Foreign Relations 6

71st Congress,
3d Session
House Document
No. 825, Vol. III

Papers Relating to the
Foreign Relations
of the
United States
1930
(In Three Volumes)
Volume III
United States
Government Printing Office Washington: 1945

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141 GREAT BRITAIN

[As result of these negotiations, a supplementary treaty on tenure and disposition of real and personal property between the United States, Great Britain and Northern Ireland, Australia, and New Zealand was signed at Washington on May 27, 1936–Department of State Series No. 964; 55 Stat. 1101.]


REFUSAL OF THE BRITISH GOVERNMENT TO EXEMPT AMERICAN CONSULAR OFFICERS FROM INCOME TAX ON NONOFFICIAL INCOME FROM SOURCES OUTSIDE THE UNITED KINGDOM

702.0641/61

The Ambassador in Great Britain (Dawes)
to the Secretary of State

No. 610 London, January 28, 1930.
[Received February 7, 1930]

  Sir: I have the honor to state that on July 6, 1929, Consul General Halstead informed the Embassy that His Majesty’s Inspector of Inland Revenue had requested the American Consul at Bristol to complete and return an income tax form, giving the details of all income other than official emoluments. Consul Willson pointed out to Consul General Halstead that this was the first time such a request had been made of his office, and asked for instructions in the matter.
  A member of the Embassy brought up the case in conversation at Office, and on August 21st an informal note was received by the Embassy, which I quote below:

  “We have referred the matter to the Inland Revenue Department who have ascertained that the request for a return was made by His Majesty’s Inspector of Taxes for Bristol D. 1 District, in accordance with the practice approved by the department and that as foreign consuls are not expected to furnish any return in respect of their fees and emoluments, the application to Mr. Willson was properly limited to a request for details of all income received by him other than his official emoluments.
  “I ought perhaps to add that while foreign consuls in this country are by concession allowed relief from income tax in respect of their official fees and emoluments, they enjoy no special relief in respect of income from any other source, in regard to which they are treated like ordinary private individuals.”

  It was subsequently stated by the Foreign Office, in conversation, that the Inland Revenue people felt they could not make an exception since the law gave them no discretion in the matter with respect to consular officers' income from sources other than official ….
  The Embassy has been informed by Consul General Davis, under January 27, 1930, that the Inspector of Taxes has again requested the American Consul at Bristol to complete an income tax

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142 FOREIGN RELATIONS, 1930, VOLUME III

return or give an explanation as to why the return has not been submitted. I am given to understand that Consul Willson has income apart from his official salary, and that to pay income tax on this would embarrass him, especially in view of the high income tax in this country.

  In view of the conversations with the Foreign Office, I have the honor to request the Department’s cable instructions as to whether the American Consul at Bristol should be advised to complete his income tax return, according to the request of the local authorities at Bristol.

I have [etc.] (For the Ambassador)
Ray Atherton
Counselor of Embassy
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702.0641/61: Telegram

The Acting Secretary of State to the Ambassador in Great Britain (Dawes)

Washington, February 19, 1930 2p.m.

  40. Your despatch 610 January 28th. Article 641 United States Income Tax Regulations provides:

“The income received by foreign consular officers and employees foreign consulates from investments in the United States in bonds and stocks and from interest on bank balances as any business carried on by them in the United States is subject to Federal Income Tax."

Income of such officers from sources outside the United States is not taxed as Treasury ruling holds that

  “An alien who represents a foreign country in the capacity of a consular officer, although physically located within the United States, would not be classed as a resident alien."

  Bring the foregoing to the attention foreign office and urge that reciprocal exemption be granted to American Consul at Bristol.

Cotton

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702.0641/64:Telegram

The Ambassador in (Great Britain (Dawes) to the Secretary

LONDON, May 10, 1930
[Received May 10-8:30a.m.]

  97. Substance of Department’s 40, February 19, 2 p.m. was invited to the attention of Foreign Office in oral conversation and also by note. I am in receipt today of a reply stating inter alia:

  “The relief from income tax accorded foreign consuls in this country dates back to 1842. It applies to the official emoluments of the

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143 GREAT BRITAIN

consul and has never been extended to income from other conditions.
  His Majesty’s Government has taken the view that a relief of this scope is appropriate to consuls and no condition of reciprocity has ever been made. The relief is given to the consul of a foreign state quite irrespective of the relief, if any, which that state may give to British Consuls.
  The scope of the relief from United Kingdom income tax has been carefully considered from time to time but the decision has always been against any alteration.”

Dawes

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702.0641/61

The Secretary of State to the Ambassador in Great Britain (Dawes)

No. 458 Washington, August 1, 1930.

  SIR: The Department has studied the situation outlined in the Embassy’s telegram No. 97 of May 10, 11 a.m., conveying the refusal of the British Government to exempt American consular officers in Great Britain from the payment of income tax on that portion of their non-official income which is derived outside of the United Kingdom stating that no condition of reciprocity has ever been made by the British Government with respect to the liability of foreign consuls in the United Kingdom to the payment of income tax.
  Under existing regulations in the United States, British consular to this country are regarded as non-resident aliens by Bureau of Internal Revenue and are accordingly taxed upon only that portion of their income which is derived from sources within the United States (See Income Tax Regulations 74, Article 641). You are directed to bring this matter to the attention of the Foreign Office, taking care to emphasize the fact that in requesting relief from the United Kingdom’s income tax for American consular officers, this Government desires such relief to apply only to such portion of their income as is derived from sources outside of the United Kingdom on a basis of reciprocity.
  In this connection, you may, in your discretion, inform the Foreign that I am advised that in order to tax the income of foreign consular officers in the United States from sources outside of the United would be necessary to classify them for taxation purposes as resident aliens. I am further advised that the matter of classification one of law but of regulation within the determination of the Treasury Department and that the classification of foreign consular officers as resident aliens or non-resident aliens could be made on a reciprocal basis. The Department would, naturally, be reluctant to request the Treasury to classify British consular officers as resident aliens for the purpose of levying income tax upon that portion of their non-official income derived from sources outside the United States.

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144 FOREIGN RELATIONS, 1930, VOLUME III

However, the Department feels that this aspect of the British Government’s decision with regard to the liability of American consular officers to the payment of the United Kingdom income tax should be brought to the attention of the Foreign Office, in order that, relief be denied, there may be no occasion for misunderstanding if the State Department requests the Treasury to classify British consular officers as resident aliens.

Very truly yours, For the Secretary of State
W.R. Castle, Jr.
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702.0641/65

The Ambassador in Great Britain (Dawes) to the Secretary of State

No. 1317 London, October 22, 1930
[Received November 4.]

  Sir: I have the honor to state that the substance of the Department’s instruction No. 458 of August 1, 1930, regarding the refusal of the British Government to exempt American Consular officers in Great Britain from the payment of income tax on that portion of their non-official income which is derived outside the United Kingdom, was brought promptly to the attention of the Foreign Office. There is enclosed a copy of the Embassy’s letter dated August 25, 1930, to the Foreign Office in this regard.
  The Embassy has received a reply from the Foreign Office dated October 20, 1930, stating that there seems to be no possibility of meeting the United States Government’s wishes, for certain stated reasons, and that the Foreign Office would not regard it as in any way unreasonable if the United States Government should tax the private income of British Consular officers in the United States, although it would be very concerned if British Consular officers were to be called on to pay income tax on their official salaries.

Respectfully yours, For the Ambassador
Raymond E. Cox
First Secretary of Embassy

[Enclosure 1]
The Counselor of the American Embassy (Atherton) to the Head of the Treaty Department of the British Foreign Office (Warner)

No. T11499/1/73 London, August 25, 1930

MY DEAR ATHERTON: May I refer to your note No. T 5005/1/73 of May 9, 1930,(6) regarding the treatment of consular officers in the matter


(6) See telegram No. 97, May 10, 1930, from the Ambassador in Great Britain, p. 142.

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145 GREAT BRITAIN

of income tax, concerning which I have been in correspondence with the Department of State. I venture once again to invite this matter your attention since, under existing regulations in my country, British consular officers assigned to the United States are regarded as non-resident aliens by the Bureau of Internal Revenue and are accordingly taxed on only that portion of their income which is derived from sources within the United States (see Income Tax Regulations 74, Article 641). In requesting relief from income tax in this country for American consular officers the American Government desires such relief to apply only to that portion of their non-official income as is derived from sources outside the United Kingdom on a basis of reciprocity.
  With the above facts in mind, may I point out to you my understanding that in order to tax the income of foreign consular officers in the United States derived from sources outside the United States it would be necessary to classify them for taxation purposes as resident aliens. It would appear that the matter of classification is not one of law but of regulation within the determination of the United States Treasury Department and that the classification of foreign consular officers as resident or non-resident aliens could accordingly be made on a reciprocal basis.
  My object in asking your consideration of the matter once again is that you may understand the arguments that are being presented to the Department of State and the possible trend of the deliberations in the question of the classification of British consular officers in the United States.

Yours sincerely, Ray Atherton

[Enclosure 2]
The Head of the Treaty Department of the British Foreign Office (Warner) to the Counselor of the American Embassy (Atherton)

No. Tl149911/373 [London,] 20 October, 1930.

MY DEAR ATHERTON: The considerations put forward in your August 25th, regarding the treatment of consular officers in the matter of income tax, have been carefully examined but I am sorry to say that there seems to be no possibility of meeting your Government’s wishes, however much we might wish to do so, for the reasons.

The extra-statutory relief referred to in the third paragraph of my of my letter of the 9th May last was only unassailable by reason of its age, and it could hardly have been extended as a matter of administrative

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146 FOREIGN RELATIONS, 1930, VOLUME III

action and without legislation. It has now been given the force of law by Section 20 of the Finance Act 1930, and it is thought to be quite out of the question, immediately after that Act has given legality to a practice of over eighty years standing, to introduce further amendments of the law in quite a new direction.
  It seems possible that the authorities at Washington do not really appreciate how little tax is in practice payable in these cases. A Consul’s official income is not merely exempt from income tax but is entirely disregarded in determining the amount of his income, so that he gets the full benefit of ordinary personal reliefs against his private income. That is to say, he does not pay tax unless his private income exceeds one hundred and thirty-five pounds if he is unmarried, and two hundred twenty-five pounds if he is married, and a considerably larger sum if he has children. It is only if his private income exceeds four hundred pounds or five hundred pounds a year that he is called upon to pay any substantial amount.
  We should not of course regard it as in any way unreasonable that your Government should tax the private income of British consular officers in the United States, though we should naturally be concerned if they were to be called on to pay income tax on their official salaries.

Yours sincerely,
G. Warner

[In a letter to the Secretary of the Treasury, dated December 1930 (702.0641/65A), the Secretary of State wrote: “Under the circumstances you may feel free to tax the private income of British consular officers in the United States and I should be glad to informed of the attitude of the Treasury Department in the premises.”
  The Acting Secretary of the Treasury wrote on December 27, 19 (702.0611/400): “In reply you are advised that it has been the consistent policy of this Department to treat foreign consular officers the United States as nonresident aliens and therefore to tax them only with respect to their income from sources within the United States, other than their official compensation received for services rendered in the United States which is exempt from Federal income tax on the basis of reciprocity. The Department prefers to adhere to its policy of treating British consular officers in the United States as nonresident aliens and to tax their private income only if such income is derived from sources within the United States."]

Informer's Comment:
I don't think there is much in need of comments after reading the highlights. There is much more not highlighted that bears considerable study on your part. Note that sources from within the United States means exactly that, and not sources from within the States which are not the United States as shown throughout these papers. Further on you will see where in Iraq they alter these terms and you see where the word nation DOES NOT mean the States of the Union, but only that area defined as 10 miles square and its territories. This will give you a flavor as to the regulations and not law (see Income Tax Regulations 74, Article 641 on page 145) controls many aspects of the IRC. As stated in many court cases without regulations there is no law and as stated, "For tax purposes regulations govern," Dodd v U.S., 223 F. Supp. 785. This is solidified by the Supreme Court to wit;

". . . we think it important to note that the Act's civil and criminal penalties attach only upon the violation of regulations promulgated by the Secretary of the Treasury; if the Secretary were to do nothing, the Act itself would impose no penalties on anyone." (ibid at 820)

"The Government urges that since only those who violate these regulations may incur civil or criminal penalties. It is the actual regulations issued by the Secretary of the Treasury, and not the broad authorizing language of the statute, which are to be tested against the standards of the Fourth Amendment, and that when so tested they are valid." (ibid at 830) California Bankers Association v Shultz, 416 U.S 21, 39 L. Ed. 2d 812 (1974)
Also note that the Bureau of Internal Revenue and not Internal Revenue Service is used. But, further on they do mention Internal Revenue Service. I just wanted to point this out to you so when you get to that part you will be scratching your head also, as I did. It will become clear after reading all these pages. I am sorry that I can't scan all the pages so everyone could see the mish mash of private corporations, banking partners that are involved in these papers who are stealing the American people blind; and, that the American people did not heed what Congressman Mc Fadden was trying to tell the people. The only congressmen I can think of today who are similar to Mc Fadden are Traficant and Ron Paul.