Amicus Curiae Brief — Christopher Chapman, et ux., Petitioners v. Commissioner of Internal Revenue

No. 17-1380

In The

Supreme Court of the United States

____________

CHRISTOPHER and PAMELA J. CHAPMAN,

PETITIONERS,

v.

COMMISSIONER OF INTERNAL REVENUE,

RESPONDENT.

____________

On Petition for a Writ of Certiorari

to the United States Court of Appeals

for the Eleventh Circuit

____________

BRIEF AMICI CURIAE

OF JOSEPH BANISTER, STEVE HEMPFLING,

AND PEYMON MOTTAHEDEH

IN SUPPORT OF PETITIONERS

____________

LOWELL H. BECRAFT, JR.

Counsel for Amici Curiae

403 Andrew Jackson Way

Huntsville, Alabama 35801

becraft@hiwaay.net

(256) 533-2535

TABLE OF CONTENTS

Page

TABLE OF AUTHORITIES ................................................ ii

INTEREST OF AMICI CURIAE.......................................... 1

SUMMARY OF ARGUMENT ............................................. 2

ARGUMENT ................................................................... 6

I. The meaning of “wages” and “salaries”

in the income tax laws ........................................ 6

II. The validity of 26 C.F.R. § 1.1-1....................... 17

CONCLUSION .............................................................. 21

APPENDIX

Art. 1, Sec. 2, Cl. 3 .................................... 1

Sixteenth Amendment ............................. 1

26 U.S.C. § 1 ............................................. 1

26 U.S.C. § 83 ........................................... 2

26 U.S.C. § 1.1-1 ....................................... 3

26 U.S.C. § 31.3401(a)-1........................... 5

– ii –

TABLE OF AUTHORITIES

CASES

Page

Allgeyer v. Louisiana, 165 U.S. 578 (1897) ................ 3

Bowers v. New York & Albany Lighterage Co.,

273 U.S. 346 (1927) ............................................. 18

Brushaber v. Union Pacific Railroad Co.,

240 U.S. 1 (1916) ............................................... 6, 9

Butchers’ Union Slaughterhouse Co. v. Crescent City

Live-Stock Landing Co., 111 U.S. 746 (1884)....... 3

Commissioner v. Acker, 361 U.S. 87 (1959) ......... 5, 20

Commissioner v. Kowalski, 434 U.S. 77 (1977) ......... 7

Coppage v. Kansas, 236 U.S. 1 (1915)........................ 3

Crocker v. Malley, 249 U.S. 223 (1919) .................... 18

Dixon v. United States, 381 U.S. 68 (1965).............. 20

Douglas v. Willcuts, 296 U. S. 1 (1935)...................... 7

Eisner v. Macomber, 252 U.S. 189 (1920) .............. 5, 6

Gould v. Gould, 245 U.S. 151 (1917)........................ 18

Harrington v. United States, 78 U.S. 356 (1877)....... 7

– iii –

TABLE OF AUTHORITIES

(continued)

CASES

Page

Helvering v. Clifford, 309 U. S. 331 (1940) ................ 7

Helvering v. Credit Alliance Corp.,

316 U.S. 107 (1942) ............................................. 20

Hormel v. Helvering, 312 U.S. 552 (1941).................. 2

Irwin v. Gavit, 268 U. S. 161 (1925)........................... 7

Iselin v. United States, 270 U.S. 245 (1926) ............ 20

Koshland v. Helvering, 298 U.S. 441 (1936) ............ 20

Lynch v. Tilden Produce Co., 265 U.S. 315 (1924) .. 20

Manhattan General Equip. Co. v. Commissioner,

297 U.S. 129 (1936) ............................................. 20

Miller v. Standard Nut Margarine Co. of Florida,

284 U.S. 498 (1932) ............................................. 18

Montclair v. Ramsdell, 107 U. S. 147 (1883) ........... 13

Old Colony R. Co. v. Commissioner,

284 U.S. 552 (1932) ............................................. 18

Pollock v. Farmers’ Loan & Trust Co.,

157 U.S. 429, aff. reh., 158 U.S. 601 (1895) ......... 6

– iv –

TABLE OF AUTHORITIES

(continued)

CASES

Page

Reinecke v. Northern Trust Co.,

278 U.S. 339 (1929) ............................................. 18

Sanford’s Estate v. Commissioner,

308 U.S. 39 (1939) ................................................. 7

Smietanka v. First Trust & Sav. Bank,

257 U.S. 602 (1922) ............................................. 18

Southern Ry. Co. v. McNeill, 155 F. 756

(Cir. Ct. E.D.N.C. 1907) ........................................ 8

United States v. Calamaro, 354 U.S. 351 (1957) ..... 20

United States v. Collier, Fed.Cas.No. 14,833

(Cir. Ct. S.D.N.Y. 1855)......................................... 8

United States v. Field, 255 U.S. 257 (1921) ............. 18

United States v. Lexington Mill & Elevator Co.,

232 U.S. 399 (1914) ............................................. 14

United States v. Menasche, 348 U.S. 528 (1955) ..... 14

United States v. Merriam, 263 U.S. 179 (1923) ....... 18

United States v. Stewart, 311 U.S. 60 (1940)............. 7

–v–

TABLE OF AUTHORITIES

(continued)

CASES

Page

United States v. Wigglesworth, Fed. Cas. No.

16,690 (Cir.Ct. D. Mass. 1842)............................ 18

White v. Aronson, 302 U.S. 16 (1937)....................... 18

CONSTITUTIONAL PROVISIONS

Article 1, Section 2, Clause 3...................................... 6

Sixteenth Amendment....................................... 5-7, 13

STATUTES

26 U.S.C. § 1...................................................2, 3, 5, 20

26 U.S.C. § 61.....................................................passim

26 U.S.C. § 83.................................................... 2, 3, 17

26 U.S.C. § 3401........................................................ 16

REGULATIONS

26 C.F.R. § 1.1-1....................................... 2, 3, 5, 17-20

28 C.F.R. § 31.3401(a)-1 ........................................... 16

– vi –

TABLE OF AUTHORITIES

(continued)

U.S. STATUTES AT LARGE

Page

Current Tax Payment Act of 1943,

57 Stat. 126, ch. 120 ............................................ 16

Internal Revenue Code of 1939,

53 Stat. Part 1 ..............................................passim

Internal Revenue Code of 1954, 68A Stat.........passim

Revenue Act of 1916, 39 Stat. 756, ch. 463............ 6, 9

Revenue Act of 1917, 40 Stat. 300, ch. 63.................. 9

Revenue Act of 1918, 40 Stat. 1057, ch. 18.......... 9, 14

Revenue Act of 1921, 42 Stat. 227, ch. 136.............. 10

Revenue Act of 1924, 43 Stat. 253, ch. 234........ 10, 15

Revenue Act of 1926, 44 Stat. 9, ch. 27.................... 10

Revenue Act of 1928, 45 Stat. 791, ch. 852... 10, 19-20

Revenue Act of 1932, 47 Stat. 169, ch. 209.............. 11

Revenue Act of 1934, 48 Stat. 680, ch. 277.............. 11

Revenue Act of 1936, 49 Stat. 1648, ch. 690............ 11

– vii –

TABLE OF AUTHORITIES

(continued)

U.S. STATUTES AT LARGE

Page

Revenue Act of 1938, 52 Stat. 447, ch. 289.............. 11

Tariff Act of 1894, 28 Stat. 509, ch. 349........... 6, 8, 18

Tariff Act of 1913, 38 Stat. 114, ch. 16..............passim

Tax Reform Act of 1986, 100 Stat. 2085 ................ 3, 6

HISTORICAL INCOME TAX REGULATIONS

Regulations 115, 8 F.R. 12262 (Sept. 7, 1943)......... 16

Treasury Decision 2831, 21 Treasury Decisions

Under Internal Revenue Laws 170..................... 14

Treasury Decision 3295, 24 Treasury Decisions

Under Internal Revenue Laws 207..................... 15

Treasury Decision 3640, 26 Treasury Decisions

Under Internal Revenue Laws 745..................... 15

OTHER REFERENCES

Black’s Law Dictionary, Fifth Edition ..................... 15

Supreme Court Rule 10(c) .......................................... 2

–1–

INTEREST OF AMICI CURIAE1

Joseph Banister, a Nevada citizen, has an

accounting degree, formerly served as an Internal

Revenue Service Special Agent, and currently works

as an accountant for various clients. Since the late

1990s, he has extensively studied the federal income

tax laws. Steve Hempfling, a Californian, is a

founder of the Free Enterprise Society; the

organization’s purpose is to educate its members

about constitutional and legal issues, including

taxation. Peymon Mottahedeh, a Florida citizen and

founder of Freedom Law School, has dedicated himself to informing members of their constitutional and

legal rights as well as assisting with various federal

income tax problems. Over the past decade and more,

these men have publicly expressed concern about the

proper application of the federal income tax laws.

They believe the Chapmans’ Petition for Writ of

Certiorari has merit and is worthy of this Court’s

consideration, and reach this conclusion through an

analysis of historical income tax acts to the present.

1 It is hereby certified that the parties have consented to the

filing of this brief; that the parties received notice of the

intention to file this brief at least 10 days prior to the filing of

it; that no counsel for a party or a party to this case authored

this brief in whole or in part; and that no person other than

these amici curiae, and their friends, made a monetary

contribution to its preparation or submission.

–2–

SUMMARY OF ARGUMENT

Petitioners, husband and wife Christopher and

Pamela Chapman, litigated their cases in the United

States Tax Court pro se, and suffered adverse

judgments. Rather than rehashing the issues raised

in Tax Court, they raised on appeal to the Eleventh

Circuit two new and purely legal issues. In

particular, they addressed the meaning and

construction of “gross income” which Congress set

forth in 26 U.S.C. §§ 61 and 83, and they addressed

the reach and scope of 26 U.S.C. § 1, and its corresponding regulation, 26 C.F.R. § 1.1-1. Owing to the

raising of these issues for the first time on appeal,

the Circuit Court failed to consider them.

However, this Court has considered new issues

on appeal in almost identical circumstances, because

they raise questions of law rather than fact. In

Hormel v. Helvering, 312 U.S. 552 (1941), Hormel

raised before this Court for the first time in his

litigation a question related to § 22 of the 1939

Internal Revenue Code, the predecessor to 26 U.S.C.

§ 61. This Court decided that new issue because it

raised only a question of law that an appellate court

may resolve, and did not raise any question of fact.

Justice requires the same conclusion here. Both

Chapmans raised on appeal legal issues of the caliber

raised in Hormel. The Eleventh Circuit’s Chapman

decisions thus conflict with this Court’s Hormel

decision. Therefore, this Court should grant the

Chapmans’ petition pursuant to Rule 10(c), and

should reverse the related decisions of the Eleventh

Circuit.

But what new, purely legal issues did the

Chapmans raise that merit this Court’s attention?

–3–

First, the Chapmans challenged conventional views

regarding the meaning of “gross income” as determined by certain provisions of the Internal Revenue

Code of 1986, specifically 26 U.S.C. §§ 61 and 83.

They argued before the appellate court that the

money they received for their work was exchanged

for their labor of equal value.2 By attributing this

value to their labor and deducting such amount from

the funds they were paid, they argued that they had

no “gain or profit,” which resulted in no income tax

liability. The legal justification for this process was

predicated on their construction of the legal terms

set forth in 26 U.S.C. § 83.

Further, as another issue, the Chapmans

mounted in the appellate court an attack on 26

U.S.C. § 1 and its corresponding regulation, 26

C.F.R. § 1.1-1. Section 1 of the Internal Revenue

Code imposes an income tax on the taxable income of

an “individual”, without otherwise defining who that

“individual” is. The relevant regulation, 26 C.F.R. §

1.1-1, expands the definition of “individual” to

encompass citizens of the United States. The

Chapmans argued in the Eleventh Circuit that the

regulation constitutes a nullity as a consequence of

its differing substantively from the statute.

The Amici assert that the foregoing questions are

not “tax protester arguments” and have substantial

merit, although they reach this conclusion by a

separate analysis from that presented in the

Chapmans’ petition. While the Chapmans rely upon

2 This Court has declared that a party’s labor is property. See

Butchers’ Union Slaughterhouse Co. v. Crescent City Live-Stock

Landing Co., 111 U.S. 746, 756-57 (1884); Allgeyer v. Louisiana,

165 U.S. 578, 589-90 (1897); and Coppage v. Kansas, 236 U.S. 1,

14 (1915).

–4–

current tax law for their analysis, the Amici rely

upon historical income tax acts.

This case is about the meaning of terms contained in the various federal income tax laws. The

terms in question include “income,” “wages,” “salaries,” and “compensation for personal service,” and

the manner in which these terms have been used in

the income tax laws. The Amici rely upon the meaning of these words appearing in the income tax laws

in effect for more than 40 years prior to 1954. The

Petitioners’ argument centers on these and related

terms as they have been used in the tax code in effect

since 1954.

People commonly and popularly understand

“wages” and “salaries” to mean the recipient’s

“income.” However, these words in the federal

income tax laws have meanings entirely different

from their popular perception. Well-established rules

of statutory construction hold that each word

appearing in a law must have a different,

independent meaning from the surrounding words.

For example, according to the common rules of

statutory construction, each word in the phrase,

“gains, profits, and income derived from salaries,

wages, or compensation for personal service,” differs

in meaning from every other word in the phrase. So

“income” differs in meaning from all of these words:

“salaries, wages, or compensation for personal

service.”

“Gross income” for federal income tax purposes is

defined by 26 U.S.C. § 61, which provides that

“[e]xcept as otherwise provided in this subtitle, gross

income means all income from whatever source

derived, including (but not limited to) the following

…” Although this section reaches the full scope of the

–5–

power to tax incomes pursuant to the Sixteenth

Amendment, it does not specifically mention

“salaries” and “wages.”

However, the predecessor to § 61, § 22 of the

Internal Revenue Code of 1939, did mention them.

This Court previously determined that § 22

expressed the full power to tax incomes as authorized

by the Sixteenth Amendment to the United States

Constitution. Section 22 defined “gross income” as

including the “gains, profits, and income derived

from salaries, wages, or compensation for personal

service.” Using the well-established rules of statutory

construction mentioned supra leads to the conclusion

that “gross income” is not the same as “salaries” and

“wages,” but separately arises3 from “salaries” and

“wages,” much like an apple is derived from an apple

tree and a grape is derived from a grapevine.

The other issue raised by the Chapmans

concerns the meaning of the word “individual” as it

appears in 26 U.S.C. § 1, and it is also meritorious.

Before 1928, federal tax laws identified the parties

whose income was subject to tax as including

citizens, but the income tax acts in effect now and for

many decades in the past have not identified citizens

in the section imposing the tax, but instead have

identified those whose “income” is taxed as

“individuals.” 26 C.F.R. § 1.1-1 supplies this deficiency by defining “individuals” in 26 U.S.C. § 1 as

including citizens. The evident problem is that the

regulation is broader than the statute, and is thus

void as a consequence. See Commissioner v. Acker,

361 U.S. 87, 93-94 (1959).

3 See Eisner v. Macomber, 252 U.S. 189, 207 (1920).

–6–

ARGUMENT

I.

The meaning of “wages” and “salaries” in

the income tax laws.

Art. 1, Sec. 2, Cl. 3 of the United States

Constitution requires that Congress apportion all

direct taxes among the States. In Pollock v. Farmers’

Loan & Trust Co., 157 U.S. 429, aff. reh., 158 U.S.

601 (1895), this Court held as unconstitutional the

income tax part of the Tariff Act of 1894, 28 Stat.

509, 553, ch. 349, and determined that it constituted

an unapportioned direct tax. This decision led to the

adoption of the Sixteenth Amendment to the

Constitution, after which Congress enacted the Tariff

Act of 1913, which imposed, at Section II, another

income tax. 38 Stat. 114, 166, ch. 16. In consequence

of this Court’s decision in Brushaber v. Union Pacific

Railroad Co., 240 U.S. 1 (1916), Congress repealed

the 1913 income tax and enacted another one in

1916. 39 Stat. 756, ch. 463. Virtually every two years

thereafter, Congress amended that act, eventually

enacting the Internal Revenue Code of 1939. 53 Stat.

Part 1. In August, 1954, Congress re-arranged the

provisions of the 1939 Code by means of the Internal

Revenue Code of 1954, 68A Stat. The current 1986

tax code is simply the renamed 1954 Internal

Revenue Code. Pub. L. 99–514, 100 Stat. 2085, 2095

(§ 2).

This Court has repeatedly observed that,

through these income tax acts, Congress reached the

full extent of the taxing power authorized by the

Sixteenth Amendment. See Eisner v. Macomber, 252

U.S. 189, 203 (1920) (“we are unable to see how it

–7–

can be brought within the meaning of ‘incomes’ in the

Sixteenth Amendment, it being very clear that

Congress intended in that act to exert its power to

the extent permitted by the amendment.”); Irwin v.

Gavit, 268 U.S. 161, 166 (1925) (“Congress intended

to use its power to the full extent.”); Douglas v.

Willcuts, 296 U.S. 1, 9 (1935) (“We think that the

definitions of gross income * * * are broad enough to

cover income of that description. They are to be

considered in the light of the evident intent of the

Congress ‘to use its power to the full extent.’”);

Helvering v. Clifford, 309 U.S. 331, 334 (1940) (“The

broad sweep of this language indicates the purpose of

Congress to use the full measure of its taxing power

within

those

definable

categories.”);

and

Commissioner v. Kowalski, 434 U.S. 77, 82 (1977)

(“The starting point in the determination of the scope

of ‘gross income’ is the cardinal principle that

Congress in creating the income tax intended ‘to use

the full measure of its taxing power.’”).

But what constitutes the full reach of the federal

income tax as authorized by the Sixteenth

Amendment? To what extent are “salaries” and

“wages” within the scope of this amendment and the

federal income tax laws? Do prior income tax acts

and applicable regulations assist in answering this

question?

A fundamental rule of statutory construction is

that acts in pari materia are to be read and

construed together. “[A]ll acts in pari materia are to

be taken together, as if they were one law.” United

States v. Stewart, 311 U.S. 60, 64 (1940). See also

Sanford’s Estate v. Commissioner, 308 U.S. 39, 44

(1939); and Harrington v. United States, 78 U.S. 356,

365 (1877). This is particularly true regarding the

–8–

federal tax laws. While there are many such acts, all

of them are regarded as parts of one system of taxation, and construction of any one act may be assisted

by review of other acts in this same “system.” See

United States v. Collier, Fed.Cas.No. 14,833 (Cir. Ct.

S.D.N.Y. 1855). A prior tax act, even one which has

been repealed, still is to be considered as explanatory

of later acts. See Southern Ry. Co. v. McNeill, 155 F.

756, 769 (Cir. Ct. E.D.N.C. 1907).

The 1894 federal income tax act, which was a

part of the Tariff Act of 1894, imposed the tax on the

“gains, profits, or income * * * derived from any kind

of property, rents, interest, dividends, or salaries, or

from any profession, trade, employment, or vocation

carried on in the United States or elsewhere.” 28

Stat. 553. In the Tariff Act of 1913, the section

imposing the tax was worded slightly differently:

[T]he net income of a taxable person shall

include gains, profits, and income derived

from salaries, wages, or compensation for

personal service of whatever kind and in

whatever form paid, or from professions, vocations, businesses, trade, commerce, or

sales, or dealings in property, whether real

or personal, growing out of the ownership or

use of or interest in real or personal property, also from interest, rent, dividends,

securities, or the transaction of any lawful

business carried on for gain or profit, or

gains or profits and income derived from any

source whatever, including the income from

but not the value of property acquired by

gift, bequest, devise, or descent. 38 Stat. 167.

–9–

After this Court’s decision in Brushaber, supra,

Congress repealed the 1913 income tax act and

enacted a new one. The Revenue Act of 1916, 39 Stat.

756, 757, ch. 463, followed its predecessors and

defined the subject of the tax, “income,” as follows:

INCOME DEFINED.

SEC. 2. (a) That, subject only to such exemptions and deductions as are hereinafter

allowed, the net income of a taxable person

shall include gains, profits, and income

derived from salaries, wages, or compensation for personal service of whatever kind

and in whatever form paid, or from professions,

vocations,

businesses,

trade,

commerce, or sales, or dealings in property,

whether real or personal, growing out of the

ownership or use of or interest in real or

personal property, also from interest, rent,

dividends, securities, or the transaction of

any business carried on for gain or profit, or

gains or profits and income derived from any

source whatever.

A year later, Congress amended the 1916 act by

the Revenue Act of 1917, 40 Stat. 300, 329, ch. 63,

but retained the same definition of income. The

Revenue Act of 1918, 40 Stat. 1057, 1065, ch. 18, contained this “gains, profits, and income” phrase in its

section defining “gross income”:

GROSS INCOME DEFINED.

SEC. 213. That for the purposes of this title

(except as otherwise provided in section 233)

the term ‘gross income’—

– 10 –

(a) Includes gains, profits, and income derived

from salaries, wages, or compensation for personal service (including in the case of the

President of the United States, the judges of

the Supreme and inferior courts of the United

States, and all other officers and employees,

whether elected or appointed, of the United

States, Alaska, Hawaii, or any political subdivision thereof, or the District of Columbia, the

compensation received as such), of whatever

kind and in whatever form paid, or from

professions, vocations, trades, businesses,

commerce, or sales, or dealings in property,

whether real or personal, growing out of the

ownership or use of or interest in such property; also from interest, rent, dividends, securities, or the transaction of any business

carried on for gain or profit, or gains or profits

and income derived from any source whatever.

This same language was used to define “gross

income” in sections 213 of the Revenue Act of 1921

(42 Stat. 227, 237-38, ch. 136); the Revenue Act of

1924 (43 Stat. 253, 267, ch. 234); and the Revenue

Act of 1926 (44 Stat. 9, 23-24, ch. 27).

The Revenue Act of 1928, 45 Stat. 791, 797, ch.

852, established a different format and section

numbering for this income tax act, and § 22 thus

became the section defining “gross income”:

SEC. 22. GROSS INCOME.

(a)

General

definition.—‘Gross

income’

includes gains, profits, and income derived

from salaries, wages, or compensation for personal service, of whatever kind and in what-

– 11 –

ever form paid, or from professions, vocations,

trades, businesses, commerce, or sales, or

dealings in property, whether real or personal,

growing out of the ownership or use of or

interest in such property; also from interest,

rent, dividends, securities, or the transaction

of any business carried on for gain or profit, or

gains or profits and income derived from any

source whatever.

The subsequent income tax acts also defined

gross income in this same manner. Section 22 of the

Revenue Act of 1932, 47 Stat. 169, 178, ch. 209,

contained the phrase, “‘Gross income’ includes gains,

profits, and income derived from salaries, wages, or

compensation for personal service,” as did the same

section in the Revenue Act of 1934, 48 Stat. 680, 68687, ch. 277. Section 22 of the Revenue Act of 1936, 49

Stat. 1648, 1657, ch. 690, and the same section in the

Revenue Act of 1938, 52 Stat. 447, 457, ch. 289 also

contained this phrase.

The 1939 Internal Revenue Code, 53 Stat. Part 1,

codified all of the then-effective tax laws into one act.

Virtually every section of the income tax provisions

in the Revenue Act of 1938 was incorporated into

this Code, including § 22 as set forth above.

In August, 1954, Congress essentially rearranged

the provisions of the Internal Revenue Code of 1939

to create the Internal Revenue Code of 1954, 68A

Stat. Now “gross income” for federal income tax

purposes was, and is, defined by 26 U.S.C. § 61,

which omits the terms “wages” and “salaries” as

sources from which income can be derived:

(a) General definition.

– 12 –

Except as otherwise provided in this subtitle,

gross income means all income from whatever source derived, including (but not

limited to) the following items:

(1) Compensation for services, including

fees, commissions, fringe benefits, and

similar items;

(2) Gross income derived from business;

(3) Gains derived from dealings in property;

(4) Interest;

(5) Rents;

(6) Royalties;

(7) Dividends;

(8) Alimony and separate maintenance

payments;

(9) Annuities;

(10) Income from life insurance and

endowment contracts;

(11) Pensions;

(12) Income from discharge of indebted-ness;

(13) Distributive share of partnership gross

income;

(14) Income in respect of a decedent; and

(15) Income from an interest in an estate or

trust.

Despite this omission from the statute, the relevant

Congressional Committees’ published reports clearly

state that § 61 of the Internal Revenue Code of 1954

was based upon § 22 of the 1939 Internal Revenue

Code, and the simplification does not affect the

nature of statutory gross income:

§ 61. Gross income defined.

This section corresponds to section 22(a)

– 13 –

of the 1939 Code. While the language in

existing section 22(a) has been simplified,

the all-inclusive nature of statutory gross

income has not been affected thereby.

Section 61(a) is as broad in scope as section

22(a).

Section 61(a) provides that gross income

includes ‘all income from whatever source

derived.’ This definition is based upon the

16th Amendment and the word ‘income’ is

used in its constitutional sense. Therefore,

although the section 22(a) phrase ‘in whatever form paid’ has been eliminated,

statutory gross income will continue to

include income realized in any form.4

Thus, § 61 of the 1954 Internal Revenue Code

has the same meaning, reach and scope as § 22 of the

1939 Code. Determining the meaning of the phrase,

“gains, profits, and income derived from salaries,

wages, or compensation for personal service,” is thus

important, even today. What, then, does this phrase

mean, since it expresses the full reach and scope of

the Sixteenth Amendment?

Canons of statutory construction dictate that all

words in a statute are to be assigned meaning, and

that nothing therein is to be construed as surplusage.

Similarly, words in a statute cannot be defined so as

to render other provisions of the same statute inconsistent, meaningless or superfluous. See United

States v. Menasche, 348 U.S. 528, 538-39 (1955);

United States v. Lexington Mill & Elevator Co., 232

House Report 1337, 83rd Congress, 2nd Session, at A18-19.

See also Senate Report 1622, 83rd Congress, 2nd Session, at

168.

4

– 14 –

U.S. 399, 410 (1914); and Montclair v. Ramsdell, 107

U. S. 147, 152 (1883).

The common understanding of the word “salary”

is that it is payment for work based on a weekly,

monthly or annual basis. Similarly, a “wage” is

generally understood as payment for work on an

hourly basis. And these words have a meaning

different from “compensation for personal service,”

both in common parlance and the federal income tax

laws.

When the Revenue Act of 1918 was enacted, the

Commissioner of Internal Revenue was required to

determine what its various terms meant and inform

employees of the Bureau of Internal Revenue of the

uniform construction to be given to the various provisions of that law. The first attempt to define the

meaning of “compensation for personal service” was

made by the Commissioner of Internal Revenue on

April 16, 1919 by means of Regulations 45 for the

Revenue Act of 1918.5 This set of regulations defined

the phrase as follows:

ART. 32. Compensation for personal

services. – Where no determination of

compensation is had until the completion of

the services, the amount received is income

for the taxable year of its determination, if

the return is rendered on the accrual basis;

or, for the taxable year in which received, if

the return is rendered on a receipts and

disbursements basis. Commissions paid

salesmen, compensation for services on the

5 Treasury Decision 2831, 21 Treasury Decisions Under

Internal Revenue Laws 170.

– 15 –

basis of a percentage of profits, commissions

on insurance premiums, tips, retired pay of

Federal and other officers, and pensions or

retiring allowances paid by the United

States or private persons, are income to the

recipients; as are also marriage fees,

baptismal offerings, sums paid for saying

masses for the dead, and other contributions

received by a clergyman, evangelist, or

religious worker for services rendered.

However, so-called pensions awarded by one

to whom no services have been rendered are

mere gifts or gratuities and are not taxable.

The salaries of Federal officers and employees are subject to tax, except that, in view of

the provisions of the Constitution of the

United States as construed by the Supreme

Court, the salaries of the President of the

United States and Federal judges are not

subject to the tax if elected or appointed to

office prior to the passage of the taxing

statute. But see article 86. See further

articles 85 and 105-108.

The Commissioner defined “compensation for

personal service” identically in Art. 32, Regulations

62 for the Revenue Act of 1921,6 and Art. 32, Regulations 65 for the Revenue Act of 1924.7 Clearly, “compensation for personal service” is entirely different

from “salaries” and “wages.”

Black’s Law Dictionary, Fifth Edition (1979),

6 Treasury Decision 3295, 24 Treasury Decisions Under

Internal Revenue Laws 207.

7 Treasury Decision 3640, 26 Treasury Decisions Under

Internal Revenue Laws 745.

– 16 –

defines the word “derive” as “[t]o receive from a

specified source or origin,” and the same dictionary

defines “derived” as “[r]eceived from a specified

source.” The above phrase, “gains, profits, and

income derived from salaries, wages, or compensation for personal service,” indicates that “income” is

derived from the “sources” of “salaries, wages, or

compensation for personal service.” Thus, neither

“salaries,” “wages” nor “compensation for personal

service,” standing alone, is “income.”

One of the first tax regulations adopted by the

Commissioner of Internal Revenue to define wages

and salaries was Regulations 115, authorized by § 2

of the Current Tax Payment Act of 1943, 57 Stat.

126, ch. 120.8 In § 404.101 of Regulations 115, 8 F.R.

12262 (Sept. 7, 1943), wages included such items as

“pensions and retired pay,” “traveling and other expenses,” “vacation allowances,” and “dismissal payments,” among other minor items. Clearly, vacation

allowances, sick pay, dismissal payments and

retirement benefits are identified as items of

“income” apart from wages paid for labor and are

therefore items derived from wages (as well as salaries). See also 26 C.F.R. § 31.3401(a)-1.

In summary, the phrase, “gains, profits, and

income derived from salaries, wages, or compensation for personal service,” clearly expresses a limit to

the reach and scope of the federal income tax laws.

This phrase appeared in those income tax laws from

1894 through the summer of 1954, when it was

replaced by means of the amended language in § 61

of the 1954 Code. But § 22 of the 1939 Code and § 61

Current wage withholding pursuant to 26 U.S.C. § 3401, et

seq., is based on the Current Tax Payment Act, as amended.

8

– 17 –

of the 1954 Code mean the same thing, as shown

supra. Based on this phrase, as well as established

rules of statutory construction, “income” does not

have the same meaning as “salaries,” “wages,” and

“compensation for personal service.”9

How does the discussion of old tax laws and regulations assist the Chapmans? Their petition indicates

that Pamela is a housewife, and Christopher is a contractor who built and installed pools for homeowners

living in Florida. From the Internal Revenue

Service’s analysis of the bank records for

Christopher’s business, the IRS apparently contends

that the difference between the gross receipts of that

business and its expenses constitutes “taxable

income.” However, Christopher maintains that compensation for his labor is not “compensation for

personal service,” and that he likewise has no “fringe

benefits” such as vacation pay, sick pay, dismissal

payments or retirement benefits that would

constitute “taxable income.”

The Chapmans contend that 26 U.S.C. § 83

addresses this issue regarding the legal meaning of

these terms, and their conclusions are supported by

this analysis.

II.

The validity of 26 C.F.R. § 1.1-1.

As Justice Story stated, “it is * * * a general rule

in the interpretation of all statutes, levying taxes or

duties upon subjects or citizens, not to extend their

provisions, by implication, beyond the clear import of

9 Compensation for labor is different from compensation for

personal service.

– 18 –

the language used, or to enlarge their operation so as

to embrace matters, not specifically pointed out,

although standing upon a close analogy. In every

case, therefore, of doubt, such statutes are construed

most strongly against the government and in favor of

the subjects or citizens, because burdens are not to

be imposed, nor presumed to be imposed, beyond

what the statutes expressly and clearly import.”

United States v. Wigglesworth, Fed. Cas. No. 16,690

(Cir.Ct. D. Mass. 1842). See also Gould v. Gould, 245

U.S. 151 (1917); Crocker v. Malley, 249 U.S. 223

(1919); United States v. Field, 255 U.S. 257 (1921);

Smietanka v. First Trust & Sav. Bank, 257 U.S. 602

(1922); United States v. Merriam, 263 U.S. 179

(1923); Bowers v. New York & Albany Lighterage Co.,

273 U.S. 346 (1927); Reinecke v. Northern Trust Co.,

278 U.S. 339 (1929); Miller v. Standard Nut

Margarine Co. of Florida, 284 U.S. 498 (1932); Old

Colony R. Co. v. Commissioner, 284 U.S. 552 (1932);

and White v. Aronson, 302 U.S. 16 (1937).

Prior income tax acts clearly stated their application to citizens. The tax-imposed section of the

Tariff Act of 1894, 28 Stat. 509, 553, read:

Sec. 27. That from and after the first day of

January, eighteen hundred and ninety-five,

and until the first day of January, nineteen

hundred, there shall be assessed, levied, collected, and paid annually upon the gains,

profits, and income received in the preceding

calendar year by every citizen of the United

States, whether residing at home or abroad,

and every person residing therein, whether

said gains, profits, or income be derived from

any kind of property, rents, interest, divi-

– 19 –

dends, or salaries, or from any profession,

trade, employment, or vocation carried on in

the United States or elsewhere, or from any

other source whatever, a tax of two per centum on the amount so derived over and

above four thousand dollars, and a like tax

shall be levied, collected, and paid annually

upon the gains, profits, and income from all

property owned and of every business, trade,

or profession carried on in the United States

by persons residing without the United

States. [emphasis added]

The tax-imposed section of the Tariff Act of 1913,

38 Stat. 114, 166, read as follows:

SECTION II.

A. Subdivision 1. That there shall be levied,

assessed, collected and paid annually upon

the entire net income arising or accruing

from all sources in the preceding calendar

year to every citizen of the United States,

whether residing at home or abroad, and to

every person residing in the United States,

though not a citizen thereof, a tax of 1 per

centum per annum upon such income, except

as hereinafter provided; and a like tax shall

be assessed, levied, collected, and paid annually upon the entire net income from all

property owned and of every business, trade,

or profession carried on in the United States

by persons residing elsewhere. [emphasis

added]

But starting with the Revenue Act of 1928, the

– 20 –

word “citizen” was eliminated from the “tax imposed”

section of these income tax laws, and § 11 of that act

simply stated, “There shall be levied, collected, and

paid for each taxable year upon the net income of

every individual a normal tax equal to the sum of the

following: …” 45 Stat. 795. Thereafter, the taximposed section of all of the income tax laws adopted

by Congress read the same way. The Commissioner

of Internal Revenue has supplied this clear omission

by regulation, a situation that persists to this day.

A number of times, this Court has voided

regulations which were broader than the controlling

statute. See United States v. Calamaro, 354 U.S. 351,

359 (1957) (“… we cannot but regard this Treasury

Regulation as no more than an attempted addition to

the statute of something which is not there. As such

the regulation can furnish no sustenance to the

statute”) and Commissioner v. Acker, 361 U.S. 87, 9394 (1959) (“The questioned regulation must therefore

be regarded ‘as no more than an attempted addition

to the statute of something which is not there.’”). See

also Lynch v. Tilden Produce Co., 265 U.S. 315, 321,

(1924); Iselin v. United States, 270 U.S. 245, 251

(1926); Manhattan General Equip. Co. v.

Commissioner, 297 U.S. 129, 134 (1936); Koshland v.

Helvering, 298 U.S. 441, 447 (1936); Helvering v.

Credit Alliance Corp., 316 U.S. 107, 113 (1942); and

Dixon v. United States, 381 U.S. 68, 74 (1965).

Here, 26 U.S.C. § 1 imposes a tax on the taxable

income of “individual[s],” not “citizens.” Only 26

C.F.R. § 1.1-1 defines “individual” as encompassing a

citizen, and thus the regulation is broader than the

statute.

This important question should be addressed by

this Court.

– 21 –

CONCLUSION

The Petition for Writ of Certiorari should be

granted.

Respectfully submitted,

Lowell H. Becraft, Jr.

Counsel of Record for Amici

403 Andrew Jackson Way

Huntsville, Alabama 35801

(256) 533-2535

becraft@hiwaay.net

– App. 1 –

APPENDEX

CONSTITUTIONAL PROVISIONS

Article 1, Section 2, Clause 3

Representatives and direct Taxes shall be apportioned among the several States which may be

included within this Union, according to their respective Numbers, which shall be determined by adding

to the whole Number of free Persons, including those

bound to Service for a Term of Years, and excluding

Indians not taxed, three fifths of all other Persons.

Sixteenth Amendment

The Congress shall have power to lay and collect

taxes on incomes, from whatever source derived,

without apportionment among the several States,

and without regard to any census or enumeration.

STATUTES (pertinent portions)

26 U.S.C. § 1

§1. Tax imposed

(a) Married individuals filing joint returns and surviving spouses

There is hereby imposed on the taxable income

of(1) every married individual (as defined in section

7703) who makes a single return jointly with his

spouse under section 6013, and

– App. 2 –

(2)

every surviving spouse (as defined in section

2(a)), a tax determined in accordance with the

following table: [table omitted]

(b) Heads of households

There is hereby imposed on the taxable income

of every head of a household (as defined in section 2(b)) a tax determined in accordance with

the following table: [table omitted]

(c) Unmarried individuals (other than surviving

spouses and heads of households)

There is hereby imposed on the taxable income

of every individual (other than a surviving

spouse as defined in section 2(a) or the head of a

household as defined in section 2(b)) who is not

a married individual (as defined in section 7703)

a tax determined in accordance with the following table: [table omitted]

(d) Married individuals filing separate returns

There is hereby imposed on the taxable income

of every married individual (as defined in

section 7703) who does not make a single return

jointly with his spouse under section 6013, a tax

determined in accordance with the following

table: [table omitted]

26 U.S.C. § 61

[Set forth at pp. 11-12 of the brief]

26 U.S.C. § 83

§83. Property transferred in connection with performance of services

(a) General rule

– App. 3 –

If, in connection with the performance of services,

property is transferred to any person other than the

person for whom such services are performed, the excess of(1) the fair market value of such property (determined without regard to any restriction other

than a restriction which by its terms will never

lapse) at the first time the rights of the person

having the beneficial interest in such property

are transferable or are not subject to a substantial risk of forfeiture, whichever occurs earlier,

over

(2) the amount (if any) paid for such property, shall

be included in the gross income of the person

who performed such services in the first taxable

year in which the rights of the person having

the beneficial interest in such property are

transferable or are not subject to a substantial

risk of forfeiture, whichever is applicable.

The preceding sentence shall not apply if such person

sells or otherwise disposes of such property in an

arm's length transaction before his rights in such

property become transferable or not subject to a substantial risk of forfeiture. …

REGULATIONS

26 C.F.R. § 1.1-1

§1.1-1 Income tax on individuals.

(a) General rule. (1) Section 1 of the Code imposes an

income tax on the income of every individual who is a

citizen or resident of the United States and, to the

extent provided by section 871(b) or 877(b), on the

income of a nonresident alien individual. For op-

– App. 4 –

tional tax in the case of taxpayers with adjusted

gross income of less than $10,000 (less than $5,000

for taxable years beginning before January 1, 1970)

see section 3. The tax imposed is upon taxable income (determined by subtracting the allowable

deductions from gross income). The tax is determined

in accordance with the table contained in section 1.

See subparagraph (2) of this paragraph for reference

guides to the appropriate table for taxable years beginning on or after January 1, 1964, and before

January 1, 1965, taxable years beginning after December 31, 1964, and before January 1, 1971, and

taxable years beginning after December 31, 1970. In

certain cases credits are allowed against the amount

of the tax. See part IV (section 31 and following),

subchapter A, chapter 1 of the Code. In general, the

tax is payable upon the basis of returns rendered by

persons liable therefor (subchapter A (sections 6001

and following), chapter 61 of the Code) or at the

source of the income by withholding. …

(b) Citizens or residents of the United States liable to

tax. In general, all citizens of the United States,

wherever resident, and all resident alien individuals

are liable to the income taxes imposed by the Code

whether the income is received from sources within

or without the United States. Pursuant to section

876, a nonresident alien individual who is a bona fide

resident of a section 931 possession (as defined in

§1.931-1(c)(1) of this chapter) or Puerto Rico during

the entire taxable year is, except as provided in section 931 or 933 with respect to income from sources

within such possessions, subject to taxation in the

same manner as a resident alien individual. As to tax

on nonresident alien individuals, see sections 871

and 877.

– App. 5 –

(c) Who is a citizen. Every person born or naturalized

in the United States and subject to its jurisdiction is

a citizen. For other rules governing the acquisition of

citizenship, see chapters 1 and 2 of title III of the

Immigration and Nationality Act (8 U.S.C. 14011459). For rules governing loss of citizenship, see sections 349 to 357, inclusive, of such Act (8 U.S.C.

1481-1489), Schneider v. Rusk, (1964) 377 U.S. 163,

and Rev. Rul. 70-506, C.B. 1970-2, 1. For rules pertaining to persons who are nationals but not citizens

at birth, e.g., a person born in American Samoa, see

section 308 of such Act (8 U.S.C. 1408). For special

rules applicable to certain expatriates who have lost

citizenship with a principal purpose of avoiding certain taxes, see section 877. A foreigner who has filed

his declaration of intention of becoming a citizen but

who has not yet been admitted to citizenship by a final order of a naturalization court is an alien.

(d) Effective/applicability date. The second sentence

of paragraph (b) of this section applies to taxable

years ending after April 9, 2008.

26 C.F.R. § 31.3401(a)-1

§31.3401(a)-1 Wages.

(a) In general. (1) The term “wages” means all remuneration for services performed by an employee for

his employer unless specifically excepted under section 3401(a) or excepted under section 3402(e).

(2) The name by which the remuneration for services

is designated is immaterial. Thus, salaries, fees, bonuses, commissions on sales or on insurance

premiums, pensions, and retired pay are wages

within the meaning of the statute if paid as compen-

– App. 6 –

sation for services performed by the employee for his

employer.

(3) The basis upon which the remuneration is paid is

immaterial in determining whether the remuneration constitutes wages. Thus, it may be paid on the

basis of piecework, or a percentage of profits; and

may be paid hourly, daily, weekly, monthly, or annually.

(4) Generally the medium in which remuneration is

paid is also immaterial. It may be paid in cash or in

something other than cash, as for example, stocks,

bonds, or other forms of property. (See, however,

§31.3401(a)(11)-1, relating to the exclusion from

wages of remuneration paid in any medium other

than cash for services not in the course of the employer's trade or business, and §31.3401(a)(16)-1,

relating to the exclusion from wages of tips paid in

any medium other than cash.) If services are paid for

in a medium other than cash, the fair market value

of the thing taken in payment is the amount to be included as wages. If the services were rendered at a

stipulated price, in the absence of evidence to the

contrary, such price will be presumed to be the fair

value of the remuneration received. If a corporation

transfers to its employees its own stock as remuneration for services rendered by the employee, the

amount of such remuneration is the fair market

value of the stock at the time of the transfer.

(5) Remuneration for services, unless such remuneration is specifically excepted by the statute,

constitutes wages even though at the time paid the

relationship of employer and employee no longer exists between the person in whose employ the services

were performed and the individual who performed

them.

– App. 7 –

Example. A is employed by R during the month of

January 1955 and is entitled to receive remuneration

of $100 for the services performed for R, the employer, during the month. A leaves the employ of R at

the close of business on January 31, 1955. On

February 15, 1955 (when A is no longer an employee

of R), R pays A the remuneration of $100 which was

earned for the services performed in January. The

$100 is wages within the meaning of the statute.

(b) Certain specific items—(1) Pensions and retirement pay. (i) In general, pensions and retired pay are

wages subject to withholding. However, no withholding is required with respect to amounts paid to

an employee upon retirement which are taxable as

annuities under the provisions of section 72 or 403.

So-called pensions awarded by one to whom no services have been rendered are mere gifts or gratuities

and do not constitute wages. Those payments of pensions or other benefits by the Federal Government

under title 38 of the United States Code which are

excluded from gross income are not wages subject to

withholding.

(ii) Amounts received as retirement pay for service in

the Armed Forces of the United States, the Coast

and Geodetic Survey, or the Public Health Service or

as a disability annuity paid under the provisions of

section 831 of the Foreign Service Act of 1946, as

amended (22) U.S.C. 1081; 60 Stat. 1021), are subject

to withholding unless such pay or disability annuity

is excluded from gross income under section

104(a)(4), or is taxable as an annuity under the provisions of section 72. Where such retirement pay or

disability annuity (not excluded from gross income

under section 104(a)(4) and not taxable as an annuity under the provisions of section 72) is paid to a

– App. 8 –

nonresident alien individual, withholding is required

only in the case of such amounts paid to a nonresident alien individual who is a resident of Puerto

Rico.

(2) Traveling and other expenses. Amounts paid specifically—either as advances or reimbursements—for

traveling or other bona fide ordinary and necessary

expenses incurred or reasonably expected to be incurred in the business of the employer are not wages

and are not subject to withholding. Traveling and

other reimbursed expenses must be identified either

by making a separate payment or by specifically indicating the separate amounts where both wages and

expense allowances are combined in a single payment. For amounts that are received by an employee

on or after July 1, 1990, with respect to expenses

paid or incurred on or after July 1, 1990, see

§31.3401 (a)-4.

(3) Vacation allowances. Amounts of so-called “vacation allowances” paid to an employee constitute

wages. Thus, the salary of an employee on vacation,

paid notwithstanding his absence from work, constitutes wages.

(4) Dismissal payments. Any payments made by an

employer to an employee on account of dismissal,

that is, involuntary separation from the service of

the employer, constitute wages regardless of whether

the employer is legally bound by contract, statute, or

otherwise to make such payments.

(5) Deductions by employer from remuneration of an

employee. Any amount deducted by an employer from

the remuneration of an employee is considered to be

a part of the employee's remuneration and is considered to be paid to the employee as remuneration at

the time that the deduction is made. It is immaterial

– App. 9 –

that any act of Congress, or the law of any State or of

Puerto Rico, requires or permits such deductions and

the payment of the amounts thereof to the United

States, a State, a Territory, Puerto Rico, or the

District of Columbia, or any political subdivision of

any one or more of the foregoing.

(6) Payment by an employer of employee's tax, or

employee's contributions under a State law. The term

“wages” includes the amount paid by an employer on

behalf of an employee (without deduction from the

remuneration of, or other reimbursement from, the

employee) on account of any payment required from

an employee under a State unemployment compensation law, or on account of any tax imposed upon

the employee by any taxing authority, including the

taxes imposed by sections 3101 and 3201.

(7) Remuneration for services as employee of nonresident alien individual or foreign entity. The term

“wages” includes remuneration for services performed by a citizen or resident (including, in regard

to wages paid after February 28, 1979, an individual

treated as a resident under section 6013 (g) or (h)) of

the United States as an employee of a nonresident

alien individual, foreign partnership, or foreign corporation whether or not such alien individual or

foreign entity is engaged in trade or business within

the United States. Any person paying wages on behalf of a nonresident alien individual, foreign

partnership, or foreign corporation, not engaged in

trade or business within the United States (including

Puerto Rico as if a part of the United States), is subject to all the provisions of law and regulations

applicable with respect to an employer. See

§31.3401(d)-1, relating to the term “employer”, and

§31.3401(a)(8)(C)-1, relating to remuneration paid for

– App. 10 –

services performed by a citizen of the United States

in Puerto Rico.

(8) Amounts paid under accident or health plans—(i)

Amounts paid in taxable years beginning on or after

January 1, 1977—(a) In general. Withholding is required on all payments of amounts includible in

gross income under section 105(a) and §1.105-1 (relating to amounts attributable to employer

contributions), made in taxable years beginning on or

after January 1, 1977, to an employee under an accident or health plan for a period of absence from work

on account of personal injuries or sickness. Payments

on which withholding is required by this subdivision

are wages as defined in section 3401(a), and the employer shall deduct and withhold in accordance with

the requirements of chapter 24 of subtitle C of the

Code. Third party payments of sick pay, as defined in

section 3402(o) and the regulations thereunder, are

not wages for purposes of this section. …