Dave Champion: The Business Booklets

Alex: Welcome back. Last time we went through Dave Champion's latest video, the one about companies forcing Americans into the taxpayer box. Today we are reading the homework behind that video — two short booklets Champion wrote for the other side of the desk: the employer, and the company doing the hiring. And today the show has a third voice.

Jordan: It does. Joining us is Marcus, and his job is the documents themselves. Whenever this episode quotes a statute, a regulation, or a sentence from the booklets, you will hear Marcus read it — so you always know where Champion's commentary ends and the quoted words begin.

Marcus: Glad to be here. Everything I read today is verbatim — from the code, the regulations, or the booklets themselves.

Alex: The booklets, then. The Business Guide to Payroll Withholding is fourteen pages. The Business Handbook for Forms W-9, 1099, and U.S. Person is thirteen. Both published in twenty twenty. Each is built to be handed across a desk — a worker gives the first to his boss, a contractor gives the second to a client — and each makes the same basic move: stop arguing about what everybody thinks the forms mean, and read what the law says the words mean.

Jordan: Because his whole method starts with definitions. In a statute, a word can be defined to mean something entirely different from its everyday meaning, and unless you read the definition section — which may sit hundreds of pages away — you do not actually know what the statute says. Then he adds the Supreme Court's guardrails. Here is the first one, from Gould versus Gould, in Marcus's voice.

Marcus: In statutes levying taxes, the literal meaning of the words employed is most important, for such statutes are not to be extended by implication.

Jordan: And the second, from Colautti versus Franklin: when Congress supplies the definition of a term, that definition excludes unstated meanings. Those two rules do a lot of work in everything that follows.

Alex: Take the withholding booklet first. It concedes the command up front, does it not?

Jordan: It does, and that is a strength of the thing. Section thirty-four oh two says every employer making payment of wages shall deduct and withhold a tax. Champion does not wave that away. He asks the prior question: who is an employee, for purposes of that chapter? The answer lives at section thirty-four oh one, subsection c. Marcus.

Marcus: For purposes of this chapter, the term employee includes 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.

Jordan: Notice, Champion says, whose payroll is missing: the private sector. And that last phrase, officer of a corporation, he reads through the old rule called ejusdem generis — the general words take their character from the specific list around them — so in context, he argues, it means officers of government corporations, like the F.D.I.C., Fannie Mae, or the Postal Service.

Alex: Then he turns to the Form W-4 itself, and asks where the law actually puts it.

Jordan: His answer: Chapter Three of the code, the chapter titled Withholding of Tax on Nonresident Aliens and Foreign Corporations. Section fourteen forty-one defines the withholding agent. Listen to who the payments belong to, at the end of the definition.

Marcus: All persons, in whatever capacity acting, having the control, receipt, custody, disposal, or payment of any of the items of income specified in subsection b, of any nonresident alien individual, or of any foreign partnership, shall be subject to the duties of a withholding agent.

Jordan: And a Treasury regulation, section one point fourteen forty-one dash four, lets that withholding agent elect to use a Form W-4 and withhold under the payroll rules, as if the income were wages. So in Champion's reading, the W-4 has exactly one lawful home: paying a nonresident alien. His boldest claim follows: search the whole federal tax library — he puts the standard compilation at roughly seventy thousand pages — and you will not find a single provision requiring an American citizen, working in America, to sign or furnish a W-4.

Alex: And the W-2, in that reading, is just the report of that withholding.

Jordan: Right. The W-2 reports what the withholding agent withheld from the nonresident alien, with the quarterly returns on Form nine forty-one. Which sets up his favorite analogy in the booklet — and here it is in his own words.

Marcus: A simple and accurate way of looking at the W-4 is to see it as a traffic signal. Green means go; red means stop. W-4 means the company has a green light to withhold. Lack of W-4 means the company has a red light on withholding from that worker.

Jordan: A signed W-4, then, is the worker's own declaration and request, and while it stays in effect, section thirty-four oh three makes the employer liable for the tax required to be withheld. No W-4, red light: nothing was ever required, so nothing can be owed. And on penalties, he points to section sixty-seven twenty-four — no penalty where the failure is due to reasonable cause — and to the predecessor statute, which said the penalty will not be assessed against a payor when the payee declines to furnish his number. A worker's refusal, in his reading, is the textbook reasonable cause.

Alex: Now the second booklet — the contractor's version. W-9, ten ninety-nine, and that phrase, U.S. person.

Jordan: Here the key term is U.S. person, and Champion starts with its birthday: Congress introduced it into tax law in nineteen sixty-two, and he says that in every regulation since, the term is used for one activity — a citizen or a domestic corporation moving U.S. source income from its U.S. source out to its foreign owner. His summary line deserves his own emphasis. Marcus.

Marcus: All U.S. persons are U.S. citizens or domestic corporations, but not all U.S. citizens and domestic corporations are U.S. persons.

Jordan: All husbands are male; not all males are husbands. Then the classification point: in the Treasury's regulations, Form W-9 is listed as a withholding certificate. Here is the Chapter Four definition, from regulation one point fourteen seventy-one dash one.

Marcus: The term withholding certificate means a Form W-8, Form W-9, or any other certificate that under the Code or regulations certifies or establishes the chapter 4 status of a payee or beneficial owner.

Jordan: Chapter Four is the foreign accounts chapter. Every authority he cites for the form sits in Chapter Three or Chapter Four, and none, he says, authorizes demanding one from the fellow who cleans your carpets.

Alex: Backup withholding gets the same treatment.

Jordan: It does. The regulation listing who counts as a payor for backup withholding names grantor trusts, common trust funds, and partnerships or S corporations making reportable payments — a narrow, technical list — and the phrase subject to withholding is defined, in the Chapter Four regulation, by reference to Chapter Four itself. And then the booklet's sharpest practical claim: you may file a ten ninety-nine only against a person who has given you a signed W-9. So when a company files one anyway, Champion says it is telling the I.R.S. a story about itself: that its own enterprise is involved in moving U.S. source income to a foreign owner, through another U.S. person. A false legal presumption, created by the filer, against the filer. He also adds, almost as an aside, that nothing in the law requires an information return before you can deduct a legitimate business expense.

Alex: Both booklets end up at the same place the video did — the signature line.

Jordan: The perjury statement. Champion says the jurat does two jobs: it vouches for accuracy, and it makes the signer declare, under penalty of perjury, the status the form presupposes. On a W-4, as he reads it, the status of a nonresident alien being paid U.S. source wages. On a W-9, the status of a U.S. person moving income to a foreign owner. So a company that conditions a job, or a paycheck, on that signature is, in his phrase, procuring a false declaration — and he builds that on the federal subornation statute. The operative words, Marcus.

Marcus: Whoever procures another to commit any perjury is guilty of subornation of perjury, and shall be fined under this title, or imprisoned not more than five years, or both.

Jordan: Requesting the form is lawful, Champion says. The legal problem begins when refusal carries consequences — when a request becomes a demand.

Alex: And he spends real pages on why your accountant will tell you he is wrong.

Jordan: He opens that section with Upton Sinclair.

Marcus: It is difficult to get a man to understand something when his salary depends upon his not understanding it.

Jordan: Then an analogy from his other life as a health writer: the nineteen fifties sugar industry funding the research that blamed dietary fat for heart disease, and sixty years of cardiologists repeating a dogma the data never supported. Accountants and lawyers, he argues, were simply never taught the definition sections; in almost thirty years, he says, he has never met an accountant who knew that employee, or U.S. person, has a narrow congressional definition at all. So each booklet ends with five plain questions to put to your own advisors — what is the definition of employee at thirty-four oh one c, who may a withholding agent withhold from, what class of form is a W-9 in law — with the answers printed from the statutes, so you can grade the response yourself.

Alex: Now the part where we do our job. Everything in this episode is Dave Champion's argument, from his own booklets, and we have read both of them in full and represented them as written. His reading is his reading. The I.R.S. and the federal courts take the opposite view of these forms and these definitions, mainstream tax practice is squarely on the other side, and a federal court barred Champion from promoting his nontaxpayer position back in twenty twelve — and Champion's own published reply to that injunction is on his site, worth reading alongside the government's announcement. Nothing in this episode is legal or tax advice. What the booklets are genuinely good at, whatever you conclude, is forcing the right habit: never argue about a form until you have read the definition of its key term, in the statute, in full. Sections thirty-four oh one, fourteen forty-one, and seventy-seven oh one, subsection a, paragraph thirty. They are public. Read them and decide carefully.

Jordan: To recap: two short booklets, one method. Read the definition before the duty. The W-4, he says, lives in the chapter about nonresident aliens. The W-9 is a withholding certificate for cross-border income. A signature declares a status. And a request the law permits becomes something else entirely the moment refusal is punished. The booklets, and the big book they point to, Income Tax: Shattering the Myths, are at drreality dot news, and his profile in our Other Voices section at incometaxdc dot com links to all of it.

Alex: We will leave the last word with Champion himself, from the close of the withholding booklet — the doubt he says started all of this for him. Marcus.

Marcus: Not all is as it appears to be. Not as we have been socialized to believe, concerning these matters.

Alex: Next time a form lands in front of you with a pen, the booklets would have you ask one question before all others: not, what does this form do — but, what does the law say the words on it mean? Thanks for listening. We will see you next time.