26 U.S.C. 871(a): Earnings NOT connected to the “trade or business” franchise
SOURCE: Non-Resident Non-Person Position, Form #05.020, Section 6.6.3; https://sedm.org/Forms/05-MemLaw/NonresidentNonPersonPosition.pdf
You might wonder why earnings not connected with the “trade or business” franchise are a flat/uniform 30% instead of the graduated rate applied to those in the “trade or business” category described in 26 U.S.C. §871(b). The reason is that:
1. All earnings originating from sources within the “United States”, meaning the government, are presumed to be connected with a “trade or business” and public office franchise per 26 U.S.C. §864(c)(3):
TITLE 26 > Subtitle A > CHAPTER 1 > Subchapter N > PART I > § 864
§ 864. Definitions and special rules
(c) Effectively connected income, etc.
(3) Other income from sources within United States
All income, gain, or loss from sources within the United States (other than income, gain, or loss to which paragraph (2) applies) shall be treated as effectively connected with the conduct of a trade or business within the United States.
2. The only type of earnings therefore that are NOT connected with the “trade or business” franchise are described in under 26 U.S.C. §871(a).
3. An example of earnings NOT connected to a “trade or business” under 26 U.S.C. §871(a) are government “benefits” expressly included by statute in “gross income” because not reportable as “trade or business” earnings, such as Social Security, found at 26 U.S.C. §861(a)(8) and 26 U.S.C. §871(a)(3).
Title 26 › Subtitle A › Chapter 1 › Subchapter N › Part I › § 861
(a) Gross income from sources within United States
The following items of gross income shall be treated as income from sources within the United States:
(8) Social security benefits
4. Such “benefits” are paid BY the government, and therefore qualify as a “source within the United States”, meaning the GOVERNMENT, per section 5.5 earlier. Although such earnings ORIGINATE from “sources within the United States” they are often paid to NONRESIDENT parties domiciled in legislatively foreign jurisdictions, such as state of the Union.
5. The U.S. supreme Court has held that taxes that were not uniform throughout the “United States” as used in the Constitution, meaning states of the Union and not federal statutory “States”, were unconstitutional outside of the federal United States in the landmark case of Pollock v. Farmers’ Loan & Trust Co., 157 U.S. 429, 158 U.S. 601 (1895):
“…the law is invalid, because imposing indirect taxes in violation of the constitutional requirement of uniformity, and therein also in violation of the implied limitation upon taxation that all tax laws must apply equally, impartially, and uniformly to all similarly situated. Under the second head, it is contended that the rule of uniformity is violated, in that the law taxes the income of certain corporations, companies, and associations, no matter how created or organized, at a higher rate than the incomes of individuals or partnerships derived from precisely similar property or business; in that it exempts from the operation of the act and from the burden of taxation numerous corporations, companies, and associations having similar property and carrying on similar business to those expressly taxed; in that it denies to individuals deriving their income from shares in certain corporations, companies, and associations the benefit of the exemption of $ 4,000 granted to other persons interested in similar property and business; in the exemption of $4,000; in the exemption of building and loan associations, savings banks, mutual life, fire, marine, and accident insurance companies, existing solely for the pecuniary profit of their members,-these and other exemptions being alleged to be purely arbitrary and capricious, justified by no public purpose, and of such magnitude as to invalidate the entire enactment; and in other particulars. “
[Pollock v. Farmers’ Loan & Trust Co., 157 U.S. 429, 158 U.S. 601 (1895)]
6. Therefore, Congress could not use a graduated rate within states of the Union against those who are nonresident aliens domiciled there, such as Social Security recipients.
26 U.S.C. §864(c)(2) identifies all sources of income not associated with a “trade or business” and they include ONLY:
- 26 U.S.C. §871(a)(1): Income of nonresident aliens other than capital gains derived from patents, copyrights, sale of original issue discounts, gains described in I.R.C. 631(b) or (c), interest, dividends, rents, salaries, premiums, annuities from sources within the “United States**”.
- 26 U.S.C. §871(h): Earnings of nonresident aliens from portfolio debt instruments
- 26 U.S.C. §881(a): Earnings of foreign corporations from patents, copyrights, gains, and interest not connected with a trade or business.
All of the above sources not associated with a “trade or business” are federal franchises. Patents and copyrights are federal franchises, and the “portfolio debt instruments” most likely are Treasury Bills, which are also franchises. Those domiciled within legislatively foreign states of the Union, however, would not earn ANY of the above because they would not be subject to the above. Note the CONSPICUOUS absence of anything OTHER than federal franchises from income sources that are NOT connected to the “trade or business” franchises. This means that PRIVATE earnings not connected to the “trade or business” franchise and NOT associated with the above activities are, by definition, not reportable AND not taxable.
The main item within I.R.C. §871(a) earnings not connected with the “trade or business” franchise that we will now concern ourselves with is that described in 26 U.S.C. §871(a)(1), because most Americans don’t earn capital gains from real property located on federal territory. That item says the following:
TITLE 26 > Subtitle A > CHAPTER 1 > Subchapter N > PART II > Subpart A > § 871
§ 871. Tax on nonresident alien individuals
(a) Income not connected with United States business—30 percent tax
(1) Income other than capital gains
Except as provided in subsection (h), there is hereby imposed for each taxable year a tax of 30 percent of the amount received from sources within the United States by a nonresident alien individual as—
(A) interest (other than original issue discount as defined in section 1273), dividends, rents, salaries, wages, premiums, annuities, compensations, remunerations, emoluments, and other fixed or determinable annual or periodical gains, profits, and income,
(B) gains described in section 631 (b) or (c), and gains on transfers described in section 1235 made on or before October 4, 1966,
(i) a sale or exchange of an original issue discount obligation, the amount of the original issue discount accruing while such obligation was held by the nonresident alien individual (to the extent such discount was not theretofore taken into account under clause (ii)), and
(ii) a payment on an original issue discount obligation, an amount equal to the original issue discount accruing while such obligation was held by the nonresident alien individual (except that such original issue discount shall be taken into account under this clause only to the extent such discount was not theretofore taken into account under this clause and only to the extent that the tax thereon does not exceed the payment less the tax imposed by subparagraph (A) thereon), and
(D) gains from the sale or exchange after October 4, 1966, of patents, copyrights, secret processes and formulas, good will, trademarks, trade brands, franchises, and other like property, or of any interest in any such property, to the extent such gains are from payments which are contingent on the productivity, use, or disposition of the property or interest sold or exchanged, but only to the extent the amount so received is not effectively connected with the conduct of a trade or business within the United States.
(2) Capital gains of aliens present in the United States 183 days or more
In the case of a nonresident alien individual present in the United States for a period or periods aggregating 183 days or more during the taxable year, there is hereby imposed for such year a tax of 30 percent of the amount by which his gains, derived from sources within the United States, from the sale or exchange at any time during such year of capital assets exceed his losses, allocable to sources within the United States, from the sale or exchange at any time during such year of capital assets. For purposes of this paragraph, gains and losses shall be taken into account only if, and to the extent that, they would be recognized and taken into account if such gains and losses were effectively connected with the conduct of a trade or business within the United States, except that such gains and losses shall be determined without regard to section 1202 and such losses shall be determined without the benefits of the capital loss carryover provided in section 1212. Any gain or loss which is taken into account in determining the tax under paragraph (1) or subsection (b) shall not be taken into account in determining the tax under this paragraph. For purposes of the 183-day requirement of this paragraph, a nonresident alien individual not engaged in trade or business within the United States who has not established a taxable year for any prior period shall be treated as having a taxable year which is the calendar year.
(3) Taxation of social security benefits
For purposes of this section and section 1441—
(A) 85 percent of any social security benefit (as defined in section 86 (d)) shall be included in gross income (notwithstanding section 207 of the Social Security Act), and
(B) section 86 shall not apply.
For treatment of certain citizens of possessions of the United States, see section 932 (c).[1]
26 U.S.C. §871(a)(1)(A) is of particular interest to most people because, at first glance, it might include everyone who works for the U.S. government but would not include the average American or any PRIVATE, nonresident party. Among those who work for the U.S. Government, there are three approaches to tax withholding and reporting typically:
1. U.S. Person position. This is unusual but valid.
1.1 File Substitute or Amended IRS Form W-9.
1.2 In the other block write “Exempt. See 26 C.F.R. §1.1441-1(d)(1) and TD8734 (62 F.R. 53391, SEDM Exhibit #09.038).
2. Nonresident aliens
2.1 File Substitute or Amended IRS Form W-8BEN.See:
| About IRS Form W-8BEN, Form #04.202 https://sedm.org/Forms/FormIndex.htm |
2.2 Should not receive IRS Form W-2 at the end of the year, because this form only applies to those who signed the W-4 contract.
2.3 Should not receive IRS Form 1042-S because they are not engaged in the “trade or business” franchise.
2.4 File IRS Form 1040NR and put all their earnings in the category of not connected with United States business pursuant to 26 U.S.C. §871(a).
2.5 Cannot take deductions pursuant to 26 U.S.C. §162 because not engaged in the “trade or business” franchise.
3. W-2 “Wage” Slave:
3.1 Normally file IRS Form W-4.Receive an IRS Form W-2 at the end of the year.
3.2 Falsely and fraudulently file IRS Form 1040.
3.3 Take “trade or business” deductions on IRS Form 1040 pursuant to 26 U.S.C. §162.
The only real question about the above that remains unanswered in the case of the government employee who uses option 1 above, is:
Are the earnings of a nonresident alien received from the U.S. government “wages” within the meaning of 26 U.S.C. §871(a)(1)(A)?
This is a CRITICAL question that especially U.S. government workers using the Non-Resident Non-Person Position need an answer to in order that they can know how to properly comply with the tax laws and stay out of trouble. The short answer is NO if all of the following are true:
1. The nonresident alien government worker is not engaged in a public office within the U.S. government.
2. The nonresident alien government worker never signed a contract called an IRS Form W-4 agreeing to call his earnings “wages”, and instead filed one of the following to control withholding.
2.1 IRS Form W-8BEN Amended. See:
About IRS Form W-8BEN, Form #04.202
http://sedm.org/Forms/FormIndex.htm
2.2 New Hire Paperwork Attachment, Form #04.203
http://sedm.org/Forms/FormIndex.htm
3. The nonresident alien did not make an “election” pursuant to 26 U.S.C. §6013(g) and (h) to become a resident alien by filing IRS Form 1040 instead of 1040NR.
The justification for the above conclusions is found in the following evidence we have uncovered on this important subject:
1. There is no such thing as “employment” outside of federal territory or within states of the Union in the context of the federal government.
Title 26: Internal Revenue
PART 31—EMPLOYMENT TAXES AND COLLECTION OF INCOME TAX AT SOURCE
Subpart B—Federal Insurance Contributions Act (Chapter 21, Internal Revenue Code of 1954)
General Provisions§ 31.3121(b)-3 Employment; services performed after 1954.
(a) In general.
Whether services performed after 1954 constitute employment is determined in accordance with the provisions of section 3121(b).
(b) Services performed within the United States [federal territory].
Services performed after 1954 within the United States (see §31.3121(e)–1) by an employee for his employer, unless specifically excepted by section 3121(b), constitute employment. With respect to services performed within the United States, the place where the contract of service is entered into is immaterial. The citizenship or residence of the employee or of the employer also is immaterial except to the extent provided in any specific exception from employment. Thus, the employee and the employer may be citizens and residents of a foreign country and the contract of service may be entered into in a foreign country, and yet, if the employee under such contract performs services within the United States, there may be to that extent employment.
“(c) Services performed outside the United States—
(1) In general. Except as provided in paragraphs (c)(2) and (3) of this section, services performed outside the United States (see §31.3121(e)–1) do not constitute employment.”
________________________________________________________________________________
TITLE 26 > Subtitle C > CHAPTER 21 > Subchapter C > § 3121
(e) State, United States, and citizen
For purposes of this chapter—
The term “State” includes the District of Columbia, the Commonwealth of Puerto Rico, the Virgin Islands, Guam, and American Samoa.
The term “United States” when used in a geographical sense includes the Commonwealth of Puerto Rico, the Virgin Islands, Guam, and American Samoa.
The regulation implementing 26 U.S.C. §3121 above at 26 C.F.R. §31.3121(e)-1 adds the “several states” to the statutory definition of “United States” above and therefore is an unlawful regulation that exceeds the scope of the statute.
Finally, the Government points to the fact that the Treasury Regulations relating to the statute purport to include the pick-up man among those subject to the s 3290 tax,FN11 and argues (a) that this constitutes an administrative interpretation to which we should give weight in construing the statute, particularly because (b) section 3290 was carried over in haec verba into s 4411 of the Internal Revenue Code of 1954, 26 U.S.C.A. s 4411. We find neither argument persuasive. In light of the above discussion, *359 we cannot but regard this Treasury Regulation as no more than an attempted addition to the statute of something which is not there. FN12 As such the regulation can furnish no sustenance to the statute. Koshland v. Helvering, 298 U.S. 441, 446-447, 56 S.Ct. 767, 769-770, 80 L.Ed. 1268. Nor is the Government helped by its argument as to the 1954 Code. The regulation had been in effect for only three years,FN13 and there is nothing to indicate that it was ever called to the attention **1144 of Congress. The re-enactment of s 3290 in the 1954 Code was not accompanied by any congressional discussion which throws light on its intended scope. In such circumstances we consider the 1954 re-enactment to be without significance. Commissioner of Internal Revenue v. Glenshaw Glass Co., 348 U.S. 426, 431, 75 S.Ct. 473, 476, 99 L.Ed. 483.
FN11. Treas.Reg. 132, s 325.41, Example 2 (26 C.F.R., 1957 Cum. Pocket Supp.), which was issued on November 1, 1951 (16 Fed.Reg. 11211, 11222), provides as follows:
‘B operates a numbers game. He has an arrangement with ten persons, who are employed in various capacities, such as bootblacks, elevator operators, newsdealers, etc., to receive wagers from the public on his behalf. B also employs a person to collect from his agents the wagers received on his behalf.
‘B, his ten agents, and the employee who collects the wagers received on his behalf are each liable for the special tax.’
FN12. Apart from this, the force of this Treasury Regulations as an aid to the interpretation of the statute is impaired by its own internal inconsistency. Thus, while Example 2 of that regulation purports to make the pick-up man liable for the s 3290 occupational tax, Example 1 of the same regulation provides that ‘a secretary and bookkeeper’ of one ‘engaged in the business of accepting horse race bets’ are not liable for the occupational tax ‘unless they also receive wagers’ for the person so engaged in business, although those who ‘receive wagers by telephone’ are so liable. Thus in this instance a distinction seems to be drawn between the ‘acceptance’ of the wager, and its ‘receipt’ for recording purposes. But if this be proper, it is not apparent why the same distinction is not also valid between a writer, who ‘accepts’ or ‘receives’ a bet from a numbers player, and a pick-up man, who simply ‘receives’ a copy of the slips on which the writer has recorded the bet, and passes it along to the banker.
FN13. See note 11, supra.
[U.S. v. Calamaro, 354 U.S. 351, 77 S.Ct. 1138 (U.S. 1957)]
2. You can’t earn “wages” pursuant to 26 U.S.C. §3401(a) unless you are an “employee”:
TITLE 26 > Subtitle C > CHAPTER 24 > § 3401
(a) Wages
For purposes of this chapter, the term “wages” means all remuneration (other than fees paid to a public official) for services performed by an employee for his employer, including the cash value of all remuneration (including benefits) paid in any medium other than cash; except that such term shall not include remuneration paid—
3. The term “employee” is statutorily defined as follows:
For purposes of this chapter, the term ”employee” includes [is limited to] an officer, employee, or elected official of the United States, a State, or any political subdivision thereof, or the District of Columbia, or any agency or instrumentality of any one or more of the foregoing. The term ”employee” also includes an officer of a corporation.
__________________________________________________________________________________________
26 C.F.R. §31.3401(c)-1 Employee:
“…the term [employee] includes officers and employees, whether elected or appointed, of the United States, a [federal] State, Territory, Puerto Rico or any political subdivision, thereof, or the District of Columbia, or any agency or instrumentality of any one or more of the foregoing. The term ’employee’ also includes an officer of a corporation.”
__________________________________________________________________________________________
TITLE 5 > PART III > Subpart A > CHAPTER 21 > § 2105
§ 2105. Employee(a) For the purpose of this title, “employee”, except as otherwise provided by this section or when specifically modified, means an officer and an individual who is—
(1) appointed in the civil service by one of the following acting in an official capacity—
(A) the President;
(B) a Member or Members of Congress, or the Congress;
(C) a member of a uniformed service;
(D) an individual who is an employee under this section;
(E) the head of a Government controlled corporation; or
(F) an adjutant general designated by the Secretary concerned under section 709 (c) of title 32;(2) engaged in the performance of a Federal function under authority of law or an Executive act; and
(3) subject to the supervision of an individual named by paragraph (1) of this subsection while engaged in the performance of the duties of his position.
4. You’re not a statutory “employee” unless you are a “public officer” in the U.S. government. 26 U.S.C. §3401(c) and 26 C.F.R. §31.3401(c)-1 include “officers, employees, and elected officials” within the definition of the term “employee”. The term “employee” as used in 26 U.S.C. §3401(c) is then defined in Title 5 as an
“officer and an individual”
at 26 U.S.C. §2105(a). Therefore, ordinary, common law workers, including those who work for the government, are not “employees” as statutorily defined in the I.R.C. If ordinary workers other than “public officers” were included, the law would have to expressly indicate it and it doesn’t. The ordinary use of a term found in the code cannot be presumed where a statutory definition is provided that supersedes it. Therefore, the rules of statutory construction forbid us to PRESUME that they are included:
“Expressio unius est exclusio alterius. A maxim of statutory interpretation meaning that the expression of one thing is the exclusion of another. Burgin v. Forbes, 293 Ky. 456, 169 S.W.2d. 321, 325; Newblock v. Bowles, 170 Okl. 487, 40 P.2d. 1097, 1100. Mention of one thing implies exclusion of another. When certain persons or things are specified in a law, contract, or will, an intention to exclude all others from its operation may be inferred. Under this maxim, if statute specifies one exception to a general rule or assumes to specify the effects of a certain provision, other exceptions or effects are excluded.”
[Black’s Law Dictionary, Sixth Edition, p. 581]“When a statute includes an explicit definition, we must follow that definition, even if it varies from that term’s ordinary meaning. Meese v. Keene, 481 U.S. 465, 484-485 (1987) (“It is axiomatic that the statutory definition of the term excludes unstated meanings of that term”); Colautti v. Franklin, 439 U.S. at 392-393, n. 10 (“As a rule, `a definition which declares what a term “means” . . . excludes any meaning that is not stated'”); Western Union Telegraph Co. v. Lenroot, 323 U.S. 490, 502 (1945); Fox v. Standard Oil Co. of N.J., 294 U.S. 87, 95-96 (1935) (Cardozo, J.); see also 2A N. Singer, Sutherland on Statutes and Statutory Construction § 47.07, p. 152, and n. 10 (5th ed. 1992) (collecting cases). That is to say, the statute, read “as a whole,” post at 998 [530 U.S. 943] (THOMAS, J., dissenting), leads the reader to a definition. That definition does not include the Attorney General’s restriction — “the child up to the head.” Its words, “substantial portion,” indicate the contrary.”
[Stenberg v. Carhart, 530 U.S. 914 (2000)]
5. “Public officers” work for the government, not for private companies. If you work for a private company you therefore can’t lawfully earn “wages” unless you sign a contract or agreement called IRS Form W-4 agreeing to call what you earn “wages” as legally defined:
Internal Revenue Manual (IRM) 5.14.10.2 (09-30-2004)
Payroll Deduction Agreements2. Private employers, states, and political subdivisions are not required to enter into payroll deduction agreements. Taxpayers should determine whether their employers will accept and process executed agreements before agreements are submitted for approval or finalized.
[http://www.irs.gov/irm/part5/ch14s10.html]
________________________________________________________________________________
26 C.F.R. §31.3401(a)-3 Amounts deemed wages under voluntary withholding agreements.
(a) In general.
Notwithstanding the exceptions to the definition of wages specified in section 3401(a) and the regulations thereunder, the term “wages” includes the amounts described in paragraph (b)(1) of this section with respect to which there is a voluntary withholding agreement in effect under section 3402(p). References in this chapter to the definition of wages contained in section 3401(a) shall be deemed to refer also to this section (§31.3401(a)–3).
________________________________________________________________________________
§ 31.3402(p)-1 Voluntary withholding agreements.
(a) In general.
An employee and his employer may enter into an agreement under section 3402(b) to provide for the withholding of income tax upon payments of amounts described in paragraph (b)(1) of §31.3401(a)–3, made after December 31, 1970. An agreement may be entered into under this section only with respect to amounts which are includible in the gross income of the employee under section 61, and must be applicable to all such amounts paid by the employer to the employee. The amount to be withheld pursuant to an agreement under section 3402(p) shall be determined under the rules contained in section 3402 and the regulations thereunder. See §31.3405(c)–1, Q&A–3 concerning agreements to have more than 20-percent Federal income tax withheld from eligible rollover distributions within the meaning of section 402.
6. If you aren’t the statutory “employee” indicated above and you didn’t submit IRS Form W-4 and thereby call yourself an “employee” as defined in 26 U.S.C. §3401(c), then you can’t earn statutory “wages” as legally defined. You might earn wages in an ordinary sense, but not in the statutory sense, and the statutory sense is the only sense in which “wages” are used. The IRS Form W-4 says “Employee Withholding Allowance Certificate”. The IRS Form W-8BEN doesn’t even mention the term “employee” and what is not specified in law or a form cannot be presumed without violating due process of law.
“Expressio unius est exclusio alterius. A maxim of statutory interpretation meaning that the expression of one thing is the exclusion of another. Burgin v. Forbes, 293 Ky. 456, 169 S.W.2d. 321, 325; Newblock v. Bowles, 170 Okl. 487, 40 P.2d. 1097, 1100. Mention of one thing implies exclusion of another. When certain persons or things are specified in a law, contract, or will, an intention to exclude all others from its operation may be inferred. Under this maxim, if statute specifies one exception to a general rule or assumes to specify the effects of a certain provision, other exceptions or effects are excluded.”
[Black’s Law Dictionary, Sixth Edition, p. 581]
7. The statutory definition of “wages” excludes earnings of nonresident aliens.
TITLE 26 > Subtitle C > CHAPTER 24 > § 3401
(a) Wages
For purposes of this chapter, the term “wages” means all remuneration (other than fees paid to a public official) for services performed by an employee for his employer, including the cash value of all remuneration (including benefits) paid in any medium other than cash; except that such term shall not include remuneration paid—
(6) for such services, performed by a nonresident alien individual, as may be designated by regulations prescribed by the Secretary; or
8. The definition of “wages” excludes earnings not connected with the “trade or business” excise taxable franchise earned by a person who is NOT an “individual”.
TITLE 26 > Subtitle C > CHAPTER 24 > § 3401
(a) Wages
For purposes of this chapter, the term “wages” means all remuneration (other than fees paid to a public official) for services performed by an employee for his employer, including the cash value of all remuneration (including benefits) paid in any medium other than cash; except that such term shall not include remuneration paid—
(4) for service not in the course of the employer’s trade or business performed in any calendar quarter by an employee, unless the cash remuneration paid for such service is $50 or more and such service is performed by an individual who is regularly employed by such employer to perform such service. For purposes of this paragraph, an individual shall be deemed to be regularly employed by an employer during a calendar quarter only if—
(A) on each of some 24 days during such quarter such individual performs for such employer for some portion of the day service not in the course of the employer’s trade or business; or
(B) such individual was regularly employed (as determined under subparagraph (A)) by such employer in the performance of such service during the preceding calendar quarter; or
9. The term “individual” as used in the definition of “wages” above is defined in the Privacy Act, where the term “individual” is then defined in 5 U.S.C. §552a(a)(2) as a government employee with a domicile on federal territory. Nowhere is a human being or a person with a domicile within a state of the Union included in the definition. The “citizen” and “resident” described below is a person with a domicile on federal territory that is no part of any state of the Union, by the way.
TITLE 5 – GOVERNMENT ORGANIZATION AND EMPLOYEES
PART I – THE AGENCIES GENERALLY
CHAPTER 5 – ADMINISTRATIVE PROCEDURE
SUBCHAPTER II – ADMINISTRATIVE PROCEDURE
Sec. 552a. Records maintained on individuals
(a) Definitions. – For purposes of this section –
(2) the term ”individual” means a citizen of the United States or an alien lawfully admitted for permanent residence;
10. If you start out as a nonresident alien and make an election to be treated as a resident alien by filing IRS Form 1040 instead of 1040NR pursuant to 26 U.S.C. §6013(g) and (h), then you cease to be a nonresident alien for withholding purposes as well.
Title 26
PART 31—EMPLOYMENT TAXES AND COLLECTION OF INCOME TAX AT SOURCE
Subpart E—Collection of Income Tax at Source§ 31.3401(a)(6)-1 Remuneration for services of nonresident alien individuals.
(a) In general.
All remuneration paid after December 31, 1966, for services performed by a nonresident alien individual, if such remuneration otherwise constitutes wages within the meaning of §31.3401(a)–1 and if such remuneration is effectively connected with the conduct of a trade or business within the United States, is subject to withholding under section 3402 unless excepted from wages under this section. In regard to wages paid under this section after February 28, 1979, the term “nonresident alien individual” does not include a nonresident alien individual treated as a resident under section 6013 (g) or (h).
11. If a nonresident alien performs work outside of federal territory called the “United States”, then he can’t earn STATUTORY “wages” unless the work is connected with a STATUTORY “trade or business” excise taxable franchise, meaning a “public office” within the government:
Title 26
PART 31—EMPLOYMENT TAXES AND COLLECTION OF INCOME TAX AT SOURCE
Subpart E—Collection of Income Tax at Source§ 31.3401(a)(6)-1 Remuneration for services of nonresident alien individuals.
(a) In general.
All remuneration paid after December 31, 1966, for services performed by a nonresident alien individual, if such remuneration otherwise constitutes wages within the meaning of §31.3401(a)–1 and if such remuneration is effectively connected with the conduct of a trade or business within the United States, is subject to withholding under section 3402 unless excepted from wages under this section. In regard to wages paid under this section after February 28, 1979, the term “nonresident alien individual” does not include a nonresident alien individual treated as a resident under section 6013 (g) or (h).
(b) Remuneration for services performed outside the United States.
Remuneration paid to a nonresident alien individual (other than a resident of Puerto Rico) for services performed outside the United States is excepted from wages and hence is not subject to withholding.
_______________________________________________________________________________
Title 26: Internal Revenue
PART 1—INCOME TAXES
nonresident alien individuals§ 1.872-2 Exclusions from gross income of nonresident alien individuals.
(f) Other exclusions.
Income which is from sources without [outside] the United States [federal territory per 26 U.S.C. §7701(a)(9) and (a)(10)], as determined under the provisions of sections 861 through 863, and the regulations thereunder, is not included in the gross income of a nonresident alien individual unless such income is effectively connected for the taxable year with the conduct of a trade or business in the United States by that individual. To determine specific exclusions in the case of other items which are from sources within the United States, see the applicable sections of the Code. For special rules under a tax convention for determining the sources of income and for excluding, from gross income, income from sources without the United States which is effectively connected with the conduct of a trade or business in the United States, see the applicable tax convention. For determining which income from sources without the United States is effectively connected with the conduct of a trade or business in the United States, see section 864(c)(4) and §1.864–5.