Lock-in Letter – Points of Authority

The information on the “lock in letter” is quite lengthy with a lot of information.  To make it simple, there are is one statute (with regulation), one regulation (without statute) and Supreme and lower Court opinions summarized by the Department of Justice.

The Statute  that prohibits the Lock-in” letter is found at 26 USC §3402(n) [Regulation;  26 CDFR Sec. 31.3402(n)-1]; Employees incurring no income tax liability:

“(n) Employees incurring no income tax liability Notwithstanding any other provision of this section, an employer shall not be required to deduct and withhold any tax under this chapter upon a payment of wages to an employee if there is in effect with respect to such payment a withholding exemption certificate (in such form and containing such other information as the Secretary may prescribe) furnished to the employer by the employee certifying that the employee –

(1) incurred no liability for income tax imposed under subtitle A for his preceding taxable year, and

(2) anticipates that he will incur no liability for income tax imposed under subtitle A for his current taxable year.”

The regulation is 26 CFR §31.3402(f)(2)-1(g)(5)(ii) thru (vii), in part:

(ii) The Internal Revenue Service may find that a copy of a withholding exemption certificate submitted contains a materially incorrect statement or it may determine, after written request to the employee for verification of the statements on the certificate, that it lacks sufficient information to determine if the certificate is correct. If the Internal Revenue Service so finds or determines and notifies the employer in writing that the certificate is defective, the employer shall then consider the certificate to be defective for purposes of computing amounts of withholding. . . .

(vii). . . . The employer shall continue to disregard that new certificate and shall continue to withhold amounts from the employee on the basis of the maximum number specified in the written notice received from the Service unless and until the Internal Revenue Service by written notice (under paragraph (g)(5)(iii) of this section) advises the employer to withhold on the basis of that new certificate and revokes its earlier written notice.

There is NO statute to support the language of the Treasury regulation or the activities of the IRS.

“Until Congress delegates specific powers to an agency with a reasonable degree of clarity, there is no basis in law for an agency to claim such power.”  CARDOZO LAW REVIEW [Vol. 20:989 1999]

“Administrative agency may not, under guise of its rule making power, abridge or enlarge its authority or act beyond powers given it by statute which is source of its power; administrative regulations that alter or amend statute or enlarge or impair its scope are void.”  San Bernardino Valley Audubon Soc. V. City of Moreno Valley, 51  Cal.Rptr.2d. 897 (1996, Cal.App. 4th Dist)

“…power to issue regulations is not power to change the law…”  US v. New England Coal and Coke Company 318 F.2d 138 (1963

Supreme and lower Court opinions on the importance of the language of the Statute 26 USC Section 3402(n), in particular where the statute states,  “notwithstanding any other provision of this section . . . .”  (The regulation for 26 USC 3402 has the same language as the regulation 26 CFR Section 31.3402. . .).   These cases are summarized by the Department of Justice’s legal division, the Office of Legal counsel in Volume 34 by Daniel L. Koffsky  Applicability of Tax Levies Under 26 U.S.C. §6334 to TSP Accounts Memorandum Opinion For the Chief Counsel Internal Revenue Service (May 3, 2010) (In part):

“Although the TSP provisions may appear absolute if read in isolation, section 6334(c)’s ‘notwithstanding’ clause indicates by its terms that all ‘”other law[s] of the United States, . . ., are ineffective to bar a federal tax levy, except as provided by the express exceptions in section 6334(a).   As a general rule “the use of such a ‘notwithstanding’ clause clearly signals the drafter’s intention that the provisions of the ‘notwithstanding’ section override conflicting provisions of any other section.” Cisneros v. Alpine Ridge Group, 508 U.S. 10, 18 (1993); see also, e.g., IIRIRA Opinion at 7 (observing that a prefatory “notwithstanding” clause ‘does reflect a congressional intention to displace inconsistent law”) [See also, Shomberg v. United States, 348 U.S. 540, 547-548 (1955), ” In using the “notwithstanding” language in these sections, Congress clearly manifested its intent that certain policies should override the otherwise broad and pervasive principle of the savings clause.”].  Indeed, some courts have observed that ‘”a clearer statement”‘ of congressional intent to supersede  all other laws ‘”is difficult to imagine,'” see Cisneros, 508 U.S. at 18 (quoting Liberty Maritime Corp. v. United States, 928 F. 3d 413, 416 (1991) . . . and the Supreme Court has described the “notwithstanding” clause in section 6334 as “direct[ing]” that “[t]he enumeration [of exceptions] contained in §6334(a) . . . is exclusive.” Drye v. United States, 528 U.S. 49, 56 (1991); see also In re Beam (Beam vs. IRS), 192 F. 3d 941, 944 (9th Cir. 1999) (describing section 6334 as “unambiguous” in indicating “that Congress clearly intended to exclude from IRS levy only those 13 categories  of property specifically-exempted in section 6334(a))”

Added to this the United States District Court of Pennsylvania (U.S. v. Malinowski, 347 F. Supp. 347[1992]) District Court Judge Huyett in addressing the W-4 withholding stated in part;  “The effectiveness of this system as a tax collection device obviously depends upon the honesty of the withholding exemptions claims submitted by the employee. The employer is not authorized to alter the form or to dishonor the employee’s claim.  The certificate goes into effect automatically in accordance with certain standards enumerated in §3402(f)(3).

The opinions of the Courts on this issue clearly demonstrate that 26 CFR 31.3402(f) is moot, a violation of  the Statute, and its regulation, 26 USC 3402(n).  Yet the government does nothing.  It might be interesting to ask the question to the Department of Justice. Their address:

Office of Legal Counsel

Department of Justice

Room 5515, 950 Pennsylvania Ave. N.W.

Washington, D.C.     20530-0001


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