Feeding The Hand That Bites You

From

Cracking the Code

The Fascinating Truth About Taxation In America

2003, 2007 by Peter E. Hendrickson
All Rights Reserved

Feeding The Hand That Bites You

"We must note here, as a matter of judicial knowledge, that

most lawyers have only scant knowledge of tax law."
Bursten v. U.S., 395 F 2d 976, 981 (5th Cir. 1968)
I mentioned in the last section that the private-sector
businesses who are co-opted into facilitating various elements of
the scheme which are ultimately directed at others, such as
executing W-2s and demanding the execution of W-9s and W4s, have been compromised themselves early on. It is worth
our while to discuss how this is done, for despite being complicit
as nearly the sole force subjecting workers to the maladministration of the income tax, such businesses are
themselves victims (at least, to begin with), and not only as the
liable actor open to bureaucratic and criminal penalties, as well
as civil suits.
For instance, a typical company suckered into
participating in the scheme is subjecting itself to as much as a
13.85% tax on the first $7,000 of every workers pay, and
7.65% on the most of the rest-- its share of employment
taxes and the federal unemployment tax-- for which it is
otherwise not legally liable, as we discussed in Withholding The
Truth. There is also, of course, a very considerable cost in the

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form of administrative expenses associated with such

participation.
By one estimate, Americans spend 5.4 billion hours, at
an annual cost of $600 billion to the economy, just completing
the paperwork requirements of federal taxes (James L. Payne,
"Unhappy Returns: The $600 Billion Tax Rip-Off," Policy Review,
Winter 1992, pp. 1822). Businesses bear 52.4% of that cost,
despite being a small minority of filers, according to The Tax
Foundation, in its February, 2002 report The Cost of Tax
Compliance. (That report pegs the man-hour total at a higher
figure still, and observes that, Put another way, 5.8 billion
hours per year represents a work force of over 2,774,000
people, larger than the populations of Dallas (1,189,000),
Detroit (951,000) and Washington, D.C. (572,000) combined,
and more people than work in the agricultural industry (1.14
million), the automobile manufacturing industry (1.013 million),
the computer manufacturing industry (355,830), hardware
stores (170,360) and museums and art galleries (82,410)
combined. This is also more people than would reside in four
Congressional districts.).
These quantifiable costs are the visible expenses
imposed by the scheme. The hidden costs are more significant
still, and go well beyond just the opportunity costs which
parallel any involuntary expenditure. These are the costs
imposed in the form of regulatory busy-bodying-- the dictating
of form, process, etc., in a thick, expensive and suffocating
cloud of such density and scope as to be beyond description
here, but which will be well known to anyone in business for
themselves or to those working for others in roles of a certain
sort.
Virtually all of these burdens are made possible by the
river of wealth diverted into the hands of government by the
income tax scheme. There is a direct correlation between the
growth curve of the micro-managing regulatory state and that
of the scheme bringing in the means by which the requisite

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army of bureaucrats is hired and maintained. Without sorting

among such burdens to pick those of which anyone might or
should individually approve or disapprove, all are illegitimate to
the degree that they are made possible through fraud, coercion,
or subterfuge.
This larger issue, which as much as anything amounts
to the general erosion of the rule of law, brings harm to the
business community with a certain poetic justice. Having quietly
let stand unchallenged a million un- (or at least ill-) founded
claims of government power over the last 90 years despite
being uniquely equipped with the wherewithal to fight back-either for the sake of expediency or from being corrupted with a
piece of the action-- these same business owners are now the
permanent victims of the state through ever-greater
peregrinations by Congress and the executive.
Almost completely unleashed by these repeated
capitulations to its taking of liberties with the law (!), the
government preys upon them more or less at will in the service
of the political and remunerative interests of its beneficiaries.
The form that these predations take-- the extraction of fines,
legal concessions and control over policy-- enlarge, entrench
and embolden the political support for such practices. The
courts, habituated by both convention and the typical jurists
natural reluctance to swim against the tide, are generally willing
to remain silent when the similarly motivated counsel for the
latest victim declines to argue against the states creative
usurpations.
Nonetheless, every January thousands of businesses
across the country pause their year-long efforts to generate and
protect revenue. They take a break from the often contentious
(and always expensive and resented) daily struggle to fight-- or
avoid ruin in surrendering to-- the all-too-frequently lawless
dictates issued by those millions of highly paid (and otherwise
idle) federal and state bureaucrats as to the conduct of their

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affairs. They tell their crack defensive legal teams, which in all
other cases are under strict instructions to painstakingly
research the intricacies of the law, to go out for coffee. Then
these businesses spend a few quiet moments on selfdestruction.
Obediently, and without a fuss, they participate in the
annual fraud that finances those same bureaucratic
infringements. Obediently, and without a fuss, these businesses
sign and issue millions of sworn, but false, affidavits specifically
declaring their private-sector workers to have been paid
government wages. Obediently and without a fuss they
create the legal fictions through which the federal and state
governments steal some 2 trillion or so dollars and replenish the
lifeblood of the assault against which these businesses battle for
their survival the other 364 days of the year. In all twelve
months of the year, every time they hire a new worker or pay a
contractor, they will similarly throw food to their tormentors.
Why?
Well, one of the first things that the founders of new
businesses will do is to march proudly to the bank to open a
checking account with which to pay suppliers and workers and
to process incoming receipts. One of the first things the friendly
and helpful bank employee with whom they deal will do is ask,
Is this a business account? Yes? Well, then, what is your
Employer Identification Number (EIN)? If one hasnt been
executed already, they will produce a Form SS-4, by which the
nave new business customer can create a legal presumption
that theirs is the sort of entity in need of such a number. In the
interim during which the newly submitted form is being
processed, the bank will be happy to use the owners social
security number instead; but no account will be opened without
a number.

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Weve already looked at the limited legal requirements

of having and furnishing a number to others in connection to W9s and employment in previous sections. Here is the
remaining statutory language relating to having a number at all:

Sec. 6109. - Identifying numbers

(a) Supplying of identifying numbers
When required by regulations prescribed by the
Secretary:
(1) Inclusion in returns
Any person required under the
authority of this title to make a
return, statement, or other document
shall include in such return, statement, or
other document such identifying number
as may be prescribed for securing proper
identification of such person.
Now, disregarding the special groups previously
examined and those in the alcohol, tobacco, or firearms
businesses (for all of whom special statutory assignments of
liability and requirements for returns apply), here is the general
statutory requirement to make a return:

Sec. 6012. - Persons required to make returns of

income
(a) General rule
Returns with respect to income taxes under
subtitle A shall be made by the following:
(1)
(A)
Every individual having for the
taxable year gross income which
equals or exceeds the exemption
amount, (what follows is essentially
a series of exceptions to the
requirement).

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Clearly, the general requirement to make a return, and

therefore have a number, is as much dependent upon
specialized, federally-connected circumstances as are the more
particular requirements at which we have looked before.
This is all consistently expressed in the instructions for
the Form SS-4 (Application for an Employer Identification
Number):

Do I Need an EIN?
File Form SS-4 if the applicant entity does not already
have an EIN but is required to show an EIN on any
return, statement, or other document. For example, a
sole proprietorship or self-employed farmer who
establishes a qualified retirement plan, or is required to
file excise, employment, alcohol, tobacco, or firearms
returns, must have an EIN. A partnership, corporation,
REMIC (real estate mortgage investment conduit),
nonprofit organization (church, club, etc.), or farmers
cooperative must use an EIN for any tax-related
purpose even if the entity does not have employees.
(By now, every reader will have immediately noted that this
instruction does not simply say, File Form SS-4 if your business

does not already have an EIN.)

The application says in its required Privacy Act notice that:

We ask for the information on this form to carry out the

Internal Revenue laws of the United States. We need it
to comply with section 6109 and the regulations
thereunder, which generally require the inclusion of an
employer identification number (EIN) on certain returns,
statements, or other documents filed with the Internal
Revenue Service.
Compelled by the banks intransigence (or that of a
client demanding the completion of a W-9), the new
entrepreneur will file the SS-4 and ask for a number -- helped

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along by the expert advice of an accounting and/or legal

professional happy to verify that anyone who is an employer,
or involved in a trade or business has to have one. The
professionals wont, of course, acknowledge the quote marks
around these terms. Nor will they explain that since both the
form and the number are only intended for use by a
government or effectively-connected income paying or
receiving entity, a colorable basis for an IRS presumption that
the new venture is such an entity is thereby generated.
It must be said that the Form SS-4 is more benign than
most such instruments, as a signature-- to which penalties of
perjury, as usual, attach-- isnt actually demanded from most of
those to whom such a form is presented. No one would know
that by looking at the form itself, though, nor discover it without
reading to the very last of six dense pages of bureaucratese in
the form of detailed instructions available upon request. I will
say with virtual certainty that almost everyone who fills out the
form signs it under penalties of perjury, just as, I am confident,
the IRS prefers.
Even without a signature, of course, the very act of
completing and submitting the form works against the
submitter-- both in its creation of the presumption noted earlier,
and in serving as an announcement to the schemers of a new
target in play. A bank or client compelling the submission of an
SS-4 is, in that latter respect, akin to a Chamber of Commerce
insisting that as a condition of membership, notice of the
opening of ones new shop be sent to the gang of hoodlums
running the protection racket in that particular district.
However, I will point out that just as a worker pressured
to execute a W-4 doesnt transform themselves into an
employee and their pay into wages, requesting an EIN
doesnt make one an employer, any more than buying a
fishing license makes one a fisherman. Even having acquired a
license one might never get around to actually fishing.
Regulatory requirements associated with the pastime dont

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come into play because you have the license-- they come into
play when and because you actually put a hook in the water, or
drag out a fish.
Nonetheless, and particularly regarding demands for
such filings, forms and submissions that DO require a signature,
I will suggest that prudence dictates leaving declarations of
status to the party alleging an obligation. In other words, if the
IRS, or anyone, says that some instrument must be executed
on or by which is made a statement such as, I Am A U.S.
person, or [the named party] was paid $_____ in wages (as
defined in section 3401), etc., it is only sensible and proper for
the responding party to send the asserting party the relevant
information and let it fill out and sign the form.
For instance, a business owner, at the end of the year,
could send records of amounts paid to workers-- carefully
avoiding the use of any possibly misleading legal terms such as
employee, wages, etc.-- to the IRS along with blank Wage
and Tax Statement forms and let the agency, as a good public
servant, prepare and distribute them. Similarly, someone of
whom a signed W-9 is being demanded could provide a copy of
their birth certificate or business papers-- along with an affidavit
regarding the withholding question-- and let whoever is making
the demand fill out and execute the form.
In light of the fact that such declarations are often
dependent upon complex legal distinctions, and significant
liabilities are attendant upon error, it is only appropriate that the
insistent government experts make such determinations, with
the lay party confining its participation in the process to
challenging any such as might be made incorrectly. After all, if
the respondent really IS an employer, or whatever, its
acknowledgment or denial of the fact is meaningless-- its true
regardless of that partys attitude and with or without its
signature.
*****

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Upon receiving a Form SS-4, the IRS will promptly and

helpfully begin sending the new business Form 941s,
(Employers Quarterly Federal Tax Return) and Form 8109s
(Federal Tax Deposit Coupon) with which to fulfill the
obligations attendant upon the status implied by the submission,
and will express considerable umbrage if those properly
executed forms (and the associated tax payments) dont show
up in the agencys mailbox in a timely fashion.
The service doesnt wait for cause before expressing
itself. These forms arrive accompanied by a selection of
regulatory language in a What If Im Late Making A Payment?type Q & A format, carefully calculated to nip-in-the-bud any
questions about the legal applicability of the whole program. It
is the rare entrepreneur who will find himself with the stomach,
not to mention the time, to explore the matter thoroughly,
especially since the deposit schedule typically demands action
within a month. Most just do what they think theyre being told,
and budget for the loss, rather than throw the forms away as
they should.
Once the first compliant theft-by-conversion withholding
is carried out against a worker by the new business, the
formation of a complex and entangling web of prima facie
evidence is well under way. A whip-saw is created between the
companys lawful obligations to its workers and the assertions of
a notoriously irrational and bellicose agency demanding
continuing offenses.
The typical company in this situation embraces the
mysterious law syndrome, puts its head in the sand, and
defers to the bellicose behemoth. When challenged by a worker
whose contract it is violating, such a company will fall back
behind the expert advice that got it into the situation in the
first place and the misleading and superficially ambiguous
selections of statutory and regulatory language provided for
such purposes by the IRS. Many will also deploy the implicit
threat of retaliation typically faced by any troublemaking

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worker in an effort to simply make the conundrum go away.

Such a company quickly becomes an entrenched component of
the scheme, and an enemy of the truth and the rule of law.

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