Observations of mistakes made by Bernhard Gubser in federal income tax case
By Adele Weiss
11 May 2016
Bernhard Gubser is a Swiss National whose apprenticeship with the Swiss railroad system led him to an import-export career in the United States as a U.S. Resident Alien until he naturalized in 1992.
As a businessman, he has presided as president of Transmaritime, Inc., a Laredo, Texas, freight logistics firm over the last 33 years. As a Swiss National, he opened a bank account in the past for placing his retirement savings funds of $2.8 million in his native land.
As a U.S. Resident Alien, there was never any question of his obligation to file and pay the federal income tax which was lawfully imposed upon those who work for the U.S. Government and for those who are U.S. Resident Aliens. The Legislative Intent of the 16th Amendment, created by former President William H. Taft, resulted in the establishment of the 16th Amendment to the U.S. Constitution permitting the National Government to only levy their territorial income tax upon federal employees and later the Implementing Regulation 26 CFR §1.871-1(a) levied that municipal income tax for individuals who are U.S. Resident Aliens living and working in territory belonging to the National Government or within the now 50 states of the Union.
His real problems arose after he naturalized and was no longer labeled with the U.S. Resident Alien status. Unknown but presumed at this writing, Mr. Gubser more than likely opened his Swiss bank account after he naturalized.
Due to the Foreign Account Tax Compliance Act (FATCA) that was recently implemented by extra-territorial legislation in the U.S. Congress (spearheaded by former Michigan Senator Carl Levin), his accountant presumed facts not in evidence in his particular case. FATCA is still confusing to many, but American Nationals move forward with little understanding, which includes many tax attorneys and accountants.
After studying the FATCA documentation produced by Deloitte Touche Tohmatsu Ltd.,a highly regarded international accounting firm, one finds that the subject of FATCA — and the FBAR filing and withholding requirements — are directed only toward those who are labeled as ‘specified individuals’ per IRS Instructions for Form 8938.
Mistake 1: Who Must File — “Unless an exception applies, you must file Form 8938 if you are a specified individual …” The first four words should also catch your attention as it indicates that exceptions do exist. He did not look into making a discovery of who qualifies for this exception.
Mistake 2: Defining the terms — A Specified Individual is stated by the IRS to be: (1) a U.S. citizen, (2) a resident alien of the United States for any part of the tax year, (3) a nonresident alien individual who makes an election to be treated as a resident for purpose of filing and income tax return, or (4) a nonresident alien individual who is a bona fide resident of American Samoa or Puerto Rico (two of many U.S. Territories/Commonwealths). Based on the case, it is evident that Mr. Gubser did not know between a statutory U.S. Citizen and an American National. In fact, he is correctly identified as one referred to as a nonresident alien individual, as he is nonresident in the District of Columbia and alien to the legislative jurisdiction of federal territories.
Mistake 3: Assumption of Liability — Presuming himself to be a statutory U.S. citizen as listed in the definition of ‘Specified Individuals’ without learning what that term actually means. A statutory U.S. citizen, one subject to the statutory laws within the IRC, is stated at 3C Am Jur 2d Section 2689 to mean: “A person born subject to the jurisdiction of the United States (the U.S. Government) for purposes of acquiring citizenship at birth, if his or her birth occurs in territory over which the United States (the U.S. Government) is sovereign …”
Mistake 4: Not understanding the nature of Legal Jurisdiction — There are two separate and distinct jurisdictions that exist within North America which have the same spelling but different geographical areas. The U.S. Constitution represents those 50 states of the Union, and the National Government is not sovereign in this jurisdiction but fulfills the role of a servant (or at least that was the intent of the Constitution).
Yick Wo v. Hopkins, 118 U.S. 356 (1886) illustrates the fact that American Nationals (a substitute term for differentiation of those Constitutional Citizens of the United States that make up the Constitutional Republic vis-à-vis federal statutory U.S. citizens) are sovereigns according to the U.S. Supreme Court and are not subject to the law but are the authors and source of the law.
The District of Columbia and its U.S. Territories are not states of the Union but exist only within the 10-mile square provided via the U.S. Constitution which granted the National Government (U.S. Congress) to function as a monarchy for that city-state jurisdiction. The federal income tax scheme only applies to this jurisdiction per U.S. Supreme Court decision in Pollock v. Farmer’s Loan & Trust Company, 157 U.S. 429 (1895) as the 16th Amendment was written without regard to the Rule of Apportionment as required upon the National Government in Article 1, Sections 2 and 9. Thus, the FIT was never lawfully imposed upon American Nationals (those working in the private sector within the Constitutional Republic per the decision of the U.S. Supreme Court regarding the lack of adherence to the Rule of Apportionment. The statutory term “United States” is defined at IRC section 7408(d) to mean only the District of Columbia and does not reference the Constitutional Republic (the 50 states of the Union) for this reason.
Mistake 5: The FATCA Exception — The exception stated in the IRS Instructions for Form 8938 state: “Exception if no income tax return required. If you do not have to file an income tax return for the tax year you do not have to file Form 8938.” This includes the FBAR report as well.
Michael L. White, former Federal Attorney for the Office of the Federal Register stated back in 1994 in his legal opinion letter to an American National in Illinois that: “Our records indicate that the IRS has not incorporated by reference in the Federal Register a requirement to make an income tax return.” Therefore all American Nationals who do not work for the National Government but work in the private sector have no obligation to file and pay the FIT. This is further substantiated by the Federal Retirement Thrift Investment Board publication which states, “A nonresident alien participant who never worked for the U.S. Government in the United States will not be liable for U.S. income tax.”
Mistake 6: FATCA Withholdings — FATCA requirements apply toward those ‘Specified Individuals’ which are referred to in the IRC as U.S. persons which is defined at IRC section 7701(a)(30) and does not include American Nationals unless they have made a voluntary election to be taxed by the IRC statutes as if they were a U.S. Resident Alien or they choose to live in American Samoa or Puerto Rico.
Furthermore, Deloitte’s publication states that FATCA applies to U.S. persons/Specified Individuals with the understanding that “FATCA withholding only applies to withholdable payments which are defined as certain income and gross proceeds from ‘sources within the United States’ [the District of Columbia]. “ Those withholdable payments relate to (A) Any payment of interest if such payment is from sources within the United States”, and (B) “Any gross proceeds from the sale or disposition of U.S. property of a type that can produce interest or dividends.”
IRC section 861(a) discusses Gross Income from sources within United States (D.C.). The discussion at subsection (3) Personal Services is where American Nationals who are referred to in IRC statutes as ‘Nonresident alien individuals’ prove that such FATCA requirements to not apply to American Nationals (Nonresident alien individuals), but the time to explain this is for another day due to complexity and length of narrative required to accomplish this. More information can be gleaned here.
For those who have made a previous election to have their income treated like that of a U.S. Resident Alien, there is a process to revoke that election and leave the U.S. Tax Club. More information on that process can be obtained here.
Mistake 7: Legal representation addressing this matter in a U.S. District Court — The fact that his legal team in Dallas, Texas, took him to a United States District Court was a huge error on their part. This relates to jurisdiction once more. U.S. District Courts are all territorial or tribunal courts with jurisdiction only within the District of Columbia as stated by former U.S. Supreme Court Justice William H. Taft in Balzac v. People of Porto Rico, 258 U.S. 298 (1922). “U.S. District Courts are not true United States court established under article 3 of the Constitution … the resemblance of its jurisdiction to that of true United States court, in offering an opportunity to nonresidents of resorting to a tribunal not subject to local influence, does not change its character as a mere territorial court.”
When he submitted to the territorial jurisdiction of the U.S. District Court, he gave up any claims of protections under the Constitution, probably sub silentio as his legal staff acted in his behalf, and is now embattled with addressing the statutory laws that make up the FATCA requirements in Chapter 4 of the IRC related to FATCA.
His case has now brought him into being subject to the territorial jurisdiction of the National Government and his legal team is responsible for this huge mistake. Mr. Gubser is now under the dominion and control of the National Government, thanks to his legal team, and there is but one outcome for him — he has lost the battle before he started it and now he will have to pay the legal team for their ‘expertise.’
“All is mystery; but he is a slave who will not struggle to penetrate the dark veil.”
Benjamin Disraeli, Prime Minister of the United Kingdom (1874)
For those seeking more information on the limited jurisdiction of FATCA and other limitations of IRS-related topics, please email firstname.lastname@example.org.