By Dan Meador 2003-10-20

Please refer to these items on the Law Research & Registry web page.

1.      The complete 31 CFR Part 215, which includes the standard state-federal piggybacking agreement for administration of qualified state resident and nonresident income taxes;

2.      The state-federal memorandum of understanding for investigation of abusive tax shelters; and

3.      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 Service.

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:

1.      State individual income tax forms (also download business income tax forms if you own your own business or are otherwise self-employed);

2.      Instructions for applicable income tax forms;

3.      State income tax rules or regulations;

4.      The state open records act; and/or

5.      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. § 7701(a)(12)(A)).

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. 22, 2001).

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 U.S. 244.

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 United States, 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”, “United States” 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 “United States” that the Social Security Act applied to Alaska and 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 United States, 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 United States status, nor do they have blanket benefits secured by the Fourteenth Amendment. Yet insular possessions are construed as being part of the “geographical” United States 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 States”
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 Oklahoma’s Legislature’s 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 service performed 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 thereof.

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); Norton v. Shelby County, 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 fill.”

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 United States. 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 follows:

5 USCS § 5517 (2000)

§ 5517. Withholding State income taxes

(a) When a State statute--

  (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; and

  (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 United States 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 United States 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 States.

(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" include--

  (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 United States. 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 Transactions (ATAT).

Section 2 then provides the basic authority:

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, specifies limitations:

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 subject:

As used in this part:

 (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 branch.

 (b) "City" means any unit of general local government.

 (1) Which:

 (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, and

 (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 Federal Government.

 (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 instrumentality;  and

 (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 immaterial.

 (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 thereunder.

 (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 instrumentality;  and

 (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 agency;

 (ii) Members of the National Guard, participating in exercises or performing duty under 32 U.S.C. 502;  or

 (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. 270(a).

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 basis.

 (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 32 U.S.C. 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. 270(a).

 (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 county.

 (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 otherwise specified.

 (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, Washington, D.C. 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 Agreement.

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, Washington, D.C. 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 withholding.

 (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 verified.

The following states have adopted the Uniform Federal Tax Lien Filing Act:

Jurisdiction         Laws        Effective          Statutory Citation

                                     Date

-----------------------------------------------------------------

Alabama . 1989, No.       1-1-1990     Code 1975, § §  35-11-42 to

                    89-948                       35-11-48.

Alaska . 1988, c. 161    1-1-1989     AS 40.19.010 to 40.19.050.

Arizona . 1990, c. 158    4-30-1990    A.R.S. § §  33-1031 to 33-1035.

                                    [FN*]

Arkansas . 1989, No. 835   3-22-1989    A.C.A. § §  18-47-201 to

                                                 18-47-207.

California . 1979, c. 330    1-1-1980     West's Ann.Cal.C.C.P. § §  2100 to

                                                 2107.

Colorado . 1988, c. 264    7-1-1988     West's C.R.S.A. § §  38-25-101 to

                                                 38-25-107.

Connecticut . 1967, P.A. 456  7-1-1967     C.G.S.A. §  49-32a.

Delaware . 70 Del. Laws,   7-12-1996    25 Del.C. § §  3101 to 3105.

                    c. 504

Florida . 1992, c. 92-25  1-1-1993     West's F.S.A. §  713.901.

Idaho . 1979, c. 226    3-29-1979    I.C. § §  45-201 to 45-207.

Illinois . 1989, P.A.      8-15-1989    S.H.A. 770 ILCS 110/1 to 110/7.

                    86-254

Iowa . 1989, S.F. 276  4-20-1989    I.C.A. §  331.609.

                                    [FN*]

Kansas . 1988, c. 379    4-7-1988     K.S.A. 79-2613 to 79-2619.

Louisiana . 1987, No. 348   7-6-1987     LSA-R.S. 52:51 to 52:56.

Maine . 1989, c. 502    6-30-1989    33 M.R.S.A. § §  1901 to 1907.

                                    [FN*]

Maryland . 1980, c. 581    7-1-1980     Code, Real Property, § §  3-401 to

                                                 3-405.

Michigan . 1983, No. 102   6-30-1983    M.C.L.A. § §  211.661 to 211.668.

Minnesota . 1979, c. 37     1-1-1980     M.S.A. § §  272.479, 272.481 to

                                                 272.488.

Mississippi . 1989, c. 515    1-1-1990     Code 1972, § §  85-8-1 to 85-8-15.

Montana . 1983, c. 396                 MCA 71-3-201 to 71-3-207.

Nebraska . 1988, LB 933    3-23-1988    R.R.S.1943, § §  52-1001 to

                                    [FN*]        52-1008.

Nevada . 1979, c. 381    5-17-1979    N.R.S. 108.825 to 108.837.

                                    [FN*]

New Hampshire . 1988, c. 116:1  4-18-1988    RSA 454-B:1 to 454-B:8.

New Jersey . 1997, c. 412    1-19-1998    N.J.S.A. 46:16-15 to 46:16-19.

New Mexico . 1988, c. 44     3-4-1988     NMSA 1978, § §  48-1-1 to 48-1-7.

                                    [FN*]

New York . 1987, c. 840    8-7-1987     McKinney's Lien Law, § §  240 to

                                                 245.

North Carolina .. 1990, c. 1047   8-1-1990     G.S. § §  44-68.10 to 44-68.17.

North Dakota . 1979, c. 386    7-1-1979     NDCC 35-29-01 to 35-29-06.

Oklahoma . 1988, c. 132    11-1-1988    68 Okl.St.Ann. § §  3401 to 3407.

Oregon . 1981, c. 852                 ORS 87.806 to 87.831.

Pennsylvania . 1989, P.L.      12-7-1989*   74 P.S. § §  157-1 to 157-8.

                    608, No. 69

South Dakota . 1988, c. 355                 SDCL 44-7-1 to 44-7-8.1.

Texas . 1989, c. 945    9-1-1989     V.T.C.A. Property Code, § § 

                                                 14.001 to 14.007.

Virginia . 1988, cc. 113,               Code 1950, § §  55-142.1 to

                    388                          55-142.9.

Washington . 1988, c. 73     7-1-1988     West's RCWA 60.68.005 to

                                                 60.68.902.

West Virginia . 1989, c. 114                 Code, 38-10A-1 to 38-10A-5.

Wisconsin . 1979, c. 312    5-18-1980    W.S.A. 779.97.

Wyoming . 1988, c. 41     7-1-1988     Wyo.Stat.Ann. § §  29-6-201 to

                                                 29-6-208.

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 documented.

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 underlying presumptions.

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 Tax Regulations).

Per 26 CFR § 601.702(a)(2)(ii), failure to publish implementing regulations completely exonerates liability:

(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 rights.

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 (9^th 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 (9^th 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 (1^st Cir. 1995); Diamond Ring Ranch v. Morton, 531 F.2d 1397, 1401 (1976); U.S. v. Omega Chemical Corp., 156 F.3d 994 (9^th Cir. 1998); U.S. v. Corona, 849 F.2d 562, 565 (11^th 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. U.S., 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:

PART 3. ASSESSMENTS

710:50-5-10. Assessment procedure; assessment based upon information derived from Internal Revenue Service

(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 taxpayer.

(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.