TO:       Ms. Grace Sutton, ASAIC

          Complaint Management Division

          Treasury Inspector General for Tax Administration

          1125 – 15th Street, N.W.

          Washington 20005-7890



FROM:     Paul Andrew Mitchell

          Private Attorney General, 18 U.S.C. 1964(a)


DATE:     February 8, 2005 A.D.


SUBJECT:  missing notification of right to elect out of withholding

          from periodic payments to CPO Frank C. Schnabel (ret’d)



Dear Ms. Sutton:


My office has been delegated limited power of attorney by retired CPO Frank Carl Schnabel, to inquire into the existence of the notification required by section 3405 of the Internal Revenue Code.


Our preliminary investigation found that there is only one court case cited under 26 U.S.C.S. 3405:  LTV Steel Co. v. U.S., 215 F.3d 1275 (Fed. Cir. 2000), but that case does not discuss any particulars of section 3405.


Under “Research Guide” at page 1416, however, there is a valuable citation to 33A Am Jur 2d, paragraphs 9351 thru 9362.  At paragraph 9357 in that volume of American Jurisprudence, we were happy to find the following pertinent details:


¶ 9357.  Payor’s notification of right to elect out of withholding –- periodic payments.  The payor must notify the payee of his or her right to elect out of withholding. 27  For periodic payments, the payer must, at least once each calendar year (and at approximately the same time), notify the payee of his right to make a non-withholding election or to revoke a nonwithholding election previously made. 28  The notice must be given not earlier than six months before the first payment, and not later than the time of making the payment.  If notice is given before the date of the first payment, it must be given again when the first payment is made.  29


  IRS has provided sample notice forms for periodic payments. 30


  A payor may provide the required notices on withholding from periodic payments to a payee either on a written paper document or through an electronic medium reasonably accessible to the payee, if certain requirements are met. 31


Footnotes:  [see next page]


27.         Code Sec. 3405(e)(10)(B);  Reg § 35.3405-1T, D-3

28.         Code Sec. 3405(e)(10)(B)(i);  Reg § 35.3405-1T, Q&A D-31

29.         Code Sec. 3405(e)(10)(B)(i)(I);  Code Sec. 3405(e)(10)(B)(i)(II);  Reg § 35.3405-1T, Q&A D-4

30.         Reg § 35.3405-1T, Q&A D-21;  Reg § 35.3405-1T, Q&A D-27

31.         Reg § 35.3405-1 Q&A, D-35


¶ 9358 goes on to clarify that a recipient of periodic payments may elect on Form W-4P not to have tax withheld from those amounts.  That election remains in effect until revoked (on Form W-4P) by the recipient, and it takes effect in the manner provided by Code section 3402(f)(3) for withholding exemption certificates for wages.


This is one place where great difficulties have arisen, in part because the Internal Revenue Service has never published an official OMB-approved form entitled “withholding exemption certificate”.  That form is mentioned seventeen (17) times in section 3402 of the IRC.


Without going into any of these related complications that have arisen in Mr. Schnabel’s case, for now he has requested my office to assist by witnessing your answers (if any) to these 2 simple questions:


(1)  Did DFAS, or did DFAS not, notify Frank Carl Schnabel of his right to elect out of withholding between May and November 1979 as mandated by section 3405 of the Internal Revenue Code?


(2)  If so, can you please produce proof of the required notification by promptly mailing same to my office and to Mr. Schnabel?


If my office does not receive a reply from you within thirty (30) days, please be advised of my intent to notify Mr. Schnabel that no such proof was forthcoming from DFAS, and to certify that fact pursuant to 28 U.S.C. 1746(1) (“under the laws of the United States of America”).


Thank you very much for your prompt professional assistance.



Sincerely yours,


/s/ Paul Andrew Mitchell


Paul Andrew Mitchell, B.A., M.S.

Private Attorney General, Criminal Investigator and

Federal Witness:  18 U.S.C. 1510, 1512-13, 1964(a)


All Rights Reserved without Prejudice


copy:  Frank Carl Schnabel, Citizen of Tennessee,

       CPO U.S. Navy (retired) and

       GS-12 Civil Service (retired)

       3552 Vanderwood Drive

       Memphis 38128



U.S. Mail care of:


      Forwarding Agent

      501 W. Broadway, Suite A-332

      San Diego 92101



attachments:  26 U.S.C.S. 3405, p. 1416

              33A Am Jur 2d, pgs. 406-407

              26 U.S.C. 3405 (from Cornell website)

              26 CFR 35.3405-1 (from Supreme Law Library)

              26 CFR 35.3405-1T (from Supreme Law Library)