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February 11.1998

Mr. Newman,

At your request I have researched the internal Revenue Code and Regulations relative to the withholding requirements and/or the W4 filing requirements. I have done extensive researching this area and it is very confusing to the average person. At first glance it appears that the employer has no choice; nor can the employee do anything about the withholding.

This is, however, a smoke screen that the IRS and our government has instigated and instilled in us by the use of fear and intimidation. Further, we have been ignorant of the law and how it is to be enforced or/ and have not been able to properly present the facts to the judicial branch. This has lead to bad ease law and must be corrected.

Please be advised that I believe my first priority is to serve God. I have spent many hours researching the law's, regulations and court eases. It is my firm belief that God revealed the truth to me through my research and, now that I know the truth, I should pass this on. You will find that I rely only on the code, regulations and court cases. I believe it is up to you and me to insure that the IRS and the courts keep within the law; especially the IRS agents who neither know nor follow the Code. I find. in most cases, they have no knowledge of specific sections or what authority they have been delegated. Please let this letter encourage you to continue to research for yourself and make a determination of how it applies to you.

About my experience; I am an Enrolled Agent. Enrolled Agents are persons who have demonstrated technical competence in understanding the Internal Revenue Code by taking a test administered by the Internal Revenue Service. Enrolled Agents are licensed by the Treasury Department and must continue to show proficiency and understanding of the tax law's with continuing professional education hours in order to maintain their licenses. I have been representing clients since 1985 in corporate, partnership, trusts, sole proprietorship and personal income taxes. My goal is to research every aspect of the Code, Regulations, Court cases, Treasury Orders and the Federal Register to insure that IRS agents are not acting outside their authority and that my clients get proper representation.

I find in my research that the most appropriate approach to take is to first determine who have jurisdiction and where. This requires us to go back as far as we can in the history of the United States of. America and determine where the federal government gets its jurisdiction over the American Citizens. What starts this research is the definition of the United States as defined in the Code. Because we are researching Subtitle C taxes. I will start at the definition section

3121(e) which defines the jurisdiction as follows:
3121(e) Stale, United States. And Citizen
For purposes of this chapter—
3121(e)(l) State: The term "State" includes the District of Columbia, the Commonwealth of Puerto Rico, the Virgin Islands. Guam, and American Samoa.
3121(e)(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.
An individual who is a citizen of the Commonwealth of Puerto Rico (but not otherwise a citizen of the United States) shall be considered, for purposes of this section, as a citizen of the United States.

This gives us a specific definition of where the governments jurisdiction. This determination is not only mine, it has been confirmed by the Congressional Research Service. See EXHIBIT A. I will now start with the jurisdiction of the federal government as determined by the courts. Most of the eases I am using arc from the Supreme Court and can be relied upon.

Also,looking in Subtitle C under definitions at 26 CFR 3401, of "Wages". At first glance, it appears to apply to all persons; Sec. 3401(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

However, as I have found. there are very specific rules you must follow' when reading the law. You can not assume that a word in a law means what you and I ordinarily think it means. First,you have to find out if the law itself defines the word. If not, we have to determine if there is a legal definition. If not, then we can use the ordinary use of the word. As it turns out, by common usage, you may have considered yourself an "employee" or "independent contractor" and may have thought of what was earned as "wages" or "taxable income". However,according to the Internal Revenue Code,this is not the case. In a latter section of 26 CFR 3401,we find the legally binding definition of "employee" right in the same section of the code. This defines "employee" as follows: 3401(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.

The above definition totally covers the scope of people who can earn "wages" per the Internal Revenue Code. This fully supports my long held belief (and that of countless others)that only government employees and those in privileged occupations are required to pay Federal Income Taxes and that everyone else simply does it voluntarily.

Using the CFR to determine the definition at §5 31.3121(e)-1 State. United States, And Citizen we find the Following.
31.3121(e)-I(a) When used in the regulations in this subpart, the term "State" includes the District of Columbia, the Commonwealth of Puerto Rico, the Virgin Islands, the Territories of Alaska and Hawaii before their admission as States, and (when used with respect to services performed after 1960) Guam and American Samoa.
31.3121(e)- 1(b) When used in the regulations in this subpart, the term "United States". when used in a geographical sense, means the several states (including the Territories of Alaska and Hawaii before their admission as States), the District of Columbia, the Commonwealth of Puerto Rico, and the Virgin Islands. When used in the regulations in this subpart with respect to services performed alter 1960, the term "United States" also includes Guam and American Samoa when the term is used in a geographical sense. The term "citizen of the United States" includes a citizen of the Commonwealth of Puerto Rico or the Virgin Islands, and, effective January 1.1961, a citizen of Guam or American Samoa.

Please note the several states includes Alaska and Hawaii before their admission as States of the United States of America. Further, the term "citizen of the United States" does not include a citizen of the fifty states, it only includes the named possessions. For more detailed discussions on jurisdiction I will recite case laws from the early 1820's.

In the United States of America there are two separate and distinct jurisdictions: (1) the jurisdiction of each of the several States within their own territorial boundaries and (2) federal jurisdiction. in Washington, D.C.. enclaves arid territories, Congress has EXCLUSIVE jurisdiction, which means they can make any law they want to; The Constitution is not considered. (Article 1, Section 8 U.S. Const). "The law's of Congress in respect to those matters(outside of Constitutionally delegated powers) do not extend into the territorial limits of the states, but have force only in the District of Columbia, and other places that are within the exclusive jurisdiction of the national government." CAHA v US 152 U.S. 211 "Constitutional restrictions and limitations were not applicable to the area of lands, enclaves, territories and possessions over which Congress had exclusive legislative authority." DOWNES v. BlDWlfLL182 U.S. 244

State jurisdiction encompasses the legislative power to regulate, control and govern individuals, enterprises. real and personal property' within the boundaries of a given State. Federal jurisdiction, by contrast, is extremely limited and can be exercised only in areas external to the sovereign States unless, and until, a State has ceded a portion of its jurisdiction to the federal government.

The legal effect of the Declaration of Independence was to make each newly created State a separate and independent sovereign over which there was no other government, superior power or jurisdiction. M'ilvaine v Coxe's Lessee, 8 US (4 Cranch) 209(1808); US v Bevans, 16 US (3Wheat 336 (1818); Harcourt v Gaillard, 25 US (12 Wheat) 523 (1827); Fort Leavenworth R.R. Co. V Lowe, 114 US 525, 5 &Ct. 995(1885)

In Bevans the Court held that the "exclusive jurisdiction which the United States has in forts and dock-yards ceded to them, is derived from the express assent by the states by whom the cessions are made. It could be derived in no other manner; because, without it, the authority of the state would be supreme and exclusive therein." 3 Wheat at 350, 351

The Bevans decision was followed by decisions in two state courts and one federal court within two years. In Commonwealth v Young, Brightly N.P. 302 (Pa., 1818) the court stated that the "legislation and authority of Congress is confined to cessions by particular states for the seat of government. The legislative power and exclusive jurisdiction remained in the several states, of all territory within their limits, not ceded to. or purchased by, Congress, with the assent of the state legislature, to prevent collision of legislation and authority between the United States and the several states." Id at 309

Then. the Supreme Court of New York was presented with the issue of whether the State of New York had jurisdiction over a murder committed at Fort Niagara, a federal fort. In People v Godfrey, 17 Johns 225 (N. Y, 1819), the court held that the fort was NOT subject to federal jurisdiction because the lands had not been ceded to the United States. The Court stated that"…[T]o bring the offense within the jurisdiction of the courts of the union, it must have been committed out of the jurisdiction of the state; it is not the offense committed, but the place in which it is committed, which must be out of the jurisdiction of the state." 17 Johns at 233

Then. in US v Cornell, 25 Fed. Cas. 646, No. 14, 867 (C.C.D.R.I., 1819) the court held that "although the United States may well purchase and hold lands for public purposes within the territorial limits of a state, this does not of itself oust the jurisdiction or sovereignty of such State over the lands so purchased." Id at 648 And, in New Orleans v United States, 35 US (10 Peters) 662 (1836), the Court held that "special provision is made in the Constitution for the cession of jurisdiction from the States over places where the federal government shall establish forts or other military' works. And it is only in these places. or in the territories of the United States, where it can exercise a general jurisdiction." Id at 737 Nothing could be more clear.

About eight years later, in Pollard v Hagan, 44 US (3 How) 212 (1845) the question of federal jurisdiction was, once again, before the Court. The Court found that "a proper examination of this subject will show that the United States never held any municipal sovereignty, jurisdiction, or right of soil in and to the territory, of which Alabama or any of the new States were formed." Id at 221 Moreover, "the United States have no constitutional capacity to exercise municipal jurisdiction, sovereignty, or eminent domain, within the limits of a State or elsewhere, except in the cases in which it is expressly granted." Id at 223

The proposition that a State retains a degree of jurisdiction over property ceded to the federal government is well settled. See Surplus Trading Co. v Cook, 281 US 647, 50 5. Ct. 455(1930); James v Dravo Contracting Co., 302 US 134, 58 5. Ct. 208 (1937); Silas Mason Co. v Tas' Commission of State of Washington, 302 US 186, 58 5. Ct. 233(1937); Pacific Coast Dairy v Dept. Of Agriculture of California, 318 US 285, 63 5. Ct. 628 (1943); Penn Dairies v Milk Control Commission of Pennsylvania, 318 US 261, 63 S.Ct. 617(1943); £R.A. v Minnesota, 327 US 558, 66 5. Ct. 749 (1946)

These principles regarding the distinction between State and federal jurisdiction continue through today. See Paul v US, 371 US 245, 83 S.Ct. 426 (1963) and US v State Tax Commission of Mississippi, 412 US 363, 93 S.Ct. 2183 (1973) If jurisdiction is not vested in the United States pursuant to statute, their is no jurisdiction. See Adams v US, 319 US 312, 63 S.Ct. 1122 (1943)

In June of 1957, the government of the United States published a work entitled Jurisdiction Over Federal Areas Within the States: Report of the Interdepartmental Committee for the Study of Jurisdiction Over Federal Areas Within the States. Part II. Therein the Committee stated: "The Constitution gives express recognition to but one means Federal acquisition of legislative jurisdiction--by State consent under Article 1, Section 8. Clause17.... [T]he Constitution provided the sole mode for transfer of jurisdiction. and that if this mode is not pursued. no transfer of jurisdiction can take place."
Id at 41

"It scarcely needs to be said that unless there has been a transfer of jurisdiction (1)pursuant to clause 17 by a Federal acquisition of land with State consent. or (2) unless the Federal government has reserved jurisdiction upon the admission of the State, the Federal Government possesses no legislative jurisdiction over any area within a State, such jurisdiction being for exercise by the State, subject to non-interference by the State with Federal function."
Id at 45

"The Federal Government cannot. by unilateral action on its part, acquire legislative jurisdiction over any area within the exterior boundaries of a State."
Id at 46

"On the other hand, while the Federal Government has power under various provisions of the Constitution to define, and prohibit as criminal, certain acts or omissions occurring anywhere in the United States. it has no power to punish for various crimes. jurisdiction over which is retained by the States under our Federal-State system of government, unless such crime occurs01) areas as to which legislative jurisdiction has been vested in the Federal Government."
Id at 107

It "is axiomatic that the prosecution must always prove territorial jurisdiction over a crime in order to sustain a conviction therefor." US v Benson, 495 F2 475, 481 Even the burglary of an IRS office was held to be a State matter! People v Hammond, 1 Ill 2d 65, 115N.E. 2d331 (1953) In Keller v US, 213 US 138,295. Ci. 470(1909). it was held that Congress cannot exercise police powers within the States. And. in Illinois Central Railroad Company v McKendree, 203 US 514, 27 S.Ct. 153 (1906). the Court held that "there was no power conferred upon the Secretary [of Agriculture] to make regulations concerning intrastate commerce. over which Congress has no control."
Id at 528 emphasis added

The lessons of the above cases make it clear that, if Congressional legislation can be valid only under the power of Congress to regulate interstate commerce, the statute itself must express its relationship to interstate commerce. In the absence of statutory expression, the act is not one based upon Congressional interstate commerce powers. See Illinois Central Railroad Co. v MeKendree, supra and Howard v Illinois Central Railroad Co. 207 (IS 463, 28 5. Ct. 141(1908) There is a limit to Congressional power to regulate those activities which "affect interstate commerce." Simply stated,acts "affecting interstate commerce" do not include all human activity which is neither "interstate commerce" or acts "affecting interstate commerce." It is the "deminimus" rule which describes this outer limit of authority. See US v Critchley, 353 F2 358(3rd, 1965); Houchin v Thompson, 438 F2 927 (6th, 1970); National Labor Relations Board v Clark, 468 F2 459 (5th, 1972); US v Merolla, 523 F2 51 (2nd, 1975); US v Elders, 569 F2 1020(7th, 1978); US v Mennuti, 639 F2 107 (2nd, 1981); US v Monholland, 706) F2 1311 (10th, 1979);US v Voss, 787 F2 393 (8th, 1986); Gramercy 222 Residents Corp. V Gramercy Realty Assoc,,591 F.Supp. 1408 (S.D.N.Y.1984)

The sum and substance of the above cases is that the maximum reach of Congressional interstate commerce powers extends to regulating activities "affecting interstate commerce. As such, an intrastate activities effect on, or relation to, interstate commerce, is the government's burden of proof Absent a "deminimus" standard of such proof, federal jurisdiction is foreclosed.

I must reiterate the important fact that we must hold the government to the Sixteenth Amendment and the Internal Revenue Code. The Sixteenth Amendment requires the taxing of incomes from sources "among the several states". The Internal Revenue Code specifically outlines the jurisdiction of the persons subject to it at section 7701(a) (9), where it identifies "United States": The term United States" when used in a geographical sense includes only the States and the District of. Columbia. Then, at: 7701 (a)( 10) State: The term "State" shall he construed to include the District of Columbia where such construction is necessary to carry out provisions of this title." Further. at Regulation 301.7701-1 (a)(e) State. For purposes of this section and Section 301.7701-2, the term State includes the District of Columbia. There is no mention of the state of Florida. The definition given by the Supreme Court in US. v Lopez 115 S.Ct. 1624 (1995) makes it very clear jurisdiction' outside of the commerce clause is forbidden.

Looking further at the regulations for the definition of the term United States at CFR 31. § 31.3121(e)-1 State, United States, And Citizen.

31.3121(e)-1 (a) When used in the regulations in this subpart. the term "State" includes the District of Columbia, the Commonwealth of Puerto Rico, the Virgin Islands, the Territories of Alaska and Hawaii before their admission as States, and when used with respect to services performed after 1960) Guam and American Samoa.
31.3121(e)-1 (b) When used in The regulations in this subpart. the term "United States when used in a geographical sense, means the several states (including the Territories of Alaska and Hawaii before their admission as States). the District of Columbia, the Commonwealth of Puerto Rico. and the Virgin Islands. When used in the regulations in this subpart. with respect to services performed after 1960, the term "United States" also includes Guam and American Samoa when the term is used in it geographical sense. The term "citizen of the United States" includes a citizen of the Commonwealth of Puerto Rico or the Virgin Islands. and. effective January 1. 1961, a citizen of Guam or American Samoa.

Using these definitions, it is clear you could not have any tax liability as this part of. the Internal Revenue Code is specifically for persons within its jurisdiction. There is no mention of any of the fifty states within any of the sections that define the areas where the code is authoritative.

Citizens within the exterior boundaries of any of the fifty states are not subject to the Internal Revenue Code as it is written. This is mainly because Congress does not have the authority to tax something that is out of its jurisdiction.

Looking further, we find that the courts have said all along that "The Treasury Department cannot, by interpretive regulations make income from that which is not income within the meaning of the revenue acts of Congress, nor can Congress without apportionment tax income which is not income within the meaning of the Sixteenth Amendment." Helvering v. Edison Bros. Stores, 133 F.2d 575 As you can see Congress is bared from naming anything taxable that is not within their jurisdiction and so is the IRS.

A citizen who has his/her income from only intrastate sources, not interstate, can not be subject to tax among the several states. The supreme court said in 1995 that the word 'among' means more than one state. "Comprehensive as the word 'among' is, it may very properly be restricted to that commerce which concerns more States than one… The enumeration presupposes something not enumerated and that something, if we regard the language or the subject of the sentence, must be the exclusive internal commerce of a State". U.S. v. Lopez, 115 S. Ct. 1624 at 1627 In the Lopez case we are told by the Supreme Court that the federal government must stay within its jurisdictional boundaries as outlined by the Constitution of the United States.

I hope I have covered the points which concern you. If I can be of help in the future please do not hesitate to write.

Sincerely.

John J Schlabach . Enrolled Agent Enrollment #50614