IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF TENNESSEE WESTERN DIVISION ------------------------------------------------------- UNITED STATES OF AMERICA, ) ) Plaintiff, ) ) VS. ) NO. 03-20111-Ml ) ) VERNICE KUGLIN, ) ) Defendant. ) ------------------------------------------------------- TRIAL PROCEEDINGS BEFORE THE HONORABLE JON PHIPPS MCCALLA, JUDGE AUGUST 6, 2003 VOLUME III BRENDA PARKER OFFICIAL REPORTER SUITE 942 FEDERAL BUILDING 167 NORTH MAIN STREET MEMPHIS, TENNESSEE 38103 482 A P P E A R A N C E S Appearing on behalf of the Plaintiff: TERRELL L. HARRIS, ESQ. UNITED STATES ATTORNEY SUITE 800 FEDERAL BUILDING 167 NORTH MAIN STREET MEMPHIS, TENNESSEE 38103 By: JOSEPH MURPHY, ESQ. Appearing on behalf of the Defendant: LOWELL H. BECRAFT, JR. 209 LINCOLN STREET HUNTSVILLE, ALABAMA 35801 ROBERT G. BERNHOFT, ESQ. 207 EAST BUFFALO STREET MILWAUKEE, WISCONSIN 53202 483 W I T N E S S I N D E X WITNESS PAGE LINE VERNICE KUGLIN DIRECT EXAMINATION (CONTINUED) BY MR. BECRAFT: ....................... 499 11 CROSS EXAMINATION BY MR. MURPHY: ........................ 568 19 REDIRECT EXAMINATION BY MR. BECRAFT: ....................... 627 13 484 E X H I B I T I N D E X EXHIBIT NUMBER PAGE LINE Exhibit Number 28 2-3-53 Document 506 16 Exhibit Number 29 1997 Annual Report 507 9 Exhibit Numbers 30 1040 Instructions 1992 507 24 Exhibit Number 31 1040 Instructions 1993 508 1 Exhibit Number 32 1997 26 CFR 5601.602 508 22 Exhibit Number 33 1998 26 CFR 5601.602 508 24 Exhibit Number 34 1999 26CFR 5601.602 509 1 Exhibit Number 35 Cole v. McFarland Case 509 23 Exhibit Number 36 1975 1040 Instructions 518 23 Exhibit Number 37 IRS Bulletin 538 11 Exhibit Number 38 1993 Form 2555 Instruction5 13 Exhibit Number 39 1993 Form 2555 538 15 Exhibit Number 40 1916 Treasury Decision 544 9 Exhibit Number 41 October 18, 1995 Letter 558 4 Exhibit Number 42 November 25, 1995 Letter 558 6 Exhibit Number 43 Flora Case 571 15 Exhibit Number 44 1992 Tax Return 574 9 Exhibit Number 45 1988 Form 1040 576 7 Exhibit Number 46 1990 W-4 Form 578 13 Exhibit Number 47 Blank Form 1040 580 12 Exhibit Number 48 October 31, 1995 Letter 583 24 Exhibit Number 49 June 16, 1997 Letter 584 21 485 Exhibit Number 50 June 16, 1997 Letter 585 12 Exhibit Number 51 June 22, 1999 Letter 585 20 Exhibit Number 52 June 28, 1999 Letter 586 25 Exhibit Number 53 July 6, 1999 Letter 587 13 Exhibit Number 54 October 30, 2000 588 11 Exhibit Number 55 Tax Returns 601 6 Exhibit Number 56 CFR Passages 605 5 Exhibit Number 57 1993 Instructions 621 1 Exhibit Number 58 1995 1040 Instructions 625 24 486 1 WEDNESDAY MORNING & AFTERNOON 2 AUGUST 6, 2003 3 The trial in this case resumed on this date, 4 Wednesday, August 6, 2003, at 9:00 o'clock a.m., when and 5 where evidence was introduced and proceedings were had as 6 follows: 7 8 ____________ 9 10 MR. MURPHY: Judge, Ms. White is not here, but 11 she has gone to get some exhibits. 12 THE COURT: Do you need to wait on her? 13 MR. MURPHY: No, we don't need to wait on her. 14 MR. BECRAFT: Your Honor, could we take up a 15 matter, an evidence question before we bring in the jury? 16 THE COURT: Sure. 17 MR. BECRAFT: I anticipate that Mr. Murphy has 18 got a lot of objections to some of the proposed exhibits 19 that we're going to offer. With reference to that 20 category of exhibits, I'm proceeding with this in mind, 21 and I would like the court to either approve or 22 disapprove. It may take some arguments, and I think it is 23 going to be more beneficial for us to argue the bulk of 24 these motions outside the presence of the jury maybe 25 before a break or after a break or sometime after the 487 1 defendant gets off the stand. 2 THE COURT: Have you shown the materials to Mr. 3 Murphy? 4 MR. BECRAFT: Your Honor, I gave the government 5 premarked exhibits. 6 MR. MURPHY: Yes. 7 THE COURT: I think the answer is yes. Do we 8 have objections. 9 MR. MURPHY: Judge, as I said yesterday, and 10 just generally, my objections generally fall into three 11 categories. There are Supreme Court cases and IRS 12 materials, and I would be of the opinion that those are 13 admissible. 14 THE COURT: Are admissible? 15 MR. MURPHY: Yes, sir. 16 THE COURT: All right. 17 MR. MURPHY: And then there are, for lack of a 18 better word, tax protester type materials that may or may 19 not have extensive legal citations. In fact, one of 20 those, it talks about jury nullification and urges people 21 to nullify verdicts. Clearly, some of the text of that 22 may come in, but the document itself wouldn't, and I think 23 the defendant would be allowed to read from it, but I 24 think we need to know in advance what portion she is going 25 to read. And the last group of materials that they seek 488 1 to offer are letters from a CPA and an attorney, I believe 2 it is, that represented Ms. Kuglin, and our position would 3 be that those are clear hearsay. They're not -- they 4 don't fit the state of mind exception. 5 THE COURT: Are they letters that she claims to 6 have relied on? 7 MR. BECRAFT: Yes. 8 MR. MURPHY: Well, Judge, here is the problem. 9 I don't think she can claim to rely on those letters, 10 because at the time they were in the midst of a 11 controversy over the tax matter, and if you look at -- if 12 you look at, I think it's 803, the state of mind 13 exception, it clearly says that you can't offer 14 something -- a statement of belief to prove that belief. 15 And I would submit that's what you're doing in this case. 16 It's 803(3), Your Honor. 17 THE COURT: Oh, I'm not looking for that. I'm 18 looking for the good faith -- bases for good faith. I 19 don't know whether or not a person can rely on -- are 20 these -- I just have to look at the two letters, whatever 21 they are, and see whether they're something on which a 22 person can rely, and I haven't seen those. 23 MR. BECRAFT: Would the court like to look at 24 them now? 25 THE COURT: Sure. 489 1 MR. BECRAFT: Either my copies or hers. Ms. 2 Kuglin, have you got 43, 44, 45, 46? 3 THE WITNESS: Yes, I do. 4 MR. BECRAFT: May I approach the witness, Your 5 Honor? 6 THE COURT: Why don't you hand them to me, I'm 7 the one that has to look at them? Oh, okay. You're 8 right, it doesn't matter. I don't think this letter from 9 Thomas Roberts states an opinion in which a person can 10 rely. This is the one dated November the 26th, 1997. 11 This one of -- I don't think this one of December the 8th, 12 1997 also states an opinion on which a person can rely or 13 even suggest that there's an opinion attempting to be 14 stated on which a person can rely. I don't think this one 15 of January the 20th, 1997 also states an opinion upon 16 which a person could rely from a professional. They just 17 talk about request for documents which are not opinions on 18 which a person can rely. Well, the letter from Mr. Pope 19 also does not state an opinion upon which a person can 20 rely, as far as I can tell. 21 MR. BECRAFT: Your Honor, can I explain the 22 letters? 23 THE COURT: Excuse me? 24 MR. BECRAFT: And the purpose? 25 THE COURT: Well, they have to fall into an 490 1 exception. These are hearsay. And -- and -- clearly, so 2 as a general proposition, they're not admissible. 3 Sometimes a person can obtain an opinion, for example, 4 from -- well, from a CPA, and the CPA can state that they 5 have determined that no tax is owed on a particular -- or 6 as to a particular individual, and that they state that 7 that as a CPA in a professional capacity and advise the 8 client that they need not pay any tax on this particular 9 point. 10 MR. BECRAFT: These are not offered as opinion 11 letters, Your Honor. 12 THE COURT: Well, that's what I understood, 13 they're not opinion letters. Had they been opinion 14 letters, they would be in a different category, that's 15 true. 16 MR. BECRAFT: May I offer additional 17 information to the court on this point? 18 THE COURT: Sure, sure. 19 MR. BECRAFT: I had lined up to deal with the 20 authenticity question. These letters come from Florida, 21 and I had a secretary in an office that was going to come 22 up and prove the mailing of the letters. I don't think 23 the government is making an objection, we have agreed, 24 although the court is hearing about this for the first 25 time, that the question doesn't relate to authenticity. 491 1 What we're offering them for is not for opinion or 2 anything else, but what -- the point that we're offering 3 them for is that at Ms. Kuglin's instructions, these 4 gentlemen -- they're tentatively marked 43, 44, 45, 46, 5 just the numbers that appear on the documents, they're 6 offered for the purpose of showing that Ms. Kuglin said or 7 asked questions through her lawyers to the Internal 8 Revenue Service to answer, and she also makes statements, 9 there is letters -- there's statements in here we're 10 willing to pay, the only thing we want to do is we want to 11 have answers to our questions. For example, you know, 12 just to demonstrate to the court, the one that is labeled 13 43 that is dated November the 26th of '97 by Tom Roberts, 14 it says specifically kind of at the bottom of the page -- 15 THE COURT: I have read it already, sure. Our 16 client is not refusing to pay and, in fact, will pay any 17 lawful tax owed once the Internal Revenue Service complies 18 with our request as outlines in this document and, of 19 course, it begins earlier, since our client has never been 20 given documents by the IRS, which clearly state specific 21 taxes the IRS claims -- see, that's not how it works, 22 unfortunately, or however you want to look at it. In our 23 system, the IRS doesn't send them a bill, you send them in 24 materials which are reported. 25 I need to go take a phone call in the back, 492 1 apparently, and we will come back and look at this, but I 2 think probably -- well, we will come back and talk about 3 it for a second. 4 (Recess taken at 9:15 until 9:20 a.m.) 5 THE COURT: All right. Anything else from the 6 United States on these letters? 7 MR. MURPHY: No, sir, Your Honor. 8 THE COURT: Anything else from the defense? 9 MR. BECRAFT: Yes, Your Honor. These four 10 letters, there is a series of documents that I consider to 11 be the core of the defense. First is the documents that 12 have already been admitted in evidence, it's the exempt 13 Form W-4 dated December, 1995, that is authored by Ms. 14 Kuglin. Thereafter, in order of importance about exhibits 15 that we're going to cover this morning are two documents 16 that she submitted herself in October and November of 17 1995. Subsequent to that time, we had this series of 18 letters Ms. Kuglin was asked or asked these people, Tom 19 Roberts and Mr. Pope to write letters on her behalf to the 20 Internal Revenue Service asking her fundamental questions 21 and, likewise, at the same time offering to pay. 22 Now, under -- that being the case, it is our 23 position that it goes to her state of mind, which is the 24 most important factor that I think the jury has got to 25 decide in this case. She read these letters. She said 493 1 that she would make an offer -- she would pay the IRS, she 2 had no objections to paying the tax, she just wanted her 3 questions answered. That, Your Honor, goes to reliance, 4 state of mind as well as intent, and these -- these 5 letters are real important for the intent question, what 6 was her frame of mind. She wanted her questions answered, 7 she was willing to pay, and to me, that -- those are real 8 important facts that demonstrate a lack of intent to 9 commit tax evasion. 10 MR. MURPHY: Judge, if you look again at 11 803(3), this is being offered as a statement of belief to 12 prove the belief, and it's not admissible. We're -- where 13 these letters emanated from was an IRS proceeding to levy 14 on the defendant's property, and what that -- what that 15 would tend to do, I would submit to the court, is create a 16 situation where there was a motive to lie, and the 17 reliability factor that you typically have in a hearsay 18 statement, because it's on the spot type of thing just 19 wouldn't apply, and, therefore, we would submit that they 20 ought not to come in. They're just hearsay, there's no 21 way around it. 22 THE COURT: Well, the exception that's asserted 23 by the defense is 803(3), as I understand, and the 24 government simply argues that it doesn't apply. That rule 25 as to hearsay exception says the following are not 494 1 excluded by the hearsay rule even though the declarant is 2 available as a witness; three, then existing mental, 3 emotional or physical condition. A statement of the 4 declarant's then existing state of mind, emotion, 5 sensation or physical condition such as intent, plan, 6 motive, design, mental feeling, pain and bodily health, 7 but not including a statement of memory or belief to prove 8 a fact remembered or believed unless it relates to the 9 execution, revocation, identification or terms of 10 declarant's will. So this particular exception to the 11 hearsay rule does not apply to the letters submitted from 12 Mr. Roberts and from Mr. Pope. Objection by the United 13 States is sustained. 14 All right. Anything else? 15 MR. MURPHY: Yes, sir, Your Honor, you wanted 16 me to advise the court what our position would be as to a 17 lesser included offense. 18 THE COURT: Yes, I did. 19 MR. MURPHY: And our position is going to be 20 that the jury should not be charged with the lesser 21 included offense given the nature of the charge in this 22 case. 23 THE COURT: Anything from the defense on that? 24 MR. BECRAFT: Well, I offered one, I offered a 25 lesser included instruction. 495 1 THE COURT: Right, but -- 2 MR. BECRAFT: I think under the facts of this 3 case, the indictment alleges, if part of the offense is 4 committed by a willful failure to file. My position is 5 that terminology -- just by the plain terms of the 6 indictment itself includes the lesser included offense and 7 willful failure to file, 7203. 8 MR. MURPHY: But, Judge, if you look at the 9 defense they're offering, as I understand it, what the 10 witness has testified to, she had no duty to file a tax 11 return, and that's just not consistent with the defense 12 that's offered. 13 THE COURT: Well, there is discussion about the 14 inclusion of lesser included offense in pattern jury 15 instruction 8.07 of the Sixth Circuit pattern jury 16 instructions, and this does not appear to be a case where 17 the court should include the lesser included offense 18 instruction, so I'll sustain the position by the United 19 States. 20 There's some discussion of this in the notes 21 contained with -- or the comments contained with 8.07, and 22 I do agree with the United States that this is not -- 23 certainly not required and it's not appropriate in my 24 determination in this case. That takes care of that 25 point. 496 1 MR. BECRAFT: One other matter, Your Honor, 2 before the -- we dealt with the letters. The only other 3 point is that should we, on a piece-meal basis, handle the 4 rest of the exhibits or should we take them up outside the 5 presence of the jury was my offer? 6 THE COURT: Well, you know, the -- I haven't 7 looked at each of the -- Supreme Court cases and materials 8 from the Internal Revenue Service can be used. I mean 9 they're published materials, they're available for 10 everybody, and the law allows an individual to rely on 11 Supreme Court decisions, it allows individuals to rely 12 upon IRS materials, and so those can be used. 13 As to materials by other people or entities, 14 they fall in the same problem as any other type of 15 hearsay, and unless it is a learned treatise on tax law, 16 certainly read from and not necessarily have been 17 admitted, but refer to that sort of material, but it has 18 to meet some test to show that it is -- that it falls in 19 the an exception of the hearsay rule. Otherwise, we would 20 get up and read from the Marvel Comics or the Wall Street 21 Journal either one, and it would not be -- although parts 22 of the Journal -- part of the Journal are judicial notice 23 materials like the interest rate portions, but articles in 24 the newspaper would not be admissible themselves. So I 25 think that -- we know that they will not be admissible. 497 1 Now, that's our situation. If -- how much material do we 2 have like that? 3 MR. BECRAFT: Well, Your Honor, I slipped to 4 the court a proposed exhibit list. I have committed a 5 grave error by numbering mine in advance. Bad habits stop 6 slowly, Your Honor. But you can take a look at the 7 exhibit list, and what I will do -- I think it's something 8 we can probably take care of in short order outside the 9 presence of the jury is all I'm saying. I could lay the 10 foundation for some of these documents. I'm not going to 11 offer a lot of these. I will take into consideration what 12 the court has already said and move some of that in, but 13 there's some that I think probably require a separate 14 consideration, separate arguments that I anticipate coming 15 from Mr. Murphy. 16 THE COURT: Well, you have a lot of things, 17 these various opinions, interesting question about using 18 the ones that are very old, but I think you can clarify 19 them. CFR, there's no question about that, is there, Mr. 20 Murphy? 21 MR. MURPHY: No, sir, Your Honor, I believe 22 that's admissible. 23 MR. BECRAFT: And we have some forms, but then 24 there's a lot of other material that is not IRS and 25 everything else. 498 1 THE COURT: We have covered the things that you 2 listed as 43, 44, 45, 46. Ms. Kuglin's own correspondence 3 to the agency typically not admissible as a general 4 proposition because everybody can write their own material 5 and then would be able to introduce into evidence, but 6 sometimes it's received because there's no opposition, as 7 an admission, for example. So I don't know what the 8 government will say about those things. 9 MR. BECRAFT: I'll do whatever the court wants. 10 I will move them into evidence as we take them up. 11 THE COURT: Why don't we deal with them as they 12 come up? I did get the list though, thanks. 13 Are we ready? 14 MR. BECRAFT: We are, Your Honor. 15 COURT SECURITY OFFICER: Yes, Your Honor. 16 (Jury in at 9:40 a.m.) 17 THE COURT: Everybody can be seated. I'm sorry 18 we're starting a little late. The -- we did take up some 19 documents that -- as to which objections could be dealt 20 with in advance and ruled on those rather than our doing 21 those at side bars. There are going to be some other 22 documents that as they come up, we will probably try to 23 deal with at side bar. If we can't do it quickly, we will 24 take another break and deal with them. That way, we're 25 not causing you to have to sit out here while we're trying 499 1 to sort through the objections under the Rules of 2 Evidence. 3 The Rules of Evidence do dictate which type 4 documents can be received and the reasons that they can be 5 received, and it does take a little bit of time to go 6 through each document to make sure they can come in or 7 not. I think we're ready to proceed. 8 MR. BECRAFT: May it please the court. 9 THE COURT: Go right ahead. 10 DIRECT EXAMINATION (CONTINUED) 11 BY MR. BECRAFT: 12 Q. Ms. Kuglin, yesterday we had finished a particular 13 topic, and I would like to move on to a different aspect of 14 your testimony. 15 Between 1992 and early 1995 or maybe late 1995, can you 16 describe for us what you were doing in reference to generally 17 studying the income tax laws? 18 A. Well, after I had reviewed the cases and the 19 constitutional restrictions on taxation and the other study 20 materials I had, I had come to the conclusion that there was 21 definitely a question about whether or not I was liable for 22 the income tax. So I decided it was time that I really delve 23 into the tax code itself and the 1040 form, which is a 24 document that the IRS has asked Americans to complete. 25 Q. Let me stop you right there. Do you have in front of DIRECT - VERNICE KUGLIN 500 1 you a document that's called file folder one? 2 A. Yes. 3 Q. Okay. Now, is this something that during that time 4 frame that I just mentioned, is this something that you read 5 and relied upon? 6 A. Yes, it is. As I was going to the different 7 conventions and listening to different speakers, I picked up 8 fliers, information, newspaper articles and such like that 9 which substantiate or which discuss -- did not substantiate, 10 but discussed and raised questions which became kind of a road 11 map for the rest of my study. 12 Q. Is there something that you read in this -- identify 13 for me, please, this number one. 14 A. The first exhibit or this first document is entitled 15 Who Is Required To File A Tax Return. It's written by a lady 16 by the name of Claire Kelly, and she was a columnist who had 17 done a lot of research in the arena of taxation. 18 Q. And what was the general theme that you gathered from 19 this and how did it relate to your beliefs? 20 A. The general theme was much of what I had discussed 21 yesterday in regard to direct taxes, indirect taxes. She 22 quoted Supreme Court cases such as the Brushaber case, the 23 McFarland case and just a little bit more explanation as to 24 the fact that the source of income was very, very important in 25 deciding whether or not that income fell in the category of DIRECT - VERNICE KUGLIN 501 1 direct taxes which the federal government could only levy a 2 portion -- excuse me, through apportionment and send the bill 3 to the state, and that -- which was considered the source 4 which fell under excise taxes or indirect taxes which had to 5 be uniform throughout the state. 6 Q. Now -- 7 A. Or the country. 8 Q. Could I get you to identify the next document that has 9 a two on it? 10 A. This document is entitled Who Is a Taxpayer? And this, 11 again, is an article written by Claire Kelly. You want me to 12 continue? 13 Q. Yes, tell us what you gathered from reading that 14 document. 15 A. One of the first things -- it starts out by saying the 16 revenue laws are a code or a system of regulation, a tax 17 assessment and collection. They relate to taxpayers and not 18 to nontaxpayers and what this placed in my mind was the idea 19 that not every one is a taxpayer, and the article goes on to 20 say that the income is allaying of an excise tax upon a 21 taxable event, that the income tax law or -- that was 22 initially debated in 1909 and then passed in 1913 was actually 23 originally named the corporation tax of 1909. And it goes -- 24 the article goals on and quotes some of the court cases that I 25 talked about yesterday, Redfield versus Fisher, and explained DIRECT - VERNICE KUGLIN 502 1 that there are taxpayers and there are tax payers. Taxpayers 2 are those which are entities of the government, corporations, 3 trusts and things like that, and then there are individuals 4 who are tax payers. They pay the indirect taxes, the gas 5 taxes, the wheel taxes and such like that. So it gave me a 6 much clearer understanding that not everybody is considered a 7 taxpayer. 8 Q. Let me direct your attention to the next document that 9 has a three on it. 10 A. This document is entitled -- excuse me -- this document 11 is entitled Deceptive IRS Code Words, and it was published by 12 an organization entitled the Free State Constitutionists. And 13 this talks about the words income, the word person, the word 14 taxpayer, shall and must. And it discusses the fact that the 15 common everyday usage of certain words is not necessarily the 16 legal usage of that word. And I would say an example that I 17 found in my personal life that if somebody in my generation, 18 somebody walked up to me and said, Ms. Kuglin, you are bad. 19 Well, I didn't have a very good feeling because I considered 20 that to be a derogatory statement towards me. The younger 21 generation, someone comes up to me and says, Ms. Kuglin, you 22 are bad, then I understand that they're not being derogatory 23 to me, they actually are paying me a compliment, and so we 24 have to understand what the semantics of words mean, and 25 that's what this document really laid out for me. The idea DIRECT - VERNICE KUGLIN 503 1 that income is determined by where the source is, that the 2 named person can mean an individual, it can be a corporation, 3 it can be a trust, a savings and loan association, a 4 homeowners association. The person can either be a live being 5 or it can be an artificial entity, and -- so you have to 6 understand the context in which the code or the regulations 7 use the term person. Taxpayer, again, as Claire Kelly defined 8 taxpayer could either mean a taxpayer, corporation, entity or 9 person, or it could be a tax payer, somebody who voluntarily 10 pays their -- you know, pays the indirect tax, sales taxes and 11 such. Then they come to the word shall and must. Now, 12 typically, we think that the word shall is mandatory. But 13 there are court cases, and it covers -- let me read through 14 here just quickly. Well, I'm not placing my eyes right now on 15 the court cases that talk about this, but it said that the 16 words must and shall are applied in relationship to a 17 liability or a requirement. In other words, if you have a 18 liability, then you must. But then if there is no liability 19 or requirement for specific tax, but a person voluntarily 20 decides that they want to go ahead and pay it, then it is used 21 in the term may. Yes, you may be -- you may do whatever you 22 want to. If you feel that you want to pay a tax that you have 23 no liability for, there's nothing that stops you. 24 Q. Let me move on the next exhibit, number -- it has a 25 number on it, 5 or 4A. DIRECT - VERNICE KUGLIN 504 1 A. 4A. This is a newspaper -- 2 Q. You acquired this during your early days in which you 3 began your study? 4 A. Yes, yes, I did. 5 Q. And you read it? 6 A. Yes, I did. 7 Q. Did you acquire certain information by reading the 8 document? 9 A. Yes, I did. This was really an advertisement for 10 another document. I did not order the document, but what 11 struck me was that this was in USA Today, a fairly prominent 12 paper, it was an advertisement that an attorney at law took 13 out, a man by the name of James Knowles, and it says that 14 James Knowles spends his year penetrating the owners Internal 15 Revenue Service Code to find that most likely you don't have a 16 liability to pay a set of taxes. He's a member of the 17 California bar and has practiced law for 34 years, since his 18 graduation from prestigious Hastings School of Law. 19 The importance of -- or what I found in this 20 information was that it wasn't -- I was not the only person 21 asking or beginning to question my liability status, that 22 there were attorneys, there were people who were publishing 23 this information and asking the questions in national 24 newspapers and such like that. 25 Q. Let me direct your attention to a document that is DIRECT - VERNICE KUGLIN 505 1 labeled 4A. 2 A. This document is entitled Must You Pay the Income Tax. 3 And this -- I'm not quite sure how I attained it, but it was 4 from the Mutual Assistance Plan, which is an organization out 5 in Pima, Arizona at that time, and this was during the same 6 time period as I was trying -- gathering information trying to 7 find clues to the answer of the liability of income tax. And 8 it states: Liability is established by voluntary assessment. 9 Now, some of the cases that were mentioned in this -- and this 10 article actually directed me to the -- to finding the 11 Brushaber case, the Flint versus Stone Tracy case and some of 12 the others. And it says that before World War II, payments or 13 profit received by individuals in even exchange for their 14 labor were not connoisseured to be subject to income taxes. 15 And, of course, we know in Brushaber, it says -- Brushaber 16 defined the word income because Congress had not defined it. 17 As a matter of fact, in the debates, congressional debates on 18 the 16th Amendment, which are very fascinating, I would 19 encourage everybody to read, Congress -- the legislature could 20 never come up with a definite definition of the word income as 21 applicable taxes, and it was understood that they were 22 considered to be excise taxes and, therefore, fell under the 23 uniformity clause. 24 Q. Let me direct your attention to -- let's go back to 25 something we covered yesterday, the document that has a 5 on DIRECT - VERNICE KUGLIN 506 1 the front. 2 A. Yes. 3 Q. I believe you talked about that yesterday. 4 A. Yes. 5 Q. Is this something you read and relied upon? 6 A. Yes, it is. It was one of the first documents I got. 7 MR. BECRAFT: Your Honor, at this time, I would 8 move for the admission of the document she has in her hand 9 that I have a big 5 on in the lower right -- left corner. 10 MR. MURPHY: No objection, Your Honor. 11 THE COURT: It is received as the next numbered 12 exhibit. 13 MR. BECRAFT: Your Honor, can I approach and 14 give it to the clerk? 15 THE COURT: Yes, it will be 28. 16 (Exhibit Number 28 was marked. Description: 17 2-3-53 Document.) 18 THE WITNESS: Your Honor, is it all right if I 19 put these papers right here? 20 THE COURT: Sure, that's no problem at all. 21 Q. Yesterday, you talked about the document that I have a 22 big 6 on. 23 A. Yes. 24 Q. Is this something you read and relied upon? 25 A. Yes, it is. DIRECT - VERNICE KUGLIN 507 1 Q. Does it appear to you to be an official document? 2 A. It does. Actually, this is a copy of the official 3 government document. 4 MR. MURPHY: I have no objection, Your Honor. 5 THE COURT: All right. We will make that 29, I 6 think. 7 MR. BECRAFT: Thank you, Your Honor. 8 THE COURT: 29. 9 (Exhibit Number 29 was marked. Description: 10 1997 Annual Report.) 11 Q. Do you have in your hand the ones that have 6, 7 and 12 8 -- 7, 8 and 9, I'm sorry. No, 7 and 8. 13 A. 7 and 8, I was getting a little confused here. 14 Q. Correct me if I'm wrong, these are parts of the '92 and 15 '93 instruction book for Form 1040? 16 A. Yes, they are. 17 Q. You relied upon them and you covered the substance of 18 them yesterday? 19 A. Yes, on the fact that it was a voluntary tax system. 20 MR. BECRAFT: Your Honor, I move for the 21 admission of these two. 22 MR. MURPHY: I have no objection, Your Honor. 23 THE COURT: It's 30 and 31. 24 (Exhibit Numbers 30 was marked. Description: 25 1040 Instructions 1992.) DIRECT - VERNICE KUGLIN 508 1 (Exhibit Number 31 was marked. Description: 2 1040 Instructions 1993.) 3 MR. BECRAFT: May I approach the witness, Your 4 Honor? 5 THE COURT: You may. 6 Q. Can I get you to take a look at the document that had 7 the -- the series of documents that have 13, 14 and 15 on 8 them? 9 A. I have them. 10 Q. Those are official government documents, is that 11 correct? 12 A. Yes, they are copies of the 26 CFR, Chapter 1. 13 Q. And we discussed those yesterday? 14 A. Yes, we did. 15 Q. And you relied upon them? 16 A. Yes, I did. 17 MR. BECRAFT: Your Honor, I move for the 18 admissions of the documents that has 13, 14, and 15 on 19 them. 20 MR. MURPHY: No objection, Your Honor. 21 THE COURT: Certainly. They will 32, 33, 34. 22 (Exhibit Number 32 was marked. Description: 23 1997 26 CFR 5601.602.) 24 (Exhibit Number 33 was marked. Description: 25 1998 26 CFR 5601.602.) DIRECT - VERNICE KUGLIN 509 1 (Exhibit Number 34 was marked. Description: 2 1999 26CFR 5601.602.) 3 Q. Ms. Kuglin, yesterday, we talked about a document, 4 number 19, it's a court case. 5 A. Excuse me. 6 MR. BECRAFT: Your Honor, I have it up here. 7 May I approach? 8 THE COURT: You may. 9 MR. BECRAFT: I stuck it in my stack. 10 Q. Let me hand you a document that has a big 19 at the 11 bottom of it. 12 A. Yes. 13 Q. Is that one of the documents or court cases we 14 discussed yesterday afternoon? 15 A. Yes, it is. 16 Q. You read and replied upon it? 17 A. Yes, I did. 18 MR. BECRAFT: Your Honor, I move for the 19 admission of that case. 20 MR. MURPHY: No objection, Your Honor. 21 THE COURT: It will be the next numbered 22 document, which is 35. 23 (Exhibit Number 35 was marked. Description: 24 Cole v. McFarland Case.) 25 Q. Now, Ms. Kuglin, let's move on to a little something DIRECT - VERNICE KUGLIN 510 1 else. Either yesterday afternoon or this morning, you 2 mentioned something about the Internal Revenue Code, and can 3 you describe for us -- I'm looking at something on your -- 4 within reach of your left hand, that's kind of either a blue 5 or purple cover, is that something that you bought? 6 A. Yes, it is. 7 Q. And what was it? 8 A. This is entitled -- this is the July, 1994 edition of 9 the complete Internal Revenue Code. 10 Q. And when did you -- would you have acquired that at 11 least in the latter half of '94? 12 A. Yes, sir. 13 Q. Were there certain studies in which you engaged that 14 related to the Internal Revenue Code? 15 A. There were, and on the documents that I had commented 16 on earlier, two of the sections of the code which were 17 specifically specified in those documents as sort of being a 18 road map to the understanding of this issue on liability were 19 two of the sections, 6001 and 6011 of the code. So I wanted 20 to buy a code so I could actually look into it and begin to 21 try to find out for myself whether there was validity to the 22 arguments that I had been hearing. 23 Q. Well, tell us what you did. 24 A. Well, the 1040 form has -- let me get my 1040. I had a 25 1040 form as everybody else does or generally every one else. DIRECT - VERNICE KUGLIN 511 1 Q. Let me stop there. It sounds like you're reaching for 2 a document, would that have a big 23 on it? Is that what 3 you're doing? Oh, okay. Go ahead. 4 A. This is just my prop here. And so in trying to find 5 out or answer my own questions, there's an instruction page on 6 the 1040 form. 7 Q. Can you identify that document that you have in your 8 hand a little bit more completely? 9 A. Yes, I will. This is the 1995 Form 1040. 10 Q. Instruction booklet? 11 A. Instruction booklet, that's correct. 12 Q. What in there was of importance to you? 13 A. The instruction page entitled the Privacy and Paperwork 14 Reduction Act Notice. 15 Q. Tell us about that. 16 A. Well, it says the Privacy Act of 1974 and the Paperwork 17 Reduction Act of 1980 say that we -- say that when we ask you 18 for information, we must first tell you our legal right to ask 19 for the information and why we are asking for it and how it 20 shall be used. We must also tell what could happen if we do 21 not receive it and whether or not your response is voluntary. 22 Now, I -- as I was interested in all the other issues, 23 I wanted to find out what this Privacy Act was all about, how 24 it came about and -- 25 Q. Let me stop you right there, did you do some study in DIRECT - VERNICE KUGLIN 512 1 that area to find out what the Privacy Act was? 2 A. Yes, I did. 3 Q. Can you tell us what you did? 4 A. Yes. I got the -- went to the law library and read -- 5 excuse me, read the case on the Privacy Act. I found out that 6 the whole purpose of the Privacy Act was because the 7 government or the agencies were sending out a lot of forms. I 8 think they dream up forms in their sleeps, and people were 9 beginning to get confused as to whether or not the forms that 10 were being sent out were required to be returned, whether they 11 were necessary and believed that one OSHA regulation had 12 almost 400 forms, and so people were going to their 13 Congressmen and saying, look, we need some kind of idea or get 14 a handle on this river of paperwork that's coming out. So in 15 1974, the -- Congress passed legislation that basically said 16 any agency of the government which was asking for information 17 or producing information gathering documents must comply with 18 the requirements which I just read, what the authority is to 19 require the document, what the purpose is, what could be done 20 with it and whether or not it was voluntary or mandatory and 21 any repercussions that could happen if the document was 22 mandatory. 23 Q. After you studied this matter that you thought was the 24 Privacy Act itself, what did you do in reference to the income 25 tax? DIRECT - VERNICE KUGLIN 513 1 A. Well, it says further down in the instructions, the IRS 2 complies with the requirement of telling the authority. It 3 says our legal right to ask for the information is the 4 Internal Revenue Code's Section 6001, 6011, and then later on, 5 they added the 6012. So I thought, well, these are the 6 regulations that require me to file the 1040 form. I think I 7 probably ought to read what those sections say. 8 Q. Is that one of the reasons why you obtained the 9 Internal Revenue Code? 10 A. Yes, it is. 11 Q. Well, tell us what you did after that. 12 A. Well, after I got my Internal Revenue Code, I started 13 to get acquainted with it. I found out that there were -- 14 there was not just an income tax in the Internal Revenue Code, 15 that this book itself covered over 85 different taxes, that 16 the code is divided out into different sections. You have the 17 income tax, you have estate tax, gift tax, employment taxes, 18 excise taxes, alcohol, tobacco and firearms and procedures. 19 And I found out, turning to the initial section, that the 20 section under income tax has about almost 1600 sections in 21 that part of the code. Now, there's almost, I believe, if I 22 go to the end here, there's over 9000 sections of this code. 23 Only about 1600 actually apply to what the IRS defines as the 24 individual income tax. 25 Q. Now, bearing in mind what you read a minute ago, the DIRECT - VERNICE KUGLIN 514 1 Privacy Act notice appearing in the 1040 instruction booklet, 2 and once you obtained the Internal Revenue Code, can you lead 3 us through what you did when? 4 A. Yes. I went to 6001, because it said that that was the 5 regulation which gave the IRS the authority to ask me to fill 6 out the 1040 form, and what that section, in essence, says is 7 that every person liable for any tax under this title shall 8 keep such records, render such statements, make such returns 9 and comply with such rules and regulations as the secretary 10 from time to time may prescribe. It then goes on to say that 11 whenever the secretary feels it necessary, he may upon -- he 12 may require any person by notice upon such person to make such 13 returns, render such statements and keep such records as the 14 secretary deems sufficient to determine whether or not such 15 person is liable for any tax. 16 Now, when I went to the section, I was expecting it to 17 probably say something like every American who earns wages is 18 liable for the income tax or the individual income tax and, 19 therefore, must fill out the 1040 form. But that, as you can 20 tell, is not what it said. It said every person, and as we 21 discussed before, the term person could mean an individual or 22 corporation or trust, so it didn't give me really any idea as 23 to whether or not I was one of the persons that this section 24 talked about. Again, it says any person liable for any tax 25 under this title. Well, this entire book is called the title. DIRECT - VERNICE KUGLIN 515 1 There are sections and subsections, but this is the title. So 2 what that 6001 said, any person liable for any one of the 85 3 taxes under here would be required to fill out the form. 4 MR. MURPHY: Your Honor, could we approach? 5 THE COURT: You may. 6 (The following proceedings had at side-bar 7 bench.) 8 MR. MURPHY: Judge, I'm going to interpose an 9 objection. She is just rambling on and on and on. 10 MR. BECRAFT: I will ask questions. 11 MR. MURPHY: It is supposed to be questions and 12 answers. 13 THE COURT: Objection sustained. The process 14 needs to proceed in accordance with 611. 15 (The following proceedings were had in open 16 court.) 17 Q. Ms. Kuglin? 18 A. Yes. 19 Q. Let me ask a question and give us an answer, okay? 20 A. All right. 21 Q. Now -- you read the Internal Revenue Code, Section 22 6001? 23 A. Yes. 24 Q. And had directed your attention to that section, 25 correct? DIRECT - VERNICE KUGLIN 516 1 A. Yes. 2 Q. Can you identify what it was that directed your 3 attention to Section 6001? 4 A. Yes, it was the 1040 form, the Privacy Act information 5 in the 1040 form. 6 Q. The privacy notice itself? 7 A. Right, the statement in the instructions 1040 booklet. 8 Q. Okay. 9 A. Yes. 10 Q. Can I direct your attention to a document that you 11 should have up there that has a big 23 on it? I would like to 12 identify it as being a 1975 document relating to your -- 13 A. Right in front of me, yes. 14 Q. Can you identify number 23 for us, please? 15 A. Oh, yes, this was after I had read the Privacy Act, I 16 had -- actually, I had looked back at some other forms. I had 17 found that I had a 1975 1040 form. The Privacy Act was passed 18 in 1974. I had been audited in 1975 and I had kept the 19 documentation for that. Inside of that form was also a 20 Privacy Act notification, and this was the time that I had 21 initially read it when I was completing my 1040 form. At that 22 time in 1975, it really did not make sense to me, and it just 23 began making sense or becoming important in my thought process 24 after I had read some of the articles and the questions of the 25 6001 and the 6011 had come up. DIRECT - VERNICE KUGLIN 517 1 Q. That document that you have in front of you, it's your 2 excerpts of official government documents? 3 A. Yes. 4 Q. What you kept in reference to the 1975 1040 instruction 5 booklet? 6 A. That's correct. 7 Q. And that's something you kept for your own personal 8 business affairs, is that correct? 9 A. That's correct. 10 MR. BECRAFT: Your Honor, I would move for the 11 admission of the document that has a big 23 on it. 12 THE COURT: Without objection, it will be 13 received as 36. 14 MR. MURPHY: Judge, if we could approach. 15 THE COURT: All right. Let me take a look at 16 the document. 17 (The following proceedings had at side-bar 18 bench.) 19 MR. MURPHY: Judge, the only thing I object to, 20 the government language is fine, but her filling out the 21 tax return, I don't think that comes in. 22 MR. BECRAFT: I don't have any problem with 23 extracting it, Judge. 24 MR. MURPHY: You need to turn your mic off. 25 MR. BECRAFT: I thought I had it off, I'm DIRECT - VERNICE KUGLIN 518 1 sorry. 2 THE COURT: Let me get the -- 3 MR. MURPHY: Your Honor, if they want to put a 4 photocopy in of the front and the back -- 5 MR. BECRAFT: Excise -- 6 THE COURT: This is a 1975 return. How is this 7 relevant? 8 MR. BECRAFT: What's relevant, Your Honor, is 9 this right here, this is a government document. I think 10 the government's objection is -- I didn't want to in 11 advance tear out those pages. I think those pages are 12 something that you can excise with ease. 13 MR. MURPHY: Yeah, just make a photocopy. 14 MR. BECRAFT: I have got photocopies. 15 THE COURT: You want me to take this page out? 16 I'm not sure -- it just comes out. 17 MR. BECRAFT: I'm satisfied. 18 THE COURT: Okay. 19 (The following proceedings were had in open 20 court.) 21 THE COURT: The government portion of the form 22 is received as Exhibit 36. 23 (Exhibit Number 36 was marked. Description: 24 1975 1040 Instructions.) 25 Q. Ms. Kuglin, do you need that document? Do you need -- DIRECT - VERNICE KUGLIN 519 1 A. No, I don't. 2 Q. All right. So after you compared the Privacy Act 3 notice that appeared in the 1975 1040 instruction booklet, 4 what was your next step? 5 A. Well, the next step after I had read through the 6 section on 6001, I still did not have a clear definition of 7 whether or not I was a person that fit under this liability 8 requirement for the tax imposed. The next section that was 9 referred to in the Privacy Act notice was Section 6011. So I 10 turned to 6011, and it says general requirement of return 11 statements or less. It goes on to say when required by 12 regulation prescribed by the secretary, any person made liable 13 for any tax imposed by this title with respect -- or with 14 respect to the collection thereof shall make a return or 15 statement according to the rules and regulations -- excuse me, 16 according to the forms and regulations provided -- prescribed 17 by the secretary. 18 Well, now, this -- the first section has said that any 19 person liable, but it really didn't identify me as a person 20 liable. The second section 6011 said any person made liable, 21 but again we have got the words person, and for any tax under 22 this title, but it didn't identify how I was made liable for 23 the tax. 24 Q. What was so important in your mind about being liable 25 for a tax? DIRECT - VERNICE KUGLIN 520 1 A. Well, in the Privacy Act notice it had -- it said -- 2 had mentioned the word liable for the tax and that these were 3 the -- 6001, 6011 were the regulations in which I could 4 determine this. 5 Q. Okay. Was it your understanding that being liable for 6 a tax had some relationship to being required to file a 7 return? 8 A. Absolutely. 9 Q. Okay. What did you believe about someone who was not 10 liable for a tax? 11 A. Well, if a person was not liable for the tax, then the 12 rules and regulations did not apply to them. 13 Q. A person that would not be liable for a tax, would he 14 be in your view required to file a return? 15 A. No, he would not be. 16 Q. Did you make any effort to determine other sections of 17 the Internal Revenue Code and their relationship to the word 18 liable? 19 A. I did. Since 6001 and 6011 were the sections that 20 supposedly made me liable and that I could not find that it 21 had, I had, in going through my code, as most reference 22 documents are, there is an index in the beginning of the book, 23 and so I thought, well, if I look under the terms income or 24 tax or liability, which was what I was looking for, that I 25 would find perhaps some indicators where I could see how -- DIRECT - VERNICE KUGLIN 521 1 examples of this liability. So I found under this section 2 of -- let me get it, liability, I found liability for tax. 3 And the first entry -- 4 Q. Let me stop you right there. When you say you found 5 something, a liability for tax, can you put it into context, 6 what are you reading from? 7 A. I'm reading from the index to the code. 8 Q. Okay. 9 A. I'm trying to find if there's a section in the code 10 that explains how a person is liable, how they're made liable, 11 since I didn't find it in the 6001, 6011 section. 12 Q. When you turned to that index, what was your purpose? 13 A. My purpose was to find some words or some reference 14 to -- in regard to liability, maybe I could find how a person 15 was made liable and who was made liable. 16 Q. What did you do? 17 A. Well, after I found this liability for tax, the first 18 entry was alcohol taxes, and it said Section 5005 and 5041, so 19 I turned to Section 5005, and Section 5005 entitled Persons 20 Liable for Tax. Well, this, you know, seemed like I was in 21 the right place, I was trying to find out if I was a person 22 liable for the tax. And it says in general, the distiller or 23 importer of distilled spirits shall be liable for the taxes 24 imposed thereon by Section 5001. Well, this was very clear to 25 me, I thought, they know how to tell a person who is liable. DIRECT - VERNICE KUGLIN 522 1 This was not confusing like the 6001 and 6011, it says the 2 distiller or importer shall be liable. Since it referred me 3 back to 5001, I went to Section 5001, it says imposition, rate 4 and attachment of tax, rate of tax, in general. There is 5 hereby imposed on all distilled spirits produced in or 6 imported into the United States a tax at the rate of $13.50 on 7 each proof gallon and a proportionate tax at the like rate and 8 on all fractional parts of a gallon. Now, that again was very 9 clear to me, I knew exactly what they were talking about, who 10 they were talking about and what tax they were talking about. 11 I also found it interesting that this Section 5001 is 12 in subtitle E of the tax code which is entitled Alcohol, 13 Tobacco and Certain Excise Taxes, and as I went through the 14 section a little bit more, it talks about tobacco taxes and 15 other types, and it's basically the same format. The 16 manufacturer, the wholesaler is made liable and -- for the tax 17 imposed. 18 Q. What conclusions -- by engaging in this study of some 19 other tax, what conclusions did you draw? 20 A. Well, I drew the conclusion that when -- in the 21 arena -- and I found this in the arena of the excise tax, that 22 it was very easy for the IRS to specify exactly who's liable, 23 what tax they're liable for, what the amount of tax is and 24 there was no fussiness about it. 25 Q. Did you study anything beyond what you just mentioned, DIRECT - VERNICE KUGLIN 523 1 the alcohol tax? 2 A. I did, because the alcohol tax is not in subtitle A 3 and, of course, the tax that the IRS says that the 1040 form 4 is applicable to is -- excuse me -- is the individual income 5 tax, which is in Section 1 of subtitle A. So I decided to 6 look through the index of the code, starting first with 7 liability for tax, to see if there was any section that fell 8 under the first, say, 1600 sections of the code, which are 9 applicable to individual income tax, and as I'm going down 10 through the list, I see aviation, fuel tax, banking, 11 employment taxes, highway motor occupational taxes, tobacco, 12 all these other taxes, and I get all the way down here right 13 underneath wines, it has an entry, withholding tax, and I 14 thought, well, I know that my employer is withholding money 15 out of my check, and right next to it I see Section 1461. 16 1461 falls into the criteria of the sections of subtitle A -- 17 MR. MURPHY: Judge, can we approach? 18 THE COURT: You may. 19 (The following proceedings had at side-bar 20 bench.) 21 MR. MURPHY: Judge, I'm going to object to the 22 rambling, narrative nature of this testimony, it's 23 improper. 24 THE COURT: It's really -- we do have to follow 25 question and answer format. DIRECT - VERNICE KUGLIN 524 1 MR. BECRAFT: I'll do it, Your Honor. 2 THE COURT: I didn't say anything earlier to 3 the witness or the jury, but it's time that I told them 4 that we are required to follow question and answer format. 5 MR. BECRAFT: I will do it, Your Honor. 6 THE COURT: Okay. 7 (The following proceedings were had in open 8 court.) 9 THE COURT: Ladies and gentlemen, we are 10 required to follow a question and answer format, and 11 typically narrative testimony is not allowed. That 12 doesn't mean that the person can't answer a question with 13 a full sentence or maybe a paragraph, but it does have to 14 follow a fairly short answer -- question and answer 15 format. The reason for that is that under Rule 611 of the 16 Rules of Evidence, it's contemplated that we will use that 17 format so that the opposing party can have an opportunity 18 to raise objections to improper questions or questions 19 that are not allowed by the rules and, frankly, so that 20 all of us can more readily follow the testimony. It's 21 been found, typically, that the better format is a 22 question and answer format, so we have been discussing 23 that, and I thought by saying that and explaining a little 24 bit to the witness, because you wouldn't necessarily know 25 that, that it would be helpful to all of us. So we have DIRECT - VERNICE KUGLIN 525 1 to have a question followed by an answer that is 2 responsive to the question, and then the next question. 3 We're going to try to do that. 4 MR. BECRAFT: Thank you, Your Honor. 5 THE COURT: Thank you. 6 THE WITNESS: I have been accused of the gift 7 of gab. 8 THE COURT: Well, we're going to hopefully 9 solve the question or problem by making it a little 10 briefer. 11 THE WITNESS: Okay. 12 THE COURT: A little briefer. 13 Q. Now, you were going through that index to the Internal 14 Revenue Code looking for some other section that referenced 15 liability, a section that might fall within the range of the 16 income tax sections of the code, is that correct? 17 A. That's correct. 18 Q. Were you able to find such? 19 A. Yes, I did. 20 Q. Okay. After you found -- tell us what you found. 21 A. I found 14 -- Section 1461, it says liability for tax 22 withheld. 23 Q. Now, you found that in the index? 24 A. Yes, I did. 25 Q. Did you do something in response? DIRECT - VERNICE KUGLIN 526 1 A. I looked -- well, I checked to make sure that it was in 2 the first 1600 sections of the subtitle A, individual income 3 tax. 4 Q. By chance, did you happen to turn to that section? 5 A. Yes, I did. 6 Q. After you turned to that section in the Internal 7 Revenue Code, can you explain what you did? 8 A. I read the section. 9 Q. And did you learn something from it? 10 A. Yes, I did. The section says every person required to 11 deduct and withhold any tax under this chapter is hereby made 12 liable for such tax. 13 Q. Now, did you do any -- once you read that code section, 14 did you kind of look -- read anything else that related to it? 15 A. I -- I drew a conclusion that the person that was 16 liable for the tax was a person -- was somebody who was 17 required to hold and -- deduct and withhold for that tax 18 and -- 19 Q. And did you make any effort to determine who that was? 20 A. Yes, I went on, and further on in the section, it talks 21 about the -- excuse me. 22 Q. Let me -- did you study 1461, the code section that you 23 just mentioned to determine who that party was that was 24 liable? 25 A. Yes, I did. DIRECT - VERNICE KUGLIN 527 1 Q. Okay. And can you tell us what you learned? 2 A. Yes, I learned that this 1461 is in the code section, 3 which is entitled withholding on foreign taxpayers, and the 4 beginning of the section, I turned to the beginning of the 5 section, which is chapter 3, because -- and it says the 6 withholding tax on nonresident aliens and foreign 7 corporations, so this led me to understand that Section 1461 8 was applicable to the withholding agents of nonresident aliens 9 and foreign corporations. 10 Q. Now, this was one section that you had located inside 11 the Internal Revenue Code that related to the income tax, 12 correct? 13 A. That's correct. 14 Q. And it used the words in the statute itself liable, 15 correct? 16 A. That's correct. 17 Q. What, if any, effort did you make to determine whether 18 or not there were any other similar sections inside the 19 Internal Revenue Code in reference to the income tax? 20 A. I -- 21 Q. Were there any others that you found? 22 A. Yes, there were others that I found. There were -- as 23 far as a person made liable and liable for the tax, this 24 Section 1461 was the only section under subtitle A. 25 Q. Okay. So you found others in reference to other types DIRECT - VERNICE KUGLIN 528 1 of taxes? 2 A. That's correct, in alcohol, tobacco, excises and the 3 other sections of the code, yes, but in this particular code, 4 in the first 1600 sections of the code, which is individual, 5 subtitle A, I found nothing else. 6 Q. So what conclusions did you draw as a result? 7 A. Well, the conclusion that seemed logical to me was, as 8 the tax code was saying, that the only person liable for the 9 individual income tax under subtitle A was the withholding 10 agent for foreign -- I'm sorry, for nonresident aliens and 11 foreign corporations, and my income as a pilot did not fall 12 under that category. 13 Q. Did you consider yourself a nonresident alien? 14 A. No, I didn't, I'm an American citizen. 15 Q. Did you consider yourself a foreign corporation? 16 A. No, I didn't. 17 Q. Were you making payments of income to nonresident 18 aliens or foreign corporations? 19 A. No, I was not. 20 Q. All right. With that in mind, did you believe or have 21 any belief as to whether you were required to file a federal 22 income tax return? 23 A. Well, this indicated to me based on the Privacy Act 24 saying that 6001 and 6011 were the regulations that required 25 me to complete the form, that I was not a person required to DIRECT - VERNICE KUGLIN 529 1 file that form based on 1461. 2 Q. Now, let me direct your attention to -- there should be 3 a document in front of you that has a big 24 on it. 4 A. Yes. 5 Q. Do you have it in front of you? 6 A. I do. 7 Q. Okay. Is that a document that you obtained somewhere 8 in this time frame between '93 and maybe late '95? 9 A. Yes, it is. 10 Q. Is that something that you read? 11 A. I did. 12 Q. Okay. Tell us what you gathered by reading that 13 particular document? 14 A. Well, by reading the document, it starts out with 26 15 CFR 1.1-1, tax on individuals, and the discussion in the form 16 is about something known as an OMB number and a cross 17 reference. 18 Q. Okay. Did you engage in or make any effort -- you 19 mentioned this term OMB, what that might mean? 20 A. Yes, I did. I did some research and found out that the 21 OMB numbers were numbers required on the forms and that the 22 Congressional Act, the Paperwork Reduction Act was the 23 legislation which required these numbers to be put on forms. 24 Q. You mentioned congressional legislation, the Paperwork 25 Reduction Act. What, if any, effort did you make to determine DIRECT - VERNICE KUGLIN 530 1 what that was and what it required? 2 A. Again, went down to find the law, and read it and 3 got -- made myself familiar with what the requirements of the 4 Paper Reduction Act was. 5 Q. Tell us what you learned as a consequence. 6 A. I learned that similar to the Privacy Act, Congress and 7 agencies had been producing a lot of paperwork, a lot of forms 8 and people were getting confused as to which forms that were 9 required. So by 1980 -- I believe it was 1980, the -- 10 Congress passed the Paperwork Reduction Act. What this act 11 said was that every agency -- I need to back up about the law 12 a little bit, if I might. 13 Q. Okay. What is it about the law that was important to 14 you? 15 A. The way the laws are promulgated, the -- Congress 16 passes a law, the law is then given to the agency which is 17 responsible for developing the regulations to fit that law, 18 and those regulations have to be published in what is called 19 the Federal Registry, which is the citizens newspaper advising 20 us of what the government is anticipating to do with us, and 21 once those -- the public has the ability to comment -- 22 MR. MURPHY: Judge, could we approach? 23 THE COURT: You may. 24 (The following proceedings had at side-bar 25 bench.) DIRECT - VERNICE KUGLIN 531 1 MR. MURPHY: Judge, I'm getting a little 2 concerned that we're going beyond talking about her 3 beliefs into what the law is, and I don't believe that's a 4 correct statement of the law. 5 MR. BECRAFT: I anticipated that in advance, 6 and I told the jury yesterday, correct me if I'm wrong, 7 but I think I brought that issue up when we were going 8 through voir dire, but I know that I did it in my opening 9 statement, and I know that I -- 10 THE COURT: I think Mr. Murphy is right, we're 11 sort of trying to tell what the law is. I will just 12 remind the jury that at the end of the case, I will give 13 the instructions as to the law, and whatever the witness 14 or the lawyers say about the law is not the controlling 15 law in the case, that the law is what the court gives them 16 as the law, and that may help us. 17 She can -- you can ask her what she believed 18 the law to be and why did she believe it, and the jury is 19 going to have to decide the ultimate question, but Mr. 20 Murphy is correct on this. 21 MR. BECRAFT: Thank you, Your Honor. 22 (The following proceedings were had in open 23 court.) 24 THE COURT: Ladies and gentlemen, it's a point 25 that we need to always keep in mind that if a witness or a DIRECT - VERNICE KUGLIN 532 1 lawyer attempts to tell you what the law is, you should 2 not accept the law from them. It's my job to give you the 3 accurate statement of the law, and you should not be in 4 any way confused about a statement that a lawyer or a 5 witness might make about the law. 6 THE WITNESS: Right. 7 THE COURT: I know in this case we're going 8 into an inquiry as to what Ms. Kuglin's beliefs were, and 9 you're going to have to make some decisions about whether 10 or not they are good faith and there will be various 11 criteria that you can use in making that determination. 12 So a defendant is allowed to state what she believes the 13 law was, obviously, and why she believed that, but her 14 statement about what the law is not to be considered by 15 you as in any way reflecting what the law, in fact, is. I 16 will give you those statements. We may need to remind you 17 of that a couple of times during the trial. 18 THE WITNESS: I apologize. 19 THE COURT: Actually, we're going to take a 20 short break and discuss what we talked about a little bit, 21 it might make us a little more efficient in the 22 presentation, and it's not inappropriate to make sure that 23 we know exactly how we're going to proceed. We're going 24 to take a 15-minute morning break. We didn't get a break 25 earlier. We actually started pretty early in here, and DIRECT - VERNICE KUGLIN 533 1 I'm going to see some lawyers who have been waiting to see 2 me on a matter that was just brought to my attention just 3 about 30 minutes ago, and they have been waiting that 4 whole period of time, so we will take our morning break a 5 little early. Remember, today is a day where we take a 6 lunch break from about 12:30 to 2:00, and I think we're 7 going to finish all the proof probably today, it's hard to 8 be sure, but I think we will. Don't discuss the case 9 among yourselves. Don't let anybody talk with you. We 10 will see you in 15 minutes. 11 (Jury out at 10:25 a.m.) 12 THE COURT: We will let y'all take your break 13 so everybody gets a restroom break. 14 (The court took up another matter.) 15 (Recess taken at 10:30 until 10:45 a.m.) 16 THE COURT: Bring the jury in. 17 (Jury in at 10:46 a.m.) 18 THE COURT: You can be seated. I think you can 19 all tell, I'm still trying to deal with insurance agents 20 during the break. It doesn't go any better for me than 21 you guys. I'm sorry it has taken a little bit more time, 22 but I'm trying to deal with some problems that I need to 23 get taken care of too. Sorry. I found out also if I 24 tried to deal with them after 5:00 o'clock or before 8:30, 25 it doesn't work either. DIRECT - VERNICE KUGLIN 534 1 Gentlemen, ladies, you may proceed. 2 MR. BECRAFT: May it please the court. 3 Q. Ms. Kuglin, let me give you a direction here, can you 4 pull out the documents that have a big 26 and big 27 and big 5 28 and big 29 on them? Do you have those in front of you? 6 A. I have them in front of me. 7 Q. The one that has the numbers -- well, how about also 8 25, do you have that in front of you? 9 A. I do now. 10 Q. Okay. Now, can you describe the one that has the 11 number 25 on it for me, please? 12 A. Yes, this is entitled the Internal Revenue Cumulative 13 Bulletin 1985-1 January through June. 14 Q. Do you have a recollection or judgment as to whether or 15 not that is a document that you read and relied upon at some 16 stage before, say, April the 15th of 1996? 17 A. Yes, it is. 18 Q. Okay. How was your attention directed to that 19 document? 20 A. My attention was directed to this document through the 21 Paper Reduction Act. 22 Q. Did you have an understanding -- give us a brief 23 description as to your understanding and belief about what the 24 Paperwork Reduction Act was? 25 A. My brief understanding about the Paperwork Reduction DIRECT - VERNICE KUGLIN 535 1 Act was that it was a legislative action by Congress in order 2 to get a handle on the number and amount of information 3 gathering forms that the agencies and the government were 4 promulgating. 5 Q. Okay. And did you have any understanding as to whether 6 or not there was some type of a requirement imposed on 7 government agencies in reference to this paperwork and OMB 8 numbers? 9 A. My understanding is that when -- before a regulation 10 could be enforced, before an information gathering document 11 could be authorized, both the regulation and the document had 12 to be submitted to the office of management and budget for 13 approval. 14 Q. And what was your understanding about how something was 15 approved by office management and budget? 16 A. My understanding about how these documents were 17 approved was that the office of management and budget, 18 otherwise known as the OMB for short would read the 19 regulation, determine that it was a valid regulation, they 20 would then review the information gathering form which was 21 attached to that regulation or form, and once they had 22 determined that both the regulation and the form were 23 appropriate that they would affix an OMB number to that form, 24 and that the OMB number on that form could only -- that form 25 could not be cross referenced to another regulation. DIRECT - VERNICE KUGLIN 536 1 Q. Now, do you have -- I think I noticed earlier in the 2 day that you had a '95 1040 instruction booklet there with 3 you? 4 A. Yes, I do. 5 Q. Can I ask this simple question? Did you make an 6 inquiry back when you were studying this Paperwork Reduction 7 Act as to what OMB control number appeared on the Form 1040? 8 A. Yes, I did. 9 Q. Okay. Do you have that in front of you? 10 A. Yes, I do. 11 Q. Do you have a Form 1040 in front of you? 12 A. Yes, I do. 13 Q. Did you make such an examination back whenever you were 14 doing this in '93, '94, '95 as to what OMB control number 15 appeared on the Form 1040? 16 A. Yes, I did. 17 Q. What did you learn? 18 A. I learned that the OMB number on the Form 1040 is OMB 19 number 1545-0074. 20 Q. Now, let me direct your attention to the exhibit that 21 has a big 25 on it. 22 A. I have got that. 23 Q. Okay. Tell us what you did once you obtained that 24 document, Exhibit Number 24 or big 25? 25 A. I knew through the Paperwork Reduction Act that every DIRECT - VERNICE KUGLIN 537 1 agency was required to publish a cross reference or an index, 2 cross referencing the regulations with the approved 3 information gathering forms. 4 Q. Now, briefly identify 26 and 27 for us, please. 5 A. 26 and 27 is entitled 1993 instructions for form 2555. 6 Q. And 27 is? 7 A. 27 is form 2555. 8 Q. All right. Are these documents that you read and 9 relied upon, say, sometime prior to April 15th of '96? 10 A. Yes, they are. 11 MR. BECRAFT: Your Honor, could I move for the 12 admission of those next three? 13 MR. MURPHY: No objection. 14 THE COURT: Yes. They're received as 37, 38 15 and 39. 16 THE COURT: Can I ask you a simple question? 17 Wait just one second. We keep a running list, ladies and 18 gentlemen, and if the deputy is not here, I maintain a 19 duplicate list, that's why we have to do that, and 20 sometimes folks don't know that I have to do that. 21 MR. BECRAFT: Your Honor, I wrote down a note, 22 the one that says 25, put 37 on it. 23 THE COURT: Oh, okay. Let me see 25. 24 THE WITNESS: Did I not pass them to you? 25 THE COURT: No, ma'am, that's why I do that. DIRECT - VERNICE KUGLIN 538 1 Make sure I have got them all. I don't think so. I have 2 got 26 and I have got 27. 3 THE WITNESS: Oh, I'm sorry, 25 is the one I 4 have. 5 THE COURT: Yes, ma'am, that's what we're 6 looking for. All right. There we go. 7 MR. BECRAFT: 26 will have 38, Your Honor. 8 THE COURT: I have got it now. Thanks so much. 9 And I will hand it back in just a second, let me make a 10 notation. 11 (Exhibit Number 37 was marked. Description: 12 IRS Bulletin.) 13 (Exhibit Number 38 was marked. Description: 14 1993 Form 2555 Instructions.) 15 (Exhibit Number 39 was marked. Description: 16 1993 Form 2555.) 17 18 THE COURT: You may proceed. 19 MR. BECRAFT: Thank you, Your Honor. 20 THE COURT: Thank you. 21 Q. Now, Ms. Kuglin, you have in front of you Exhibits 37, 22 38 and 39, correct? 23 THE COURT: I have still got 38 and 39. 24 Q. Can we proceed without that? 25 A. Yes, we can. DIRECT - VERNICE KUGLIN 539 1 MR. BECRAFT: If the court doesn't mind. 2 THE COURT: No, that's fine. 3 Q. These three documents you acquired before April the 4 15th of 1996, and you looked at them and studied them, what 5 was it that you concluded by your examination of them? 6 A. I looked at the cross reference, the cumulative 7 bulletin, and it lists the 26 CFR part of the section and then 8 the current OMB number for the form applicable to that, and 9 the first entry on that index is 1.1-1, which I was familiar 10 with, was the individual income tax, and I looked to the 11 right, and the form -- the number -- the OMB control number 12 for the form applicable to that is 1545-0067. 13 Q. Now, did you have some mental operation at the time as 14 to whether or not that was the form that related to the Form 15 1040? 16 A. Well, the Form 1040 has an OMB number of 1545-0074. 17 Q. And this one had a different number? 18 A. Yes, it does. The last four numbers are 0067. 19 Q. Okay. Did you make any effort to determine what form 20 it was that that related to? 21 A. Yes, I did. I went down to the IRS, and I asked them 22 whether or not or how I could find out what form that was. I 23 may have called the IRS, as far as how to find out the form 24 number, and then they told me that it was Form 2555, and I 25 went down to the IRS office and picked one up. DIRECT - VERNICE KUGLIN 540 1 Q. So you picked up both the form itself as well as the 2 instructions? 3 A. Right. It may have been the Post Office. 4 Q. Okay. 5 A. But I acquired the Form 2555. 6 Q. So tell us what that meant to you in reference to some 7 obligation on your part to Form 1040? 8 A. Well, since this was a document that was required by 9 the Paperwork Reduction Act for the agencies to give us an 10 idea of what forms are approved for specific regulations, that 11 listed here the only form that is listed for 1.1-1, individual 12 income tax, is the 0067 form, that that was the form that I 13 would be responsible for completing. 14 Q. Let me -- can you pull out from the exhibits the 15 document that has a big 28 on it? 16 A. I have that document. 17 Q. All right. Somewhere around the time frame in which 18 you were examining or studying the prior three exhibits, did 19 you obtain that document? 20 A. Yes, I did. 21 Q. Okay. Can you tell us what it is? 22 A. It's entitled TD, which is my understanding treasury 23 decision. Treasury decision under Internal Revenue laws of 24 the United States, volume 18, January to December, 1916. 25 Q. And is the document that you have in front of you DIRECT - VERNICE KUGLIN 541 1 Treasury Decision 2313? 2 A. Yes, it is. 3 Q. Let me kind of back up, and I want to ask a broad 4 question about what you have done to locate documents and 5 cases. Before you made these studies of the tax laws, had you 6 ever even gone to a law library before? 7 A. Not before I started my study, no, I had never walked 8 into one. 9 Q. Had you ever even really studied any law whatsoever 10 before '92? 11 A. No, I had not. 12 Q. Since then, between 1992, the time that you heard Andre 13 Maru (spelled phonetically) on TV and, say, like all the way 14 up through April 15th of 1996, you started studying the law, 15 what you perceived and understood to be the law -- 16 THE COURT: We have an equipment failure, wait 17 just a second. 18 THE REPORTER: Could you repeat the last 19 question? 20 Q. Had you gone to a law library before '92? 21 A. No, I had not. 22 Q. Did you go to the law library after '92? 23 A. Yes, I did. 24 Q. How frequently? 25 A. I went each time I needed to find a copy of a case, and DIRECT - VERNICE KUGLIN 542 1 I would sometimes go just to read through and get familiar 2 with some of the older tax laws and such like that. 3 Q. All right. What law library did you visit? 4 A. The University of Memphis has a very good law library. 5 Q. There on Central? 6 A. Yes, sir. 7 Q. Have you also attended meetings where you have gathered 8 some of these same type of documents that was available? 9 A. Yes, I did. 10 Q. And did you obtain documents from the Internal Revenue 11 Service itself? 12 A. I obtained like a 2555 from either the Internal Revenue 13 Service or the Post Office, somebody who had the forms 14 available. 15 Q. Now, by the time that you're looking at this Form 2555, 16 you had done what you just described, visited the library, 17 read a whole lot of material, obtained it from various 18 sources, including the government and the IRS and the law 19 library, correct? 20 A. That's correct. 21 Q. You had certain beliefs at that stage as to whether or 22 not you were required to file an income tax return, is that 23 correct? 24 A. That was correct. I was beginning to really question 25 whether or not the 1040 was the appropriate form. DIRECT - VERNICE KUGLIN 543 1 Q. All right. And once you made this comparison, you had 2 Exhibit Number 37 in your hand which listed some OMB control 3 numbers and you had Exhibit Number 26 and 27 in your hand, 4 what conclusions did you draw? 5 A. Well, I drawed -- I drew the conclusion, after seeing 6 Form 2555 which had the OMB control number 0067, which the 7 cross reference said was the appropriate information gathering 8 form for the individual income tax, 2555, and the heading of 9 that form is -- excuse me -- the title on that form is foreign 10 earned income. 11 Q. Now, looking at the one that has Exhibit Number 28 on 12 it. 13 A. You'll have to tell me which form, since they have 14 changed the -- 15 Q. No, this one -- 16 A. -- the numbers. 17 Q. This one should only have 28 on it. 18 A. I have got that. Treasury Decision 2313. 19 Q. Right. Now, were you obtaining documents like that 20 from a wide variety of sources? 21 A. Yes. 22 Q. Did you obtain that before -- sometime before April 23 15th of 1996? 24 A. Yes, I did. 25 Q. Okay. Is that something you read and relied upon? DIRECT - VERNICE KUGLIN 544 1 A. Yes, I did. 2 Q. And it related to your formation of your beliefs about 3 whether or not you were required to file an income tax return? 4 A. That's correct. 5 MR. BECRAFT: Your Honor, I move for the 6 admission of the document that has the big 28 on it. 7 MR. MURPHY: No objection, Your Honor. 8 THE COURT: Exhibit 40. 9 (Exhibit Number 40 was marked. Description: 10 1916 Treasury Decision.) 11 Q. Tell what it was you learned by reading that? 12 A. Well, this was in regard to the taxation of nonresident 13 aliens and foreign corporations. 14 Q. Do you need the document back? 15 A. That would probably be helpful. 16 Q. Look at that document and give us the refined essence 17 of what you learned from it? 18 A. Well, initially, it talks about the Brushaber case in 19 which it says that they hereby held that the income accruing 20 to nonresident aliens in the form of interest and from bonds 21 and dividends of the stock of domestic corporations is subject 22 to the income tax imposed by the Act of October 13, 1913. In 23 other words, the 16th Amendment. 24 Q. Is there anything in there that relates to the filing 25 of Form 1040? DIRECT - VERNICE KUGLIN 545 1 A. Let me read on. There is one mention of a form, and it 2 says that -- it's at the end of quite a long paragraph, so I 3 will just summarize the paragraph, it talks about nonresident 4 aliens and such, and it says that sum will be sufficient to 5 pay the normal tax of one percent imposed by law and shall be 6 made on an annual return of 1042. There is another form, form 7 1008 for deductions applicable to nonresident aliens and other 8 agents and representatives. 9 Q. Did you reach any conclusion as to whether or not what 10 they were talking about in that treasury decision had any 11 application to you? 12 A. I did not. There's another mention of a form on the 13 third page. 14 Q. Let me direct your attention -- 15 A. Yes. 16 Q. There's a page that has 53 at the top. 17 A. Yes. 18 Q. Okay. And then using that page at the very bottom 19 going over to page 54. 20 A. Yes. 21 Q. Is that a section that you read and relied upon? 22 A. Yes. The responsible heads, agents or representatives 23 of nonresident aliens who are in charge of the property owned 24 or business carried on within the United States shall make 25 full and complete return of the income tax form on the Form DIRECT - VERNICE KUGLIN 546 1 1040, and I missed that as I was reading it. 2 Q. Okay. 3 A. My other form was highlighted. 4 Q. Let me ask you this question: What was going through 5 your mind at this stage about whether or not you were required 6 to file a Form 1040? 7 A. Well, the documents that I had in front of me, which 8 were government documents and the cross reference, which is 9 required by every agency to be completed, indicated to me that 10 the only form that had been approved by the office of 11 management and budget for the individual income tax was the 12 form 1545-0067, entitled foreign earned income. It confirmed 13 for me what I had found in the tax code under 1461. The only 14 section under subtitle A, individual income tax, which makes 15 any person liable for the tax on subtitle A, which is 16 nonresident alien -- I'm sorry, the withholding agent for 17 nonresident aliens and foreign corporations, and I realized 18 that I did not fit in either one of those categories and, 19 therefore, that Form 2555 was not applicable to me. 20 Q. Now, let me -- you did some other studies, and let me 21 direct your attention to Exhibit Number 41, if I may. Big 22 thick one. 23 A. Yes. 24 Q. Is that something that you read, studied and relied 25 upon? DIRECT - VERNICE KUGLIN 547 1 A. Absolutely. That was a long read. 2 Q. Okay. Just tell us what you learned by reading that 3 document. 4 A. This document is entitled Jurisdiction Over Federal 5 Areas Within the United States, a report of the 6 interdepartmental committee for the study of jurisdiction over 7 federal areas within the states. This was submitted to the 8 attorney general and transmitted to the president on June of 9 1957. President Eisenhower was interested in finding out what 10 the jurisdictional limitations of the federal government was, 11 and he asked the state's attorney general to compile a 12 document. 13 Q. Can you give us the refined essence of what it was that 14 you learned by reading that document? 15 A. Yes, I found out that federal jurisdiction extended 16 into the state territories in one of three ways they could 17 have acquired that. One of the ways was that land within the 18 states could be sold to the federal government and, therefore, 19 they would acquire jurisdiction over that, that land could be 20 ceded by the legislature under certain prescribed methods to 21 the federal government for its military grounds, other 22 facilities, and that federal jurisdiction applied to those 23 areas. And that the third way that the government could 24 receive federal jurisdiction within the states was when a 25 territory became a state, the government could retain DIRECT - VERNICE KUGLIN 548 1 jurisdiction over some of that land. 2 Q. Now, was this -- is this an official government 3 document to your understanding? 4 A. To my understanding, it is. 5 Q. Did what you read -- what you read in that work, did it 6 have an impact on your beliefs regarding your requirement to 7 file Form 1040? 8 A. Yes, it did because -- yes, it did. 9 Q. Okay. What was it? 10 A. Well, it said to me that because the federal government 11 had not acquired jurisdiction over where I lived, the area 12 that I lived or over the place that I worked, employment, that 13 this was not subject -- that I was not subject -- a person 14 subject to that jurisdiction in regards to the income tax, and 15 with all of the other -- substantiated the other court cases 16 and things that I had read. Also, I looked in the index to 17 find out what the jurisdiction of the federal government in 18 the realm of income tax was, and the only thing I could find 19 in the index was in reference to the state's ability to tax 20 people that were on federal land. There was no reference 21 whatsoever of the ability of the federal government to 22 directly tax property that I owned. 23 Q. Now -- 24 MR. MURPHY: Judge, could we approach? 25 THE COURT: You may. DIRECT - VERNICE KUGLIN 549 1 (The following proceedings had at side-bar 2 bench.) 3 MR. MURPHY: Judge, I'm going to object. We're 4 getting back into the long narrative. 5 MR. BECRAFT: If I can tell the court, I'm 6 through offering exhibits. I am at the stage now where 7 we're getting ready to go into the long stretch, what she 8 did with the IRS, letters you wrote, those Don Roberts' 9 letter and we're wrapping up. 10 MR. MURPHY: I'm going to object to any mention 11 of the Roberts' letters at all. 12 THE COURT: There's no indication that there 13 were no opinions which she relied, so they're just 14 hearsay. 15 MR. BECRAFT: Okay. Just to tell the court 16 where I'm headed, we have concluded all her beliefs. 17 THE COURT: Are we going to finish before 18 lunch? 19 MR. BECRAFT: I'm hoping maybe 15 minutes for 20 me and then it depends on Mr. Murphy. 21 THE COURT: All right. 22 (The following proceedings were had in open 23 court.) 24 MR. BECRAFT: Before I proceed, can I get an 25 exhibit? DIRECT - VERNICE KUGLIN 550 1 THE COURT: We have to let Mrs. Parker have a 2 chance to replug her equipment in. 3 MR. BECRAFT: May I approach the witness with a 4 couple of exhibits, Your Honor? 5 THE COURT: You may. 6 Q. Ms. Kuglin, there has been offered into evidence, I 7 don't know the exhibit number for it, but the '92 return, is 8 that correct? 9 A. That is correct. 10 Q. And that was prepared by an accountant, is that 11 correct? 12 A. That's correct. 13 Q. Mr. Napp? 14 A. Yes, sir. 15 Q. Did you file a '93 return? 16 A. No, I did not. 17 Q. And at the time that you -- where were you living then, 18 in '93? 19 A. I was living where I am now, 200 Wagner Place. 20 Q. Shelby County, Tennessee? 21 A. Yes, sir. 22 Q. Downtown Memphis? 23 A. Yes. 24 Q. And where did you work? 25 A. I worked at Federal Express. DIRECT - VERNICE KUGLIN 551 1 Q. Out at the airport? 2 A. That's correct. 3 Q. Also in Shelby County? 4 A. Yes. 5 Q. And I think we got evidence here that -- you were 6 either sent checks from or there was an account that you had 7 at the Credit Union where FedEx just deposited your paycheck 8 into the account? 9 A. Yes. 10 Q. Did that happen from '92, '93, forward? 11 A. I believe that that is the case. I'm not quite sure 12 when I set up automatic deductions. I was flying 13 international at that time, and it was convenient. 14 Q. Now, there's a '90 Form W-4 that's submitted into 15 evidence, and do you recall that it says, you know, you're 16 taking your normal exemptions? 17 A. Correct. 18 Q. Now, we don't have anything here for '93, '94, but were 19 you subjected to withholding in '93 and '94? 20 A. Yes. 21 Q. And do you have a judgment or recollection as to 22 approximately what the rate of withholding was for you during 23 '93 and '94? 24 A. I'm not sure of the total amounts, I believe it was 25 specified yesterday it was about in the 30 or $40,000 ranges. DIRECT - VERNICE KUGLIN 552 1 Q. You don't have any contentions, whatever those 2 figures -- 3 A. Yeah. 4 Q. -- they're correct? 5 A. That's correct. 6 Q. Did you file a '94 return? 7 A. No, I did not. 8 Q. Did you file a '95 return? 9 A. No, I did not. 10 Q. Were you subjected to withholding in '95? 11 A. Yes, I was. 12 Q. So what did you do ultimately regarding this problem of 13 withholding from your pay? 14 A. Ultimately, by December 30th of 1995, I come to the 15 conclusion that there was -- I had found significant enough 16 information to really question the fact that I was required to 17 file the Form 1040, the question that whether or not it was an 18 appropriate document and a required document. 19 Q. Okay. Now, let me direct your attention to -- can you 20 take a look at those exhibits in front of you and pull out 47, 21 the one that has 47 on it and the one that has 48? 22 A. Can you tell me the name of -- in this pile? 23 Q. I believe so. 24 A. The ones that you just gave me? 25 Q. No, not the ones that I just gave to you. In the stack DIRECT - VERNICE KUGLIN 553 1 that you had when you began your testimony this morning. 2 A. All right. 3 Q. I believe they're your letters bearing your signature 4 in October of '95 and November of '95. Do you have them? 5 A. I have these letters. 6 Q. Before we get into the substance of that, did you have 7 any conversations with anybody at the IRS sometime in 1995 8 that related to your investigations of the tax laws? 9 A. Yes, I did. I had an acquaintance -- 10 MR. MURPHY: Judge, can we approach? 11 THE COURT: You may. 12 (The following proceedings had at side-bar 13 bench.) 14 MR. MURPHY: Judge, I don't know that her 15 conversations with the IRS are relevant. It's hearsay. 16 MR. BECRAFT: I was merely pinpointing a time. 17 I'm not going to -- I'm going to expressly disinvite her 18 to relating what they said, Your Honor, and mention that 19 she had a meeting in July, that she reached certain 20 conclusions. They have an effect upon the other reasons 21 why she wrote those letters in October and November. 22 Although we do have a date of the meeting with the IRS, 23 not that I'm going to offer it, Your Honor. I just 24 mention that in passing. 25 THE COURT: Okay. DIRECT - VERNICE KUGLIN 554 1 (The following proceedings were had in open 2 court.) 3 Q. Just to make a point -- just to make a point, did you 4 have some type of actual sit down face-to-face meeting, not in 5 reference to yourself, but in reference to someone else, in 6 reference -- with some IRS agents in the summer of '95? 7 A. That's correct, yes, I did. 8 Q. Let's not get into the substance of that, okay. Now, 9 what was your -- what was going through your mind at that 10 stage after that meeting? 11 A. I had -- the thing that was going through my mind based 12 on the meeting was that contrary to the information on the 13 documents which said that I could go to the IRS and ask the 14 questions that I had in regard to my liability under the 15 individual income tax -- 16 MR. MURPHY: Judge, could we approach? 17 THE COURT: All right. 18 (The following proceedings were had in open 19 court.) 20 MR. MURPHY: Judge, I'm going to object to 21 relevance. What does this have to do with her belief? 22 MR. BECRAFT: Her intent and belief led her -- 23 I'm getting ready to offer those two letters, October and 24 November of '95 that she wrote to the Internal Revenue 25 Service, Your Honor. DIRECT - VERNICE KUGLIN 555 1 THE COURT: Do you have any objection? 2 MR. MURPHY: I don't have any objection to the 3 letters, Judge. 4 MR. BECRAFT: I will speed it up, I'll move to 5 the -- 6 THE COURT: Move to the letters. Good. 7 MR. BECRAFT: Thank you. 8 (The following proceedings were had in open 9 court.) 10 Q. Ms. Kuglin, let me direct your attention, let's just go 11 to the heart of the matter, to the letter that, I believe you 12 wrote in October of '95. It has a big 47 on it. 13 A. I have got that letter. 14 Q. Okay. Now, does it have a date on it? 15 A. Yes, it does. It is October the 18th, 1995. 16 Q. All right. And take a look at the next one. 17 A. That one is dated November 25th of 1995. 18 Q. All right. Are those letters that you composed? 19 A. Yes, they are. 20 Q. All right. Do they relate to your tax liens or tax 21 positions? 22 A. They relate to the questions that I wanted to ask, yes. 23 Q. Okay. And to whom are they addressed? 24 A. They were addressed -- the October the 18th letter was 25 addressed to the Internal Revenue Service, Memphis, Tennessee. DIRECT - VERNICE KUGLIN 556 1 Q. What with the other one? 2 A. The other one was addressed to the Internal Revenue 3 Service in Memphis, attention of James Gaither, chief 4 collection branch. 5 Q. All right. Did you sign those letters and mail them to 6 the IRS? 7 A. Yes, I did, and I have certified copies of the receipt. 8 Q. So you sent them certified to the IRS? 9 A. Yes, I did. 10 MR. BECRAFT: Your Honor, I move for the 11 admission of the documents that have 47 and 48 on it. 12 MR. MURPHY: Judge, there's some attachments 13 on, I believe it's 48 that I'm taking the position that 14 aren't admissible. 15 THE COURT: Let me take a look at them and we 16 will go over them at side bar. 17 (The following proceedings had at side-bar 18 bench.) 19 MR. MURPHY: Judge, I believe it's 48, there's 20 an attachment, I don't know if it is from the IRS, it says 21 someone is not liable to file a tax return. The names are 22 blacked out. Judge, I don't think that ought to come in. 23 There's two of them. 24 THE COURT: Let's make sure we're -- 25 MR. BECRAFT: Of course -- yeah, those are it. DIRECT - VERNICE KUGLIN 557 1 THE COURT: These are letters which are from -- 2 of an individual in Delano, California, that the name is 3 blacked out, the taxpayer's name is blacked out, and the 4 taxpayer in Ogden, Utah, and the name is also blacked out 5 on that, so these are hearsay documents, and they're 6 not -- 7 MR. BECRAFT: I would redact them, Your Honor. 8 THE COURT: Subject to any -- 9 MR. MURPHY: Judge, I don't have a problem with 10 the exhibit. 11 MR. BECRAFT: Can I tear them? 12 THE COURT: Let's see if we can't find a staple 13 remover. 14 MR. BECRAFT: I will pull those apart without 15 those pages. 16 THE COURT: Sure. 17 MR. BECRAFT: And I see a stapler right there. 18 I will pull out those two appending documents, and now we 19 can staple it back. 20 THE COURT: Okay. All right, gentlemen. 21 (The following proceedings were had in open 22 court.) 23 THE COURT: We will mark Exhibit 41 and Exhibit 24 42. 41 is an October 18, 1995 letter to the Internal 25 Revenue Service from Ms. Kuglin, and Exhibit 42 is a DIRECT - VERNICE KUGLIN 558 1 November 25th, 1995 letter with certain attachments, and 2 it's addressed to Internal Revenue Service to Mr. Gaither 3 from Ms. Kuglin. 4 (Exhibit Number 41 was marked. Description: 5 October 18, 1995 Letter.) 6 (Exhibit Number 42 was marked. Description: 7 November 25, 1995 Letter.) 8 Q. Ms. Kuglin, what was going through your mind at that 9 time, what did you believe about the necessity on your part to 10 file Forms 1040? 11 A. At that time, based on my research, based on the 12 government documents that I relied upon, the 1040 was not the 13 form that I had -- excuse me, let me start this again. I come 14 to the conclusion or the belief that there was no regulation 15 in the Internal Revenue Code that made me liable for the 16 individual income tax and that the 1040 form, there was no law 17 that required me to file that form for that particular tax. 18 Q. Looking at Exhibit Number 41, did you pose certain 19 questions in the letter? 20 A. This is the new 41 we're talking about? 21 Q. Yes. It will have a yellow sticker on it that says 41 22 now. 23 A. And would you repeat your question? 24 Q. Did you pose by means of that letter certain questions? 25 A. Yes, I did. DIRECT - VERNICE KUGLIN 559 1 Q. What were the questions that you posed to the Internal 2 Revenue Service? 3 A. The initial question was in regard to the OMB cross 4 reference number and the fact that the 1040 form had the 5 1545-0074 number on it, and the cumulative bulletin index 6 showed that the only form that had been approved for the 7 individual income tax was the 2555 form, foreign earned 8 income. I listed a court case that said for federal tax 9 purposes, federal regulations govern, and I discussed my 10 understanding of the requirement of the statutes and 11 implementing regulations in regard to determining liability 12 for any individual in regard to the taxes. 13 Q. Now, sometime later -- let me ask you this question: 14 Were the questions that you posed in that letter, were they 15 answered by the IRS? 16 A. No, they were not. And I, in the last paragraph of 17 that letter, I did make a note that if I did not receive 18 answers to the above requested information within ten days of 19 certified receipt date, it will indicate to me that even in 20 absence of receipt of a Form 2358C, which is a form that says 21 I'm not required to file, that you, the IRS, are in agreement 22 with my assessment that there is not a requirement for me to 23 return to you a completed Form 1040. 24 MR. BECRAFT: May I approach the witness, Your 25 Honor? DIRECT - VERNICE KUGLIN 560 1 THE COURT: Yes, you may. 2 Q. Can you hand me the next exhibit, November? 3 A. Yes. 4 Q. Now, I have on the Elmo here your letter dated November 5 the 25th of 1995. 6 A. Yes. 7 Q. Sent to the Internal Revenue Service. Was there 8 something that prompted this? 9 A. I did not get a response for my first letter, and I had 10 received a CP 515, 516, 517 and 518 letters which were 11 requests for a 1040 form to be filed. 12 Q. Now, let me direct your attention to the second page of 13 this letter. You sent it certified, right? 14 A. That's correct. 15 Q. And you got the certified return receipt here? 16 A. Yes. 17 Q. Now, the second page of this letter that I have got on 18 the screen, it's kind of light, but is this the series of 19 questions that you were posing at that time to this addressee 20 of this letter, Mr. Gaither? 21 A. Yes, they are. 22 Q. Okay. Describe those questions for us. 23 A. Well, my monitor is a little blurry. 24 THE COURT: You can focus it and make it a 25 little larger. DIRECT - VERNICE KUGLIN 561 1 A. That's fine. The first question that I posed -- 2 actually, I said, therefore, if you feel I have been 3 misinformed regarding the above information, please provide me 4 with the following or give me an appointment with someone who 5 can. And this was based on Internal Revenue Code 6110. The 6 first question that I asked them to address was the statute 7 asking them for the statutes and implementing regulations 8 which required that I file a tax return. Two, I wanted the 9 statutes and implementing regulations which specifically 10 designate the exact tax for which I am liable for on the 1040 11 form. Third question, the statutes and implementing 12 regulations which authorizes the IRS to enforce number one, 13 the statutes and implementing regulations which authorizes the 14 IRS to compute taxes, penalty and interest based on income 15 reported to you by any employer -- I'm sorry, my employer, 16 banks, et cetera, as shown on page five of your letter. And 17 five, in lieu of one through four above, a letter 2358C 18 determination letter stating to me that I am no longer 19 required to file a tax return. I am receiving -- let's see, I 20 am reserving all of my rights in this matter. Respectfully 21 awaiting your reply, Vernice Braendli Kuglin. 22 Q. Did you receive any reply to this letter? 23 A. No, sir, I did not. Not to the questions on this 24 letter. 25 Q. What was so important -- what was going through your DIRECT - VERNICE KUGLIN 562 1 mind about the importance of being told about what statute 2 makes you liable for the federal income tax? 3 A. Well, under the Privacy Act, the 1040 form said, it 4 said that those -- the 6001, 6011 were the regulations under 5 which I was required to file the 1040 form. And in my 6 research, I had determined that that form was not applicable 7 to the individual income tax based on the cumulative bulletin 8 index and that the form 2555 entitled foreign and earned 9 income did not apply to me, and I was wanting the IRS to clear 10 up this confusion for me. 11 Q. And nobody from the IRS ever scheduled an appointment 12 with you? 13 A. No, they did not. 14 Q. Nobody called you and said, Ms. Kuglin, here is the 15 answer to your questions? 16 A. No, they did not. 17 Q. Okay. Let's say by December 30 -- well, Christmas of 18 '95, what did you think -- what went through your mind, here 19 you have sent two letters to the IRS asking them questions and 20 nothing has happened? 21 A. Well, by December of 1995, as a result of the fact that 22 I had asked the question what regulation -- excuse me, what 23 implementing regulation made me liable for the individual 24 income tax and what law required me to file Form 1040, I had 25 asked this question through letters, I had asked it personally DIRECT - VERNICE KUGLIN 563 1 to IRS agents, and I got no response, so it was indicative to 2 me or I came to the conclusion that since they had not 3 responded to me in regards to that question, that my research 4 and my data was accurate, and I made the decision at that 5 point in time to stop my withholding. 6 Q. Did you have a willingness, if answers had been 7 obtained by you to your questions, did you have a willingness 8 to go ahead and file returns and pay the taxes? 9 A. Absolutely. And even later on when I hired an 10 attorney, which I was told to do by the IRS agents, to write 11 my letters for me, I thought that perhaps if they were 12 ignoring my own letters that they would not ignore the letters 13 of an attorney, that I asked them to ask the same questions. 14 Q. Okay. Now, you filed December 31st, 1995 for the first 15 time an exempt W-4 form, correct? 16 A. Yes, I did. 17 Q. Do you have that in front of you? 18 A. Yes, I do. 19 Q. Okay. Can you explain that to us, what you did? 20 A. Yes, this is a Form W-4, 1990 -- it is actually dated 21 1995. By December the 30th, 1995, I had made a decision that 22 I would stop my withholding until such time that I got an 23 answer to my two questions from the IRS. I went into my 24 employer, FedEx, anticipating that I might have a little 25 difficulty persuading them to accept my W-4 form, but when I DIRECT - VERNICE KUGLIN 564 1 got there, I realized -- I was actually told how to file this 2 form, and I filed an exempt W-4 form. 3 Q. I think the jury has, without getting into the 4 substance of that -- let me withdraw that and ask you to 5 summarize the position that you take in reference to that 6 exempt W-4 form dated December the 30th, 1995? 7 A. On the W-4 form, it says in number seven, I claim 8 exemption from withholding for 199 -- this said 1995, and I 9 certify that I meet both the following conditions for 10 exemption: One, last year I had a right to a refund of all 11 federal income tax withheld, because I had no tax liability; 12 and, two, this year, I expect a refund of all federal income 13 tax withheld, because I expect to have no tax liability. In 14 view of the fact that I had determined, based on all the 15 documentation that I received, that I was not a person who had 16 been not -- that had not been made liable in Section 6001 and 17 6011, that for the individual income tax that I qualified for 18 this as a person who had no liability. 19 Q. Let me ask you -- I don't think we need to pull them 20 out and look at them, but do you recall, we have got in 21 evidence here the other subsequent Forms W-4 that you 22 submitted to FedEx. 23 A. Yes. 24 Q. Okay. Is it your recollection that they say exempt on 25 them as well? DIRECT - VERNICE KUGLIN 565 1 A. That is correct. 2 Q. Let me ask you some questions about that group. You 3 claimed exempt on all those later forms for a specific reason? 4 A. Yes, I did. 5 Q. Can you tell the jury what that specific reason was? 6 A. Okay. Can you go over the years that we're talking 7 about? 8 Q. Okay. You know, it's my recollection there's '97, '98, 9 '99 forms exempt W-4 -- 10 A. Oh, yes, yes. 11 MR. MURPHY: I'm going to object. I think a 12 better way to do it would be to show her the exhibits. 13 THE WITNESS: I'm familiar with what he's 14 talking about. 15 THE COURT: Mr. Murphy is right, though, mainly 16 because you can't ask the lawyer a fact question. 17 THE WITNESS: Okay. 18 THE COURT: That is why they usually pass it 19 up. Why don't you pass it up, make sure that we have got 20 the document? 21 MR. BECRAFT: Judge, I don't know if I have the 22 numbers real handy. 23 Q. Oh, wait, I think I gave them to you. Do you see one 24 later? 25 A. Oh, yes, I do. Well, no, I have got a copy. DIRECT - VERNICE KUGLIN 566 1 Q. Let me withdraw these questions. Are you cognizant of 2 the fact that you claimed exempt on those forms? 3 A. Yes, I am. 4 Q. Let me ask the questions that don't relate to having 5 the documents in front of you. Can you tell the jury why you 6 did so? 7 A. I claimed that exemption because I had been asking 8 questions, via letters and visits to the IRS, for the 9 implementing regulation that made me liable for the individual 10 income tax and the law that required me to file a 1040 form. 11 I had not gotten responses to those letters, and based on all 12 of my research and study, understanding from the court cases, 13 especially Jack Cole versus McFarland that my right to earn a 14 living was a right of common occupation and, therefore, could 15 not be taxed under the individual income tax. 16 Q. Let me ask a couple of final questions, if I may, Ms. 17 Kuglin. You agree that for '96, '97, '98, '99, 2000, 2001, 18 you didn't send in 1040 forms to the IRS, right? 19 A. That's correct. 20 Q. On April 15th, after all those years, all the way up 21 through April 15th of 2002, did you have a belief that you 22 were required by law to file those forms? Did you have a 23 belief that you were required to file the forms? 24 A. What were the dates that you just gave me? 25 Q. For all the years covered in the indictment, '96 DIRECT - VERNICE KUGLIN 567 1 through 2001, I think April 15th, after every year. 2 A. No, I was not under the belief that I was required to 3 file the Form 1040 form. 4 Q. Okay. In reference to filing, give us what your belief 5 was, very specifically. 6 A. My belief was that I was not a person that the 7 regulations had made liable for the individual income tax and 8 that there was no law requiring me to file the 1040 form. 9 Q. Now, in reference to all those exempt W-4 forms that 10 you submitted, starting also with the one dated December of 11 '95 and the subsequent ones, did you believe that any 12 statement that you had made on those was false? 13 A. I did not believe that. In fact, I attached to my -- 14 first the 1995 one some documentation which substantiated my 15 belief. 16 Q. Did you believe that the statements that you submitted 17 those forms W-4 were -- 18 MR. MURPHY: Judge, I'm going to object to the 19 leading. 20 THE COURT: Objection sustained. 21 Q. Okay. What, if any, belief did you have regarding the 22 truthfulness of your exempt W-4 forms? 23 A. I believed that it was true, I believed that I did not 24 have taxable income for the year -- the prior years. I 25 believed that I did not have taxable income for the years that DIRECT - VERNICE KUGLIN 568 1 I filed exempt. 2 Q. Ms. Kuglin, from 1993 all the way up through April of 3 2002, did you engage in tax evasion? 4 A. I did not. I always offered to pay my taxes that I was 5 liable for. 6 MR. BECRAFT: One moment, Your Honor, if I may. 7 THE COURT: All right. 8 MR. BECRAFT: Nothing further, Your Honor. 9 THE COURT: Cross examination? 10 MR. MURPHY: If I can have a minute to get my 11 stuff ready. 12 MR. BECRAFT: Well, I need a minute to pull 13 away my stuff. 14 THE COURT: That should work out fine. 15 THE WITNESS: Do you want these exhibits now? 16 MR. MURPHY: No, that's fine. 17 Thank you, Your Honor. 18 CROSS EXAMINATION 19 BY MR. MURPHY: 20 Q. Ms. Kuglin, I want to start with some of these cases 21 that you based your conclusions on. Now, you would go over to 22 the Memphis State -- when I was there, it was Memphis State -- 23 it was the University of Memphis law library and study? 24 A. Yes. 25 Q. And it's true that law library has all sorts of CROSS - VERNICE KUGLIN 569 1 materials dating back, you know, a 150 years to the present, 2 correct? 3 A. That's correct. 4 Q. Okay. Now, this Pollock case that you were talking 5 about, that case was decided in 1880, wasn't it? 6 A. That's correct. 7 Q. And that case overruled the income tax prior to the 8 16th Amendment, correct? 9 A. What they said is that Congress had the right to levy a 10 direct tax on property. 11 Q. Okay. But that -- that case was prior to the 16th 12 Amendment, correct? 13 A. That was prior to the 16th Amendment, that's correct. 14 Q. The 16th Amendment is what gave us the modern income 15 tax, correct? 16 A. The 16th Amendment, yes, gave the Congress the power to 17 lay and collect income taxes from whatever source derived. 18 Q. Right, from all income, right, from whatever source 19 derived? 20 A. That's correct, that's what the amendment says, yes. 21 Q. Now, the Brushaber is an 1896 opinion? 22 A. No, Brushaber is 1913, I believe. 23 Q. 1913? 24 A. After the 16th Amendment was passed. 25 Q. Okay. You're correct, it's a 1913 case. CROSS - VERNICE KUGLIN 570 1 A. Right. 2 Q. Now, the -- this Jack Cole case. 3 A. Yes, sir. 4 Q. Now, that's not a case that dealt with the federal 5 income tax, was it? 6 A. No, that was a case that dealt with state income taxes. 7 Q. Right. And they don't mention the federal income tax 8 in Jack Cole, do they? 9 A. No, they do not. 10 Q. Okay. And the Oregon case, what year was that? 11 A. I believe that was a 1925, 1930 case. I would have to 12 look at it. 13 Q. That case, they don't deal with the federal income tax 14 either, do they? 15 A. No, they deal with -- more defining the difference 16 between excises and occupations and individuals and 17 corporations. 18 Q. Okay. So the answer would be no, they don't deal with 19 the federal income tax in that case? 20 A. No, they do not. 21 Q. Now, the Flora case was decided in 1960, right? 22 A. I don't have the case in front of me, but I think 23 that's about right. 24 Q. I have got a copy of it. 25 MR. MURPHY: May I approach the witness, Your CROSS - VERNICE KUGLIN 571 1 Honor? 2 THE COURT: You may. 3 Q. Is that a copy of the Flora case? 4 A. Yes. 5 Q. What year was that decided? 6 A. Actually, that was 1960. I was thinking it was 7 earlier. 8 Q. Is that one of the cases you relied upon? 9 A. Yes, that was one of the cases that I relied on to get 10 some of the information, yes. 11 MR. MURPHY: Your Honor, could we have this 12 marked as an exhibit, please? 13 THE COURT: Yes, Exhibit 43. 14 COURT SECURITY OFFICER: I got it. 15 (Exhibit Number 43 was marked. Description: 16 Flora Case.) 17 Q. Now, the Flora case was a case that involved the method 18 that you used to settle a dispute of the income tax, correct? 19 A. That's correct. 20 Q. Okay. Whether you could go to district court or tax 21 court? 22 A. That was correct. 23 Q. Okay. And, in fact, the Flora case is -- starts at 24 page 630 and ends at page 658, and there's only one line in 25 that case where they talk about the voluntariness of the CROSS - VERNICE KUGLIN 572 1 income tax, correct? 2 A. I would say that is correct. I would have to read 3 through it again. 4 Q. Well -- 5 A. But I'll accept that. 6 Q. I'll show you where it talks about that. 7 Okay. But as far as you know, there's no other 8 reference to it? 9 A. I will accept your -- that that is the case. 10 Q. Well, you studied the case. 11 A. I studied the case and I got information out of it, but 12 I don't know every line in every case. If you're saying 13 that's the only reference to it, then -- 14 Q. You don't dispute that? 15 A. I will not dispute that. 16 Q. Okay. And it's one sentence, right? 17 A. I will accept that. 18 Q. Well, why don't we have you read it? 19 A. If you want me to know everything that is in every 20 case, I cannot do that today. I gleaned information -- I was 21 looking for supporting documentation for the answers of 22 questions I had. 23 Q. Okay. I have got a page from Exhibit 43 up there, and 24 it says our system of taxation is based upon voluntary 25 assessment and payment, not upon distraint. A full payment CROSS - VERNICE KUGLIN 573 1 requirement will promote the smooth function of this system; a 2 part payment rule would work at cross-purposes with it. 3 A. Right. And I have no disagreement with that sentence. 4 Q. Okay. 5 THE COURT: Would you pull the page down so we 6 can see the top of the page where the case name is? 7 MR. MURPHY: Yes, sir. 8 THE COURT: Thank you. 9 Q. Now, the Arkansas case that you cited is part of the 10 basis for your study. That case didn't deal with the federal 11 income tax, did it? 12 A. No, it did not. It dealt with an excise tax or a tax 13 that was being laid by the legislature of Arkansas. 14 Q. And, in fact, those courts that dealt with those state 15 cases, they weren't federal courts, were they? 16 A. No, they were not. They were the state Supreme Courts. 17 Q. Okay. Ms. Kuglin, you don't have the W-4s up there, do 18 you? 19 A. I have my -- the 1995 W-4. 20 Q. Okay. Can I have the 1995 W-4 form? 21 A. Yes. 22 Q. You filed income tax returns and paid your income taxes 23 from sometime in the mid '60s up until 1992, is that correct? 24 A. That's correct. 25 Q. And I'm going to show you a document, can you tell us CROSS - VERNICE KUGLIN 574 1 what that document is? 2 A. This says it is an individual income tax return Form 3 1040 for 1992 and has my name on it. 4 Q. Okay. Is that a copy of your 1992 tax return? 5 A. Yes. 6 MR. MURPHY: Your Honor, we would ask this be 7 marked as the next numbered exhibit. 8 THE COURT: 44. 9 (Exhibit Number 44 was marked. Description: 10 1992 Tax Return.) 11 MR. BECRAFT: Your Honor, that was 12 government's -- that was Exhibit Number 9 previously, I 13 thought. 14 MR. MURPHY: Judge, I don't think it is. I 15 don't think we admitted -- 16 THE COURT: Number 9 was the certificate of 17 assessments, and this is the 1992 tax return. It appears 18 to be separate. 19 MR. MURPHY: Judge, I cannot find the W-4s, but 20 I have got some copies and I'm going to use some copies. 21 THE COURT: All right. You just need to -- 22 sure. The W-4s should be Exhibit 15. 23 Q. Do you have those up there, ma'am? 24 MR. BECRAFT: If I may, Your Honor, I did hand 25 those to the witness during my examination. I thought 13, CROSS - VERNICE KUGLIN 575 1 14 and 15 may be up there on the witness stand. 2 THE WITNESS: Well, let me look again. 3 THE COURT: Sure, Exhibit 15, and then -- 4 THE WITNESS: What were they originally, 5 Larry -- Mr. Becraft? 6 MR. BECRAFT: Starts around 13. 15, I believe, 7 is a collective exhibit, Your Honor. 8 THE COURT: Okay. You may proceed. You can 9 use your copy. 10 MR. MURPHY: Judge, that's fine. 11 Q. Ms. Kuglin, we're going to use some copies. 12 A. All right. 13 Q. Can you take a look at Exhibit 44? 14 A. Yes. 15 Q. In 1992, you had one dependent? 16 A. Yes, sir. 17 Q. Okay. And would you take a look at this document, it 18 appears to be a 1988 Form W-4. Do you recognize that 19 document? 20 A. Yes, it has my signature on it. 21 Q. Okay. And is that a W-4 you submitted out at FedEx? 22 A. Yes, it is. 23 Q. Okay. And what date did you submit it? 24 A. I submitted this on June the 7th of 1989. 25 MR. MURPHY: Judge, if we could have this CROSS - VERNICE KUGLIN 576 1 marked as an exhibit. Well, I don't think we need to do 2 that. 3 Q. Can you tell us -- let's have it marked as an exhibit. 4 THE COURT: 45. 5 MR. MURPHY: I had her testify about it. 6 THE COURT: That's no problem. 7 (Exhibit Number 45 was marked. Description: 8 1988 Form 1040.) 9 Q. How many exemptions do you claim on that W-4? 10 A. It says six exemptions on there. 11 MR. MURPHY: Now, if we can have this marked as 12 the next numbered exhibit. 13 THE COURT: Are we -- is this 45, or is this 14 46, the new one? 15 MR. BECRAFT: I wrote down 45. 16 THE COURT: I tell you what, let me take a look 17 at it and ask you -- this is Exhibit -- let's talk at side 18 bar. 19 MR. MURPHY: I think it is going to be 46. 20 THE COURT: I want to see 45, and, Mrs. Saba, 21 we need to get them all -- we just need to get them all 22 sequentially sorted. It looks like we're having a little 23 problem here. 24 THE WITNESS: I have 37 and 40 here also. 25 THE COURT: Let's pick them all up. CROSS - VERNICE KUGLIN 577 1 (The following proceedings had at side-bar 2 bench.) 3 THE COURT: Is there a 45? 4 MR. BECRAFT: That's the -- no, no, 44 is 5 the -- 6 THE COURT: 44 is the -- 7 MR. MURPHY: There is not a 45. 8 THE COURT: 44 is the '92 tax return. 9 MR. MURPHY: It is right there. 10 THE COURT: 45, I think, is this. 11 MR. BECRAFT: Yeah, that's it, that's correct. 12 THE COURT: It is the 1988 W-4 form. This is 13 45. Okay. We're okay. 14 MR. BECRAFT: No objections to their admission. 15 (The following proceedings were had in open 16 court.) 17 THE COURT: Got them in order now? 18 MR. MURPHY: I think so, Judge. 19 THE COURT: I think so. 20 BY MR. MURPHY: 21 Q. Ma'am, I'm going to pass to you another document, what 22 document is that? 23 A. This is -- this is a 1990 Form W-4. 24 Q. Okay. And was that a W-4 you submitted to FedEx? 25 A. Yes, it is. CROSS - VERNICE KUGLIN 578 1 Q. What date did you submit it? 2 A. I submitted this on 11-26 of 1990. 3 Q. And how many exemptions did you claim? 4 A. It shows 10 exemptions. 5 Q. Thank you. Now, at the time, was your son living with 6 you? 7 A. 1990, my son -- 8 MR. MURPHY: Judge, we move this into evidence. 9 A. No. 10 MR. BECRAFT: Is that 46? 11 THE COURT: That's 46. And it's the W-4 for 12 1990. 13 (Exhibit Number 46 was marked. Description: 14 1990 W-4 Form.) 15 Q. Ma'am, I'm going to pass you another document. Can you 16 tell us what that document is? 17 A. Yes, that's a 1995 W-4 form. 18 Q. And is that your W-4 form? 19 A. Yes, it is. 20 Q. And what is the date on that form? 21 A. That's December 30th, 1995. 22 Q. Okay. Thank you, ma'am. 23 MR. MURPHY: Your Honor, could we have this 24 marked as the next numbered exhibit? 25 MR. BECRAFT: It has been admitted into CROSS - VERNICE KUGLIN 579 1 evidence, Your Honor. 2 MR. MURPHY: We can't find it, Judge, and -- 3 THE COURT: Mrs. Saba, we need Exhibits 13, 14 4 and 15. 5 MR. BECRAFT: I have it as Exhibit 17, Your 6 Honor. 7 THE COURT: It won't do any harm for us to mark 8 it as 47. 9 THE CLERK: 13, 14 and 15? 10 THE COURT: The collective W-4 forms are 11 Exhibit 15. 12 MR. MURPHY: Judge, I've got 15. 13 THE COURT: Okay. We're all right. We will 14 not mark the other document as 47. 15 MR. MURPHY: We will withdraw that, Your Honor. 16 THE COURT: Okay. 17 Q. Okay. Now, this is your 1995 -- or 1996 W-4? 18 A. That's what it says. It has got 1996 crossed out and 19 1997 on there. One of the situations that would happen at 20 FedEx is they didn't always have the current year forms. 21 Q. Is that a form that you claimed exempt on? 22 A. It is a form that I claimed exempt signed on January 23 the 1st of 1997. 24 Q. Can you take a look at this form and tell me what that 25 form is? Now, I don't mean to interrupt you, but the top part CROSS - VERNICE KUGLIN 580 1 of this form is not there. 2 A. Yes, this is a W-4. 3 Q. Does that appear to be a -- 4 A. For 1996, yes. 5 Q. -- government document? 6 A. Yes. 7 Q. Is it similar to the document that you executed? 8 A. Yes, it is. 9 MR. MURPHY: Judge, could we have this blank 10 form marked as an exhibit. 11 THE COURT: Yes, that will be 47. 12 (Exhibit Number 47 was marked. Description: 13 Blank Form 1040.) 14 Q. Ma'am, what I'm going to put up here this is this Form 15 1040. 16 A. Yes. 17 Q. You see the part where it says exemption from 18 withholding? 19 A. Yes, I do. 20 Q. Could you read that for us? 21 A. The -- from where it says withholding or the yellow 22 highlighted area? 23 Q. Why don't you read exemption from withholding? 24 A. It says exemption from withholding, read line seven of 25 the certificate below to see if you can claim exempt status. CROSS - VERNICE KUGLIN 581 1 If exempt, only complete lines one, two, three, four and seven 2 and sign the form to validate it. No federal income tax will 3 be withheld from your pay. Your exemption expires February 4 18th, 1997. Note: You cannot claim exemption from 5 withholding if, one, your income exceeds $650 and it includes 6 unearned income, for example, interest and dividends; and two, 7 another person can claim you as a dependent on their return. 8 Q. Okay. In 1996, you earned interest, didn't you? 9 A. I did earn interest, yes. 10 Q. Okay. Can I get that exhibit back from you? 11 A. Yes. 12 Q. Look for something else. Now, is that your 1998 W-4? 13 A. That is signed by me on January 1st of 1998. 14 Q. Okay. And again, this is coming from Collective 15 Exhibit 15. Can you read the language from the 1998 W-4 that 16 begins up at the top with note? 17 A. It says: Note: You cannot claim exemption from 18 withholding, if, one, your income exceeds $650 and includes 19 unearned income, for example, interest and dividends; and, 20 two, another person can claim you as a dependent on their tax 21 return. 22 Q. And this information was on the form when you signed 23 it, correct? 24 A. Yes, it was. 25 Q. And you earned interest income in 1998, didn't you? CROSS - VERNICE KUGLIN 582 1 A. I believe that the testimony yesterday was to that 2 effect. 3 Q. Okay. And it's true, isn't it, the 1995 W-4 has the 4 same sort of language up there at the top, doesn't it? 5 A. Yes, it does. I would presume it does. 6 Q. And you earned interest in 1995 too, didn't you? 7 A. I would have to defer to the testimony yesterday. 8 Q. Okay. Now, regarding your 1993 tax situation, the IRS 9 levied against the taxes that had been withheld from your 10 paycheck, didn't they? 11 A. They did not levy against the taxes that were withheld, 12 they did an additional levy. 13 Q. Okay. Well, but they got all that money, right? 14 A. Yes, I -- in 1993, withholding was taken out of my 15 check. 16 Q. And the IRS got al that money, right? 17 A. I'm presuming, yes, that FedEx sent it to the IRS. 18 Q. And you didn't get a refund of a dime of your money in 19 '93, did you? 20 A. No, I did not. 21 Q. Now, in 1994, the IRS got the withholding again, didn't 22 they? 23 A. Yes, they did. 24 Q. Okay. And did you get a refund of any of that 25 withholding? CROSS - VERNICE KUGLIN 583 1 A. No, I did not file a 1040 form for a refund. 2 Q. So you didn't get a refund in '93, correct? 3 A. I did not file for a refund in '93, and I did not file 4 for a refund in '94. 5 Q. Let's back up a second and answer my question, you did 6 not get a refund of your taxes in 1993? 7 A. No, I did not. 8 Q. You did not get a refund of your taxes in 1994, did 9 you? 10 A. No, I did not. 11 Q. Okay. Thank you, ma'am. Now, the IRS had a number of 12 contacts with you regarding your tax situation, correct? 13 A. That's correct. 14 Q. For example, on October the 31st of 1995, did you 15 receive this letter? 16 A. That letter looks familiar, yes. 17 Q. So do you believe you received it? 18 A. Yes, I do. 19 MR. MURPHY: Mark this as the next numbered 20 exhibit, Your Honor. 21 MR. BECRAFT: May I look at it, Your Honor? No 22 objections, Your Honor. I believe that's 48. 23 THE COURT: Exhibit 48. 24 (Exhibit Number 48 was marked. Description: 25 October 31, 1995 Letter.) CROSS - VERNICE KUGLIN 584 1 MR. BECRAFT: One moment, Your Honor. 2 THE COURT: All right. 3 Q. Now, that letter that you just said you received, that 4 was a letter from the IRS about your taxes, correct? 5 A. Yes, it was. 6 Q. Now, did you receive that letter from the IRS? 7 A. Yes, I did. 8 Q. Okay. And is that also a letter -- and you received 9 that June of 1997? 10 A. That was June 16th of 1997. 11 Q. And that's a letter about your taxes, isn't it? 12 A. Yes, it is. 13 Q. Okay. And about asking -- putting you on notice that 14 they have no record of your 1040 and indicating that they will 15 assess tax penalties against you, correct? 16 A. That's correct. 17 MR. MURPHY: Your Honor, we ask this be marked 18 as the next numbered exhibit. 19 MR. BECRAFT: No objections, Your Honor. 20 THE COURT: 49. 21 (Exhibit Number 49 was marked. Description: 22 June 16, 1997 Letter.) 23 Q. Ma'am, I'm going to pass to you another document that's 24 dated July the 16th of '97, what is that? 25 A. This is another letter from the IRS, the Department of CROSS - VERNICE KUGLIN 585 1 Treasury, dated July 16th, 1997. It says notice of 2 deficiency. 3 Q. And you received that letter? 4 A. Yes, I did. 5 Q. And this is giving you notice of a deficiency and the 6 payment of your taxes, correct? 7 A. That's correct. 8 MR. MURPHY: Judge, if we could have this 9 marked as the next numbered exhibit. 10 THE COURT: 50. 11 MR. BECRAFT: No objections, Your Honor. 12 (Exhibit Number 50 was marked. Description: 13 June 16, 1997 Letter.) 14 Q. Ma'am, I'm going to pass to you a document dated June 15 22nd of 1999. And did you receive that letter? 16 A. This letter looks familiar, June 22nd, yes. 17 MR. MURPHY: Your Honor, if we could have this 18 marked as the next numbered exhibit. 19 THE COURT: 51. 20 (Exhibit Number 51 was marked. Description: 21 June 22, 1999 Letter.) 22 Q. Now, this letter that has been marked 51, this gives 23 you notice that you have got an appointment to talk to the 24 IRS, correct? 25 A. Yes, it does. CROSS - VERNICE KUGLIN 586 1 Q. And you didn't ever go talk to them about this? 2 A. I did not go talk to them. I had an attorney respond 3 to this letter. 4 Q. Okay. But did you have an opportunity to sit down and 5 talk to the IRS about your tax situation? 6 A. Yes, I did. 7 Q. Okay. And you're not disputing that? 8 A. I'm not disputing that. 9 Q. Ma'am, I pass a document to you dated June 28th, 1999, 10 can you tell us what that is? 11 A. This is a letter that says final notice, notice of 12 intent to levy, notice of your right to a hearing. 13 Q. And that is addressed to you? 14 A. That is addressed to me. 15 Q. And this particular letter gives you notice that the 16 IRS is going to put a levy against you? 17 A. That's correct. 18 Q. Okay. And put a levy against you for your taxes that 19 you owe, correct? 20 A. That's correct. The taxes that they say I owe, yes. 21 MR. MURPHY: Your Honor, could we have this 22 marked as the next numbered exhibit? 23 MR. BECRAFT: No objections. 24 THE COURT: 52. 25 (Exhibit Number 52 was marked. Description: CROSS - VERNICE KUGLIN 587 1 June 28, 1999 Letter.) 2 Q. Ma'am, I'm going to pass to you another letter dated 3 July the 6th, 1999 from the IRS. Did you receive that letter? 4 A. Yes. 5 Q. Okay. And that letter is also a letter where there's 6 an attempt to set up an appointment to sit down and talk with 7 you about your taxes? 8 A. That's correct. 9 MR. MURPHY: Your Honor, if we could have this 10 marked as the next numbered exhibit. 11 MR. BECRAFT: No objections, Your Honor. 12 THE COURT: Exhibit 53. 13 (Exhibit Number 53 was marked. Description: 14 July 6, 1999 Letter.) 15 Q. Ma'am, I'm going to pass to you another document. Did 16 you receive this document? 17 A. I'm not saying I didn't. This document doesn't seem as 18 familiar. I do know a copy was sent to Ray Pope who had my 19 power of attorney at that time in Florida. 20 Q. Okay. How about this reminder document? 21 A. This reminder document is familiar. 22 Q. Okay. And do you believe you received that reminder 23 document? 24 A. Yes. 25 Q. And what this reminds you -- document reminds you of is CROSS - VERNICE KUGLIN 588 1 that you, in fact, still owes taxes to the Internal Revenue 2 Service? 3 A. Yes, it tells me that the Internal Revenue Service 4 believes that I still owe them some taxes. 5 MR. MURPHY: If we could mark this as the next 6 numbered exhibit, Your Honor. 7 MR. BECRAFT: Let me take a look at it, Your 8 Honor. 9 No objections, Your Honor. 10 THE COURT: 54. 11 (Exhibit Number 54 was marked. Description: 12 October 30, 2000.) 13 MR. BECRAFT: Your Honor, we probably going to 14 need a side bar on this. 15 THE COURT: All right. 16 (The following proceedings had at side-bar 17 bench.) 18 MR. MURPHY: Judge, this is -- Ms. Kuglin 19 disputed part of the assessment and collection process, 20 and there's a tax court opinion, and I would submit that 21 it was issued within the time to file for 2001 and that 22 that would provide her with notice of her obligation to 23 file. 24 MR. BECRAFT: I don't understand where the 25 government is coming from. It bears a date of February CROSS - VERNICE KUGLIN 589 1 25th, 2002. I expect that the answer from this witness is 2 that she had her attorneys -- she didn't find out about 3 that decision until right before this case got started, so 4 if the witness' response is no foundation, no receipt, I 5 object to its admission. 6 MR. MURPHY: Judge, I'm probably going to ask 7 her first if she took her case to tax court and if she 8 knows what the outcome of it is and when did she learn 9 that. 10 THE COURT: Okay. 11 MR. BECRAFT: If the answer is sometime after 12 April 15th of 2002, I would object, Your Honor. 13 MR. MURPHY: Well, I just don't think the 14 decision comes in then. 15 (The following proceedings were had in open 16 court.) 17 THE WITNESS: Your Honor, may I ask you a 18 question, please? 19 THE COURT: It would be better to let you ask 20 your lawyer a question. 21 THE WITNESS: All right. May I ask my 22 lawyer -- 23 THE COURT: You can walk around there and ask 24 them. 25 THE WITNESS: This is a physiological question. CROSS - VERNICE KUGLIN 590 1 I just want a restroom break. 2 THE COURT: Why don't we take an early lunch? 3 Anybody be upset if we take an early lunch today? I 4 didn't think so. I don't blame you. We will take an 5 early lunch, and then I will have a chance to talk with 6 the lawyers just a little bit about some things that will 7 come up later, and that will save us maybe time. 8 Ladies and gentlemen, you get a long lunch 9 today. Don't let anybody talk with you about it and we 10 will see all of you at 2:00. I will let the witness step 11 down, of course, and I will hold the lawyers here for a 12 moment, we're going to go over a couple of more things. 13 We will let you be excused. Thank you very much. 14 (Jury out at 12:10 a.m.) 15 MR. BECRAFT: Can she waive her appearance in 16 the courtroom for a few minutes, Your Honor, and we can 17 proceed in her absence? 18 THE COURT: Is it okay we talk about a few 19 questions on the -- 20 THE WITNESS: That's fine. 21 THE COURT: In fact, I'm just going to talk for 22 a second about them, about the instructions. 23 THE WITNESS: I'm in good hands. 24 THE COURT: Thank you. I'm just going to ask 25 them a couple of questions. CROSS - VERNICE KUGLIN 591 1 MR. BECRAFT: Go ahead. 2 THE COURT: Gentlemen and ladies, we do need to 3 make sure that we have all of the materials that are going 4 to be submitted by everybody. Can I get the materials 5 that I got from -- that I sent back in the back that have 6 the notations -- I need the defendant's marked up 7 exhibits -- instructions, proposed instructions. I might 8 have them here, let me look. I do have those proposed 9 instructions out here. Thanks. 10 Okay. Let me run through them real quick, the 11 defendant's proposed instructions, the government's 12 proposed instructions are pretty much out of Sand, and 13 they're not very unusual. The defendant did have a few 14 things that we need to talk about. I am going to try to 15 use just Defendant's 11. Some of these are not a problem, 16 but we're not going to include the instructions on lesser 17 included offense. I'm just using -- 18 MR. BECRAFT: I'm sorry, Your Honor. 19 THE COURT: Lesser included offense. 20 MR. BECRAFT: Okay. 21 THE COURT: We have already talked about. I'm 22 just using the Sand instruction, which is not much 23 different really from the Devitt instruction on elements 24 of the crime charged. 25 And then we go over to willfulness. I will CROSS - VERNICE KUGLIN 592 1 probably use Exhibit -- or number 11 as sort of a 2 transition into the willfulness discussion. I will 3 probably use -- I'm not real clear on this number 12. I'm 4 not so clear that the proof -- what the proof has been on 5 number 12. 6 MR. BECRAFT: Your Honor, could I respond and 7 withdraw? 8 THE COURT: You're going to withdraw it. 9 MR. BECRAFT: I kind of like to offer to the 10 court kind of a series of instructions, kind of basically 11 get you in your frame of mind on willfulness. I will just 12 tell the court what I'm primarily driving at is the long 13 one 18, I believe it is. 14 THE COURT: Okay. And I wasn't sure about 12, 15 so is that not one you're going to pursue? 16 MR. BECRAFT: No, Your Honor. 17 THE COURT: Okay. Let me mark through it, 18 because I wasn't so clear about that. Let me make a note 19 about it then. 20 MR. BECRAFT: Let me kind of pull -- I will 21 just tell the court. 22 THE COURT: Sure. 23 MR. BECRAFT: Don't be concerned with 12, 13, 24 14, although 15 has relationship to one later on that I 25 think the court is already getting into anyway, but we can CROSS - VERNICE KUGLIN 593 1 pull 15, 16, and I think the court said in reference to 2 17, at least in reference to introductory instructions 3 that you gave, you seemed to indicate to me that you were 4 going down that road. 5 THE COURT: I have already got some language 6 about that. 7 MR. BECRAFT: Yeah. Beyond that, that's -- 8 THE COURT: You may want to look at that. I 9 did revise 18 just a little. Because we have to take out 10 for failing to file any tax return, because there's no 11 lesser included offense, so I assume that's -- you want -- 12 that needs to go out, and I changed it and said if there 13 is any doubt in your mind as to this issue -- well, if 14 there's any reasonable doubt, that's the standard. I will 15 change that. Okay. We will use 18, if we can. 19 is 16 correct, no reason not to use that. 17 MR. BECRAFT: The court is going to give it 18 then? 19 THE COURT: Well, defendant is not presumed to 20 know the law, that's true. I mean they're not required to 21 be legal experts, so -- otherwise, it wouldn't make much 22 sense. 23 Then I go over to the next thing that would be 24 includable probably would be probably 29. You hae no 25 right to find the defendant guilty only for purposes of CROSS - VERNICE KUGLIN 594 1 deterring others from committing crime. Well, that's 2 true, that's always true. I don't usually have to give 3 that, but that's all right. And I have some language from 4 one of the Supreme Court decisions which deals with 30, 5 but there's nothing wrong with 30, particularly. 6 MR. BECRAFT: All I'm asking, Your Honor, is 7 for the topic to be covered. 8 THE COURT: Okay. 9 MR. BECRAFT: The court can pick the language. 10 THE COURT: Okay. And it is true in 31 that 11 the commissioner does have the power to make a return and 12 assess your tax when no return has been filed. That's 13 already been discussed. I mean they have done that in the 14 case. 15 MR. BECRAFT: Well, Your Honor, let me withdraw 16 it, because I did have some exhibits on that, but as the 17 court saw, I kind of collapsed our exhibits and we didn't 18 cover that point, so, at least from our viewpoint, I'm not 19 insisting on it. 20 THE COURT: If you don't want it, it doesn't 21 need to be given. It's one of those things where it is 22 sort of surplus probably, and if you have withdrawn it, 23 there is no reason to worry about it. 24 And what I have done on the representations 25 question is I have basically said at one point that the CROSS - VERNICE KUGLIN 595 1 defendant can reply on Supreme Court decisions, on IRS 2 publications and regulations and instructions, which is 3 true. 4 MR. BECRAFT: The court give an instruction 5 like that, and I consider that to be then, therefore, 6 covered or covering this requested instruction. 7 THE COURT: Right. And Mr. Murphy agrees 8 that's the situation, so I don't see any reason -- don't 9 you, Mr. Murphy? 10 MR. MURPHY: Judge, I don't have any objection 11 to that. 12 THE COURT: I think we have got everything 13 covered. I wanted to cover these, and I may have included 14 some things now that I can -- I will narrow it down a 15 little more. Mr. Murphy, the cross is going to take a 16 little while longer, right? 17 MR. MURPHY: Yes, sir, Your Honor, but I -- you 18 know, I won't belabor it. I will make my points -- part 19 of the problem I was trying to find what I needed, and I 20 will get up here before we come back from lunch, and I 21 will get organized. 22 THE COURT: Well, that's no problem. We'll let 23 you have a chance -- that's a good thing to do. 24 I have got this sort of -- I fine tuned a 25 little bit some of the Sand materials, so what we will do CROSS - VERNICE KUGLIN 596 1 is we will try to get you a copy of the draft material as 2 soon as possible after lunch. 3 All right. Gentlemen, ladies, thanks very 4 much. 5 (Lunch recess taken at 12:25 until 2:00 p.m.) 6 THE COURT: All right. The witness can come 7 back around. 8 MR. MURPHY: The government is ready, Judge. 9 THE COURT: Mr. Tuggle, we can bring the jury 10 in. 11 COURT SECURITY OFFICER: Yes, Your Honor. 12 (Jury in at 2:00 a.m.) 13 THE COURT: All right. Mr. Murphy, you may 14 proceed. 15 MR. MURPHY: Yes, sir, Your Honor. 16 Q. Ms. Kuglin, I want to talk a little bit about some of 17 these documents that you contend you relied upon. You have 18 got the article by Ms. Claire Kelly? 19 A. Yes. 20 Q. Okay. I don't know that you need to look at it. You 21 can probably answer this without looking at it. 22 A. All right. 23 Q. But Ms. Kelly was not an IRS employee or government 24 official, was she? 25 A. That's correct. CROSS - VERNICE KUGLIN 597 1 Q. Okay. And this is reprinted from a publication called 2 Justice Times dated January of 1979? 3 A. I believe so, yes. 4 Q. Did you get this as part of a package of materials you 5 bought to drop out of the tax system? 6 A. I cannot answer ten years later whether I bought this 7 material or whether I picked it up at a seminar. I picked it 8 up for information only. 9 Q. Okay. But Ms. Kelly is not a government official of 10 any type? 11 A. Not that I know of. 12 Q. Okay. Now, what you also relied on was a publication 13 called Deceptive IRS Code Words? 14 A. That's correct. 15 Q. Okay. And that was the document that said shall 16 doesn't mean shall? 17 A. That's correct. 18 Q. Okay. Now, that's not a government publication, is it? 19 A. No, it is not, and I should say that I did not rely on 20 the document itself. That document led me to other 21 information that I relied on. 22 Q. Okay. Okay. But that's not a government document? 23 A. No, it is not. 24 Q. And this advertisement from W. James Knowles, attorney 25 at law? CROSS - VERNICE KUGLIN 598 1 A. Yes. 2 Q. He also doesn't hold himself out to be a government 3 official of any type, does he? 4 A. No, he holds himself out to be an attorney at law. 5 Q. Okay. But you don't know whether he is or not, all you 6 know is you saw an advertisement? 7 A. That's correct. I've not met the man. 8 Q. Must You Pay Income Tax, that's another article you 9 cited; that's not a government publication, is it? 10 A. No, it is not. 11 Q. Okay. And would you agree with the statement in that 12 article that, quote, money is taken from the productive sector 13 of society by the income tax to support the nonproductive 14 sector, foreign aid, give-aways in a bloated needless 15 bureaucracy. Would you agree with that statement made in that 16 document? 17 A. In reading all the material that I came across, I find 18 that there is information and there is knowledge -- 19 Q. Well, what I asked is would you agree with that 20 statement in that document? 21 A. I do not necessarily agree with that statement in that 22 document. 23 Q. Okay. Turning to what was marked as Exhibit 28, this 24 is the Internal Revenue investigation. 25 MR. MURPHY: If I can approach, Your Honor. CROSS - VERNICE KUGLIN 599 1 THE COURT: You may. 2 A. I believe I have it here. Oh, no, I do not. There we 3 go. 4 Q. Now, that Internal Revenue Code investigation that is 5 going on there, that wasn't an investigation that had to do 6 with income taxes, that had to do with the alcohol tax, 7 correct? 8 A. That had to do with the Internal Revenue Service, and 9 it was Mr. Avis who was the head of Alcohol, Tobacco and 10 Firearms at that time. 11 Q. Okay. But on Thursday, February the 3rd, 1953, when 12 these statements were made, what they were talking about was 13 politics and the alcohol tax department? 14 A. That's correct. 15 Q. Okay. And this statement about voluntariness of the 16 income tax, that's a one sentence deal, right? 17 A. Yes, he was showing the difference between the income 18 tax side of the IRS and the ATF side. 19 Q. Now, you also said you relied on what's been marked as 20 Exhibit 40. I'll pass you a copy of that. 21 A. Thank you. 22 Q. There you go, ma'am. 23 Now, that was treasury decisions from 1916, correct? 24 A. That's correct. 25 Q. Okay. You also, I believe, talked about a treatise CROSS - VERNICE KUGLIN 600 1 that had to do with the federal income tax under the Act of 2 1913 that had to do with United States residents. We didn't 3 admit that into evidence, but I have got a copy of it. 4 A. Let me just look this over, briefly. Yes. I recognize 5 the document. 6 Q. That's dated 1915? 7 A. That is dated -- federal income tax under the Act of 8 1913, and the date was 19 -- the date of this opinion was 9 1915. 10 Q. Okay. Thank you. 11 A. Thanks. 12 MR. BECRAFT: No objections to the exhibit, 13 Your Honor. 14 MR. MURPHY: Your Honor, can I approach the 15 witness? 16 THE COURT: You may. 17 Q. Ma'am, I'm going to show you a bunch of 1040 returns 18 for 1996 through 2001. Can you look at those, and do you 19 recognize those as 1040 returns? 20 A. Yes, I do. 21 Q. Now, highlighted on each one, there's an OMB number, 22 isn't that correct? 23 A. That's correct. 24 Q. What is that number? 25 A. That number is 1545-0074. CROSS - VERNICE KUGLIN 601 1 Q. Okay. Now, if you would look at -- 2 MR. MURPHY: Judge, if we could move that into 3 evidence as a collective exhibit, all those tax returns, 4 the blanks. 5 THE COURT: Exhibit 55. 6 (Exhibit Number 55 was marked. Description: 7 Tax Returns.) 8 Q. And that OMB number is on every one of those, correct? 9 A. I am presuming that it is. I did not look at every 10 one. 11 Q. Look at every one, please. 12 A. All right. That's correct. 13 Q. Okay. Thank you. Now, was your study -- you described 14 your study of the income tax law as a thorough study, correct? 15 A. I believe it was as thorough as I could do of it. 16 Q. Okay. And basically one of your contentions is that 17 under the OMB requirements, and you submitted as Exhibit 37, a 18 list of OMB control numbers for documents, correct? 19 A. That's correct. 20 Q. Okay. Now, those income tax returns had the number 21 1554-0074 on it, right? 22 A. That's correct. 23 Q. Now, that control number is all over that list that you 24 put into evidence, isn't it? 25 A. Yes, that is correct. However, the only number -- CROSS - VERNICE KUGLIN 602 1 Q. Ma'am, ma'am. 2 A. Yes, that is correct. 3 Q. Is it all over there? 4 A. It is all over that list, along with many others, yes. 5 Q. Right, in several places. Would you look and see if 6 that number is at -- for Section 1.6012-1, that particular 7 control number? 8 A. That was 1. -- 9 Q. 6012-1. 10 A. I don't find a 1.60. Maybe I'm missing it here 11 somewhere. 12 Q. If I could take a look at it. I didn't want to mark 13 the exhibits up. Do you see where I have circled? 14 A. Yes. 15 Q. Okay. Now, it's true, isn't it, that that particular 16 portion of the CFR has to do with individuals required to make 17 returns of income and specifies that the Form 1040 return is 18 to be used? 19 A. It's saying on this form that the form 1545-0074 is an 20 applicable form for 1.6012. 21 Q. Okay. Can you -- you see up here on the screen? 22 A. Yes. 23 Q. Okay. And would you read the highlighted language? 24 A. Yes, it applies to individual citizens or residents, 25 and it says in general except as provided in subparagraph two CROSS - VERNICE KUGLIN 603 1 of this paragraph, an income tax return must be filed by every 2 individual for each taxable year beginning before January 1st, 3 1973, during which he receives six hundred dollars or more of 4 gross income and for each taxable year beginning after 5 December 31st, 1972, during which he received $750 or more of 6 gross income. If such individual is, one, a citizen of the 7 United States whether residing at home or abroad; two -- 8 excuse me. 9 Q. Let's -- 10 A. -- a resident of the United States even though not a 11 citizen thereof; or, three, an alien bona fide resident of 12 Puerto Rico during the entire taxable year. 13 Q. Okay. And then if you would flip over, would you read 14 that highlighted language? 15 A. Yes, this is number six, I believe, and it says forms 16 of return. Form 1040 is prepared for general use in making 17 the return required under this paragraph. 18 Q. Now, you came across that section of the Code of 19 Federal Regulations in your research, didn't you? 20 A. Yes, I did. 21 Q. Okay. And, in fact, that's what that code says, isn't 22 it? 23 A. That is what that code says. That is not in the 24 subtitle -- 25 Q. Ma'am, ma'am. CROSS - VERNICE KUGLIN 604 1 A. I'm sorry. 2 Q. I need you to answer the question, that's what it says? 3 A. That's what it says, yes, sir. 4 MR. MURPHY: Judge, could we have the CFR 5 marked as an exhibit? 6 THE COURT: Exhibit 56. 7 MR. BECRAFT: Your Honor, could we have a side 8 bar? 9 THE COURT: Certainly. 10 (The following proceedings had at side-bar 11 bench.) 12 MR. BECRAFT: I think that the prosecution's 13 offer is for the whole rather than the parts that we have 14 covered in testimony. 15 MR. MURPHY: Judge, I will make copies and 16 substitute it later. 17 THE COURT: Just the passages. 18 MR. MURPHY: Just the passages. I don't have a 19 problem with that, Judge. 20 (The following proceedings were had in open 21 court.) 22 THE COURT: We're going to make copies of the 23 pages and passages that are referred to and not put the 24 whole book in, because that would be too voluminous, so we 25 will make copies of those particular passages that are CROSS - VERNICE KUGLIN 605 1 referred to. 2 MR. MURPHY: Judge, I will take care of that at 3 the break, and what was the exhibit number for that? 4 THE COURT: 56. 5 (Exhibit Number 56 was marked. Description: 6 CFR Passages.) 7 Q. Do you have your IRS code book with you up there, 8 ma'am? 9 A. I do. 10 Q. Could you open it up -- oh, I don't mean to skip 11 around. Before we go there, now, did you look up -- you had 12 access to the Memphis State law library? 13 A. That's correct. 14 Q. And they have a complete collection of federal law 15 books there, correct? 16 A. Yes, they have a lot of books there. 17 Q. Did you read the case of United States versus Wunder, a 18 Sixth Circuit, 1990 case? 19 A. No, that is not familiar to me. 20 Q. So you didn't run across the Wunder case where they -- 21 basically, the court rejected this type of argument having to 22 do with OMB? 23 A. There are a lot of decisions that rejected this type of 24 argument. The courts don't seem to be able to agree on the 25 definition of income. CROSS - VERNICE KUGLIN 606 1 Q. Well, I'm talking about the OMB aspect. 2 A. Oh, I'm sorry, no. 3 Q. There are several decisions that have rejected this 4 argument that you don't have to file a tax return because of 5 the OMB number, correct? 6 A. That is not something that is of my knowledge. I will 7 accept that that is what you're stating that that is correct. 8 Q. Okay. But you didn't -- you didn't go to those law 9 books and conduct a search to see if the courts had upheld 10 this kind of argument, did you? 11 A. No, I relied on the IRS's index which was required 12 under the Paper Reduction Act. 13 Q. Okay. If you would get your code book out, if you 14 would go to Section 1. 15 A. All right. 16 Q. Section 1 reads tax imposed, correct? 17 A. Yes, that's correct. 18 Q. And it -- subsection C, it reads unmarried individuals 19 other than surviving spouses and heads of household? 20 A. That's correct. 21 Q. Okay. And it says -- it follows that there is hereby 22 imposed on the taxable income of every individual other than a 23 surviving spouse as defined in Section 2 or the head of a 24 household as defined in Section 2B, who is not a married 25 individual as defined in 7703, a tax determined in accordance CROSS - VERNICE KUGLIN 607 1 with the following table. 2 A. That is what it says. 3 Q. And you would agree that that is what it says? 4 A. I agree that's what it says. 5 Q. Okay. Now, would you turn to Section 7203 of your code 6 book? Once you get to 7203, let me ask you some other 7 questions real quick. 8 A. I have 7203. 9 Q. Going back to your one, in your study of the tax code, 10 you came across Section 1, didn't you? 11 A. Yes, I did. 12 Q. Okay. So today is not the first time you're hearing 13 about this? 14 A. Not at all. 15 Q. In fact, you came across it years ago, didn't you? 16 A. Yes, I did, when I was doing my research. 17 Q. Now, in -- what your belief is that the government 18 can't tax your wages or they can't tax your income you make as 19 a pilot, right? 20 A. What my understanding is that the courts have ruled 21 that occupations of common right are not taxable as an excise 22 tax. In other words, income tax. 23 Q. Okay. Well, no federal court that has dealt -- that 24 has applied the current income tax code has made that ruling, 25 have they? CROSS - VERNICE KUGLIN 608 1 A. Well, I believe that that was Chief Justice's ruling, 2 Justice White in the Brushaber case, which actually defined 3 income as an excise tax. 4 Q. Well, I'm not talking about a tax code that they passed 5 in 1913, I'm talking about the current tax code. 6 A. That was not a tax code, that was a Supreme Court 7 decision based on the -- 8 Q. Ma'am, no federal court has held that wages aren't 9 subject to income tax. 10 A. I believe the Brushaber case did. 11 Q. Well, after Brushaber, in the last hundred years. 12 A. I don't -- I can't say that, because I haven't read all 13 of them. 14 Q. Okay. But you did extensive research? 15 A. Yes, I did research on cases which I had been given 16 information, would explain certain questions that I had, yes, 17 but I did not -- I have not read every case, that would be 18 impossible. 19 Q. Okay. Look at 7203. 20 A. All right. 21 Q. Now, that makes a penalty or provides that any person 22 required under this title to pay any estimated tax or tax 23 required by this title or by regulations made under the 24 authority thereof to make a return, keep any records or supply 25 any information who willfully fails to pay such estimated tax CROSS - VERNICE KUGLIN 609 1 or tax make such return, keep such records or supply such 2 information at the time or times required by the law or the 3 regulations shall, in addition to other penalties, be guilty 4 of -- and I'm just going to say a crime. 5 A. Right. 6 Q. But that provides that if you don't file, you have 7 committed a crime, right? 8 A. I agree it says any person required under any tax of 9 this title shall make a return. 10 Q. Right. Okay. Now, can you turn to 6651 of your tax 11 code? Let me ask you this: You came across 7203 in your 12 study of the tax code. 13 A. Oh, yes. What was the other section? 14 Q. 6651. 15 A. I have it. 16 Q. 6651, it's true, isn't it, provides for penalties for 17 failure to file a tax return, an income tax return? 18 A. Well, it says any -- the failure to file any return 19 required under authority of subchapter eight of chapter 61, it 20 says chapter 51, it says alcohol, tobacco, cigars, cigarettes, 21 cigarette papers and a list of numerous other ones. 22 Q. Let's back up, let's talk about subchapter A of chapter 23 61. Subchapter A, it's true, isn't it, that's the subchapter 24 of the Internal Revenue Code that has to do with income taxes? 25 A. I would agree with that. CROSS - VERNICE KUGLIN 610 1 Q. Okay. And if -- I have got an index here that might 2 help you from the United States Code Annotated. What does 3 chapter 61 deal with. 4 A. It deals with gross income defined. Oh, 6001? 5 Q. Right. 6 A. Are you talking about Section 61 or Section 6001? 7 Q. I'm talking about chapter 61 of subtitle A. 8 A. Well, let me look for chapter 69. 9 Q. This index might help you. 10 A. All right. Okay. It says chapter -- 11 Q. What does it say there highlighted? 12 A. It says subtitle A, income taxes, I'm looking for 13 chapter 61. 14 Q. Why don't you go down here, what does chapter 61 say? 15 A. This does not say chapter -- this is -- oh, chapter, it 16 says information returns. 17 Q. That does say chapter? 18 A. Right, right, I see what you mean now, because that 19 other section referred to 61, and you brought -- right, okay, 20 now, I have got it. 21 Q. It's true that it said -- 22 A. We're on the same page. 23 Q. Okay. So what it is referring to is -- 24 A. 6001. 25 Q. 6001? CROSS - VERNICE KUGLIN 611 1 A. Right. 2 Q. Okay. Let's talk about what 6001 says. Now, it's 3 true, isn't it, that 6001 says every person liable for any tax 4 imposed by this title or for the collection thereof shall keep 5 such records, render such statements, make such returns and 6 comply with such rules and regulations as the secretary may 7 from time to time prescribe. Whenever in the judgment of the 8 secretary it is necessary, he may require any such person 9 served -- by a notice served upon such person or by 10 regulations to make such returns, render such statements or 11 keep such records as the secretary deems sufficient to show 12 whether or not such person is liable for tax under this title. 13 The only records which an employer should be required to keep 14 under this section in connection with charge receipts, records 15 necessary to comply with Section 6053 and copies and 16 statements furnished by employees thereunder or employees 17 under Section 6053. 18 A. That's correct, that's what it says. 19 Q. Now, if you would turn to 6011. 20 A. 6011, I have it. 21 Q. Yes, ma'am. That says, it's true -- and this -- this 22 6001 section, you have known about that for several years? 23 A. Yes, I did. 24 Q. You knew about that before you stopped filing income 25 taxes? CROSS - VERNICE KUGLIN 612 1 A. Yes, I did. 2 Q. Okay. And you were aware of the regulation that had to 3 do with the 1040s we talked about before you stopped filing 4 income tax returns, correct? 5 A. I was aware of the fact that the 1040 said that the 6 authority by which they could ask me to file, it was this 7 section, 6001, section 6011 8 Q. Okay. But you also testified you were aware of that 9 regulation we talked about? 10 A. The regulation 1.1-1? 11 Q. Well, no, this was -- I'm talking about -- this 12 regulation in this book. Remember, you read it, we put it on 13 the screen, it was in yellow. 14 A. It was, I believe, in the 6000 series of that section. 15 Q. Yes, ma'am. 16 A. Right. 17 Q. You have been aware of that for several years? 18 A. Yes, I have. 19 Q. Okay. In fact, you were aware of that before you 20 stopped filing income tax returns? 21 A. That's correct. 22 Q. Okay. Now, 6011 says when required by regulations 23 prescribed by the secretary any person made liable for any tax 24 imposed by this title or with respect to the collection 25 thereof shall make a return or statement according to the CROSS - VERNICE KUGLIN 613 1 forms and regulations prescribed by the secretary. 2 A. Yes, it does say any person made liable shall. 3 Q. And it says shall, right? 4 A. Yes, it does. 5 Q. Okay. Thank you, ma'am. 6 Now, can you turn to -- and this 611 section, you have 7 known about that for years? 8 A. Oh, yes, it is torn out of my book. 9 Q. Okay. If you turn to 6012, 6012. 10 A. Yes, 6012. 11 Q. Okay. Now, that provides, doesn't it, that returns 12 with respect to income taxes under subtitle A shall be made by 13 the following? 14 A. Yes, that's what it says. 15 Q. It goes to list who has got to make the returns. 16 Again, that says shall, doesn't it? 17 A. Yes, it says each individual -- let me read this. Yes, 18 it says returns with respect to income taxes under subtitle A 19 shall be made by the following. 20 Q. Okay. Now -- and it lists who -- 21 A. It lists individuals, it goes on and lists 22 corporations, every estate, be it political organization, 23 homeowners association, persons under disability, receivers, 24 trustees, it goes on for several pages. 25 Q. Let's back up a second. The first section you come to CROSS - VERNICE KUGLIN 614 1 deals with individuals? 2 A. Yes, it says every individual having for the taxable 3 year. 4 Q. Okay. And you have known about that section of the 5 code for several years, haven't you? 6 A. Yes, I have. 7 Q. In the study of the case law, you have read a number of 8 cases that you told us about. Did you read the case of United 9 States versus Shift where the Second Circuit said -- 10 MR. BECRAFT: Your Honor, before we -- may we 11 approach? 12 THE COURT: You may. 13 (The following proceedings had at side-bar 14 bench.) 15 MR. BECRAFT: The prosecution is assuming facts 16 in evidence. If the government wants to try to impeach 17 her with cases, I think the first thing that must be done 18 is to confirm whether or not the witness has any personal 19 information or knowledge about the case that he's going to 20 be examining her on. If the witness says I don't know 21 anything about the case, then quoting from it or asking 22 further questions about it, there's lack of personal 23 foundation for the question then. 24 THE COURT: It wouldn't impeach her good faith, 25 I don't think. CROSS - VERNICE KUGLIN 615 1 MR. MURPHY: Well, Judge, I think it would, 2 because the Shift case is right on point about the 3 voluntariness of taxes. 4 MR. BECRAFT: She doesn't know -- 5 MR. BERNHOFT: The question isn't whether her 6 belief is correct about the law. 7 MR. MURPHY: I understand that. The question 8 is, is there a good faith basis for belief, and I think I 9 can go into the extent of her -- 10 THE COURT: You're going to her lack of 11 thoroughness of the inquiry? 12 MR. MURPHY: Yes, sir. And that that would 13 result in a lack of good faith. 14 THE COURT: What is the case? 15 MR. MURPHY: Judge, I just have a snippet from 16 it, because I was going to do a Power Point, but I ran out 17 of time. 18 THE COURT: I was just making sure it 19 preceded -- it was during the period she did the research, 20 and I think it is. I think it would be unfair to ask her 21 about a case -- 22 MR. BECRAFT: The witness doesn't know, is my 23 point, Your Honor. 24 THE COURT: Well, I think that some inquiry as 25 to the thoroughness of one's -- one person's investigation CROSS - VERNICE KUGLIN 616 1 is allowed. I'm not saying -- inquiring into it ad 2 nauseam would be inappropriate, because there would have 3 to be some indication that there was a case that a person 4 would have had access to had they made diligent inquiry, 5 but not necessarily that she -- 6 MR. MURPHY: Judge, what about the general 7 questions, in your research -- well -- 8 THE COURT: You're entitled to examine the 9 thoroughness of her research. 10 MR. MURPHY: I think I can ask her this. 11 THE COURT: And I think you can ask her a few 12 questions about a specific case or two, but not ten cases. 13 MR. MURPHY: I won't, Judge. 14 MR. BECRAFT: How about the substance, Your 15 Honor? It seems like to me, though, if the witness has 16 not read it, having the government ask a question through 17 its cross and it's a leading question, but to lead off -- 18 THE COURT: I'm going to allow it on this case. 19 I mean the government's argument -- otherwise a person -- 20 it's somewhat of a logical inquiry, and I think you can 21 test a person's logic. 22 MR. MURPHY: Judge, I won't beat the horse to 23 death, I think I'm getting near the end. I'm going to ask 24 her about the '92 and '93 tax books. 25 THE COURT: Sure. CROSS - VERNICE KUGLIN 617 1 MR. MURPHY: And that's going to be about it. 2 THE COURT: Okay. I'll overrule the objection 3 with the limitations that we discussed. 4 MR. MURPHY: Yes, sir. 5 (The following proceedings were had in open 6 court.) 7 BY MR. MURPHY: 8 Q. Ms. Kuglin, during the course of your research, did you 9 come across the case of United States versus Shift at 876 10 F.2d, 272, a 1989 decision, Second Circuit where they said to 11 the extent that income taxes are said to be voluntary, 12 however, they're only voluntary in that one files the returns 13 and pays the taxes without the IRS first telling each 14 individual the amount due and then forces the payment of that 15 amount. The payment of income tax is not optional. Did you 16 run across that opinion? 17 A. I don't recall running across -- there were many, many 18 cases I brought into court with me, the ones that I felt were 19 the most descriptive of my thought process, and I know that 20 there are contradicting cases all through the judicial system. 21 Q. Okay. So the answer is -- 22 A. That is not one of the cases that I chose to bring into 23 the court. I may or may not have read it at some point in 24 time, I can't confirm on that. 25 Q. So you could have read it, maybe you did, maybe you CROSS - VERNICE KUGLIN 618 1 didn't? 2 A. Right. And I may have read excerpts -- many cases I 3 had experts from, that I did not actually go to the law 4 library and find those specific cases and read entirely 5 through them. 6 Q. Now, one of your exhibits was Exhibit 36. And I'm 7 going to put page two up here on the screen. 8 A. I can see. 9 Q. Can you see it? 10 A. Yes, I can. 11 Q. That says in -- and this is from the instructions, the 12 code provides for penalties for failure to file a return, 13 failure to supply information required by law or regulations, 14 failure to furnish specific information required on return 15 forms or for furnishing fraudulent information. Other effects 16 of not providing all or part of the requested information may 17 include the disallowance of claimed exemptions, exclusion 18 credits, deductions or adjustments resulting from an increased 19 tax liability, the loss of social security credits, loss or 20 delaying the issuance of a refund for overpayment, interest 21 and penalty charges, unpaid taxes or other disadvantages to 22 the taxpayer. Now, this is some of the language in this 23 notice that you claim you relied on in including that you 24 weren't required to file taxes, correct? 25 A. Yes, that part that you just read does say there are CROSS - VERNICE KUGLIN 619 1 penalties for persons required by the law or regulations. 2 Q. Okay. But this is -- this is part of what you relied 3 on in arriving to the conclusion that you didn't have to pay 4 taxes? 5 A. Yes, Section 6001 and 6011 of the beginning of that 6 paragraph -- those paragraphs. 7 Q. But what I'm saying is this document right here -- 8 A. Yes. 9 Q. -- that you claim that says -- makes the payment of 10 taxes voluntary, it also talks about penalties if you don't 11 pay. You relied on that in formulating your conclusion? 12 A. I need to correct your sentence there. You said that I 13 relied on it to say that it was voluntary. I did not. 14 Q. Ma'am, is the answer yes or no? 15 A. Well, your question is wrong, Mr. Murphy. 16 Q. Well, did you rely on the information in this? 17 A. I relied on the information that is written there. I 18 did not rely on that information to determine whether or not 19 the tax was voluntary or not. 20 Q. Okay. But -- so you did rely on this information, you 21 read it? 22 A. Yes, yes, I did. 23 Q. Okay. I stand corrected on it. 24 A. Thank you. 25 Q. Now, do you recognize this document? CROSS - VERNICE KUGLIN 620 1 A. Yes, 1992 Form 1040. 2 Q. Okay. And this is a government publication? 3 A. Yes, it is. 4 Q. Okay. And the 1992 1040 was one of the documents that 5 you relied on in arriving at your conclusion, correct, that 6 you didn't have to file taxes? 7 A. I believe I did file a 1992. 8 Q. Okay. You filed -- well, let me ask you this: Let me 9 back up a second. I may have something wrong here. I think I 10 got the right one now. 11 A. All right. 12 Q. Okay. What is this? 13 A. This is -- should be a 19 -- well, there's no date. 14 1993, yes, it's big letters, 1993 1040 form. 15 Q. Now, this is one of the publications that you relied on 16 in making your conclusion or arriving at your conclusion that 17 you didn't have to file returns or pay taxes? 18 A. I relied on the Privacy and Paperwork Reduction Act 19 instructions to determine if I was a person referred to in 20 6001 and 6011, yes, sir. 21 Q. So you relied -- 22 A. On the information in that document, yes. 23 MR. MURPHY: Judge, could we have this marked 24 as the next numbered exhibit? 25 THE COURT: 47 -- 57. 57, excuse me. CROSS - VERNICE KUGLIN 621 1 (Exhibit Number 57 was marked. Description: 2 1993 Instructions.) 3 MR. MURPHY: Judge, was that 57? 4 MR. BECRAFT: Your Honor, I have 57. 5 Q. Okay. Ma'am, I am going to -- I'm going to put a 6 passage up there. This is from page four. Would you agree 7 that it says if you do not file a return, do not provide the 8 information we ask for or provide fraudulent information, the 9 law says that you may be charged penalties; in certain cases, 10 you may be subject to criminal prosecution? 11 A. That is what it says. 12 Q. Okay. And, in fact, that's the same page that talks 13 about the Paperwork Reduction Act, isn't it? 14 A. That is correct. 15 Q. Now, I'm going to show you page seven of that same 16 document, and this is a page that's entitled Do I Have to 17 File? 18 A. Yes, that's what it says. 19 Q. Okay. And there's a little chart, and what does the 20 highlighted language say? 21 A. It says single, including divorced and legally 22 separated. It says filing -- I'm sorry, it says marital 23 status; single (including divorced and legally separated; 24 second column is filing status, single head of household; age, 25 under 65, 65 or older, under 65, 65 or older; and then it says CROSS - VERNICE KUGLIN 622 1 gross income, and the highlighted portion says $6,050. 2 Q. Okay. And it also says use -- this is chart A we just 3 talked about, right? 4 A. Right, it says chart A for most people. 5 Q. Okay. And it says use chart A on this page to see if 6 you must file a return? 7 A. That's right, it says use chart A on this paper to see 8 if you must file a return. 9 Q. Okay. Okay. And I'm putting up page 15. 10 A. All right. 11 Q. Okay. Would you read the highlighted language on page 12 15? 13 A. The highlighted language, it says -- it's under wages 14 salaries, tips, et cetera. Show the total of all wages, 15 salaries, fees, commissions, tips, bonuses, supplemental 16 unemployment benefits and other amounts you were paid before 17 taxes, insurance, et cetera, or taken out for a joint return. 18 Be sure to include your spouse's income on line seven. 19 Q. Okay. And it goes on to say, included in this total, 20 the amount that would -- that should be shown in box one on 21 W-2, report all wages, salaries and tips you have received 22 even if you do not have a Form W-2. 23 A. That is what the form says. 24 Q. Okay. Now, referring to page 36, there's language 25 there, would you read the highlighted language? CROSS - VERNICE KUGLIN 623 1 A. Yes. The first highlight says because you take a 2 frivolous position, and the other highlight says other 3 penalties can be imposed for negligence, substantial 4 understatement of tax and fraud, criminal penalties may be 5 imposed for willful failure to file, tax evasion or making a 6 false statement. 7 Q. Okay. And that's all information that was in this 1993 8 1040, part of which you relied upon in arriving at your 9 conclusion that you didn't have to file a tax return and pay 10 taxes? 11 A. That is correct, that was information that I relied on 12 to determine if I was a person liable, yes. 13 Q. Okay. Now, the document that I'm handing you, what is 14 that document? 15 A. That's a 1995 Form 1040. 16 Q. Okay. Now, did you have a '95 1040 booklet like this? 17 A. I believe so. Let me double check. Yes, 1995. 18 Q. Okay. And I believe you testified you used this 19 booklet in aiding your testimony, correct? 20 A. Yes. 21 Q. Okay. Now, if you look at what I have got up there, 22 that first full paragraph, our legal right to ask you for 23 information is Internal Revenue Code Section 6001, 6011 and 24 6012A under regulations, they say that you must file a return 25 or statement with us for any tax you are liable for. Your CROSS - VERNICE KUGLIN 624 1 response is mandatory under these sections. Now, that's what 2 that section says, correct? 3 A. That is absolutely correct. 4 Q. Okay. And it also goes on in the underlying language 5 to say if you do not file a return, do not provide the 6 information that we asked for or to provide fraudulent 7 information, you may be charged penalties and be subject to 8 criminal prosecution? 9 A. That is correct, that's what it says. 10 Q. Now, I'm going over to Section 2, if you would look at 11 page eight, ma'am. I'm going to put it up here, but -- 12 A. Page eight? I have page eight. 13 Q. Under Do I have To File? 14 A. Yes. 15 Q. It says use chart A, B or C to see if you must file a 16 return? 17 A. That's correct. 18 Q. Okay. And if you go over here to chart A, it indicates 19 you must file a return if your gross income for single, 20 including divorced or separated if your gross income was 21 $6400, correct, if you're under 65? 22 A. That is correct, that is what it says. 23 Q. Okay. And turning to page 35, there's also a provision 24 on page 35 that provides other penalties can be imposed for 25 negligence, substantial understatement of tax, and fraud. CROSS - VERNICE KUGLIN 625 1 Criminal penalties may be imposed for willful failure to file, 2 tax evasion or making a false statement, correct? 3 A. I would like to see what the top -- what the top of 4 that page is. 5 Q. Sure. 6 A. I'm looking for page 35 right now. All right. This is 7 under the section for general information, and it says other 8 penalties -- 9 Q. Well, this is under the section of interest and 10 penalties. 11 A. Interest and penalties, yes, I was looking at the 12 general session, which starts -- this section starts on the 13 previous page. Under interest and penalties, yes, that is 14 what it says. 15 Q. And this is one of the books -- is this one of the 16 publications that you used in determining that you didn't have 17 to pay taxes? 18 A. This is one of the documents I used. I determined 19 whether or not I had a liability -- whether I was liable or 20 had been made liable, yes, sir. 21 MR. MURPHY: Judge, if we could have this 22 marked as an exhibit. 23 THE COURT: Exhibit 58. 24 (Exhibit Number 58 was marked. Description: 25 1995 1040 Instructions.) CROSS - VERNICE KUGLIN 626 1 MR. MURPHY: Judge, if I could have one second 2 to look at my notes. 3 THE COURT: Sure. 4 Q. Ms. Kuglin? 5 A. Yes, sir. 6 Q. Now, you have not filed a refund for all these taxes 7 you have paid all over the years, have you? 8 A. Since 1993, that's correct. 9 Q. Okay. And your general practice is on the day you get 10 paid, you go down to the bank and you take out large amounts 11 of cash that same day or the next day, correct? 12 A. It depends. It depends upon what my flying schedule 13 is, whether I'm going to be in town for awhile and what funds 14 I'm required to pay of my general bills which are not 15 automatically deducted, yes, sir. 16 Q. But if you look at the bank records -- 17 A. Yes. 18 Q. -- there's several big withdrawals like four, five, six 19 thousand dollars the day after you got paid? 20 A. That's correct, yes. 21 MR. MURPHY: I don't have any further 22 questions, Your Honor. 23 THE COURT: Redirect? 24 MR. BECRAFT: Can the witness be handed 25 Exhibits 48 and 54 and 57 and 58? CROSS - VERNICE KUGLIN 627 1 THE WITNESS: Would you like Exhibit 28 back? 2 THE CLERK: I'll get it when I come up there. 3 MR. BECRAFT: Can I help her, Your Honor? 4 THE COURT: Sure. 5 THE WITNESS: Which one was that, Mr. Becraft? 6 MR. BECRAFT: 28 through 54. 7 THE CLERK: There's 48 through 54. 8 MR. BECRAFT: May I also get Exhibit 15, Your 9 Honor? 10 THE CLERK: It's probably in that other stack 11 in numerical order. 12 REDIRECT EXAMINATION 13 BY MR. BECRAFT: 14 Q. Ms. Kuglin, I want to ask you some questions about the 15 W-4 forms that you submitted to FedEx, if I can. 16 A. Yes, sir. 17 Q. The first one you submitted was in December of '95, is 18 that correct? 19 A. That's correct, December the 30th, I believe. 20 Q. I'm going to flip it down here on the Elmo, and I want 21 you to tell me what was it on this form that you thought 22 was -- that you read that related to it being permissible for 23 you to claim exempt. Can you kind of see? 24 A. Yeah, if you move the form just slighted to your left. 25 A little bit more. Five, six and seven. Yes. Actually, it REDIRECT - VERNICE KUGLIN 628 1 was -- earlier in the instructions, it said, I believe, if I 2 felt that I file exempt, that I would then fill out 3 sections -- Section 7. Section 7 says I claim exemption from 4 a holding for 1995, that I certify that I meet both of the 5 following conditions or exemptions. Last year, I had a right 6 to a refund of all federal income tax withheld because I had 7 no tax liability; and this year, I expect a refund of all 8 federal income tax withheld because I expect to have no tax 9 liability. And the fact that based on -- 10 Q. Can I point out here? Watch on the screen what you 11 just read, see where that pen is? 12 A. Yes. 13 Q. On Government Exhibit -- I mean on Exhibit Number 17 14 down here at the bottom, it says 17. 15 A. Yes. 16 Q. I am now pointing with the pen to number seven, which 17 is about an inch below the -- 18 A. Yes, that's correct. 19 Q. And you relied upon your ability to file exempt because 20 the form said -- 21 MR. MURPHY: Judge, I'm going to object to the 22 leading. 23 THE COURT: Objection sustained, it is leading. 24 Q. Is this what you relied upon? 25 A. Yes, I did. REDIRECT - VERNICE KUGLIN 629 1 Q. The language you just read? 2 A. Yes. 3 Q. Now, all these other Form W-4s, did they have the same 4 language? I'm going to go down on the screen here to Exhibit 5 15, you see that? I'm going to move what I think is a spot 6 that would be similar. 7 A. This is a 1998 form? 8 Q. I'll show you, it says 1998. 9 A. Right, 1988. 10 Q. And this has a series of forms W-4 in it. Now, is 11 there the same language that appears on this one that's in 12 1988? 13 A. Under 6B, it says: I claim exemption from withholding 14 because, and then A says last year I did not owe any federal 15 income tax and had a right to refund of all income tax 16 withheld; and this year, I do not expect to owe any federal 17 income tax and expect to have a right to a refund on income 18 tax withheld. Yes, that's the same language. 19 Q. Now, let me just quickly -- in this particular exhibit, 20 we have also in one that I believe you testified on direct 21 that this was the '97 one? 22 A. Yes, '96 is crossed out and 1997 is written in. 23 Q. And on the screen, it doesn't look too good, but is 24 that a date of January 1? 25 A. I believe that's January 1, 1997. REDIRECT - VERNICE KUGLIN 630 1 Q. Now, was there something on this particular form that 2 you can direct our attention that allowed you to claim exempt? 3 A. Yes, if you will move the form just slightly to your 4 left under number seven, it says I claim exemption from 5 withholding for 1998, and I certify that I meet both of the 6 following conditions. And would you like me to read those 7 conditions? 8 Q. First, is my pen pointed at the right spot? 9 A. Yes, it is, that is correct. 10 Q. Could I get to you read that line? 11 A. Yes. Last year, I had a right to a refund of all 12 federal income tax withheld because I had no tax liability; 13 and this year, I expect refund of all federal income tax 14 withheld because I expect to have no tax liability. 15 Q. I flipped to the next page in Exhibit Number 17, and 16 I'm going to show to you a W-4 form for, I guess, 1998, is 17 that correct? 18 A. Yes, that's correct. 19 Q. Your signature appears down there on the bottom? 20 A. Right. 21 Q. I'm going to kind of move around on the screen and see 22 if my pen goes to the spot where you think it is important? 23 A. That is correct, number seven. 24 Q. And is this what are you relied upon in claiming 25 exemption? REDIRECT - VERNICE KUGLIN 631 1 A. Yes, I did. 2 Q. Were these words important where I'm flashing my pen 3 right now, because I had no tax liability? 4 A. Yes, those were the most important words in those two. 5 Q. I'm going to put my pen on, I think, the line of the 6 form that was important for you, is that correct? 7 A. That is correct, line number seven, and the words which 8 were essential where I had no tax liability, and I expect to 9 have no tax liability. 10 Q. Correct me if I'm wrong, the same language appears for 11 this one for 2000? 12 A. That's correct, number seven, I had no tax liability 13 and I expect to have no tax liability. 14 Q. Okay. Now, 2001, same language? 15 A. Yes, dated February the 10th of 2000, same language, 16 number seven, I claim exemption because I had no tax liability 17 and expect to have no tax liability. 18 Q. Ms. Kuglin, what is it about being liable that is 19 important to you? 20 A. The instructions on the 1040 form say that Section 6001 21 and 6011 are the sections that I should rely upon to determine 22 whether or not I am liable for the individual income tax 23 and -- or whether I have been made liable. And I found in 24 reviewing those sections and other sections of the code, I 25 could not find any section of the code that made me liable for REDIRECT - VERNICE KUGLIN 632 1 the individual income tax, and I could find no law that 2 required me as such to complete the 1040 form. 3 Q. Ms. Kuglin, I would like to ask you some questions 4 about that November of 1995 letter that you wrote to the IRS, 5 do you remember that? 6 A. I remember that, yes. 7 Q. Can I ask you some broad general questions about it 8 without digging out the exhibit? 9 A. Yes. 10 MR. MURPHY: Judge, can we approach? 11 THE COURT: Yes. 12 (The following proceedings had at side-bar 13 bench.) 14 MR. MURPHY: Judge, I'm going to object to 15 that. Defense counsel is going outside the scope of 16 direct. I didn't -- cross, I didn't ask about that 17 letter. 18 THE COURT: I don't think he asked about that 19 the '95 letter. 20 MR. BECRAFT: Okay. All right. Good enough, 21 Your Honor. 22 THE COURT: Thank you. 23 (The following proceedings were had in open 24 court.) 25 Q. Ms. Kuglin, do you have in front of you Exhibits 48 and REDIRECT - VERNICE KUGLIN 633 1 54? 2 A. I have 48 and I have 54. 3 Q. Okay. Have you seen them before, that series of 4 letters? 5 A. Yes I have. 6 Q. Can I ask general questions without going to a specific 7 exhibit? 8 A. Yes. 9 Q. What's the first letter dated there, 48, I believe? 10 A. This is a letter from the IRS. 11 Q. To you? 12 A. To me, dated October 31st, '95. 13 Q. Did you at any time after that date in reference to 14 these letters that you were getting from the Internal Revenue 15 Service that are there in front of you, Exhibits 48 through 16 54, did you make any effort to seek legal counsel? 17 A. Absolutely, I did. This number three on this form 18 dated October 31st says if you're not required to file, please 19 explain why. And I had written the letter -- the November 20 letters asking the questions, explaining my -- the information 21 that I had obtained and asked for a response. When I did not 22 get a response, I had an opportunity to go to the IRS and 23 speak with an agent to get some response, and did not; and 24 then later I decided that it was time to -- I was actually 25 directed to go to a law library or hire an attorney. REDIRECT - VERNICE KUGLIN 634 1 Q. Let me stop you right there. 2 A. Yes. 3 Q. You were directed to do what by whom? 4 MR. MURPHY: Judge, I'm -- it's irrelevant. 5 It's hearsay and it's irrelevant. 6 THE COURT: It is hearsay. 7 MR. BECRAFT: Okay, I will move on, Judge. 8 A. All right. I -- due to certain circumstances, the fact 9 that I had not gotten answers to my specific questions, I had 10 made a decision to hire -- 11 MR. MURPHY: Judge, objection, I'm going to 12 object to the relevance of this. 13 THE COURT: Let's talk about it. I need to 14 check one thing. 15 (The following proceedings had at side-bar 16 bench.) 17 THE COURT: She is not asserting she relied on 18 the advice of attorney. 19 MR. BECRAFT: No, my whole point, Judge, is she 20 got Exhibits 48 through 54. She sought counsel and turned 21 the matter over to counsel, that's -- and that's the point 22 I want her to make. Not what counsel said, I'm not going 23 to -- I'm not offering any -- 24 MR. MURPHY: Judge, I think that it doesn't 25 matter. The reason those letters come is they give her REDIRECT - VERNICE KUGLIN 635 1 notice, and I can argue they gave her notice of the 2 requirement that she pay her income tax. 3 MR. BECRAFT: And we can show the context in 4 which the letters are sent to her, her response, which 5 would include her turning the letters over to an attorney. 6 THE COURT: She doesn't have any -- it's a 7 little confusing, though, because if she turned them over 8 to a lawyer and the lawyer said on my advice you shouldn't 9 do anything, then she can assert that and rely on it. We 10 might have a lawyer here, but she can assert that, but she 11 didn't do that. I'm a little confused about how -- 12 MR. BECRAFT: The only point I want to elicit 13 is she is unfamiliar with administrative procedures, she 14 started receiving letters, she sought counsel and turned 15 these matters over to her counsel and just leave it at 16 that. 17 THE COURT: What -- Mr. Murphy, how does that 18 work? 19 MR. MURPHY: Judge, I think it is irrelevant. 20 I think the letters are significant for this reason: She 21 got notice that -- of the tax -- that she owed taxes and 22 taxes were due and owing during the period that she didn't 23 file. I don't think that the fact that she hired an 24 attorney has any relevance to the case. 25 THE COURT: Well, it would if she had -- REDIRECT - VERNICE KUGLIN 636 1 MR. MURPHY: That is not what they're relying 2 on. 3 MR. BECRAFT: It kind of ties back into those 4 other exhibits. You know, some of these letters will be 5 responsive. These letters offered here provoke the 6 response from the lawyers that are these other letters 7 that we have excluded, Your Honor. 8 THE COURT: Well, it's not relevant to an issue 9 in the case that I can -- somebody -- somebody can explain 10 it so I will understand what it is, but I don't perceive 11 it as being a relevant issue in the case, because she 12 didn't do anything in response to the lawyers. I mean if 13 she sent them to her CPA, then took no action because she 14 was awaiting a response from the CPA, I think you could 15 maybe show that we gave it to them and got no response. I 16 am confused about how -- 17 MR. BECRAFT: I think to address this question 18 of the government arguing closing, Your Honor, that they 19 were sent these letters -- 20 THE COURT: Right. 21 MR. BECRAFT: -- and they went to her. 22 THE COURT: Right. 23 MR. BECRAFT: And she was silent. In response, 24 I think the defense can say, well, she received those 25 letters and at least turned them over -- sought counsel REDIRECT - VERNICE KUGLIN 637 1 and turned them over to counsel. To directly address what 2 I see is coming up in closing argument -- 3 THE COURT: Turned them over to counsel, for 4 what purpose? 5 MR. BECRAFT: Sought advice about what to do. 6 THE COURT: She has never said she had gotten 7 any -- 8 MR. BECRAFT: We haven't got to the point of 9 turning it over to counsel. 10 THE COURT: Okay. Okay. I'm going to let you 11 ask the question, but then depending on how we go, it may 12 end up that Mr. Murphy has a motion to strike. I'm just 13 not sure -- I don't want to cut off -- if she has got 14 something meaningful to say on this point, I want her to 15 get a chance to do it. 16 MR. BECRAFT: But there's no legal opinion 17 given by lawyers that directly relate to this, Judge. 18 It's the mere fact that they were turned over to counsel. 19 THE COURT: Well, I think that's pretty 20 tenuous, but I think I ought to let her answer the 21 question and see what else -- you said that was stuff that 22 you needed to take, and then you had some other stuff that 23 you were going to take. Well, if there is another step 24 that follows that makes it relevant or just a preparatory 25 question or preliminary question, then it is an REDIRECT - VERNICE KUGLIN 638 1 appropriate question. If it turns out that's the only 2 thing, Mr. Murphy's motion to strike will probably -- 3 let's try it. 4 (The following proceedings were had in open 5 court.) 6 BY MR. BECRAFT: 7 Q. Ms. Kuglin, in response to those letters that you 8 received from the IRS, let's talk about them collectively, 48 9 through 54. 10 A. All right. 11 Q. Did you seek or -- let me ask you this: Are you 12 familiar with or what familiarity do you have with 13 administrative procedures regarding federal income taxes? 14 A. I'm familiar that there are special procedures that 15 need to be followed. I am familiar, and I can't quote again, 16 I don't have the documents up here, that I have a right to ask 17 questions, I have the right to seek counsel and I have a right 18 to have hearings, and that there's specific procedures that 19 must be adhered to. 20 Q. Did you have -- in your studies, have you sat down and 21 studied the point of what you should do if you get letters 22 from the IRS? 23 A. The -- the letters needed to be responded to within a 24 certain period of time and -- 25 Q. Listen to my question. REDIRECT - VERNICE KUGLIN 639 1 A. Yes, sir. 2 Q. Have you studied -- you have told us at length what you 3 have done in reference to the study -- 4 A. Right. 5 Q. -- the substantive tax law itself, my question that is 6 now pending is on a different matter, but it relates to taxes. 7 Had you engaged in any type of a study regarding 8 administrative procedures in dealing with the IRS? 9 A. I know I have. I know I have. I'm not -- 10 Q. Okay. That's fine. Have you studied it in detail so 11 you would comfortable enough -- 12 A. I have read it over. I did not feel that I knew enough 13 to respond, do the legal responses that I felt that these 14 letters were requiring. 15 Q. And did -- 16 A. And so as a result of that, I felt that since I was not 17 getting responses to the letters I had written that perhaps 18 they were not in the proper format and that if I hired legal 19 counsel, someone to write the letters for me, that the -- all 20 the intricacies that were required would be in those letters, 21 and I wanted to make sure I had someone who was asking the 22 same questions that I had been asking. 23 Q. To your knowledge, did your counsel offer any -- 24 MR. MURPHY: Judge, we're now at a point that 25 it's not relevant. REDIRECT - VERNICE KUGLIN 640 1 MR. BECRAFT: I will back off, Your Honor. 2 THE COURT: Thank you. 3 A. I'm just not quite sure what I'm allowed to answer and 4 what I'm not allowed to -- 5 Q. There's no question pending, don't worry about it. 6 THE COURT: Right. 7 Q. Ms. Kuglin, in your studies of the income tax, Mr. 8 Murphy pointed out a couple of cases to you where maybe some 9 of your issues have been raised by other parties, do you 10 recall that? 11 A. Yes. 12 Q. He mentioned this Wunder case. 13 A. Yes. 14 Q. Have you ever heard of Wunder? 15 A. I don't believe that I have heard of Wunder. 16 Q. And have you engaged in any type of a study down at the 17 law library or on any other occasion? I want to find out if 18 there are other cases that may relate to the ones that I 19 believe in? 20 A. Well, I can probably -- I have got a list of cases that 21 I have read. There's merchants -- some of the documents 22 explain the cases, if I might look at the documents. 23 Q. Okay. 24 A. There are cases like Isner versus McCulmer Merchants 25 Loan and Trust that address these same issues that we have REDIRECT - VERNICE KUGLIN 641 1 been talking about. 2 MR. MURPHY: Judge, I'm going to object to the 3 response. It's -- 4 THE COURT: I think it's -- 5 MR. BECRAFT: Let me back up. 6 THE COURT: It's nonresponsive. 7 MR. BECRAFT: Your Honor, I will back up and 8 ask another question. 9 THE COURT: I think we need to ask a question 10 that can be responded to. 11 Q. Cases that were brought to your attention were brought 12 to your attention in some particular way, is that correct? 13 A. That's correct. 14 Q. Would you have cases brought to your attention by the 15 various materials that you would read? 16 A. Yes, I did. 17 Q. Okay. And if you saw a case in the materials that you 18 read, would you go down and try to locate the case and read 19 it? 20 A. Yes, I did. That's what I did. 21 Q. Did you make any effort to go to try to find cases that 22 you didn't know anything about? 23 A. Yes, I did. 24 Q. About cases that you did not know anything about? 25 A. No, these were cases that I had -- that I had not REDIRECT - VERNICE KUGLIN 642 1 personally read that I didn't know -- I had read quotes from 2 the cases and I looked at these cases, the ones that I felt 3 would answer some of the questions that I had. 4 Q. Okay. Listen to my question. 5 A. Yes, sir. 6 Q. When you wanted to read a case and when you wanted to 7 go get it, did you find out about the case in some materials, 8 explanatory materials that you were reading? For example, 9 pull out that folder one to Claire Kelly. 10 A. Yes. 11 Q. Would the Claire Kelly article be similar to other 12 articles that you would read? 13 A. Yes. 14 Q. Did these articles that you read mention court cases? 15 A. Yes, it did mention court cases. 16 Q. What, if any, effort did you make once you saw a case 17 in such material as such, what effort would you make to try to 18 read the case? 19 A. I would go down and read the case and copy the case. 20 Q. Okay. Now, for cases -- there are obviously cases that 21 were not mentioned in your reading material. 22 A. There were cases that were mentioned in the cases 23 themselves that I would go back and look at some of those 24 cases which substantiates some of the arguments in those 25 cases. REDIRECT - VERNICE KUGLIN 643 1 Q. But you wouldn't -- if there was some case -- 2 MR. MURPHY: Judge, I'm going to object to him 3 leading. 4 THE COURT: Yes, objection sustained. 5 Q. In reference to this case that Mr. Murphy asked you 6 about, the Wunder case, had cases like that ever been brought 7 to your attention by your reading material? 8 A. I don't know that specifically the Wunder case had. 9 Q. Okay. Would you know about the existence of any other 10 cases other than what you would discover in your reading 11 materials? 12 A. I would hear about cases when I went to seminars and 13 people who talked about the different cases. 14 Q. Now, looking at this from the totality. 15 A. Yes. 16 Q. Were there any cases that you had learned about through 17 this way that you were pursuing in reference to studying that 18 gave you any indication that what you were reading and 19 studying was wrong? 20 MR. MURPHY: Judge, I'm going to object to the 21 leading. 22 A. No. 23 THE COURT: I think it is simply too suggestive 24 of the answer. A leading question is one that suggests an 25 answer, and kind of like pitching somebody a softball, and REDIRECT - VERNICE KUGLIN 644 1 we don't let them do that, because we want to actually 2 have a real answer. So I'm going to have to sustain that. 3 I explain a little bit to the jury so we all understand 4 that we need to avoid that. 5 Q. What, if any, cases adverse to your position was 6 brought to your attention? 7 A. Well, the Pollock case, for one thing, was adverse to 8 my position. 9 Q. In what way? 10 A. In the fact that it determined that an income tax was a 11 direct tax rather than an excise size tax. 12 Q. What, if any, other cases were brought to your 13 attention that indicated to you that your beliefs were 14 erroneous? 15 A. Let me think on that one just a little bit. 16 Q. Let me withdraw it and I will frame it a different way. 17 A. All right. 18 Q. Did you ever learn about any cases that might have 19 dealt with your issues that you talked about here in court 20 over the last day and a half? 21 A. I don't know if I'm just tired or if I'm missing the 22 point of the questions. 23 Q. Let me frame it another way. In your studies, in what 24 you read, what, if any, cases did you find that rejected your 25 arguments? Did you find any? REDIRECT - VERNICE KUGLIN 645 1 A. No. I found quotes in cases that I read that discussed 2 other cases and differing opinions, but there were always 3 answers to those opinions explained in the cases given down 4 by -- you know, the decisions given down by the judges in 5 those cases. 6 Q. All right. Good enough. 7 A. So they questioned it, but they also gave an 8 explanation as to why those were not valid. 9 Q. Mr. Murphy, during cross, brought to your attention 10 this big thick book that we have had here this afternoon, the 11 Code of Federal Regulations. 12 A. Yes. 13 Q. Have you seen that type of book before? 14 A. Yes, I have. 15 Q. Whereabouts? 16 A. The Code of Federal -- excuse me, it's in the library. 17 Q. Now, he directed your attention to a particular 18 regulation, is that correct? 19 A. That's correct. 20 Q. 1.6012-1, correct? 21 A. That's correct. 22 Q. And you testified that you have seen that before? 23 A. Yes. 24 Q. Why does that regulation in your view not apply to you? 25 A. Let me go to the regulations or to the code, and I REDIRECT - VERNICE KUGLIN 646 1 don't have that regulation sitting right in front of me. 2 Q. Let me ask you this question: Can you turn to Section 3 1 of the Internal Revenue Code? 4 A. Yes, I can. 5 Q. You were asked questions about tax imposed. 6 A. Yes. 7 Q. In reference to corresponding regulations, do you know 8 what regulation corresponds to Section 1 of the code? 9 A. That is CFR -- 26 CFR 1 -- 10 MR. MURPHY: Judge, I'm going to object because 11 I'm not sure what he means by corresponds because I don't 12 know that there's a corresponding relationship, 13 necessarily. 14 THE COURT: Well, I'm going to allow the 15 question on this one. 16 Q. Is there a regulation that applies to Section 1 of the 17 code to your understanding? 18 A. Yes, there's regulation 1.1-1. 19 Q. Have you read that regulation before? 20 A. I have read parts of that regulation before. I don't 21 know that I have read the entire thing. 22 Q. Now, did you come to any understanding or what, if any, 23 understanding did you have as to whether or not that 24 particular regulation solicited information? 25 Okay. I'll ask another question. Mr. Murphy brought REDIRECT - VERNICE KUGLIN 647 1 to your attention that the Form 1040 instruction booklet has 2 an OMB control number? 3 A. Yes. 4 Q. 1040 form has an OMB control number, right? 5 A. Yes. 6 Q. Have you looked through, I don't know the exhibit 7 number, but we have offered it into evidence, that big long 8 list of all these control numbers? 9 A. Yes, the control numbers that are in Section 602. 10 Q. And in that particular list of OMB control numbers -- 11 A. Yes. 12 Q. -- did you see when you first started engaging in this 13 study that there were a lot of other regulations that listed 14 the same control number for Form 1040? 15 A. Yes, yes, I did. There was a large number of them. 16 Q. Okay. Out of that list of OMB control numbers, what 17 was it that was so important for you about how the 1040 form 18 was to be or what relationship it had with the actual 19 regulations themselves? 20 A. Well, the -- knowing that the individual income tax 21 regulation is regulation 1.1-1 on that index, there was 22 only -- only one entry that applied to that particular 23 regulation, and that one entry was the entry 1545-0067 which 24 applied to the Form 2555, foreign earned income. And that was 25 of significance to me of that particular index and that REDIRECT - VERNICE KUGLIN 648 1 section, under the Paperwork Reduction Act. 2 Q. Now, Mr. Murphy asked you some questions about Section 3 6001, 6011 and Section 6012 of the Internal Revenue Code? 4 A. Yes, that's correct. 5 Q. And you had read those sections of the Internal Revenue 6 Code a long ago? 7 A. Yes, I read it during the period of time I was 8 formulating my opinions. 9 Q. What was it that was important -- when you read Section 10 6001 of the Internal Revenue Code, what was it that was 11 important in that section of the code that related to your 12 beliefs about whether or not you were required to file 13 returns? 14 A. It said that a person that was liable, any person 15 liable for any tax imposed by this title. 16 Q. Did you determine whether or not you were liable 17 pursuant to Section 61 -- or Section 6001. 18 A. I could not determine by just reading that, that I was. 19 I read 6011, which said a person made liable, and when that 20 did not define whether or not I was a person made liable, I 21 then went to the index to determine whether or not there was 22 any section under subtitle A, taxes, which addressed the issue 23 of liability, and that's when I found the Section 1461, which 24 said that the withholding agent for nonresident aliens and 25 foreign corporations were made liable for the individual REDIRECT - VERNICE KUGLIN 649 1 income tax. 2 Q. Have you -- what, if any, research about looking for 3 the word liable in subtitle A of the Internal Revenue Code 4 beyond the table of contents or the index, have you engaged in 5 any type of search to find the word liable in subtitle A? 6 A. Yes, later on when computers became available and this 7 information was on the computers, I did search under subtitle 8 A, individual income tax for the word liable, and it came up, 9 I think, three times, one -- two times were in reference to 10 some dispute, and the only other time it came up was in regard 11 to Section 1461 of subtitle A. 12 Q. Mr. Murphy directed your attention to Section 6012 of 13 the Internal Revenue Code? 14 A. Yes. 15 Q. Do you have a belief -- or what, if any, belief do you 16 have as to whether or not you are required pursuant to Section 17 6012 to file 1040 forms? 18 A. Well, based on the fact that I could only find one 19 section, 1461, in the entire section of individual income tax 20 that addressed anybody that was liable, and that was the 21 withholding agent of foreign corporations or nonresident 22 aliens. Yes, nonresident aliens and foreign corporations. 23 Since I did not fall under that category, then I made the 24 determination that I was not a person that was required under 25 Section 6001, 6011 to complete the 1040 form. REDIRECT - VERNICE KUGLIN 650 1 Q. Is it your understanding that section 6012 would apply 2 to people who are liable? 3 A. Absolutely. I believe that foreign -- the withholding 4 agents of nonresident aliens and foreign corporations are 5 absolutely liable and have a requirement to complete the 1040 6 form and also the Form 2555. 7 Q. Let me ask one final set of questions. Do you have 8 that '93 1040 instruction booklet or '95 that you had up here 9 on the stand with you? 10 A. Yes, I do. 11 Q. Okay. I was going to use these exhibits, but can you 12 use those, that one? 13 A. Yes, I can. 14 Q. All right. Have you looked through there to see -- 15 your testimony is that you're an American citizen? 16 A. That is correct. 17 Q. All right. Did you make any study of that instruction 18 booklet to determine how often the instruction booklet relates 19 to United States citizens? 20 A. Yes, actually, I did, and I, again, as I found out with 21 the Internal Revenue Code, that it is good to go to the index, 22 so I went to the index instructions of the 1040 form, and I 23 looked for the word citizen in that document, and I finally 24 found one place where it was listed. 25 Q. What was listed? REDIRECT - VERNICE KUGLIN 651 1 A. Where the word citizen was listed. 2 Q. Okay. And what was that? 3 A. And that was listed under the use, it says U. S. 4 citizens and resident aliens living abroad, and that was the 5 only place that I could find any reference to the word 6 citizen. 7 MR. BECRAFT: One moment, Your Honor. Nothing 8 further, Your Honor. 9 THE COURT: All right. Thanks very much. We 10 will let you step down. Thank you. 11 (Witness excused.) 12 MR. BECRAFT: We rest. 13 THE COURT: All right. The defense rests. 14 Will the government -- and we're going to take 15 a break, but, Mr. Murphy, does the government anticipate 16 calling any rebuttal witnesses? 17 MR. MURPHY: No, sir, Your Honor. 18 THE COURT: Ladies and gentlemen, that does 19 conclude all the proof in the case. I'm going to talk 20 with counsel and see if we have got our -- I know we have 21 been working on the instructions, we hope we're very 22 close, but that will take at least 15 minutes. This is 23 our afternoon break, 15 minutes. If we can't get 24 everything done today, then, of course, we will revise our 25 schedule. We will see you in 15 minutes. Don't discuss 652 1 the case among yourselves, don't let anybody talk with 2 you. We will see you in 15 minutes. 3 (Jury out at 3:30 p.m.) 4 THE COURT: We will let you have a seat, and 5 we're going to go over a few things. 6 MR. BECRAFT: Your Honor, could I -- could I do 7 something real quick for the record? 8 THE COURT: Sure. 9 MR. BECRAFT: Could I renew my Rule 29 motion 10 on the same grounds? 11 THE COURT: This is a case in which there is -- 12 the rule simply doesn't contemplate the court making any 13 decisions about really any of the issues that are before 14 this jury. The jury is going to have to decide 15 credibility questions and, therefore, there is sufficient 16 evidence for the government to proceed on each element of 17 the asserted offense. 18 What we have handed out to -- so motion is 19 denied. We have handed out to you a set of instructions. 20 Mr. Murphy, there is -- you both will note that there's 21 one that I haven't really quite -- they have got some 22 overlap, I may give both of them, it may be okay to do 23 that. You have got a cover sheet, and it runs quickly 24 through some of the things that are very basic. I will 25 flip through the pages with you. They're not numbered 653 1 because there's going to be rearranged. 2 It begins with the general instruction, they're 3 to decide the case and they're not to -- they're to follow 4 the law, decide it based on the testimony of other 5 evidence, the first two pages. And then the burden of 6 proof and reasonable doubt and what proof beyond a 7 reasonable doubt is. Talking about the evidence and what 8 they can consider, direct evidence and circumstantial 9 evidence. Also, reference that they can't take anything I 10 have said -- I haven't said much, can't take anything I've 11 said as indicating as to how the case should be resolved. 12 Multiple crimes, that's 2.01A, that is 13 requested. Stipulations, I'm aware of one stipulation, 14 really, and that's the one as to Memphis Shelby County, 15 Tennessee being located in the Western District of 16 Tennessee. 17 Number of witnesses and credibility, that's the 18 standard instruction. The number of witnesses is not 19 controlling. Of course, that's an appropriate one. 20 Then credibility as to defendants. Since she 21 did testify, we usually give the 7.02B instruction, and 22 just say they apply the same things in determining 23 credibility of the defendant as any other witness. 24 Law enforcement witnesses, we certainly had law 25 enforcement witnesses, and it just cautions them to treat 654 1 those witnesses with the same type of inquiry that they 2 would anybody else. The reference to the indictment and 3 the reading of the indictment, and the reference to 59.1, 4 which is the Sand instruction, which is the very brief 5 statement regarding evade or attempt to defeat any tax. 6 Statutory purpose, which is 59-2. 7 The elements, I combined the concept of the 8 elements contained in the defendant's Devitt reference 9 with the Sand one, and also with Mr. Murphy's statement, 10 and really it seems to be everybody's statement that I'm 11 going to have to describe what an affirmative act is a 12 little more, and I have done that later on, and I've 13 said -- and I haven't made reference to the affirmative 14 acts set out in the indictment because Mr. Murphy has 15 actually put in some proof about some things that might be 16 affirmative acts other than the acts in the indictment, 17 but I'm going to talk about what those could be. Tax due, 18 that's the first element, obviously. 19 Second element, affirmative act, I have 20 actually elaborated on this somewhat. In the middle of 21 the paragraph of -- the second paragraph, there are 22 different ways in which a tax may be evaded or an attempt 23 may be made to evade it. For example, in this case, the 24 government asserts that Ms. Kuglin attempted to evade or 25 defeat the income tax by filing false Form W-4s for 655 1 application as to each year -- each tax year alleged in 2 the counts in the indictment. I didn't say that -- I used 3 that for example language because the government also is 4 making the argument and has put on proof about large cash 5 transfers. It's not a real strong one, so I'm willing to 6 strike that. 7 MR. MURPHY: Judge, what I'm going to argue -- 8 I'm not going to argue cash transfers were necessarily 9 acts of evasion, but that they were -- 10 THE COURT: Let me tell you what I said about 11 it. 12 MR. MURPHY: Okay. 13 THE COURT: And you may not find it to be -- I 14 didn't say they were acts of evasion, I said it might be 15 evidence. 16 MR. MURPHY: That is what our position is going 17 to be, Judge. 18 THE COURT: That's what I said, I didn't say it 19 was. It could be, it can be an act. Anyway, I think 20 you're relying on the W-4s, primarily. 21 I do go through the fact that the government 22 has to prove an affirmative act constituting evasion, that 23 must be a positive act. I say it's not failure to file or 24 a failure to pay, which is true, that's not an affirmative 25 act, let me make that clear. I then reference the Supreme 656 1 Court. The Supreme Court has defined this element as 2 requiring proof of conduct, the likely effect of which 3 would be to mislead or conceal. In other words, in any 4 act which is likely to mislead, the government -- or 5 conceal funds satisfies this element. Thus, filing a 6 false form, for example, a W-4 withholding form, or a 7 false tax return is sufficient -- there's no lost tax 8 return here, but that's an example -- as are false 9 statements made to the Internal Revenue Service after the 10 return was due or filed. Large cash transactions may also 11 be evidence of an affirmative act of evasion. I said 12 evidence of, Mr. Murphy, I didn't say an affirmative act. 13 I think that's what I should say. 14 MR. MURPHY: Judge, that's correct, that's what 15 we're going to argue. 16 THE COURT: And then it says it is not 17 necessary to prove a separate act constituting evasion for 18 each year, tax year, which is the subject of the 19 prosecution; thus, filing a false W-4. I think in this 20 case you have got a W-4 for each year, but it can be for 21 filing a false statement for withholding form satisfies 22 this element as to each year for which it was in effect. 23 I think that's the law, so -- the third element is the 24 willfulness element. There is a lot of discussion here, 25 and this is really more than either one of you submitted, 657 1 and if you don't like it, you need to tell me. Whether or 2 not the defendant acted knowingly and willfully is a 3 question of fact to be determined by you based on all the 4 evidence in the case. An act is done knowingly if it's 5 done purposefully and deliberately and not because of 6 mistake, accident, negligence or some other innocent 7 reason. The government must also prove beyond a 8 reasonable doubt the defendant acted willfully. A willful 9 act is defined as voluntary and intentional violation of a 10 known legal duty, and we talked about the government has 11 to prove that. 12 And then we say willfully, defined further, 13 referring to the Supreme Court case, one of the Supreme 14 Court cases that we have been looking at. The word 15 willfully in the criminal tax statutes requires a 16 voluntary, intentional violation of a known legal duty, so 17 repeating it, but then I'm going to say more about it. 18 The requirement of willfulness, therefore, means an act 19 undertaken with bad faith or evil intent or evil motive 20 and want of justification in view of all the financial 21 circumstances of the taxpayers. That's direct language 22 from -- I have a copy of the opinion, but of a '93 -- '73 23 Supreme Court opinion. In our complex -- this is the 24 language that the Supreme Court says. 25 The next paragraph. In our complex tax system, 658 1 it certainty often arises even among taxpayers who 2 earnestly wish to follow the law. It is not the purpose 3 of the law to penalize frank differences of opinion or 4 innocent errors made despite the exercise of reasonable 5 care. Degrees of negligence give rise in the tax system 6 to civil penalties. And I think that's fair because we 7 have heard some things about civil stuff. The requirement 8 that an offense be committed willfully is not met, 9 therefore, if the taxpayer has relied in good faith on a 10 prior decision of the Supreme Court. The Internal Revenue 11 Code or the regulations and instructions published by the 12 Internal Revenue Service. Thus, the word willfully 13 under -- I think we have got our code number wrong here, 14 it's 26, I'm sure, isn't it? 15 MR. MURPHY: Yes, sir, Your Honor, Title 26. 16 THE COURT: That's a typo. USC -- U. S. Code, 17 Section 7201, includes the concept of bad faith or evil 18 intent that separates the purposeful tax evader -- or tax 19 violator, from the well-meaning, but sometimes confused, 20 mass of innocent taxpayers. 21 Now, Mr. Murphy, that's pretty much what the 22 Supreme Court said, and I think we kind of need to make 23 this distinction because I perceive the government is 24 arguing that she is not in the mass -- 25 MR. MURPHY: That's correct. Judge, I don't 659 1 have an objection to that. 2 MR. BECRAFT: You want to hear from me, Judge? 3 I'm pleased with your willfulness instructions. 4 THE COURT: I'm not even through yet. Well, 5 then to go to good faith defense, you're right. And then 6 we start talking about good faith defense. There is one 7 thing on good faith defense we may need to add. I noticed 8 something earlier. What I have done is I've taken the 9 defendant's and the government's, but the government, 10 there was a little bit of stuff missing, so I put them 11 together side-by-side. Willfulness is -- the first part 12 of the willfulness defense is from the defense, and that 13 is just the intro on willfulness, is negated by the 14 defense of a good faith mistake of the law requirements, 15 and I think that's the more complete statement. To make 16 such a determination, one must inquire into the 17 defendant's mind or mental attitudes and approach the 18 situation which the law required of her. I may have this 19 wrong, which the law required of her some action. That 20 doesn't look quite right. I will look it up here. 21 MR. BECRAFT: Perhaps the court is reading too 22 closely, I don't see that there is a -- 23 THE COURT: This is exactly what you wrote 24 down. 25 MR. BECRAFT: Yes, sir. 660 1 THE COURT: But I'm not sure it sounds good. 2 MR. BECRAFT: Okay. All right. 3 THE COURT: That last phrase in that sentence 4 for mental attitude and approach to the situation which 5 the law required of her some action, and this is exactly 6 what you wrote, but I think that's not what you meant. 7 MR. BECRAFT: Okay. Are we on the page that 8 says willfulness is negated by the defense of a good faith 9 mistake -- 10 THE COURT: Yes, it's good faith defense. It's 11 the first one. Do you want to say it that way? I mean 12 that last little phrase just doesn't quite -- do you think 13 it is okay? 14 MR. BECRAFT: Well, if it is causing some 15 problems, maybe we can strike it. 16 THE COURT: Which the law requires. 17 MR. BECRAFT: If you believe that the 18 defendant, subjectively in her own mind, believed that she 19 was not required by the law to file the tax returns in 20 question, it will be your duty to find her not guilty. Is 21 that the line that the court is -- 22 THE COURT: What I'm having trouble with is 23 this second line of the sentence, and I had a lot of 24 trouble before, and I thought I would bring it up to you. 25 It is, to make such a determination, you should must 661 1 inquire into the defendant's mind, her mental attitude and 2 approach to the situation which the law required of her 3 some act, and I think that's okay. I just think it's kind 4 of -- 5 MR. BECRAFT: Awkward. 6 THE COURT: -- awkward. If you want it, I will 7 leave it. 8 MR. BECRAFT: Okay, if the court will leave it, 9 I'll live with it. 10 THE COURT: And approach the situation. I 11 usually like my instructions to sound good. That's the 12 problem I'm having. No offense. I would like to change 13 it and make it sound a little better, if we can. Her 14 mental attitude -- let's just say this: Her approach to 15 the situation which she believed the law required. 16 MR. BECRAFT: That will be good, Judge. 17 THE COURT: Is that okay? 18 MR. BECRAFT: Yes, Your Honor. I'm real 19 pleased with what the court has done. 20 THE COURT: Well, okay. Mr. Murphy, I think 21 that's -- that's all a part of the case. 22 MR. MURPHY: Judge, I'm stuck with that, I 23 don't think there's a lot I can do about it. If I could 24 write the jury instructions -- 25 THE COURT: Well, we wouldn't -- 662 1 MR. MURPHY: They follow the law, I don't know 2 that mine would be a whole lot different. 3 THE COURT: Okay. Well, then I just wanted 4 to -- I didn't want to change the defendant's language 5 without the defendant agreeing to it is the main thing. I 6 think we have got that changed now, I feel comfortable 7 with it. 8 Then we go to what the government said, which 9 was a part of the Sand material, and then I go to the 10 defendant's good faith, and we may want to try to change 11 our font on that because I don't particularly like the way 12 the font came out because there's a change in font. And 13 then this is their repeated one. I wanted you to look at 14 this, Mr. Murphy. I was inclined to give something real 15 close to it because the defense is entitled to something 16 pretty close to it. If the defendant acted in good faith, 17 that is to say she actually believed the actions she took 18 were allowed by the law, then she is not guilty of the 19 offense of tax evasion or willfully failing to file income 20 tax returns. And it does not -- I think we're taking out 21 the willfully failing because that's not -- we don't want 22 to confuse the jury there. It does not matter whether the 23 defendant was right or wrong in her beliefs, nor does it 24 matter that her beliefs make sense or sound reasonable to 25 you, the jury, or to me, as the judge. The only thing 663 1 that matters is whether or not the defendant actually 2 believed she was correct in her actions. Also, it is not 3 the defendant's burden to prove that she did believe her 4 actions were correct, rather the government's burden to 5 prove that she did not. That's true. You stated that a 6 little differently than the Sand instruction, which is the 7 burden. I may later on at some point modify that. It is 8 for you, the jury, to decide whether the government has 9 proved that the defendant willfully committed tax evasion 10 by proving beyond a reasonable doubt that she did not 11 actually believe her actions were correct, and by proving 12 all the other elements that I have explained to you in 13 these instructions, or whether the defendant believed her 14 actions were proper. If you find that the government has 15 failed to meet its burden, then you must find the 16 defendant not guilty of these offenses. If there's a 17 reasonable doubt in your mind as of this issue, or even if 18 you conclude that the defendant could have only believed 19 her actions were proper by abysmal ignorance and the 20 rankest kind of stupidity -- and I think you're allowed to 21 have language like that -- yet you find that she believed 22 she was correct, you must find the defendant not guilty. 23 Mr. Murphy, I mean there is a lot of cases that say that. 24 MR. MURPHY: Judge, I don't have an objection 25 to that. 664 1 THE COURT: I'm a little concerned that we 2 don't have that burden language from the instruction, I 3 may switch and add that in. I will show you where. I 4 think I will. Remember, the burden of establishing lack 5 of good faith and criminal intent rests upon the 6 prosecution. A defendant is under no burden to prove her 7 good faith, rather the prosecution must prove bad faith or 8 knowledge of falsity beyond a reasonable doubt. We will 9 add that right there at that point. I think that's what 10 we ought to do. Okay. 11 All right. The next one in this case, the 12 defendant is not presumed to know the law, that's true. 13 Government, this is the one on the IRS 14 publications and word voluntarily. I think we better give 15 that, Mr. Murphy, there has been so much talk about 16 voluntary, I think I probably better give it. 17 MR. MURPHY: Judge, I agree, and I know you 18 took the Paperwork Reduction Act -- 19 THE COURT: Actually, I put a little piece of 20 it over there on G9, the next one over. 21 MR. MURPHY: Yes, sir. And I think that should 22 be given, and a third thing that should be given, I 23 believe, based on the testimony, the Seventh Circuit has 24 taken up the question of whether wages are income several 25 times, and Judge Bower has said in a footnote in a case 665 1 Colabowski (spelled phonetically), that although not 2 raised in his brief, on appeal, the defense's entire case 3 at trial rested on the claim to be in good faith belief 4 that wages are not income for taxation purposes. Whatever 5 his mental case, he, of course, was wrong, as all of us 6 are already aware; nonetheless, the defendant still 7 insists that no case holds that wages are income. Let us 8 now that to rest, wages are income. Any reading of tax 9 cases by would be tax protesters should now preclude a 10 claim of good faith belief that wages or salaries are not 11 taxable. I think we ought to have an instruction that 12 wages are income for income tax purposes. 13 THE COURT: You're entitled to something like 14 that. We had a gross income definition in the Tony Alamo 15 case. We usually give something like that. Nobody 16 submitted it, but I actually had one out to ask about. If 17 you have got that written down, I would rather use one 18 that is written down. 19 MR. MURPHY: Judge, I don't have it written 20 down, but I can write something down for you. 21 THE COURT: Have you got the case right there? 22 MR. MURPHY: Yes, sir. 23 THE COURT: Why don't you just hand Ms. Wherry 24 the case? 25 I'm going to put add wages are income. I don't 666 1 perceive that as being particularly the defendant's 2 position. 3 MR. BECRAFT: It isn't, Your Honor. 4 THE COURT: But I think that because of the 5 evidence there might be some confusion on it. So what we 6 will say is -- I'm going to add that where I have got 7 the -- in this case, the defendant is presumed to -- is 8 not presumed to know the law. I should -- I instruct you, 9 however, that the law is that wages are income, I was 10 going to say, and must be included in gross income for 11 purposes of income tax, and must be included in gross 12 income when determining income tax liability. 13 MR. MURPHY: Judge, I have no objection to 14 that. 15 MR. BECRAFT: Neither here, Your Honor. 16 THE COURT: Okay. That will clear that up, and 17 that takes care of that. Okay. I've put that in the 18 earlier section, Ms. Wherry. And then we have got 19 inferring mental state. Obviously, this is all about 20 mental state, so I'm just going to give the standard 21 instruction on inferring mental state. If nobody has any 22 objection, that will be just a sum up. I have got the 23 summary. If you find that the government has proved 24 beyond a reasonable doubt each of the elements of the 25 offense as set out in these instructions, then as to the 667 1 count that you're considering, you must return a verdict 2 of guilty as to that count. If you find that the 3 government has not proved beyond a reasonable doubt each 4 of elements of the offense as set out in these 5 instructions, then as to the count that you're 6 considering, you must return a verdict of not guilty as to 7 that count. That's to remind them that we have concluded 8 the discussion of the substantive questions. 9 Then I caution you to -- it's just the normal 10 caution about they're only deciding this case, they're not 11 deciding any other case. They're here to determine the 12 guilt or innocence of the accused, not to return a verdict 13 as to anybody else. I usually put that in just in case 14 somebody is confused. 15 I also put the defendant's instruction in. You 16 have no right to find the defendant guilty only for the 17 purpose of deterring others from committing crime. That's 18 certainly right, they have got to decide whether she 19 committed this crime or not, not whether they were 20 concerned about somebody else not paying taxes when they 21 should pay. 22 I did include, again, a reference, because we 23 referenced civil liability earlier, so I included 24 defendant's D-30, there's a distinction between the civil 25 liability of a defendant and a defendant's criminal 668 1 liability. This is a criminal case. The defendant is 2 charged under the law with the commission of a crime, and 3 the issue is whether the defendant has or has not -- now, 4 there's no -- do I need -- I thought there might be some 5 proof on this, but there wasn't anything about her 6 settling any civil liability questions. 7 MR. BECRAFT: None. There wasn't, Your Honor. 8 It's one of those things that, you know, you kind of think 9 about what jurors are going to think about, and that's the 10 only reason why I ever ask it. Well, gee, if we acquit 11 her on a crime, she doesn't have to pay taxes. 12 THE COURT: Oh, I see what you're saying. I 13 didn't have any problem, it was not an inappropriate 14 inquiry and, obviously, everybody knows that there are 15 both civil and criminal aspects of the tax law, I think. 16 I did include this: When you're instructed 17 that the Commissioner of Internal Revenue has the power to 18 make a return and assess a tax -- but I don't think we 19 need to do that now, do we? 20 MR. BECRAFT: No, Your Honor. 21 THE COURT: We're going to strike that. 22 MR. MURPHY: I have no opposition to that, 23 Judge. 24 THE COURT: And then the verdict has to be 25 unanimous, explain the verdict form and excuse our 669 1 alternate jurors, and then we have got a verdict form, 2 which just says Counts 1, 2, 3, 4, 5 and 6, and it has 3 guilty or not guilty. I'll tell them about that. It has 4 got a copy of the indictment with all the prison ranges 5 taken out, because that's not appropriate for a jury to 6 consider. 7 All right. Gentlemen, ladies, have we -- any 8 objections to the instructions as revised? 9 MR. MURPHY: Judge, the only thing I'm 10 wondering, I wonder if, given the proof, if I would be 11 entitled to the deliberate ignorance instruction? I don't 12 know how that plays out -- 13 THE COURT: No, no, I'm worried about that. 14 MR. MURPHY: I don't think that would fit in 15 with the good faith -- 16 THE COURT: Mixing that in with the good faith, 17 I think -- 18 MR. MURPHY: I think I can argue a deliberate 19 ignorance kind of argument, that she ignored parts of the 20 law. 21 THE COURT: Right. You can argue the 22 unreasonableness of her position in attacking whether she 23 actually had a good faith belief. 24 MR. MURPHY: Yes, sir. 25 THE COURT: I -- 670 1 MR. MURPHY: Judge, I would rather not -- 2 THE COURT: I think if I gave deliberate 3 ignorance in this case, it might be reversed. 4 MR. MURPHY: I don't disagree, Your Honor. 5 THE COURT: If you find a case that says to the 6 contrary, we might consider it, but otherwise... 7 All right. Let me ask you both, do you want to 8 come back and start at 9:00 o'clock tomorrow and do your 9 closes at that time? I -- that's perfectly okay, we don't 10 expect the jury to finish anyway, and it's -- you know, 11 about six minutes till 4:00. 12 MR. MURPHY: Judge, I think that's an 13 appropriate way to do things, go ahead and end for the 14 day. 15 MR. BECRAFT: I concur, Your Honor. 16 THE COURT: Okay. Well, then you have got your 17 sets of instruction. You can use the instructions in your 18 close. You can quote from the instructions. You can put 19 something on the screen if we get a final one that's all 20 clear for you, and we will probably have that for you a 21 little before 9:00 o'clock tomorrow morning. 22 MR. BECRAFT: Judge, can I make some 23 objections? 24 THE COURT: Sure. 25 MR. BECRAFT: You know, I presume this is kind 671 1 of like a charge conference. 2 THE COURT: That's what we thought we were 3 doing. 4 MR. BECRAFT: Okay. Good enough. Then my only 5 objections, Your Honor, I submitted, defense requested 6 instruction seven through nine that relate to the lesser 7 included offense, and we have dealt with that matter, I 8 think. 9 THE COURT: I overruled the submittal and 10 concurred with the government. 11 MR. BECRAFT: That's all I have, Your Honor, 12 and I'm pleased with the court's instructions. 13 THE COURT: Mr. Murphy, anything else from you? 14 MR. MURPHY: No, Your Honor, I have no 15 objections to the court's instruction. 16 THE COURT: We're going to bring the jury in 17 and let them go come back at 8:30 tomorrow, we will start 18 in here at 9:00 with closing argument and then final 19 instructions inclusions on the law. 20 (Jury in at 3:55 p.m.) 21 THE COURT: Ladies and gentlemen, we have had 22 our charge conference, we've gone through all the 23 provisions of the law. Everybody agrees it would be 24 better, because we cannot finish the arguments this 25 afternoon, to do them all tomorrow morning. We can do 672 1 that and then have the instruction. I think that's always 2 better than having to split them up, that's just not -- 3 that's probably not the best way to do it. And I'm going 4 to tell you there's no way we could get the case to you 5 this evening so that you could begin your deliberations, 6 that would not be practical. So we have decided to let 7 you go home early, if that's all right. Anybody object? 8 All right. Without objection, then we're going to let you 9 go home early, and we will spend -- we will start at 9:00 10 o'clock tomorrow morning in here with the closing argument 11 by Mr. Murphy and then, of course, defense counsel has a 12 chance to make a closing argument. Mr. Murphy has a short 13 rebuttal, if he wants to, and then we will have the 14 instructions on the law. 15 Have a very pleasant evening. I want you to do 16 one thing, I want you to avoid anything in the newspaper 17 that might be about the case. If you happen to see 18 anything, I want you to not pay any attention. And you 19 should let me know if you see something and you're 20 concerned at all that it might influence you. I want you 21 to be careful to avoid that. Just don't read the paper 22 tomorrow. That's probably the best thing to do. You can 23 look at it when you go home tomorrow afternoon maybe, 24 depending on whether you have concluded your determination 25 in the case. 673 1 Well, now, let's go back through everything. 2 Don't discuss the case among yourselves. Don't let 3 anybody talk with you about it. You have heard all the 4 evidence, but you have not heard the final arguments of 5 counsel, you have not heard the final instructions on the 6 law, and you have not had a chance to go to the jury room 7 and then have that discussion among yourselves. So you're 8 to keep an open mind until you have done all those things, 9 then you're to begin that process in making up your minds 10 individually and then making up your mind as a jury. 11 As you leave today and when you come tomorrow, 12 of course, avoid any contact with defense counsel or with 13 government counsel or with anybody associated with any 14 side in the case. If anybody tries to talk to you about 15 the case, report it promptly to one of our court security 16 officers or directly to me, we will take the appropriate 17 steps. Do not do any -- make any inquiry or do not make 18 any -- do not do any research or make any investigation at 19 all, as you know, and, of course, avoid anything on 20 television, radio or TV that might be about this case or 21 cases like it. Keep an open mind. We will see y'all 22 tomorrow at 9:00 o'clock. We should start right on time, 23 there shouldn't be any problem. We will see you then. 24 (Jury out at 3:58 p.m.) 25 THE COURT: If you want to wait -- if you want 674 1 to have somebody stay around until they bring out the 2 final version of the charge, you're welcome to do that. 3 Of course, you're welcome to be excused and pick it up 4 tomorrow, whichever you want to do is fine. I going to go 5 back and finish it up, and I'm sure we will get it 6 completed within the next 30 or 45 minutes, at the most. 7 MR. BECRAFT: Your Honor, I will just read it 8 in the morning. 9 THE COURT: Whatever you wish to do. We will 10 make it available for you as soon as you like it. Thank 11 you very much. 12 MR. BECRAFT: Have a good evening, Judge. 13 THE CLERK: All rise. 14 (Court adjourned at 4:00 p.m.) 15 16 17 18 19 20 21 22 23 24 25