the
Union. However, Congress has plenary or near-absolute
power over territory ceded by States of the Union for
purposes specified in Article I § 8, clause 17 (federal enclaves) and
territories and possessions of the United
States. That authority is even greater, and
seemingly without many limits, in insular possessions that were not
“incorporated” in the Constitutional scheme – cession treaties did not vest
people in surviving insular possessions with rights, benefits and privileges
secured by the Constitution, nor are any of the possessions assured of being
admitted as States of the Union on equal footing with the rest. Where federal
enclaves located within the several States are concerned, the Constitution still
imposes certain constraints. See Downes v. Bidwell, 182
Article I § 8 vests Congress with
plenary power over Government of the United
States. This power isn’t geographically
restricted – it applies to government offices, departments, agencies, officers
and personnel wherever located.
In order to understand proper
application and administration of federal income and employment taxes, it is
necessary to come to terms with Congress’ plenary or near-absolute authority
over (1) Government of the United States, (2) federal enclaves, and (3) insular
possessions of the United States.
The basic geographical unit for
administration of internal revenue laws of the
United States is
the internal revenue district. Per 26 U.S.C. § 7621, the President must
establish internal revenue districts.
The cornerstone for geographical
authority of the United
States is found in 4 U.S.C. §§ 71 & 72. The
first section establishes the District of Columbia as the seat of government,
and the second prohibits departments of Government of the United States from
operating outside the District of Columbia except as provided by law. Section
7621 of the Internal Revenue Code authorizes the President to establish internal
revenue districts, so in theory at least the President could establish internal
revenue districts anywhere within geographical jurisdiction of Government of the
States of the Union included.
Via 3 U.S.C. § 301, Congress
authorized the President to delegate authority vested in him by statute. Via
Executive Order 10289, the President delegated authority for the Secretary of
the Treasury to establish internal revenue districts.
By consulting the Parallel Table
of Authorities and Rules, published in the Index volume of the Code of Federal
Regulations (the Parallel Table of Authorities and Rules and other ancillary
finding aids are authorized by 44 U.S.C. § 1510, and along with other Federal
Register publications are prima facie correct), it is found that 26 U.S.C. §
7621 is not listed. In other words, there are no “substantive” regulations that
establish internal revenue districts in States of the
Union. Per 26 CFR § 301.7621-1, E.O. 10289 is the
Executive Order that authorizes establishing internal revenue districts, but
when consulting the current Parallel Table of Authorities and Rules, it is found
that E.O. 10289 isn’t listed. Earlier editions of the Parallel Table of
Authorities and Rules listed 19 CFR Part 101 (U.S. Customs collection
districts), but that isn’t even listed in the current edition.
The question arises, “Why
wouldn’t the President, via the Secretary of the Treasury, establish internal
revenue districts in States of the Union?”
Consult definitions of “State”,
and “citizen” at 26 CFR § 31.3121(e)-1. These definitions are applicable to the
Social Security Act of 1935. Note in the definitions of “State” and
that the Social Security Act applied to
Hawaii prior to their admission to
the Union, but not since. Note also that the definition
of “citizen” applies to citizens of insular possessions of the
not citizens of States of the Union.
This is a non-constitutional
citizenship. Insular possessions don’t have voting members in Congress and
citizens of insular possessions, even though Congress vested them with “citizen
of the United
States” status, cannot vote in presidential
elections. They do not have Fourteenth Amendment citizen of the
status, nor do they have blanket benefits secured by the Fourteenth Amendment.
Yet insular possessions are construed as being part of the “geographical”
and are “subject to the jurisdiction thereof.”
In 1935, the U.S. Supreme Court
overturned Congress’ first effort to legislatively impose a social welfare
program. The early legislation applied to rail workers. The Supreme Court’s
rationale was direct and simple: The Constitution does not authorize taxing one
for the benefit of another. Beyond that, the employee portion of social welfare
taxes are direct taxes and the Constitution requires that direct taxes be
apportioned. Technically, federal income taxes imposed by Subtitle A of the
Internal Revenue Code, and dependent state income taxes, are indirect taxes
subject to the uniformity rule, not the apportionment rule. However, since
promulgation of the Internal Revenue Code of 1954, the two have been so
inextricably linked that they cannot reasonably be segregated so both have
essentially the same geographical application. See general application
definitions of “State” and “United
at 26 U.S.C. § 7701(a).
The way our respective state
governments haven’t skirted the geographical limitations of the Social Security
Act is to contract for Social Security participation and benefits on behalf of
state and state political subdivision employees. For example, the
declaration of policy concerning the Social Security program is at 51 Okla.
Statutes Annotated § 121:
In order to extend
to employees of the state and its political subdivisions and of the
instrumentalities of either, and to the dependents and survivors of such
employees, the basic protection accorded to others by the old-age and survivors
insurance system embodied in the Social Security Act, [FN1] it
is hereby declared to be the policy of the Legislature, subject to the
limitations of this act, [FN2] that
such steps be taken as to provide such protection to employees of the state and
local governments on as broad a basis as is permitted under applicable federal
law. It is also the policy of the
Legislature that the protection afforded employees in positions covered by a
retirement system on the date an agreement under this act is made applicable to
in such positions, or receiving periodic benefits under such retirement system
at such time, will not be impaired as a result of making the agreement so
applicable or as a result of legislative enactment in anticipation
For purposes of 26 U.S.C. §
7701(a)(12)(B), which accommodates agencies of possessions of the United States
administering Chapters 1, 2 and 21 of the Internal Revenue Code in other insular
possessions, the Internal Revenue Service might be the delegate of the Secretary
of the Treasury. In fact, there are several Treasury Orders that vest IRS with
authority relating to insular possessions and as “competent authority” for tax
treaty purposes, but the authority does not extend to States of the
Union, nor are there internal revenue districts in States
of the Union.
Even if this weren’t the case,
Congress didn’t legislatively create the offices of district director, revenue
agent, revenue officer, special agent, etc., so IRS personnel who regularly
engage in examination, collection and investigation activities don’t have lawful
standing to act in any manner that adversely affects people in States of the
Union. Unless Congress legislatively creates an office, as required by Article I
§ 8, clause 18 of the Constitution, for constitutional purposes the office
doesn’t exist. At best, those who occupy administratively created positions can
perform functionary or ministerial duties.
Via the revenue act of July 1,
1862 (12 Stat. 432), Congress created (1) the office of Commissioner of Internal
Revenue for general administration of internal revenue laws of the United
States, (2) the office of assessor (assessors could appoint deputy assessors)
for assessment of taxes imposed by internal revenue laws of the United States,
and (3) the office of collector (collectors could appoint deputy collectors) for
collection of taxes imposed by internal revenue laws. Where there was only one
Commissioner of Internal Revenue, assessors and collectors were to be appointed
for each internal revenue district. All of these positions were to be filled by
the President first nominating people to fill them, then the Senate approving
them. Once candidates were approved, the President could issue civil
commissions, as required by Article II § 2 of the Constitution. After they
received their commissions, each was required to take the constitutionally
mandated oath of office, and collectors in particular were required to file
personal surety bonds. See §§ 1-5 of the revenue act of July 1, 1862.
These offices survived until
promulgation of the Internal Revenue Code of 1954. Former President Harry Truman
unilaterally abolished the offices of assessor and collector via Reorganization
Plan 26 of 1950 and Reorganization Plan 2 of 1952.
If for no other reason, the two
reorganization plans are nullities as abolition of offices is as much a
legislative act as creation of offices is so Truman clearly usurped legislative
authority, but that technicality notwithstanding, Congress never legislatively
created any of the functionary offices of IRS personnel. Since there are no
properly commissioned assessors and collectors to fill offices Congress
legislatively created in 1862 – IRS personnel aren’t nominated by the President
then approved with advice and consent of the Senate – whether or not there are
internal revenue districts in States of the Union is
really a secondary issue. Per United
States v. Germaine, 99 U.S. 508 (1879);
118 U.S. 425,
441, 6 S.Ct. 1121 (1886), and numerous other cases, “there can be no officer,
either de jure or de facto, if there be no office to
The wildcard in the scheme is
government itself, and this is the mechanism, even if fraudulently, that brings
IRS into States of the Union. The geographical
encroachment is accommodated via state-federal administrative agreements and
IRS’ ministerial responsibilities relating to federal agencies and personnel.
However, this, too, is an illusion as congressional authorization for the
agreements extends only to possessions and territories of the
See the definition of “State” at 4 U.S.C. § 110. Regardless, governments of
States of the Union all accommodate the scheme as federal
money that flows through the broad spectrum of social welfare programs is
essential to maintaining the status quo.
Per the Buck Act (4 U.S.C. §§
104-111), state and municipal governments may impose various taxes in federal
enclaves and may impose state, county and municipal income taxes on federal
government personnel. State income taxes are specifically accommodated by 5
U.S.C. § 5517; the implementing executive order is published following 5 U.S.C.
§ 5520 (E.O. 11997 of June 22, 1977, 42 F.R. 31759). This is the executive order
that authorizes state-federal piggybacking agreements. The current model
agreement itself is published in 31 CFR Part 215.
The 5 U.S.C. § 5517 intermediate
authority that accommodates state-federal agreements is as
5 USCS § 5517 (2000)
§ 5517. Withholding
State income taxes
(a) When a State
(1) provides for the collection of a tax
either by imposing on employers generally the duty of withholding sums from the
pay of employees and making returns of the sums to the State, or by granting to
employers generally the authority to withhold sums from the pay of employees if
any employee voluntarily elects to have such sums withheld;
(2) imposes the duty or grants the authority
to withhold generally with respect to the pay of employees who are residents of
the State; the Secretary of the Treasury, under regulations prescribed by the
President, shall enter into an agreement with the State within 120 days of a
request for agreement from the proper State official. The agreement shall
provide that the head of each agency of the
shall comply with the requirements of the State withholding statute in the case
of employees of the agency who are subject to the tax and whose regular place of
Federal employment is within the State with which the agreement is made. In the
case of pay for service as a member of the armed forces, the preceding sentence
shall be applied by substituting "who are residents of the State with which the
agreement is made" for "whose regular place of Federal employment is within the
State with which the agreement is made".
(b) This section
does not give the consent of the United States to the application of a statute
which imposes more burdensome requirements on the United States than on other
employers, or which subjects the United States or its employees to a penalty or
liability because of this section. An agency of the
may not accept pay from a State for services performed in withholding State
income taxes from the pay of the employees of the agency.
(c) For the purpose
of this section, "State" means a State, territory, possession, or commonwealth
of the United
(d) For the purpose
of this section and sections 5516 and 5520, the terms "serve as a member of the
armed forces" and "service as a member of the Armed Forces"
(1) participation in exercises or the
performance of duty under section 502 of title 32, United States Code, by a
member of the National Guard; and
(2) participation in scheduled drills or
training periods, or service on active duty for training, under section 10147 of
title 10, United States Code, by a member of the Ready Reserve.
Per § 5517(c), authority for the
agreements applies to the “geographical” United
States – the District of
Columbia and territories and possessions of the
When definitions rely on examples to define a term, application cannot go beyond
the class of the example. None of the examples in § 5517 specifically designates
States of the Union, i.e., the several States party to
the U.S. Constitution. Yet each of the several States has administrative
agreements, memorandums of agreement, etc., with the Internal Revenue Service
via the Commissioner of Internal Revenue, the Social Security Administration,
and sundry other federal departments and agencies.
Coming to terms with the
substance and application of these agreements, even if de facto (authority in
fact even if not supported by law), is important as state and federal
governments are increasingly expanding basic agreements for investigative and
prosecution purposes. This was recently brought home when Internal Revenue
Service moguls, in conjunction with representatives of several States, announced
an agreement to share information and jointly investigate abusive tax schemes.
The “Memorandum of Understanding Between Internal Revenue Service Small
Business/Self-Employed Division (SB/SE) and [State tax agency] Concerning
Abusive Tax Avoidance Transaction” is but one example of these kinds of
agreements. The nationally publicized cooperative initiative was cause for
concern in the tax honesty movement as it could conceivably be used against
anybody who is willing to question liability and challenge administrative
procedure. Consequently, examining the memorandum of agreement and underlying
authorities, aside from unraveling proper administration and limits of IRS
ministerial authority, is in everybody’s best interest.
Section 1 of the new memorandum
of understanding states the purpose of the instrument:
This Memorandum of
Understanding (MOU) between the Internal Revenue Service (IRS) Small
Business/Self-Employed Division (SB/SE) and the [state tax agency name
(state tax agency abbreviation)] sets forth the agreement
of the parties with respect to an initiative to facilitate information sharing
for tax administration purposes in conjunction with Abusive Tax Avoidance
Section 2 then provides the basic
A. Under the terms
of this MOU, federal tax returns and return information related to ATAT will be
disclosed by the IRS to [state tax
agency] pursuant to Internal Revenue Code (IRC) section 6103(d). This
MOU is intended to facilitate information sharing between the IRS and [state tax agency] pursuant to the
existing Agreement on Coordination of Tax Administration between the IRS and
[state tax agency] (herewith
“Basic Agreement”) executed by IRS on [date], and the Amended
Implementing Agreement on Coordination of Tax Administration between the IRS and
[state tax agency] (herewith
“Amended Implementing Agreement”) executed by the IRS on [date]. The Basic Agreement, the
Amended Implementing Agreement, and this MOU constitute the written request
required under IRC 6103(d) for the disclosure of federal returns and return
information related to ATAT from the IRS to the [state tax agency]. The [state tax agency] will use the
information to be disclosed to identify, examine, and bring participants in ATAT
into compliance with [state] tax
laws. The [state tax agency]
agrees that it will only use the information for purposes of state tax
administration pursuant to IRC 6103(d) and the Basic Agreement, the Amended
Implementing Agreement, and this MOU. In any situation where a conflict arises
between the provisions of this MOU and the Basic and Implementing Agreements,
the Agreements shall govern.
Section 13, the final section,
The terms of this
MOU are not intended to alter, amend, or rescind any provisions of Federal law.
Any provision of this MOU, which conflicts with Federal law will be null and
void. Nor are the terms of this MOU intended to alter, amend, or rescind any
provisions of the Basic Agreement or the Amended Implementing Agreement now in
effect. In the case of conflict, the provisions of the Basic Agreement and/or
the Amended Implementing Agreement will govern.
In order to determine application
of the memorandum of understanding relating to abusive tax avoidance
transactions, it is obviously necessary to know application of the underlying
state-federal agreement. The scope of the state-federal agreements is set out in
31 CFR § 215.1:
This part relates
to agreements between the Secretary of the Treasury and States (including the
District of Columbia), cities or
counties for withholding of State, city or county income or employment taxes
from the compensation of civilian Federal employees, and for the withholding of
State income taxes from the compensation of members of the Armed Forces. Subpart A contains general information and
definitions. Subpart B prescribes the
procedures to be followed in entering into an agreement for the withholding of State, city
or county income or employment taxes.
Subpart C is the Standard Agreement which the Secretary will enter into
with any State, city or county which qualifies to have tax withheld. Requests for deviations from this Standard
Agreement will be agreed to by the Secretary only if the State, city or county's
unique circumstances require it.
These agreements technically fall
within the framework of Chapter 24 of the Internal Revenue Code, withholding
from wages at the source. The definition of “employee” at § 3401(c) is clearly
an officer or employee of a federal department or agency or of a political
subdivision of the United
States; the definition of “employer” at §
3401(d) is dependent on the employer employing the § 3401(c) employee so cannot
extend beyond parameters established by the preceding subsection. It is here
that 31 CFR § 215.2 definitions are useful in clarifying application of Chapter
24 withholding authority as the agreement definitions of “employee” and
“employer” are possibly the most inclusive there are on the
As used in this
(a) "Agency" means each of the executive
agencies and military departments (as defined in 5 U.S.C.
105 and 102, respectively) and the United States
Postal Service; and in addition, for
city or county withholding purposes only, all elements of the judicial
(b) "City" means any unit of general local
(A) Is classified as a municipality by the
United States Bureau of the Census, or
(B) Is a town or township which, in the
determination of the Secretary of the Treasury,
(i) Possesses powers and performs functions
comparable to those associated with municipalities,
(ii) Is closely settled,
(iii) Contains within its boundaries no
incorporated places as defined by the United States Bureau of the Census; and
(2) Within the political boundaries of which
five hundred or more persons are regularly employed by all agencies of the
(c) "City income or employment taxes" means
any form of tax for which, under a city ordinance:
(1) Collection is provided by imposing on
employers generally the duty of withholding sums from the pay of employees and
making returns of the sums to a designated city officer, department, or
(2) The duty to withhold generally is imposed
on the payment of compensation earned within the jurisdiction of the city in the
case of employees whose regular place of employment is within such
jurisdiction. Whether the tax is
described as an
income, wage, payroll, earnings, occupational license, or otherwise, is
(d) "Compensation" as applied to employees of
an agency and members of the Armed Forces means "wages" as defined in 26 U.S.C.
3401(a) and regulations issued
(e) "County" means any unit of local general
Government which is classified as a county by the Bureau of the Census and
within the political boundaries of which 500 or more persons are regularly
employed by all agencies of the Federal Government.
(f) "County income or employment taxes" means
any form of tax for which, under a county ordinance:
(1) Collection is provided by imposing on
employers generally the duty of withholding sums from the pay of employees and
making returns of the sums to a designated county officer, department, or
(2) The duty to withhold generally is imposed
on the payment of compensation earned within the jurisdiction of the country in
the case of employees whose regular place of employment is within such
jurisdiction. Whether the tax is
described as an income, wage, payroll, earnings, occupational license, or
otherwise, is immaterial.
(g) "District of
Columbia income tax" means the income tax imposed under
47 District of
Columbia Code, Chapter 15, Subchapter II.
(h)(1) "Employees" for the purpose of State
income tax withholding, means all employees of an agency, other than members of
the armed forces. For city and county
income or employment tax withholding, it means:
(i) Employees of an
(ii) Members of the National Guard,
participating in exercises or performing duty under 32 U.S.C.
(iii) Members of the Ready Reserve,
participating in scheduled drills or training periods, or serving on active duty
for training under 10 U.S.C.
The term does not
include retired personnel, pensioners, annuitants, or similar beneficiaries of
the Federal Government, who are not performing active civilian service or
persons receiving remuneration for services on a contract-fee
(2) "Employees" for purposes of District of
Columbia income tax withholding, means employees as defined in 47 District of
Columbia Code 1551c(z).
(i) "Members of the Armed Forces" means all
individuals in active duty status (as
defined in 10 U.S.C.
101(22)) in regular and reserve components of the
Army, Navy, Air Force, Marine Corps, and Coast Guard, including members of the
National Guard while participating in exercises or performing duty under
502, and members of the Ready Reserve while
participating in scheduled drills or training periods or serving on active duty
for training under 10 U.S.C.
(j) "Ordinance" means an ordinance, order,
resolution, or similar instrument which is duly adopted and approved by a city
or county in accordance with the constitution and statutes of the state in which
it is located and which has the force of law within such city or
(k) "Regular place of Federal employment"
means the official duty station, or other place, where an employee actually and
normally (i.e., other than in a travel or temporary duty status) performs
services, irrespective of residence.
(l) "Secretary" means Secretary of the
Treasury and Fiscal Assistant Secretary or his designee.
(m) "State" means a State of the
United States or
the District of Columbia, unless
(n) "State income tax" means any form of tax
for which, under a State status:
(1) Collection is provided, either by imposing
on employers generally the duty of withholding sums from the compensation of
employees and making returns of such sums to the State or by granting to
employers generally the authority to withhold sums from the compensation of
employees, if any employee voluntarily elects to have such sums withheld; and
(2) The duty to withhold generally is imposed,
or the authority to withhold generally is granted, with respect to the
compensation of employees who are residents of such State.
Prior to agreements prescribed by
31 CFR Part 215, there were state-federal agreements executed under authority of
sections in the Internal Revenue Code that were repealed in approximately 1990.
Regulations for the originals are still published in 26 CFR Part 301.
Unfortunately, the original agreements were not as clear with respect to
application exclusively to federal agencies and personnel, but 31 CFR § 215.3(a)
clarifies the matter by stating that the new agreements don’t significantly
change earlier agreements:
(a) Subpart C of
this part is the Standard Agreement which the Secretary will enter into with a
State, city or county. This Standard
Agreement replaces all prior agreements between the Secretary and the State or
city covering the withholding of income or employment taxes from the
compensation of Federal employees. The
Standard Agreement is essentially the same as the prior agreements. A State of city which currently is a party to
an agreement with the Secretary covering the withholding of income or employment taxes from
the compensation of Federal employees does not need to apply for a new agreement
under this part. A State or city
currently a party to an agreement will be presumed to have consented to be bound
by the terms of the Standard Agreement (Subpart C). If a State or city, which is currently a
party, does not want to be bound by the Standard Agreement, it shall notify the
Fiscal Assistant Secretary, Department of the Treasury,
20220, in writing over the
signature of an officer authorized to bind contractually the State or city
within 90 days of the effective date of this part. The procedures of § 215.5 shall be followed by a State or city
which proposes to be bound by an agreement other than the Standard
Procedure for entering new
agreements is prescribed by 31 CFR § 215.4:
(a) A State, city
or county which does not have an existing agreement and wishes to enter into a
Standard Agreement shall indicate in a letter its agreement to be bound by the
provisions of Subpart C. The letter shall be addressed to the Fiscal Assistant
Secretary, Department of the Treasury,
20220, and be signed by an officer
authorized to bind contractually the State, city or county. Copies of all applicable State laws,
city or county
ordinances and implementing regulations, instructions, and forms shall be
enclosed. The letter shall also indicate
the title and address of the official whom Federal agencies may contact to
obtain forms and other information necessary to implement
(b) Within 120 days of the receipt of the
letter from the State, city or county official, the Fiscal Assistant Secretary
will, by letter, notify the State, city or county:
(1) That the Standard Agreement has been
entered into as of the date of the Fiscal Assistant Secretary's letter, or (2)
that an agreement cannot be entered into with the State, city or county and the
reasons for that determination. The withholding of the State, city or county
income or employment tax shall commence within 90 days after the effective date
of the agreement.
The immediate previous section
reinforces the conclusion that the Internal Revenue Service is not the delegate
of the Secretary of the Treasury for purposes of 26 U.S.C. § 7701(a)(12)(A). Per
31 CFR § 215.4, immediately above, the Fiscal Assistant Secretary is authorized
to execute state-federal piggybacking agreements; neither the Commissioner or
Internal Revenue nor the Internal Revenue Service is authorized to execute the
agreements. The simple reason is because IRS isn’t an agency of Government of
the United States except possibly in insular possessions under authority of 26
U.S.C. § 7701(a)(12)(B), which relates to insular possessions other than the
possession that is home base for the administrative agency that serves as
delegate within that limited framework.
State law authorizes agreements
with the Secretary of the Treasury or the Secretary’s delegate. In
Oklahoma, that’s the case for
state-federal administrative agreements relating to income taxes and the Uniform
Federal Tax Lien Filing Act. The income tax agreement is authorized by 68 Okla.
Statutes Annotated § 2385.19:
The Tax Commission
is hereby authorized and directed to make an agreement with the Secretary of the
Treasury of the United States with respect to withholding of income tax as
provided by this Article, pursuant to an Act of Congress, 66 Stat. 765, Ch.
940; Pub.L. 587; 5 USCA Sections 84b, 84c, July 17, 1952, and Executive Order No.
10407, 17 F.R.
10132, November 7, 1952.
This section hasn’t been amended
since the new agreement under 31 CFR Part 215 was authorized under the new
executive order, but the Internal Revenue Service has never been the Secretary’s
delegate for purposes of 26 U.S.C. § 7701(a)(12)(A).
The Uniform Federal Tax Lien
Filing Act authorizes the delegate of the Secretary of the Treasury to file
notices of federal tax lien, and the act requires that the notices be verified –
the signature of the issuing officer must be “verified” by the signature of the
officer who has the agency seal and the seal must be applied. In order for a
government-issued document to qualify as “evidence,” these minimums are also
required by both state and federal rules of procedure and evidence. Obviously
IRS personnel aren’t authorized to sign notices of federal tax lien is the
Internal Revenue Service isn’t the delegate of the Secretary for purposes of 26
U.S.C. § 7701(a)(12)(A), and notices of federal tax lien are never
The following states have adopted
the Uniform Federal Tax Lien Filing Act:
Jurisdiction Laws Effective Statutory Citation
1989, No. 1-1-1990 Code 1975, § § 35-11-42 to
1988, c. 161 1-1-1989 AS 40.19.010 to 40.19.050.
1990, c. 158 4-30-1990 A.R.S. § §
33-1031 to 33-1035.
1989, No. 835 3-22-1989 A.C.A. § §
1979, c. 330 1-1-1980 West's Ann.Cal.C.C.P. § § 2100 to
1988, c. 264 7-1-1988 West's C.R.S.A. § § 38-25-101 to
1967, P.A. 456 7-1-1967 C.G.S.A. § 49-32a.
Laws, 7-12-1996 25 Del.C. § § 3101 to 3105.
1992, c. 92-25 1-1-1993 West's F.S.A. § 713.901.
1979, c. 226 3-29-1979 I.C. § §
45-201 to 45-207.
1989, P.A. 8-15-1989 S.H.A. 770 ILCS 110/1 to 110/7.
1989, S.F. 276 4-20-1989 I.C.A. §
1988, c. 379 4-7-1988 K.S.A. 79-2613 to 79-2619.
1987, No. 348 7-6-1987 LSA-R.S. 52:51 to 52:56.
1989, c. 502 6-30-1989 33 M.R.S.A. § § 1901 to 1907.
1980, c. 581 7-1-1980 Code, Real Property, § § 3-401 to
1983, No. 102 6-30-1983 M.C.L.A. § § 211.661 to 211.668.
1979, c. 37 1-1-1980 M.S.A. § § 272.479, 272.481 to
1989, c. 515 1-1-1990 Code 1972, § § 85-8-1 to 85-8-15.
1983, c. 396 MCA 71-3-201
1988, LB 933 3-23-1988 R.R.S.1943, § § 52-1001 to
1979, c. 381 5-17-1979 N.R.S. 108.825 to 108.837.
1988, c. 116:1 4-18-1988 RSA 454-B:1 to 454-B:8.
1997, c. 412 1-19-1998 N.J.S.A. 46:16-15 to 46:16-19.
1988, c. 44 3-4-1988 NMSA 1978, § § 48-1-1 to 48-1-7.
1987, c. 840 8-7-1987 McKinney's
Lien Law, § § 240 to
1990, c. 1047 8-1-1990 G.S. § §
44-68.10 to 44-68.17.
1979, c. 386 7-1-1979 NDCC 35-29-01 to 35-29-06.
1988, c. 132 11-1-1988 68 Okl.St.Ann. § § 3401 to 3407.
1981, c. 852 ORS 87.806
1989, P.L. 12-7-1989* 74 P.S. § §
157-1 to 157-8.
608, No. 69
1988, c. 355 SDCL 44-7-1
1989, c. 945 9-1-1989 V.T.C.A. Property Code, § §
14.001 to 14.007.
1988, cc. 113, Code 1950, §
§ 55-142.1 to
1988, c. 73 7-1-1988 West's RCWA 60.68.005 to
1989, c. 114 Code,
38-10A-1 to 38-10A-5.
1979, c. 312 5-18-1980 W.S.A. 779.97.
1988, c. 41 7-1-1988 Wyo.Stat.Ann. § § 29-6-201 to
For purposes at hand it isn’t
necessary to prove Internal Revenue Service origins, but the best evidence
suggests that IRS is successor of the Bureau of Internal Revenue,
Puerto Rico. In this context it is sufficient to know
that Congress didn’t legislatively create IRS or the IRS predecessor, the Bureau
of Internal Revenue. In order to even colorably legitimize state-federal
agreements executed by the Commissioner of Internal Revenue and administered on
the federal side by IRS, the Fiscal Assistant Secretary would have to
re-delegate authority to the Commissioner. To date the means by which the Fiscal
Assistant Secretary authorized the Commissioner of Internal Revenue or the
Internal Revenue Service to execute the agreements hasn’t been
Regardless of what authority IRS
legitimately does or doesn’t have for administration of state-federal
piggybacking agreements, and regardless of proper venue (geographical
jurisdiction), the standard agreements limit subject matter jurisdiction to
federal departments and agencies and officers and employees of those federal
entities. Authority of the standard agreements, and the supplemental memorandum
of understanding, doesn’t authorize IRS or state tax agencies to exchange
information about or investigate private enterprise or non-government personnel.
Terms of the agreements limit information that can be shared under authority of
26 U.S.C. §§ 6101 & 6110.
State tax agencies regularly
advance claims based on information received from the Internal Revenue Service.
Where those subjected to state claims predicated on information secured from IRS
are not government personnel and the source of income is not a federal
department or agency, the claim is defective as it is based on inaccurate
Authority relative to abusive tax
shelters and the like is codified at 26 U.S.C. §§ 6700, et seq. Per the Parallel
Table of Authorities and Rules, the only section in the group that has an
implementing regulation is § 6701, and that is 27 CFR Part 70, which is under
Bureau of Alcohol, Tobacco and Firearms jurisdiction. There is no regulation
listed for 26 CFR Parts 1, 20 & 31, which apply to Subtitles A, B & C of
the Internal Revenue Code. Since there are no substantive regulations listed for
the Internal Revenue Code, there simply isn’t any authority for IRS to conduct
investigations under the Code sections except where government agencies and
personnel are concerned. Per 5 U.S.C. § 301 and 44 U.S.C. § 1505(a),
administrative procedure that has intra-governmental application only doesn’t
have to be published in the Federal Register, the implication being that it
doesn’t have to be listed in the Parallel Table of Authorities and Rules and
other ancillary finding aids authorized by 44 U.S.C. § 1510.
The character of regulations
promulgated for application and administration of the Internal Revenue Code is
explained at 26 CFR § 601.702(a)(1)(ii):
(ii) Pursuant to
the foregoing requirements, the Commissioner publishes in the Federal Register
from time to time a statement, which is not codified in this chapter, on the
organization and functions of the IRS, and such amendments as are needed to keep
the statement on a current basis. In addition, there are published in the
Federal Register the rules set forth in this part 601 (Statement of Procedural Rules),
such as those in paragraph E of this section, relating to conference and
practice requirements of the IRS; the regulations in part 301 of this chapter (Procedure
and Administration Regulations); and the various substantive regulations under
the Internal Revenue Code of 1986, such as the regulations in part 1 of this chapter (Income Tax
Regulations), in part 20 of this
chapter (Estate Tax Regulations), and in part 31 of this chapter (Employment
Per 26 CFR § 601.702(a)(2)(ii),
failure to publish implementing regulations completely exonerates
(ii) Effect of
failure to publish. Except to the extent that a person has actual and timely
notice of the terms of any matter referred to in paragraph (a)(1) of this
section which is required to be published in the Federal Register, such person
is not required in any manner to resort to, or be adversely affected by, such
matter if it is not so published or is not incorporated by reference therein
pursuant to paragraph (a)(2)(i) of this section. Thus, for example, any such
matter which imposes an obligation and which is not so published or incorporated
by reference shall not adversely change or affect a person's
To confirm the assertion that it
is mandatory for implementing regulations to be promulgated by the Secretary
(Commissioner in past times), consult California Bankers Assn. v. Schultz,
39 L.Ed. 2d 812 at 820: “Because it has a bearing on some of the issues raised
by the parties, we think it important to note that the Act’s civil and criminal
penalties attach only upon violation of regulations promulgated by the
Secretary; if the Secretary were to do nothing, the Act itself would impose no
penalties on anyone.” In U.S. v. Murphy, 809 F.2d 1427 at 1430
(9th Cir. 1987), following California Bankers Association rationale,
the court said “The reporting act is not self-executing; it can impose no
reporting duties until implementing regulations have been promulgated.” In U.S. v. Reinis, 794 F.2d 506 at 508
(9th Cir. 1986) the court said, “An individual cannot be prosecuted
for violating this Act unless he violates an implementing regulation … The
result is that neither the statute nor the regulations are complete without the
other, and only together do they have any force. In effect, therefore, the
construction of one necessarily involves the construction of the other.”
U.S. v. Mersky, 361
U.S. 431, 4
L.Ed. 2d 423, 80 S.Ct. 459 (1960), agreed with in Leyeth v. Hoey, supra,
U.S. v. $200,00 in U.S. Currency, 590
F.Supp. 866; U.S. v. Palzer,
745 F.2d 1350 (1984); U.S. v.
Cook, 745 F.2d 1311 (1984); U.S. v. Gertner, 65 F.3d 963
(1st Cir. 1995); Diamond
Ring Ranch v. Morton, 531 F.2d 1397, 1401 (1976); U.S. v. Omega Chemical Corp., 156
F.3d 994 (9th Cir. 1998); U.S. v. Corona, 849 F.2d 562, 565
(11th Cir. 1988); U.S. v.
Esposito, 754 F.2d 521, 523-24 (1985); U.S. v. Goldfarb, 643 F.2d. 422,
429-30 (1981). “For Federal tax purposes, the Federal Regulations govern. Lyeth v. Hoey, 1938, 305
U.S. 188, 59
S.Ct. 155, 83 L.Ed. 119,” quoted in Dodd v.
223 F.Supp. 785 (1963).
Instructions for state income tax
returns generally state that a person must complete and/or file federal income
tax returns before filing state, and in the event that a federal return is not
required, neither is a state. Something to the same effect is generally found in
state income tax rules or regulations. In
Oklahoma, one of the better
examples concerns the state basis for assessments:
Assessment procedure; assessment based upon information derived from Internal
(a) Assessments shall be made in accordance with
the Uniform Tax Procedure Code. The income information furnished by the I.R.S.
shall be that upon which any tax liability is computed. Unless otherwise
indicated in the Revenue Agent's Report (R.A.R.), all income is considered to be
from Oklahoma sources, as are all deductions and credit, to
the extent that they are allowed by Oklahoma Statute. The taxpayer is considered
to be, or to have been an Oklahoma resident during the year or years examined by
the I.R.S. by virtue of the fact that the results of the examination are
disclosed to the Commission by the I.R.S. The assessment shall be mailed to the
address shown on the R.A.R. or the last known address of the
(b) In cases where returns have not
been previously filed by the taxpayer, the Tax Commission may, in its discretion
and in the alternative to assessing taxes, demand that the taxpayer file a
return as required. For the purpose of this Section, the determination that the
taxpayer was, in fact, required to file an Oklahoma Tax Return shall be based on
the information furnished by the I.R.S.
Per the state-federal
piggybacking agreement authorized by 31 CFR Part 215, IRS is authorized to
provide state tax agencies information about federal agencies and employees
only; there is no authority whatever to provide information about private
enterprise and non-government personnel. Erroneous information state tax
agencies receive from IRS is defective and is therefore void, but implications
go deeper than that. Where state and federal income taxes rest on the same
facts, and the state income tax is predicated on liability for federal income
taxes imposed by Subtitle A of the Internal Revenue Code, a challenge to
applicability of Subtitle A income taxes simultaneously challenges state
resident and nonresident income taxes. In a manner of speaking, IRS is the
“parent” or lead agency so far as findings of fact and conclusions of law are
concerned. A person’s status and fact circumstance is consistent for both state
and federal income tax purposes.