                           Chapter 2:
                     Status and Jurisdiction


     Understanding the  status of  the parties  to the  Brushaber
case is  essential to  understanding both  the outcome,  and  the
Treasury Decision  which followed  soon after the Supreme Court's
landmark ruling  in the  case.   Frank  R.  Brushaber  filed  his
original Bill of Complaint on March 13, 1914, within a year after
Philander C.  Knox declared  the 16th Amendment to be the supreme
law of  the land.  Addressing the judges of the District Court of
the  United  States  for  the  Southern  District  of  New  York,
Brushaber began his complaint as follows:

     Frank R. Brushaber, a citizen of the State of New York and a
     resident of  the Borough  of Brooklyn,  in the  City of  New
     York, brings  this his  bill against  Union Pacific Railroad
     Company, a  corporation and  citizen of  the State  of Utah,
     having its  executive office  and a place of business in the
     Borough of  Manhattan, in  the City  of New  York,  and  the
     Southern District  of New  York, in  his own  behalf and  on
     behalf of  any and  all of the stockholders of the defendant
     Union  Pacific   Railroad  Company   who  may  join  in  the
     prosecution and contribute to the expenses of this suit.

                                                 [emphasis added]

     Right from  the beginning, Frank Brushaber made an important
statement of  fact which  remained unchallenged at every level in
the federal  courts.   He identified  himself as a citizen of the
State of  New York  and a resident of the Borough of Brooklyn, in
the City  of New  York.  He did not identify himself as a "United
States** citizen"  or as a "resident of the United States**".  He
indicated that he lived and worked in New York State, outside the
District of  Columbia and  outside any  territory, possession  or
enclave controlled  by  the  Congress  of  the  United  States**.
"Enclaves" are  areas within  the 50  States which are "ceded" to
Congress by the acts of State Legislatures (e.g. military bases).

     The federal  courts concluded that Brushaber, under the law,
was a "nonresident alien".  He was "nonresident" because he lived
and worked  outside the areas of land over which the Congress has
exclusive  jurisdiction.     The   authority  to  have  exclusive
jurisdiction over this land was granted to Congress by Article 1,
Section 8,  Clause 17,  and Article 4, Section 3, Clause 2 of the
Constitution.  In this book, I will often refer to these areas of
land as "the federal zone".  Brushaber was an "alien" because his
statement of  citizenship was  taken as  proof that  he was not a
citizen of  the federal  zone.   He was  not a  "United  States**
citizen", either  through birth  or naturalization,  because  the
term "United  States**" in  this context  means only  the federal
zone.   Therefore, he  was alien  with respect to the District of
Columbia and  the federal  enclaves, territories  and possessions
over which  the Congress  has exclusive legislative jurisdiction.


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This may  sound strange  to the casual reader, but the law is not
referring to creatures from outer space.  The law is referring to
the creation of lawyers.

     Right from  the beginning,  Frank  Brushaber  also  made  an
important error which contributed to his ultimate downfall in the
case.  He identified his opposition as a corporation chartered by
the State of Utah:


     Your orator  further shows  that the defendant Union Pacific
     Railroad Company  is,  and  at  all  the  times  hereinafter
     mentioned was,  a corporation  duly organized  and  existing
     under and  by virtue of the laws of the State of Utah, and a
     citizen of the State of Utah ....

          [from original Bill of Complaint, filed March 13, 1914]


This was  incorrect.   The Union  Pacific  Railroad  Company  was
originally created  in the  year 1862 by an Act of Congress.  The
stated purpose  of the corporation was to aid in the construction
of a  railroad and  telegraph line from the Missouri River to the
Pacific Ocean.   This  Act was  passed on  July 1,  1862  by  the
Thirty-Seventh Congress,  Second  Session,  as  recorded  in  the
Statutes at  Large, (December 5, 1859 to March 3, 1863 at Chapter
CXX, page  489).  At that time, Utah had not yet been admitted as
a State of the Union.  It was still a territory, i.e., a "federal
state",  over   which  the  Congress  had  exclusive  legislative
jurisdiction.

     Being a  creation of  Congress, the  Union Pacific  Railroad
Company was  found to  be a "domestic" corporation under the law.
This is  another term  which is  very  confusing  to  the  casual
reader.   In common,  everyday language,  the term  "domestic" is
often used  to mean  "inside the country".  For example, airports
are  divided  into  different  areas  for  domestic  and  foreign
flights, in  order to allow Customs agents to inspect the baggage
and passports  of passengers  arriving on  flights  from  foreign
countries.   However, under  federal tax law, the term "domestic"
does not mean "inside the country";  it means "inside the federal
zone" which  is an  area that  is much  smaller  than  the  whole
country.   Accordingly, a  "foreign" corporation is a corporation
which was  chartered by a government that is "outside the federal
zone".   The federal  zone consists  of the enclaves, territories
and possessions  over which  the Congress  of the United States**
has exclusive legislative jurisdiction.  California is outside of
the  federal  zone,  for  example,  and  corporations  which  are
chartered in  the State  of California  are foreign  corporations
with respect  to  the  federal  zone.    Similarly,  corporations
chartered  in  France  are  likewise  foreign  corporations  with
respect to  the federal  zone.  It is simple, once you understand
the proper  legal definitions  of "foreign" and "domestic" in the
federal tax law.


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                                          Status and Jurisdiction


     The status  of the  two parties  in the  Brushaber case can,
therefore, be summarized as follows:

     1.   State Citizen  Frank R. Brushaber was identified by his
          court documents as a nonresident alien, as that term is
          now defined  in the  Internal Revenue  Code (Title  26,
          United States Codes).

     2.   The Union  Pacific Railroad  Company was  identified by
          court documents as a domestic corporation, as that term
          is now  defined in the Internal Revenue Code (Title 26,
          United States Codes).

Government Propaganda

     The federal government has tried to confuse the implications
of Frank  Brushaber's status  by asserting  that he  was a French
immigrant.  This is government propaganda, pure and simple.  This
propaganda is  designed to  make us  believe that  Brushaber  was
found to  be an  alien because he was born in France, not because
he declared  himself to  be a "citizen of the State of New York".
Accordingly,  the   federal  officials   responsible   for   this
propaganda are  trying in  vain to  convince everyone that the 50
States are  inside the  federal zone,  because they  want  us  to
conclude that Frank Brushaber would have been a "U.S.** resident"
if he  resided in  New York, or a "U.S.** citizen" if he had been
born in  New York.   It  is fairly  easy (and fun) to defeat this
propaganda, because it is only make believe.

     First of  all, Frank  Brushaber declared  himself  to  be  a
"resident of  the Borough  of Brooklyn, in the City of New York".
If New  York State  were inside  the federal  zone, and  if Frank
Brushaber had  been born  in France, he most certainly would have
been  an  "alien",  but  a  "resident"  alien  according  to  the
government's own  rules.  After the Supreme Court's decision, the
Treasury Department  published a  Treasury Decision  (T.D.  2313)
which clearly  identified Frank  Brushaber as a nonresident alien
(see below, page 2-4 and also Appendix C).

     Secondly, regardless  of whether federal officials place New
York State  inside or  outside the  federal  zone,  their  French
immigrant theory  would place  Frank Brushaber in the category of
an alien  who was  lawfully admitted  for permanent  "residence".
Congress does  have legislative jurisdiction over immigration and
naturalization.   Being lawfully admitted for permanent residence
is also  called the "green card test" (see next chapter).  Again,
the government's  own rules and regulations would have designated
Frank Brushaber  as a "resident" alien.  As we know, the Treasury
Department identified  him as  a nonresident  alien.  A native of
France would  be a nonresident alien if he resided in France;  he
would be  a resident  alien if  he lawfully immigrated to America
under rules  established by Congress.  But no "green card" was in
evidence to  prove that  Brushaber was  an immigrant, and current
"green cards" exhibit the words RESIDENT ALIEN in bold letters.


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                                                The Federal Zone:


     Thirdly, if  Frank Brushaber had been a French immigrant who
applied for,  and was granted U.S.** citizenship, quite obviously
he would  have become  a naturalized U.S.** citizen, no longer an
alien.   Again, Congress  does have jurisdiction over immigration
and naturalization.   The  government's own rules and regulations
would have designated Frank Brushaber as a U.S.** citizen.

     Finally, Frank Brushaber identified himself as a "citizen of
the State  of New  York".  Although a native of France would also
be an  "alien" with  respect to the federal zone, this is not how
Frank Brushaber  identified himself  to the  federal courts.   He
identified himself  as a  "citizen of  the State of New York". On
the basis  of this  status as  presented to  the federal  courts,
those  same  courts,  and  the  Treasury  Department  thereafter,
concluded that  he was  a nonresident alien, not a U.S.** citizen
and not  a U.S.**  resident.   To argue  that  he  was  a  French
immigrant is  to assume  facts that  were not  in evidence.   The
courts arrived at their decisions on the basis of facts that were
in evidence.   Author  and scholar  Lori  Jacques  addresses  the
French immigrant theory as follows:


     ... [I]t  appears that  a state  citizen was identified as a
     nonresident  alien   and  taxed  upon  his  unearned  income
     deriving from  a domestic  corporation.   This conclusion is
     possible because  there would  be no  question that a person
     who, for  example, was  born and domiciled in France and who
     owned shares  in Union  Pacific Railway  [sic] Co.  would be
     taxed as  a nonresident  alien.  Only Mr. Brushaber, citizen
     of New  York State  and stockholder,  was considered  in the
     case decided  by the  Supreme Court, thus there was no basis
     for the  Secretary  extending  the  decision  to  those  not
     parties to the action.

            [A Ticket to Liberty, November 1990 edition, page 40]
                                                 [emphasis added]

     In the  final analysis,  it doesn't  really  matter  whether
Frank Brushaber  was, in  fact, a  French immigrant  or not.  The
federal courts and the Treasury Department agreed that any person
claiming to be citizen and resident of New York was a nonresident
alien with  respect to  the federal zone.  This is all we need to
know about  the plaintiff's  status.   Now you see why the French
immigrant theory  is really  just propaganda.  In later chapters,
the motive for this propaganda will become crystal clear.


Treasury Decision 2313

     Soon after the Brushaber decision, and as a direct result of
that decision, the Office of the Commissioner of Internal Revenue
published Treasury  Decision (T.D.)  2313 to  clarify the meaning
and consequences of the Supreme Court's ruling.  Volume 18 of the
Treasury Decisions  was published  for the  period of  January to


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                                          Status and Jurisdiction


December of  1916 by  Secretary of  the Treasury  W.  G.  McAdoo.
Treasury Decision 2313 was written to clarify the "... taxability
of interest  from  bonds  and  dividends  on  stock  of  domestic
corporations owned  by nonresident aliens, and the liabilities of
nonresident aliens  under section  2 of  the act  of  October  3,
1913."

     Frank Brushaber  had purchased  stock in  the Union  Pacific
Railroad Company.   He  was then  paid a  dividend on this stock.
The Union Pacific Railroad Company acted as a "withholding agent"
and withheld  a portion of his dividend to pay the federal income
tax that was owed on that dividend.  The term "withholding agent"
still has  the same meaning in the current Internal Revenue Code.
Although he  was a  nonresident alien,  Frank Brushaber  received
income from  a source  that was  inside, or  "within" the federal
zone.   The "source"  of his  income was a "domestic" corporation
because that corporation had been chartered by Congress.

     The net  result of  his defeat  by the  Supreme Court was to
render as  taxable  the  income  from  bond  interest  and  stock
dividends issued  by domestic  corporations to nonresident aliens
like Frank  Brushaber.   A key  paragraph from  Treasury Decision
2313 is the following:


     Under the decision of the Supreme Court of the United States
     in the case of Brushaber v. Union Pacific Railway Co. [sic],
     decided January  24, 1916,  it is  hereby held  that  income
     accruing to  nonresident aliens in the form of interest from
     the  bonds   and  dividends   on  the   stock  of   domestic
     corporations is subject to the income tax imposed by the act
     of October 3, 1913.
                                                 [emphasis added]

Because Brushaber's  income originated  from a source "inside" or
"within" the  United States**,  where "United States**" means the
federal zone, the income was taxable.  The "source" was the Union
Pacific Railroad  Company, the  issuer of the stock and the payor
of dividends.   (The  T.D. failed to spell the corporation's name
correctly.)   The federal tax law then, as now, designates such a
dividend payor as the "withholding agent":


     The normal  tax shall  be withheld at the source from income
     accrued to nonresident aliens from corporate obligations and
     shall be  returned and  paid to  the  Government  by  debtor
     corporations and  withholding  agents  as  in  the  case  of
     citizens and resident aliens ....
                                                 [emphasis added]

This "withholding  agent" must withhold a certain amount from the
dividend to  cover the  federal tax  liability of  the recipient.
The amount withheld is paid to the federal government.  T.D. 2313
then went on to explain the use of Form 1040 in this situation:


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                                                The Federal Zone:


     The liability,  under the  provisions of  the law, to render
     personal returns  ... of  annual net  income accrued to them
     from sources within the United States** during the preceding
     calendar year, attaches to nonresident aliens as in the case
     of returns  required  from  citizens  and  resident  aliens.
     Therefore, a  return on  Form  1040,  revised,  is  required
     except in cases where the total tax liability has been or is
     to be  satisfied at the source by withholding or has been or
     is to be satisfied by personal return on Form 1040, revised,
     rendered in their behalf.
                                                 [emphasis added]

For those  of you  who  are  interested,  the  complete  text  of
Treasury Decision 2313 can be found in Appendix C of this book.


Summary

     The dual  issues of  status  and  jurisdiction  are  closely
intertwined.   The federal  government has  a limited  area  over
which it  exercises exclusive legislative jurisdiction, an area I
have called  "the federal  zone".  Congress is not limited by the
constitutional  restrictions  on  direct  and  indirect  taxation
within the  federal zone.   The  birth and  residency  status  of
natural persons  situate  them  either  inside  or  outside  that
jurisdiction.   Citizens who  were naturalized  by federal courts
are situated  inside that  jurisdiction, regardless of where they
reside.   Both citizens  and residents  of the  federal zone  are
liable for  federal taxes  on their  worldwide income,  no matter
where the  source of that income.  If you are not a citizen, then
you are  an alien.   If  you are  not a  resident, then you are a
nonresident.   Nonresident aliens  pay taxes only on income which
is derived from sources that are inside the federal zone.  If you
work for  the federal  government, your  pay comes  from a source
that is inside the federal zone.

     Likewise, artificial  "persons" like corporations are either
foreign or  domestic.   (It may  appear strange  at first,  but a
corporation is  also a  "person" as  that term  is defined in the
Internal Revenue  Code.)   A corporation  that  is  chartered  by
Congress is  domestic with  respect  to  the  federal  zone.    A
corporation that  is chartered  by one  of the  50 States  of the
Union is foreign with respect to the federal zone.  A corporation
that is  chartered by  a foreign  country like France is likewise
foreign with  respect to  the  federal  zone.    Imagine  what  a
difference it would make if all individuals and corporations knew
and asserted  their correct  status with respect to the exclusive
legislative jurisdiction of the federal zone.




                             #  #  #



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