The Supreme Court has already ruled that:

• The government's present method of collecting income taxes is unconstitutional.

• Wages, rents, dividends, and interest are not income.

• Income can only be a corporate profit.

That is why there are no laws requiring anyone to:

• File income tax returns.

• Pay income taxes, or

• Submit to IRS audits.

Learn the facts and discover why the Federal

income tax is a gigantic hoax and why

millions of law abiding, patriotic Americans

no longer pay this illegal and destructive tax.

Freedom Books . 544 East Sahara Blvd. . Las Vegas, NV 39104


In THE GREAT INCOME TAX HOAX, Irwin Schiff- the nation's leading tax expert - proves that for over seventy years the government has been ILLEGALLY collecting income taxes. While staggering, the implications in Schiff s expose are nonetheless true. You will discover that the Federal government itself is the nation's most prolific lawbreaker; confiscating property without statutory authority and jailing people for tax crimes that do not exist.

For example, did you know that the Supreme Court has ruled that:

1. The income tax is unconstitutional as currently enforced?

2. The 16th Amendment did not amend the Constitution?

3. Rents, dividends, and interest are not "income" and you do not have to pay any "income" taxes on such items?

4. The only "income" subject to income taxes is corporate profit - so if you do not have a corporate profit you cannot be subject to an "income" tax? (Even corporations, however, are not subject to the current income tax.)

5. According to the Supreme Court's official definition of "income," wages are not subject to taxation as "income" under our laws?

6. There is no law that says you can be "liable" for Federal income taxes or that your are "required" to pay them?

You can stop rubbing your eyes in disbelief since all of the above is true -including the fact that the entire Federal judiciary is in on the swindle and is knowingly breaking the law!

Schiff supports his claims with extensive excerpts from every important Supreme Court case bearing on the income tax and from the Internal Revenue Code itself. His book is probably the most extensively researched and documented book that has ever been written about Federal income taxes. It proves that the whole system is a gigantic legal hoax and that THE FEDERAL JUDICIARY KNOWINGLY PUTS PEOPLE IN JAIL WHEN THEIR ONLY CRIME IS THAT THEY KNOW THE LAW AND ARE NOT TAKEN IN BY THIS HOAX.

Schiff does not simply make naked charges. He substantiates each and every statement he makes. He proves that the entire Federal "court" system, from district court up to Supreme Court itself, is in on this hoax. He also proves that in order to illegally collect income taxes the Federal Government, with the help of the "courts," has managed to throw out the entire Bill of Rights along with every constitutional provision that limited the Federal Government's taxing powers. In addition, extensive appendix material includes a expose of the illegal nature of all U.S. coin and currency.

Schiffs book not only provides the reader with a comprehensive understanding of the income tax, it also describes the constitutional basis of Federal power and how it is abused in various other areas. While it deals primarily with taxes


mum* i \x HOAX

Freedom Law School

9582 But*,mere Road xL^ Phelan, C/\ 92371

£T (760) 868-4271

ll-v \vw\


Irwin Sctaif f



Why You Can immediately Stop Paying This Illegally Enforced Tax


jfreebom poote

544 East Sahara Blvd

Las Vegas, NV 89104

visit our website at:

This book is designed to provide the author's findings and opinions based on research and analysis of the subject matter covered. This information is not provided for purposes of rendering legal or other professional services, which can only be provided by knowledgeable professionals on a fee basis.

Further, there is always an element of risk in standing up for one's lawful rights in the face of an oppressive taxing authority backed by a biased judiciary.

Therefore, the author and publisher disclaim any responsibility for any liability of loss incurred as a consequence of the use and application, either directly or indirectly, of any advice or information presented herein.

Sections of the Internal Revenue Code reprinted by permission from the Tax and Professional Services Division, The Research Institute of America, Inc. Copyright ©1984.

Copyright© 1985 by Irwin A. Schiff

Library of Congress Catalog Card No. 85-070036

ISBN-0-930374-05-3 nn nn n i m m s <i •? i i


Melville Weston Fuller, Chief Justice of the United States from 1888-1910, and Stephen Johnson Field, Associate Supreme Court Justice from 1863—1897, for the judicial integrity they displayed in holding an income tax unconstitutional; and for their magnificent opinions which, by contrast, clearly reveal the criminal nature of today's Federal judiciary.


The Federal Mafia — How It Illegally Imposes and Unlawfully Collects Income Taxes —

The Great Income Tax Hoax How An Economy Grows and Why It Doesn't

The Social Security Swindle — How Anyone Can Drop Out —

How Anyone Can Stop Paying Income Taxes

The Kingdom ofMoltz The Biggest Con: How the Government Is Fleecing You


INTRODUCTION..................................................... 9

1. Direct vs Indirect Taxes............................................. 11

2. Constitutional Restrictions Regarding

Direct And Indirect Taxes........................................ 19

3. The Intent Of The Constitution................,................... 25

4. The Federal Government's General

Taxing Powers...................................................... 31

5. What The U.S. Government And America

Are All About....................................................... 39

6. Federal Real Estate Taxes — How They

Were Levied and Collected....................................... 55

7. The Civil War: The Seeds Of Tax

Tyranny Are Sown................................................. 67

8. The Supreme Court Declares an Income

Tax Unconstitutional..........................................__ 77

9. The Agitation For The Income

Tax: 1895-1909..................................................... 123

10. The Corporation Excise Tax of 1909 ............................... 131

11. The Sixteenth Amendment.......................................... 149

12. Surprise! The Income Tax Is An Excise

Tax: The Brushaber Decision .................................... 181

13. Income —What Is It?................................................ 205

14. Why No One Can Have Taxable Income........................... 223

15. Income Tax "Laws" and How The IRS

Disregards Them .................................................. 239

16. TheFederal"Judiciary" ............................................. 263

17. Tax "Court" and Other Tax-Related Scams....................... 295

18. HOW TO END THE INCOME TAX NOW!.................... 377

Appendix A: The Total American Tax Take.............................................................409

Appendix B: The Elliot Debates ....................................413

Appendix C: 18th and 19th Century Federal Tax Statutes ..............................................439

Appendix D: Brief Supporting Contention That Wages Are Not Income ................................461

Appendix E: Briefs Exposing Government's Illegal Monetary Policies.................................479

Appendix F: Miscellaneous Correspondence and "Court" Decisions.................................523

Reference Materials: Books, Reports

and Tapes by Irwin Schiff........................................ 555



This book will shock you. It will convince you that for over seventy years the Federal government has been illegally collecting income taxes and that the courts (if not Congress) know it. Federal judges allow property to be illegally confiscated and knowingly send innocent people to jail in order to intimidate an uninformed public and to aid the IRS in illegally enforcing Federal tax law. The reason the public can be duped and intimidated is because it does not know the law or even the legal meaning of income. Most Americans do not realize they have no income that can be legally taxed under our income tax laws.

This book will clearly explain the law to you so that you will know why you can legally stop paying income taxes immediately and how you can protect yourself from IRS harrassment and control.

In essence, history has repeated itself and America now finds itself in the same circumstances as Thirteenth Century Egypt. In the Twelfth Century, slaves known as Mamelukes (literally "owned men") were brought to Egypt to serve as soldiers to the Sultan. In 1250 they overthrew the government they were supposed to serve, installed one of their own as Sultan and ruled Egypt for the next two hundred and fifty years. America has essentially the same problem.

The Federal government was created (with limited power) by the people of America in order to protect their unalienable rights to life, liberty, and property. Federal employees were recruited and sent to Washington to administer the laws commensurate with this limited grant of power. Initially, these employees were conceived as servants of the people; however, as the Mamelukes before them, the Federal bureaucracy has now illegally installed itself as the master while the people have become their servants.

In order to manage this, America's Mamelukes had to destroy the very document designed to limit their power and keep them in check. This was largely achieved by those assigned the role of "judges!" In addition, the key ingredient in the expansion and preservation of Mameluke control of America has been their success in installing and illegally enforcing the income tax.

Many Americans are now united in a struggle to depose American Mamelukes and to retrieve and reestablish both the document and the freedoms they have destroyed. The days of Mameluke control of America are numbered. More and more Americans are learning to recognize our

Mamelukes for the usurpers they are. They are learning how to successfully fight them. This book was written to help in that struggle and to persuade you to join the battle. The faster we get rid of our Mameluke masters and their illegal income tax the better off we will all be.

Not only is the battle to free America from Mameluke control exciting, it will also allow you to have more money to spend while enjoying life, your new-found liberty, and your increased ability to pursue your own happiness. According to the April, 1983 issue of Life magazine some 20,000,000 working Americans have stopped filing income tax returns — WE NOW HAVE THE MAMELUKES ON THE RUN!


Direct vs Indirect Taxes

In an 1819 decision Chief Justice John Marshall wrote: "The power to tax involves the power to destroy!' History agrees. From the beginning of organized government, kings and ruling castes used taxation as an instrument and a weapon. Throughout recorded history, moreover, capricious or heavy-handed taxation led to insurrection or, less dramatically, to the dissolution of the ties which bind people to their government. In Twelfth Century England, outrageous taxation inspired the Peasants' Revolt which rampaged until Richard II skewered the head of Wat Tyler, its leader, on a pole. It was the very issue of taxes that sparked the American Revolution and today the tax system in America is as vi-olative of the rule of law and the Constitution as the "judges" who administer it.

In ancient times, kings and emperors needed taxes for the support of their courts and armies. Men-at-arms and the nobility produced no wealth so they had to be supported by those who did. Historically, governments have been run by non-producers and non-producers generally gravitate to government service. But to the extent that government performs its limited social function — that of protecting society from external enemies and maintaining internal peace and order by eliminating social predators — the cost of supporting government workers can be born out of the increased productivity that a limited, well-run government will generate.

The first 150 years of America bears excellent testimony to this principle. Unfortunately, history demonstrates the accuracy of Lord Acton's observation that "power corrupts and absolute power corrupts absolutely!' As government acquires more power1 it becomes arbitrary and corrupt. Taxes are increasingly raised for the support of entrenched government, not for the benefit of society. Eventually, the growing army

1 In America this unconstitutional expansion of federal power was achieved by the government, illegally maintaining and exercising (in peacetime) numerous emergency powers it acquired as "temporary" war-time measures.

of government created non-producers will no longer be able to be supported by the ever dwindling number of producers and the economic and social structure of society will ultimately give way.

This is the story of Rome and provides the explanation for what is happening in America today. The parallel between the decline of Rome and the decline of America is so sharp that only government-run schools could fail to make the connection.

Only People Pay Taxes

How should government extract taxes? Citizens could be required to pay a certain sum to the "royal" tax collector—but how much? Since some citizens can afford to pay more than others, governments devised methods for taxing citizens according to their supposed ability to pay or, in simpler terms, according to their wealth which became one of the earliest forms of taxation. However, while such taxes appear to tax wealth, it is the citizen that is being taxed, not his wealth. He is being taxed according to his wealth. It is important to keep this distinction in mind. As you will see, the government seeks to fool the public on this simple issue. For example, property taxes are not really taxes on property but taxes on individuals based on the property they own. All such taxes fall within the constitutional category of "direct taxes."

The Importance of Tax Classes

The Constitution recognizes two classes of taxes and imposes different restrictions on the Federal government's right and ability to impose either. It is important, therefore, that the taxpayer be able to identify both classes in order to determine whether they are being levied constitutionally. The government and the courts have evaded the issue by claiming that the differences between the two taxing categories are unclear — that the Founding Fathers (who were so specific in everything else) did not know what they were talking about and that their proscriptions on the power of taxation were the result of confusion and lack of clear thinking. This is self-serving nonsense. The courts know, as we all do, what great texts the Founding Fathers consulted, what they were influenced by, and how they debated the system they embodied in the Constitution. Not only were the framers of the Constitution keenly cognizant of the issues before them, they also had studied Adam Smith's definitive work, The Wealth of Nations, published in 1776 — the same year the Declaration of Independence was written. I will quote extensively from this material so there can be no doubt in anyone's mind

regarding exactly what the Founding Fathers had in mind when they wrote these taxing restrictions into the Constitution.

Capitation Taxes

The first category of taxes taken up in the Constitution were "capitation and direct taxes." This is what Smith had to say about them.

Capitation taxes, if it is attempted to proportion them to the fortune or revenue of each contributor, become altogether arbitrary. The state of a man's fortune varies from day to day, and without an inquisition more intolerable than any tax, and renewed at least once every year, can only be guessed at. His assessment, therefore, must in most cases depend upon the good or bad humour of his assessors, and must, therefore, be altogether arbitrary and uncertain.

Capitation taxes, if they are proportioned not to the supposed fortune, but to the rank of each contributor, become altogether unequal; the degree of fortune being frequently unequal in the same degree of rank.

Such taxes, therefore, if it is attempted to render them equal, become altogether arbitrary and uncertain; and if it is attempted to render them certain and not arbitrary, become altogether unequal. Let the tax be light or heavy, uncertainty is always a great grievance. In a light tax a considerable degree of inequality may be supported; in a heavy one it is altogether intolerable.

In the different poll-taxes which took place in England during the reign of William III. the contributors were, the greater part of them, assessed according to the degree of their rank; as dukes, marquisses, earls, viscounts, barons, esquires, gentlemen, the eldest and youngest sons of peers, etc. All shopkeepers and tradesmen worth more than three hundred pounds, that is, the better sort of them, were subject to the same assessment, how great soever might be the difference in their fortunes. Their rank was more considered than their fortune. Several of those who in the first poll-tax were rated according to their supposed fortune, were afterwards rated according to their rank. Serjeants, attornies, and proctors at law, who in the first poll-tax were assessed at three shillings in the pound of their supposed income were afterwards assessed as gentlemen. In the assessment of a tax which was not very heavy, a considerable degree of inequality had been found less insupportable than any degree of uncertainty.

In the capitation which has been levied in France without any interruption since the beginning of the present century, the highest orders of people are rated according to their rank, by an invariable tariff; the lower orders of people, according to what is supposed to be their fortune, by an assessment which varies from year to year. The officers of the king's court, the judges and other officers in the superior courts of justice, the officers

of the troops, etc. are assessed in the first manner. The inferior ranks of people in the provinces are assessed in the second. In France the great easily submit to a considerable degree of inequality in a tax which, so far as it affects them, is not a very heavy one; but could not brook the arbitrary assessment of an intendant. The inferior ranks of people must, in that country, suffer patiently the usage which their superiors think proper to give them.

In England the different poll-taxes never produced the sum which had been expected from them, or which, it was supposed, they might have produced, had they been exactly levied. In France the capitation always produces the sum expected from it. The mild government of England, when it assessed the different ranks of people to the poll-tax, contented itself with what that assessment happened to produce; and required no compensation for the loss which the state might sustain either by those who could not pay, or by those who would not pay (for there were many such), and who, by the indulgent execution of the law, were not forced to pay. The more severe government of France assesses upon each generality a certain sum, which the intendant must find as he can. If any province complains of being assessed too high, it may, in the assessment of next year, obtain an abatement proportioned to the overcharge of the year before. But it must pay in the mean time. The intendant, in order to be sure of finding the sum assessed upon his generality, was impowered to assess it in a larger sum, that the failure or inability of some of the contributors might be compensated by the over-charge of the rest; and till 1765, the fixation of this surplus assessment was left altogether to his discretion. In that year indeed the council assumed this power to itself. In the capitation of the provinces, it is observed by the perfectly well-informed author of the Memoirs upon the impositions in France, the proportion which falls upon the nobility, and upon those whose privileges exempt them from the taille, is the least considerable. The largest falls upon those subject to the taille, who are assessed to the capitation at so much a pound of what they pay to that other tax.

Capitation taxes, so far as they are levied upon the lower ranks of people, are direct taxes upon the wages of labour and are attended with all the inconveniencies of such taxes.

Capitation taxes are levied at little expence; and, where they are rigorously exacted, afford a very sure revenue to the state. It is upon this account that in countries where the ease, comfort, and security of the inferior ranks of people are little attended to, capitation taxes are very common. It is in general, however, but a small part of the public revenue, which, in a great empire, has ever been drawn from such taxes; and the greatest sum which they have ever afforded, might always have been found in some other way much more convenient to the people. (Emphasis added)

Examples of Capitation And Direct Taxes

As explained by Adam Smith there are a variety of capitation taxes2 and each can be levied according to different criteria: wealth, revenue, rank, occupation or even "upon the wages of labor!' Note that Smith (whose ideas were a major guide to the framers of the Constitution) stated that capitation taxes attempted to "proportion" taxes to either the fortune or the revenue of each contributor!' He made it absolutely clear that taxes related to income were direct taxes which is extremely relevant since the U.S. Supreme Court ruled that an income tax was not a capitation tax on the absurd claim that "Smith's work as to the meaning of such a tax" made no distinction between direct and indirect taxes (see page 105). This claim was patently false since Smith not only made a definitive distinction he also specifically labelled taxes related to income as being capitation or direct taxes!

There is no question that an income tax is clearly a capitation tax whereby the government seeks to tax individuals directly according to their income. It is important to remember, however, that in all capitation taxes (perhaps they should have been called decapitation taxes) it is not wealth, revenue, rank, or occupations that are being taxed but the individual — and he is being taxed according to some arbitrary yardstick the government believes measures his ability to pay. If you think an "income" tax is a tax on "income" then let your "income" calculate and pay the tax! Instead of taxing you according to your income, the government could conceivably tax you according to your weight, say at $1.00 per pound. Someone who weighs one hundred pounds would pay a $100.00 "weight tax" and someone who weighs two hundred pounds would pay $200.00. But would such a tax actually be a tax on "weight"? No, it would be a tax on the individual measured by his weight. For the same reason an "income" tax is not a tax on "income" — it is a tax on the individual measured by his "income."

Taxing People Directly

If a government decides to tax people directly according to their wealth, there remains the problem of how to determine that wealth. Will citizens be compelled to disclose the amount and nature of what they possess to the tax collector so they can be properly taxed? Under

3 Note that Smith uses "poll" and "capitation" taxes interchangeably and says that either can relate to rank or fortune.

the Constitution, citizens cannot be compelled to provide information that can be used against them and they are further presumed to have a right to privacy. Yet all information on a tax return can be used against taxpayers — and can even be given to other Federal agencies as well as to state and foreign governments to be used against them. Exactly how much privacy does a citizen have after giving all the information required on a 1040?3 Requiring Americans to file income tax returns violates the First and Ninth Amendments which is why (though few people seem to know this) no such filing requirement is contained in the law.

In England, direct taxes were once levied on chimneys and windows, the theory being that the more windows and chimneys a house had the wealthier the owner and the more taxes he could pay. Again, the tax was not actually on windows or chimneys but was, rather, on the individual who owned the home measured by the number of chimneys and windows he had (which presumably measured his ability to pay). In The Wealth of Nations Adam Smith gives an interesting description of how such taxes worked.

The contrivers of the several taxes which in England have, at different times, been imposed upon houses, seem to have imagined that there was some great difficulty in ascertaining, with tolerable exactness, what was the real rent of every house. They have regulated their taxes, therefore, according to some more obvious circumstance, such as they had probably imagined would, in most cases, bear some proportion to the rent.

The first tax of this kind was hearth-money; or a tax of two shillings upon every hearth. In order to ascertain how many hearths were in the house, it was necessary that the tax-gatherer should enter every room in it. This odious visit rendered the tax odious. Soon after the revolution, therefore, it was abolished as a badge of slavery.

The next tax of this kind was, a tax of two shillings upon every dwelling house inhabited. A house with ten windows to pay four shillings more. A house with twenty windows and upwards to pay eight shillings. This tax was afterwards so far altered, that houses with twenty windows, and with less than thirty, were ordered to pay ten shillings, and those with thirty windows and upwards to pay twenty shillings. The number of windows can, in most cases, be counted from the outside, and, in all cases, without entering every room in the house. The visit of the tax-gatherer, therefore, was less offensive in this tax than in the hearth-money.

This tax was afterwards repealed, and in the room of it was established the window-tax, which has undergone too several alterations and

8 The full details on this can be found in How A nyone Can Stop Paying Income Taxes by Irwin Schiff (FREEDOM BOOKS: 1982).

augmentations. The window-tax, as it stands at present (January, 1775), over and above the duty of three shillings upon every house in England, and of one shilling upon every house in Scotland, lays a duty upon every window, which, in England, augments gradually from two-pence, the lowest rate, upon houses with not more than seven windows; to two shillings, the highest rate, upon houses with twenty-five windows and upwards.

The principal objection to all such taxes is their inequality, an inequality of the worst kind, as they must frequently fall much heavier upon the poor than upon the rich. A house often pounds rent in a country town may sometimes have more windows than a house of five hundred pounds rent in London; and though the inhabitant of the former is likely to be a much poorer man than that of the latter, yet so far as his contribution is regulated by the window-tax, he must contribute more to the support of the state. (Emphasis added)

In Eighteenth Century England, the fact that tax collectors could enter one's home to count the hearths was considered such an "odious visit" that the tax was abolished as "a badge of slavery!' If such a visit was a "badge of slavery," how much more odious is a visit today from the IRS to search a taxpayer's papers, books, and private records — in clear violation of the Fourth Amendment — and to make them prove every expenditure?

In the final analysis, for any government to tax directly, it must first find the individual in order to tax him/her — regardless of what yardstick (wealth, income, rank, occupation, etc.) is used. Governments, however, have discovered another way to tax individuals without having to catch them, or without even knowing they exist which leads us to the other category of taxes provided for in the Constitution.

Indirect Tbxes

Since individuals use a variety of products, governments have discovered another, easier way to levy taxes—by putting taxes on the products they buy. The more a person buys, the more taxes he pays. Such taxes are not paid directly to the government; they are paid indirectly through the merchants who sell the products. Indirect taxes are relatively easy to levy and collect and are placed on products as they are produced within a country or imported. The manufacturer or importer pays such "excises" or "duties" and adds them to the price of the product, thus passing the tax on to the consumer.

An important distinction between indirect taxes and capitation (direct) taxes is that indirect taxes are avoidable. If the individual does not buy the taxed products he avoids paying the taxes imposed. Capitation taxes, on the other hand, are not avoidable since they are levied

directly on the individual. Since direct taxes are not avoidable they are subject to far greater tyrannical abuse than indirect taxes — which is why the Constitution makes them subject to special conditions not applicable to indirect taxes.

The following passage fromThe Wealth of Nations will provide a clear understanding of the meaning of indirect taxes as understood by those who wrote our Constitution.

The impossibility of taxing the people, in proportion to their revenue, by any capitation, seems to have given occasion to the invention of taxes upon consumable commodities. The state not knowing how to tax, directly and proportionably, the revenue of its subjects, endeavours to tax it indirectly by taxing their expence, which, it is supposed, will in most cases be nearly in proportion to their revenue. Their expence is taxed by taxing the consumable commodities upon which it is laid out. (Emphasis added)

Note that Smith makes as clear a distinction as can be made that taxing people "in proportion to their revenue" is clearly a type of capitation tax as opposed to the taxes on "consumable commodities" which obviously fall into the category of indirect (excise) taxes. Here his statement clearly proves that the numerous claims by U.S. judges that "income" taxes are not capitation taxes (falling, rather, within the category of excise taxes) have been a cynical perversion of logic and law.

Government Now Fools The Public

It is crucial that the American public rediscover the distinction between direct and indirect taxes because the Constitution lays down different provisions regarding how each is to be lawfully levied. The Federal government (with the help of a perfidious Federal judiciary) now completely disregards these constitutional distinctions and is, therefore, able to collect taxes in a blatantly illegal manner.


Constitutional Restrictions

Regarding Direct And

Indirect Taxes

The Constitutional provision regarding how indirect taxes are to be levied is found in Article 1, Section 8, Clause 1, of the Constitution and also defines the Federal government's general taxing powers:

... Congress shall have the power to lay and collect taxes, duties, imposts, and excises, to pay the debts and provide for the common defense and general welfare of the United States; but all duties, imposts and excises shall be uniform throughout the United States. . . (Emphasis added)

Note that in the first portion of this paragraph Congress is given the power to lay: a) taxes, b) duties, c) imposts and d) excises but the word "taxes" is later deliberately omitted from the requirement that all such listed taxes be "uniform throughout the United States!' Only "duties, imposts and excises" were made subject to the requirement that they be uniform throughout the United States. Why? The reason the word "taxes" was specifically omitted from the latter phrase, is because the Constitution already provided (in Article 1, Section 2) for a different method of levying "taxes" which, in colonial times, generally meant direct taxes. So Article 1, Section 8 only sought to establish a constitutional method for levy ing "duties, ""imposts, "and "excises, "all of which are indirect taxes, since other sections of the Constitution provided the legal basis by which direct taxes were to be levied.

So, for excises, imposts and duties to be constitutional, they have to be levied on the basis of uniformity, while direct taxes must be levied according to another standard. Uniformity means that if the government levies a tax of 10$ on a pack of cigarettes, the tax must apply equally to cigarettes manufactured in every state. It would be uncon-

stitutional for the government to levy an excise or duty on a product in one state but exclude certain manufacturers or importers in other states from the same duty or tax. The government, however, can discriminate between products when imposing excises and import duties. It can tax one product and not another, or one type of manufacturer and not another. As long as all similar manufacturers and similar products are equally taxed in all states, the tax is uniform and, therefore, constitutional.

Direct Taxes Are To Be Apportioned

Article 1, Section 2, Clause 3 of the Constitution says:

... Representatives and direct taxes shall be apportioned among the several States which may be included within this Union, according to their respective numbers. . . (Emphasis added)

This requirement of apportionment of direct taxes is repeated in Article 1, Section 9, Clause 4 as follows:

... No capitation, or other direct tax shall be laid unless in proportion to the census or enumeration herein before directed to be taken. (Emphasis added)

The "herein before directed to be taken" refers to the prior reference contained in Article 1, Section 2, Clause 3.

Though not dealing directly with taxation, The Bill of Rights further protected citizens from the arbitrary use of taxing power. For example, the Fourth Amendment guaranteed that the right of the people to be "secure in their persons, houses, papers and effects ... shall not be violated" and that any searches and seizures must be supported by "oath or affirmation" and be court ordered only "upon probable cause!' And the Fifth Amendment guaranteed that: "... no person shall be held to answer" for an infamous1 crime "unless on a presentment or indictment of a Grand Jury ... nor shall he be compelled in any criminal case to be a witness against himself, nor be deprived of life, liberty, or property without due process of law, nor shall private property be taken for public use without just compensation." (Emphasis added in both quotes.) Today these constitutional guarantees are totally ignored by the "courts" and the IRS. Individuals are put to trial for tax "crimes" without indictments and without any probable cause being established; are jailed for refusing to turn over "papers and effects" to the IRS and

1 The Supreme Court has ruled that an "infamous crime" is one punishable by imprisonment. Exparte Wilson 114 US 417, Mackin vs US 117 US 348.

for refusing (in tax matters) to be "witnesses against themselves"; and are routinely deprived of property without "due process of law!'

\bu will note that the Founding Fathers, unlike Smith, drew a distinction between capitation taxes and all other direct taxes. This was because they regarded capitation taxes as direct taxes levied specifically on people (and therefore particularly abhorent because they could be levied arbitrarily), as opposed to other forms of direct taxes levied on property (both real and personal). In either case, people pay the tax directly to the government and, as such, both are (by definition) direct taxes. Therefore, though (in a constitutional sense) a capitation is a direct tax, not all direct taxes are capitations.


The requirement of apportionment of direct taxes is the only provision in the Constitution stated twice. It was written into the Constitution only after extensive debate and probably represents the most important compromise of the entire Constitutional Convention, and their inclusion most likely created more controversy and debate at the state ratifying conventions than any other provision. No less than five states recommended in their ratifying statements that these two provisions should be removed and the Federal government's direct taxing power be eliminated entirely. %t today these two provisions (though their force is still as undiminished and binding as the day they were written) are totally ignored by the U.S. government — as if the limitations imposed upon the government by them did not exist at all!

In contrast to excises, imposts, and duties (indirect taxes), the Constitution requires that all capitation and other direct taxes be "apportioned among the states" (according to population) as opposed to the principle of uniformity. This means that for a Federal direct tax to be lawful it must be levied so that the total tax collected from the residents of each state must be proportional to each state's population (in that the amount collected from each state must bear the same proportion to the total tax as that state's population bears to the nation's total population). If any Federal direct tax is not levied in this manner it is unconstitutional and, therefore, illegal!

How Apportionment Works

The state of Arkansas has a population roughly equivalent to 1% of the nation so its citizens must (constitutionally) pay 1% of any direct tax imposed by the Federal government. If the Federal government imposes a direct tax (based on "income," for example) of $100 billion, the citizens of Arkansas must (collectively) pay $1 billion of that tax.

Californians, on the other hand, constitute 10% of the nation and would, therefore, have to (collectively) pay $10 billion of such a tax. As you see, another important distinction between direct and indirect taxes is that before direct taxes can be lawfully extracted (on a compulsory basis) the total amount to be extracted must be exactly determined beforehand so that the correct apportionment can be made. The amount to be collected by indirect taxes, on the other hand, does not have to be predetermined but can be imposed to generate whatever revenue they can bring in.

Based on the 1970 census, California had forty-three representatives in Congress and Arkansas had four. Californians would, therefore, have to pay ten times as much of any direct Federal tax as do the people of Arkansas. If they did this they would be paying the tax in direct proportion to their representation in Congress (as required by Article 1, Section 2, Clause 3 of the United States Constitution). As I stated previously, if any Federal direct tax is not imposed in this specific manner, it is imposed unconstitutionally and no American need take any notice of it.2 Since the concept of apportionment is so crucial for an understanding of the Federal government's legitimate taxing powers (and since this principle is practically unknown today — let alone understood), we should nail it down even further.

If two states have the same population then citizens of both states have to (collectively) pay the same total amount of any direct Federal tax. If the tax concerned property (the Federal government can tax property, see Chapter 6), and if State A had half the amount of taxable property as did State B, the Federal property tax rate in State A would have to be twice as high as that in State B in order for both states to generate the same total Federal property tax. If the tax concerned "income" — and the citizens of State A have half the taxable income as those of State B — then the Federal income tax rates in State A have to be twice as high as those in State B in order, again, for both states to generate the same total "income" tax revenue. On the basis of population, since both states are represented equally in Congress, both states have to pay the same (equal) amount of any direct tax, making taxation and representation directly proportional — on a state-to-state basis!3

1A fundamental principle of American law is "...anything repugnant to the Constitution is null and void..." This principle was laid down by John Marshall in Marbury vs Madison 1CR 137, and means that all citizens are free to disregard all Federal "laws" promulgated in obvious disregard of the Constitution. Such "laws" are, in reality, not laws at all but are born dead.

8 A state's taxing power, for example, is not limited by any such consideration, though no state can lawfully compel payment of state income taxes for a variety of other reasons!

A Compulsory Income Tax Must Be Related To State Population

Since the income tax is currently levied as a direct tax it must be based on state population. Since it is not, the tax is collected in a totally unconstitutional manner. When direct taxation was linked to state population and representation in Congress, a fundamental principle of the American Revolution ("taxation without representation is tyranny") was preserved and consciously incorporated into the U.S. Constitution. The Federal government, however, illegally destroyed this principle and that linkage (when it realized that the American public did not understand, nor was even aware of it) and, in so doing, completely destroyed the "federal" character of the American Republic. Tying direct taxation to state representation is, essentially, what Federalism is all about. Destroy that linkage and you no longer have a Federal republic.4

America — No Longer A Federal Republic

The Federal establishment succeeded in engineering this fundamental change in the nature of our country with the help of a lawless Federal judiciary5 that is itself a part of that establishment. Federal employees thus increased their own power by illegally converting America from what started out as a democratic, federal republic into what we now have, which is essentially a centralized democracy — a form of government never imagined, conceived, or contemplated by the framers of the Constitution. Such a form of government was, in fact, abhorent to and feared by them (see pages 43,44). For this reason, we should never, logically, refer to the nation's government as the "Federal" government since what we now have is a monolithic central government with almost no remaining constitutional checks and balances.6

4 For a practical example of how this works, see Chapter 6.

6 Someone once defined a judge as a lawyer who knew a governor. I believe this is accurate and helps explain the sorry state of our judicial system.

6 To the extent that I use the term "Federal government" I do so reluctantly and only because of style and clarity. But the term itself has ceased to have any meaning.


The Intent Of The Constitution

To determine whether our understanding of the government's con-situtional taxing powers is indeed correct, we need only refer to the pub-lished statements of those who wrote and ratified that document. One of the most authoritative works, The Federalist Papers, contains a collection of essays written by three of the most knowledgeable and influential men of their day: Alexander Hamilton, James Madison and John Jay. Hamilton served as our first Secretary of Treasury and was one of the most indefatigable workers on behalf of ratification. If not for the efforts and energy expended by Alexander Hamilton, the Constitution may never have been ratified. James Madison is, of course, regarded as the "Father of the Constitution" while John Jay served as the nation's first Chief Justice and presided over a number of sessions of the Constitutional Convention.

This towering triumverate combined to write The Federalist Papers (actually a series of essays that first appeared in New York newspapers between October, 1787 and March, 1788, written to rally public support for the proposed Constitution in a state where considerable opposition existed). New York was a crucial and influential state and if it had failed to ratify the Constitution we can only speculate as to the consequences.

The Federalist Papers (because of the depth and lucidity of their explanations and the influence of their authors) provide the best source for revealing the clear intent of those who wrote and ratified the Constitution.1 In Federalist Paper #21 Hamilton writes:

There is no method of steering clear of this inconvenience, but by authorizing the national government to raise its own revenues in its own way. Imposts, excises, and, in general, all duties upon articles of consumption,

1 "The opinion of the Federalist has always been considered as of great authority. It is a complete commentary on our Constitution; and is appealed to by all parties in the questions to which that instrument has given birth!' Cohens vs Virginia 6 Wheat 2 (1821).

may be compared to a fluid, which will in time find its level with the means of paying them. The amount to be contributed by each citizen will in a degree be at his own option, and can be regulated by an attention to his resources. The rich may be extravagant, the poor can be frugal; and private oppression may always be avoided by a judicious selection of objects proper for such impositions. If inequalities should arise in some States from duties on particular objects, these will in all probability be counterbalanced by proportional inequalities in other States, from the duties on other objects. In the course of time and things, an equilibrium, as far as it is attainable in so complicated a subject, will be established everywhere. Or, if inequalities should still exist, they would neither be so great in their degree, so uniform in their operation, nor so odious in their appearance, as those which would necessarily spring from quotas upon any scale that can possibly be devised.

It is a signal advantage of taxes on articles of consumption that they contain in their own nature a security against excess. They prescribe their own limit, which cannot be exceeded without defeating the end proposed — that is, an extension of the revenue. When applied to this object, the saying is as just as it is witty that, "in political arithmetic, two and two do not always make four!' If duties are too high, they lessen the consumption; the collection is eluded; and the product to the treasury is not so great as when they are confined within proper and moderate bounds. This forms a complete barrier against any material oppression of the citizens by taxes of this class, and is itself a natural limitation of the power of imposing them.

Impositions of this kind usually fall under the denomination of indirect taxes, and must for a long time constitute the chief part of the revenue raised in this country. Those of the direct kind, which principally relate to land and buildings,2 may admit of a rule of apportionment. Either the value of land, or the number of the people, may serve as a standard. The state of agriculture and the populousness of a country are considered as having a near relation with each other. And, as a rule, for the purpose intended, numbers, in the view of simplicity and certainty, are entitled to a prefer-

1 Here Hamilton clearly reveals that our Founding Fathers related capitation (direct) taxes " land and buildings (i.e. one's accumulated wealth). Our Founding Fathers did not even conceive of an income tax but obviously thought that any taxes other than those on consumption would be related to wealth, principally real estate. Presumably a tax on "income" is a tax on wealth though, in reality, it is not. An individual with considerable wealth could conceivably liquidate a portion of it in exchange for food, clothing and shelter. Another individual, however, with a lot less wealth might be forced to work in order to supply himself with the funds necessary to buy food, clothing and shelter. Thus, the second citizen might find himself paying more in "income" taxes than he would if a tax were directly related to wealth. This passage by Hamilton proves that our Founding Fathers believed that indirect taxes only applied to articles of consumption, while direct taxes were related to wealth. They never thought they were giving the Federal government authority to tax a citizen's "income", nor his estate at death, nor his right to transfer property during his lifetime since none of these taxes (i.e. income, estate and gift) relate to consumption nor are they imposed equally on all property.

ence. In every country it is an herculean task to obtain a valuation of the land; in a country imperfectly settled and progressive in improvement, the difficulties are increased almost to impracticability. The expense of an accurate valuation is, in all situations, a formidable objection. In a branch of taxation where no limits to the discretion of the government are to be found in the nature of the thing, the establishment of a fixed rule, not incompatible with the end, may be attended with fewer inconveniences than to leave that discretion altogether at large. (Emphasis added)

It is clear from this passage that our Founding Fathers were far more knowledgeable about the nature of taxes than contemporary Americans who make no distinctions whatsoever concerning them. They understood, for example, that direct taxes were not avoidable, that they did not "prescribe their own limit," but were a "branch of taxation where no limits to the discretion of the government are to be found in the nature of the thing." This principle — which was obviously well understood by the statesmen responsible for our Constitution (which is why they included careful restrictions over the Federal government's power to levy direct taxes) — is totally foreign to the mentality of those who now dominate most of America's legislative bodies. America's current state of affairs tragically confirms the taxing principles so well understood, explained, and warned of by Hamilton in this passage.

Government Must Look To Indirect Taxation

In. Federalist Paper #12, Hamilton uses Britain to explain why the new government must look to indirect taxes for the largest part of its revenue and why direct taxes would "yield but scanty supplies". It is also important to note that while in the former quote Hamilton suggests that direct taxes "principally relate to land and buildings", in the following passage he definitely acknowledges that direct taxes also apply to personal property. When he states "...and personal property is too precarious and invisible a fund to be laid hold of in any other way than by the imperceptible agency of taxes on consumption...," he means that the only way the state could conceivably tax the money hidden away in a citizen's strong box (compatible with constitutional rights) is for the state to tax the consumable products that might be purchased with that money.

It is evident from the state of the country, from the habits of the people, from the experience we have had on the point itself that it is impracticable to raise any very considerable sums by direct taxation. Tax laws have in vain been multiplied; new methods to enforce the collection have in vain been tried; the public expectation has been uniformly disappointed, and the treasuries of the States have remained empty. The pop-

ular system of administration inherent in the nature of popular government, coinciding with the real scarcity of money incident to a languid and mutilated state of trade, has hitherto defeated every experiment for extensive collections, and has at length taught the different legislatures the folly of attempting them.

No person acquainted with what happens in other countries will be surprised at this circumstance. In so opulent a nation as that of Britain, where direct taxes from superior wealth must be much more tolerable, and from the vigor of the government, much more practicable than in America, far the greatest part of the national revenue is derived from taxes of the indirect kind, from imposts and from excises. Duties on imported articles form a large branch of this latter description.

In America it is evident that we must a long time depend for the means of revenue chiefly on such duties. In most parts of it excises must be confined within a narrow compass. The genius of the people will ill brook the inquisitive and peremptory spirit of excise laws. The pockets of the farmers, on the other hand, will reluctantly yield but scanty supplies in the unwelcome shape of impositions on their houses and lands; and personal property is too precarious and invisible a fund to be laid hold of in any other way than by the imperceptible agency of taxes on consumption. (Emphasis added)

Many Against Giving Federal Goverment Any Direct Taxing Power

Federalist Paper #30 further demonstrates how hard Hamilton had to work to persuade his contemporaries to give direct taxing powers to the new government. Many of his contemporaries argued that the new government should have powers to levy direct taxes only after requisitions had failed.

The more intelligent adversaries of the new Constitution admit the force of this reasoning; but they qualify their admission by a distinction between what they call internal and external taxation. The former they would reserve to the State governments; the latter, which they explain into commercial imposts, or rather duties on imported artkles, they declare themselves willing to concede to the federal head. This distinction, however, would violate that fundamental maxim of good sense and sound policy, which dictates that every POWER ought to be proportionate to its OBJECT; and would still leave the general government in a kind of tutelage to the State governments, inconsistent with every idea of vigor or efficiency. Who can pretend that commercial imposts are, or would be, alone equal to the present and future-exigencies of the Union?

Let us attend to what would be the effects of this situation in the very first war in which we should happen to be engaged. We will presume, for argument's sake, that the revenue arising from the impost duties answers the purposes of a provision for the public debt and of a peace establishment for the Union. Thus circumstanced, a war breaks out. What would be the

probable conduct of the government in such an emergency? Taught by experience that proper dependence could not be placed on the success of requisitions, unable by its own authority to lay hold of fresh resources, and urged by considerations of national danger, would it not be driven to the expedient of diverting the funds already appropriated from their proper objects to the defense of the State? It is not easy to see how a step of this kind could be avoided; and if it should be taken, it is evident that it would prove the destruction of public credit at the very moment that it was becoming essential to the public safety. To imagine that at such a crisis credit might be dispensed with would be the extreme of infatuation. In the modern system of war, nations the most wealthy are obliged to have recourse to large loans. A country so little opulent as ours must feel this necessity in a much stronger degree. But who would lend to a government that prefaced its overtures for borrowing by an act which demonstrated that no reliance could be placed on the steadiness of its measures for pay' ing? The loans it might be able to procure would be as limited in their extent as burdensome in their conditions. They would be made upon the same principles that usurers commonly lend to bankrupt and fraudulent debtors — with a sparing hand and at enormous premiums. (Emphasis added)

This would have been a logical enlargement of the taxing powers written into the Articles of Confederation. The Articles provided for the Federal government to make "requisitions" of funds from the various states, but the Federal government (under the Articles) had no recourse if the states failed to meet their requisitions.3

Apportionment Necessary To Keep States Honest

In Federalist Paper #54, Madison touches on another reason for relating direct taxation to representation. States would be less likely to inflate their population figures (to gain added political representation) since this would also increase their tax burdens if a direct tax were imposed.

1A requisition was a specific levy made by the Federal government on the states themselves with each state expected to use its own taxing power to collect the money from its own citizens and was provided for in the Articles of Confederation. The Articles, however, did not give the Federal government any independent taxing powers to collect the tax directly from individual citizens if any state ignored the "requisition". So, giving the new government direct taxing powers to be used if requisitions failed would still be a substantial grant of new taxing power over that contained in the Articles. But, is it logical (considering all the opposition to the proposed new Constitution) that those favoring it would have proposed going from a situation where the Federal government had no independent taxing powers whatsoever to one where it would have the seemingly unlimited power it exercises today?

In one respect, the establishment of a common measure for representation and taxation will have a very salutary effect. As the accuracy of the census to be obtained by the Congress will necessarily depend, in a considerable degree, on the disposition, if not on the co-operation of the States, it is of great importance that the States should feel as little bias as possible to swell or to reduce the amount of their numbers. Were their share of representation alone to be governed by this rule, they would have an interest in exaggerating their inhabitants. Were the rule to decide their share of taxation alone, a contrary temptation would prevail. By extending the rule to both objects, the States will have opposite interests which will control and balance each other and produce the requisite impartiality. (Emphasis added)

Therefore, another important purpose for the apportionment of direct taxes was to keep the states honest in reporting their population for the purpose of Congressional representation and to prevent poorer states from using their votes in Congress to simply drain wealth away from richer states. This they could accomplish by passing taxing bills that would allow their constituents to escape their proportional burden of the tax!4 This, of course, is exactly what has been happening — poorer western and southern states used their disproportionate Congressional power to drain wealth away from richer northern states. Our Founding Fathers put the apportionment provisions into the Constitution to insure that this would not happen — that taxation and representation would go hand-in-hand (regardless of wealth) and that Federal taxation could never be used to redistribute the nation's wealth. But this is precisely how income, estate, and gift taxes are being used today. As a result, the entire country — North and South, rich and poor — is suffering the economic consequences of such an unconstitutional practice.5

4 To see how this was ultimately accomplished, see the words of Representative Hill on page 176.

6 For additional historical references and supporting documentation regarding the constitutional meaning of direct and indirect taxes, see Appendix C.


The Federal Government's General Taxing Powers

Up to now we have examined the Federal government's specific constitutional taxing powers. Let us now examine its overall, legitimate taxing powers.

The people turned over general taxing power to the new government so it could achieve certain specific national objectives spelled out in Article 1, Section 8, Clause 1 of the Constitution (see Chapter 2) which limits the U.S. government's use of taxes to three specific areas. The U.S. government can levy taxes:

1. to pay the debts of the United States;

2. to provide for the common defense of the United States; and

3. to provide for the general welfare of the United States.

Note that the first limitation on the government's taxing powers is that it can only tax Americans to pay "the debts of the United States!' It obviously has no constitutional authority to tax Americans to pay anyone else's debts such as those of U.S. corporations (i.e. Chrysler), or of individuals (i.e. FHA mortgage or college loan guarantees), or the debts of individual states, and certainly not those of foreign countries (i.e. the interest on Polish Bonds owed to U.S. banks which was paid by the U.S. government). Government can only lawfully tax Americans to pay the debts of the United States.

The U.S. Constitution simply does not authorize the U.S. government to tax Americans for anything and everything that vote-seeking politicians and free-spending Washington lobbyists want them to pay for. The debts of private citizens and corporations as well as the debts of individual states and foreign governments are not the debts of the United States, and the U.S. Constitution does not give the U.S. government any authority to tax working Americans to pay for such things. All such payments are illegal and a blatant abuse by the U.S. government of its taxing powers.

U.S. Government Not Authorized to Lend Money

This constitutional restriction (allowing the U.S. government to tax Americans only to pay the debts of the United States) is further complemented by another constitutional provision contained in Article 1, Section 8, Clause 2 of the Constitution which states "Congress shall have the power... to borrow money on the credit of The United States." Notice that the Constitution specifically authorizes the Federal government to borrow money, but nowhere does it allow the Federal government to lend money, or to guarantee private or corporate loans or the debts of individual states.

The Constitution also does not allow the U.S. government to tax working Americans for funds to give to a World Bank or an Export-Import Bank to use to finance private, commercial transactions and the grandiose schemes of foreign governments. The U.S. Constitution provides no such grant of power (either express or implied) so all Federal taxes levied for such "banking" purposes obviously represent a clear-cut usurpation of power by the Federal government and are totally illegal and Americans need not submit to it according to Marbury vs. Madison I Cr. 137.

Taxes For The Defense "Of The United States"

The Constitution next grants the Federal government the power to tax Americans "to provide for the common defense of the United States!' Those, therefore, who refuse to pay income taxes because they object to this or that war or because they believe that too much of the nation's budget goes for armaments are on untenable ground. The Federal government has the constitutional authority to tax for these purposes. One might object to such expenditures as wasteful or even stupid and ill- advised but, at least, they are constitutional! Whether such expenditures are proper is a political question that should be resolved at the ballot box. Americans, however, have no lawful basis for not paying income taxes because they do not like political decisions. It is one thing not to pay income taxes because the law itself does not require it or because the levy is unconstitutional. It is another thing not to pay income taxes because one simply disapproves of the nature or amount of constitutional expenditures.

Americans Not Required to Pay Taxes for Unconstitutional Purposes

It makes greater legal sense for such individuals to stop paying U.S. income taxes because such taxes are raised unconstitutionally for unconstitutional purposes since Americans are legally free to refuse to

pay taxes for purposes not authorized by the Constitution. Ironically, those Americans who have refused to pay U.S. taxes because of antipathy to military spending have generally been enthusiastic supporters of government subsidies to private individuals (euphemistically called "social programs") — thereby supporting illegal government expenditures and objecting to legal ones.

What is the "Defense of the United States"?

There are circumstances when what constitutes "the defense of the United States" can be open to question or interpretation. Can the U.S., for example, tax Americans for the defense of some foreign country? The answer to that is obviously no. However, if the defense of that foreign country is related to the defense of America or for the protection of America's vital interests, then the answer is yes. What should be noted, though, is that in this instance it is not the law that is being "interpreted" but the facts as they apply to the law. The facts can be open to "interpretation" but the law itself must be clear or it is not even law! Every freshman law student knows of the legal principle "void for vagueness" which means that if a law is vague (i.e. open to varied interpretation) "it must be void." If laws (including the Constitution) had to be "interpreted" then those laws (and the Constitution) would be "void for vagueness." The legal profession is continually misleading the public about the court's alleged authority to "interpret" the law. 1 Any such "authority" is nonsense.

The General Welfare

It is, however, a total perversion of this last provision that has enabled the U.S. government to escape every restraint placed upon it by the Constitution. The government — and supporters of more government — have completely misled the public concerning the meaning of the "general welfare" clause of the Constitution. This has enabled the government to invade all areas it wishes to, regardless of what the Constitution has to say about it.

This provision should make clear, however, that the "welfare" intended is the "general welfare" of the nation as a whole and not the "welfare" of specific individuals, specific companies, or specific segments of society no matter how deserving those individuals, companies or segments of society might be.

1 For a fuller discussion of such "interpretation, "see How Anyone Can Stop Paying Income Taxes, pages 148-151.

If the United States, for example, builds a foreign embassy, such an expenditure is obviously for the benefit of all Americans. If the government launches a weather satellite, presumably it is for the benefit of all Americans (though some might benefit more than others from the increased accuracy of weather forecasting). Such expenditures would be constitutionally lawful since they are made for the "general welfare" of all the people.

When the U.S. government (through taxation) takes money away from some and hands it over to others (disguised as "subsidies," "grants," "rent supplements," etc.), such activities are not to "promote the general welfare of the United States" but rather for the specific welfare of some at the expense of others. Of course, such expenditures do promote the welfare of many politicians (and the U.S. bureaucracy) who gain public office by promising to provide benefits (literally stealing the property of some in order to buy votes from others) under the guise of promoting the "general welfare!' Not only are such payments not authorized by the Constitution, they also obviously violate the equal protection clause of that document.

If it is sophistically argued that such "grants," "subsidies," "supplements, " etc. are indeed for the "general welfare of the United States" (when such is obviously not the case) it is because it is possible to argue or attempt to justify just about anything! Spanish inquisitors argued that burning people at the stake saved their souls and was thus in their best interest. All attempts to rationalize farm subsidies and other "entitlement" payments as being for the "general welfare of the United States" fall into this category.

When farm subsidies (paying grown men not to produce) were first introduced it was argued that without such subsidies small farmers would go under, leaving fewer farmers who would then be free to raise farm prices. The hypocrisy of the farm subsidy argument was revealed when Congress refused to end tobacco subsidies. Congressmen in favor of this subsidy argued that eliminating it would force tobacco farmers to grow more tobacco (to make up for the lost subsidy) causing tobacco and cigarette prices to fall which, in turn, would encourage more smokers (cigarettes now being cheaper) and thus cause even more cancer in the long run! Therefore, those lobbying for the continuation of tobacco subsidies argued exactly opposite to those who had proposed agricultural subsidies in the first place — and Congress bought their argument, too!

So we have the spectacle of the U.S. government spending millions on tobacco subsidies and millions trying to persuade Americans not to use the product they are taxed to subsidize. Presumably, subsidizing the spread of cancer is in "the general welfare of the United States!"

To further demonstrate the utter hypocrisy and illegality of such government payments and subsidies, the Supreme Court recently ruled that the Federal government could actually confiscate the home of a Dallas woman to satisfy alleged taxes owed by her late husband though her home was presumably protected by Texas homesteading laws. I get routine calls from individuals telling me that the IRS is trying to seize their homes in payment of back taxes. On the other hand, the Federal government purchased homes for the residents of Love Canal and provides rent subsidies to millions more. So here we have the U.S. government taking homes away from some in order to provide homes and rent supplements for others—all in the guise of doing it for the "general welfare!' Such government activity not only violates the taxing power and equal protection clauses of the Constitution, it also violates all logic, decency, and common sense.

The government has literally forced businesses to close because of IRS liens for back taxes. It also routinely lends money to other businesses (either to expand or to provide start-up capital). Can it be lawful or logical for the government to be able to tax some businesses out of existence in order to get the funds to launch or expand the businesses of others?

A Land of Serfs

When the Constitution was written, serfdom still existed in parts of Europe. It existed in Russia until 1861 and continued within the Hapsburg monarchy as late as 1781. Serfdom was a state of half-freedom with serfs owing the "lord and master" approximately 25 percent of their productivity. Taxation also existed in Europe, but tax paying Europeans were hardly serfs and it was certainly not the intent of America's Founding Fathers to establish serfdom in America under the tutelage of the Federal government. What was the nature of taxation in Europe when Americans gave the government the power to levy direct taxes? Insight into this subject can be found in Smith's The Wealth of Nations:

In all countries a severe inquisition into the circumstances of private persons has been carefully avoided.2

At Hamburgh every inhabitant is obliged to pay to the state, one-fourth per cent, of all that he possesses; and as the wealth of the people of Hamburgh consists principally in stock, this tax may be considered as a tax upon stock. Every man assesses himself5 and, in the presence of the magistrate, puts annually into the public coffer a certain sum of money,

2 Not so in America!

3 See How Anyone Can Stop Paying Income Taxes, pages 13,14 and 107.

which he declares upon oath to be one-fourth per cent, of all that he possesses, but without declaring what it amounts to, or being liable to any examination upon that subject. This tax is generally supposed to be paid with great fidelity. In a small republic, where the people have entire confidence in their magistrates, are convinced of the necessity of the tax for the support of the states, and believe that it will be faithfully applied to that purpose, such conscientious and voluntary payment1' may sometimes be expected. It is not peculiar to the people of Hamburgh. (Emphasis added)

Incredibly, this is how America's current income tax system is also supposed to operate — on the basis of "voluntary payment" and "self-assessment." But most Americans do not know this. The current Internal Revenue Code only allows American citizens to assess themselves and gives the IRS no authority to do so if citizens refuse (see pages 256, 257). Of course the IRS (with the protection of U.S. courts) violates both the law and the principle of self-assessment and collects taxes on the basis of fraudulent and illegal assessments which the government has no authority to make. The IRS then proceeds to enforce payment by deceit, intimidation and extortion — all under the protection of the U.S. Department of Justice and both Federal and States courts!

Note that the good citizens of Hamburgh "volunteered" (under oath) as to what they owed. Note further that they were "not liable to any examination upon that subject." Their sworn statements were considered good enough! Not so for 20th century Americans. Like so many robots, Americans line up and swear under penalty of perjury what they believe (incorrectly) they owe and then submit to exhaustive tax audits, thereby surrendering both 4th and 5th Amendment rights, which expose them to possible prosecution and conviction for tax evasion if their sworn statements are shown to be incorrect! If the U.S. government (as even 19th century Hamburghers must have known) is not going to accept a sworn statement as correct, why bother giving one in the first place?

It is obvious that 20th century Americans (despite all their apparent schooling) do not possess the understanding shown by 19th century Hamburghers. The tax paid by those good citizens of Hamburgh constituted only one quarter of one percent of their assets. Thus a citizen worth $100,000 need only have paid $250. Such citizens could afford to be honest!

4 See Chapter 1 ("Surprise! The Income Tax Is \bluntary!) of How Anyone Can StopPay-ing Income Taxes and pages 242-244 of this book.

How High Should Direct Taxes Be?

The Wealth of Nations, which deeply influenced Amerka's Founding Fathers, comments thusly:

In Holland, soon after the exaltation of the late prince of Orange to the stadtholdership, a tax of two per cent, or the fiftieth penny, as it was called, was imposed upon the whole substance of every citizen. Every citizen assessed himself and paid his tax in the same manner as at Hamburgh; and it was in general supposed to have been paid with great fidelity. The people had at that time the greatest affection for their new government, which they had just established by a general insurrection. The tax was to be paid but once; in order to relieve the state in a particular exigency. It was, indeed, too heavy to be permanent. In a country where the market rate of interest seldom exceeds three per cent, a tax of two per cent, amounts to thirteen shillings and fourpence in the pound upon the highest neat revenue which is commonly drawn from stock. It is a tax which very few people could pay without encroaching more or less upon their capitals. In a particular exigency the people may, from great public zeal, make a great effort, and give up even apart of their capital, in order to relieve the state. But it is impossible that they should continue to do so for any considerable time; and if they did, the tax would soon ruin them so completely as to render them altogether incapable of supporting the state. (Emphasis added)

A tax of 2 percent on capital was believed by Smith to be "too heavy to be permanent." Moreover, a tax of $2,000 paid by an individual worth $100,000 was believed to be so heavy a tax burden that it could not continue "for any considerable time" and would "ruin taxpayers so completely as to render them altogether incapable of supporting the state? This, of course, is exactly what is happening to America today. Smith believed a tax of $2,000 paid by a person with $100,000 was too severe to be permanent, yet many Americans today pay $5,000 in income taxes when they do not have $15,000 to their name. That's more than one-third of their worth! Some people actually have to borrow money in order to pay income taxes.

When the framers of the Constitution thought of direct taxes (as opposed to "duties," "imposts," and "excises") they were obviously thinking of a direct tax that might take from one quarter to perhaps two percent of an individual's capital. They certainly did not envision a type of direct tax that would take away more from Americans than what was taken from serfs by their lord and master — or more than the total wealth they possessed!

U.S. Government Now Presumes to Own All Private Wealth

From time to time the U.S. government releases studies purporting to show how much revenue it loses because of certain tax exemptions and deductions. These studies invariably show how much the government (theoretically) "loses" because of interest, medical or charitable deductions, personal exemptions, etc. All such studies reflect the thinking that any money the government does not take in taxes it has theoretically lostl In essence, this philosophy reflects the thinking that any money taxpayers get to keep for themselves has somehow been given to them by a charitable government. Such reasoning could justify requiring citizens to send in all their money to the government — with the government returning whatever it thinks the citizen deserves.

Sadly, our nation has arrived at a situation where (despite Constitutional safeguards to the contrary) working Americans are held in a form of feudal bondage by the U.S. government for the benefit of an illegal, parasitic, Washington-based, bureaucratic complex.5

slndeed, the Federal government has literally established a "slave state," see page 389.


What The U.S. Government

And America Are All


The U.S. government was created by people who did not, for a moment, believe they were creating a "new" government capable of destroying the sovereignty of the states and/or capable of intruding into practically every facet of a citizen's private life as the U.S. government now does. Such an undertaking was the farthest thing from their minds. Indeed, had they thought this possibility existed, the Constitution never would have been adopted at all. They believed they were creating a new government primarily to attend to the external affairs and needs of the thirteen states (and those destined to follow) and for a few important, but limited, internal matters. The problem facing them was how to give the new government enough power to accomplish these goals without making it so powerful that it could intrude and interfere with each state's sovereignty and the private lives of individuals. This presented a difficult problem and the document that emerged to solve it was the Constitution.

In preparing the Constitution our Founding Fathers studied the various forms of government that had, from time to time, flourished on this planet: the Cantons of Switzerland, the German Confederation, the Italian city-state, the Roman republic, and the Ionian League to name only a few. They sought to protect the American public from the problems, mistakes, and dangers they perceived in these and other forms of government. They also understood the power of demogogues and the danger of mob rule with which they associated "democracy" and they sought to protect America from this as well. Incidentally, Americans are now taught to believe that America is a "democracy!' Such a belief, however, is false. America was created as a democratic republic, and tragically most Americans do not have the slightest idea of what that term means or how it differs from a "democracy!' The following excerpts from Federalist Paper #10, written by James Madison, reveal why the Found-

ing Fathers never intended to create a democracy. They also reveal the level of insight, understanding, and sense of justice that existed among those who established our great Republic and the wide gulf that separates them from the charlatans who now run it. Such insights and concerns as expressed by Madison are totally foreign to the thinking of America's present-day legislators, while most of the barriers carefully thought out and erected by our Founding Fathers to protect the public and minority factions from the evils referred to by Madison, have long since been removed.

AMONG the numerous advantages promised by a well-constructed Union, none deserves to be more accurately developed than its tendency to break and control the violence of faction. The friend of popular governments never finds himself so much alarmed for their character and fate as when he contemplates their propensity to this dangerous vice. He will not fail, therefore, to set a due value on any plan which, without violating the principles to which he is attached, provides a proper cure for it. The instability, injustice, and confusion introduced into the public councils have, in truth, been the mortal diseases under which popular governments have everywhere perished, as they continue to be the favorite and fruitful topics from which the adversaries to liberty derive their most specious declamations. The valuable improvements made by the American constitutions on the popular models, both ancient and modern, cannot certainly be too much admired; but it would be an unwarrantable partiality to contend that they have as effectually obviated the danger on this side, as was wished and expected. Complaints are everywhere heard from our most considerate and virtuous citizens, equally the friends of public and private faith and of public and personal liberty, that our governments are too unstable, that the public good is disregarded in the conflicts of rival parties, and that measures are too often decided, not according to the rules of justice and the rights of the minor party, but by the superior force of an interested and overbearing majority. However anxiously we may wish that these complaints had no foundation, the evidence of known facts will not permit us to deny that they are in some degree true. It will be found, indeed, on a candid review of our situation, that some of the distresses under which we labor have been erroneously charged on the operation of our governments; but it will be found, at the same time, that other, causes will not alone account for many of our heaviest misfortunes; and, particularly, for that prevailing and increasing distrust of public engagements and alarm for private rights which are echoed from one end of the continent to the other...

The latent causes of faction are thus sown in the nature of man; and we see them everywhere brought into different degrees of activity, according to the different circumstances of civil society. A zeal for different opinions concerning religion, concerning government, and many other points, as well of speculation as of practice; an attachment to different leaders am-

bitiously contending for pre-eminence and power; or to persons of other descriptions whose fortunes have been interesting to the human passions, have, in turn, divided man kind into parties, inflamed them with mutual animosity, and rendered them much more disposed to vex and oppress each other than to co-operate for their common good. So strong is this propensity of mankind to fall into mutual animosities that where no substantial occasion presents itself the most frivolous and fanciful distinctions have been sufficient to kindle their unfriendly passions and excite their moat violent conflicts. But the most common and durable source of factions has been the verious and unequal distribution of property. Those who hold and those who are without property have ever formed distinct interests to society. Those who are creditors, and those who are debtors, fall under a like discrimination. A landed interest, a manufacturing interest, a mercantile interest, a moneyed interest, with many lesser interests, grow up of necessity in civilized nations, and divide them into different classes, actuated by different sentiments and views. The regulation of these various and interfering interests forms the principal task of modern legislation and involves the spirit of party and faction in the necessary and ordinary operations of government.

No man is allowed to be a judge in his own cause, because his interest would certainly bias his judgment, and not improbably, corrupt his integrity. With equal, nay with greater reason, a body of men are unfit to be both judges and parties at the same time; yet what are many of the most important acts of legislation but so many judicial determinations, not indeed concerning the rights of single persons, but concerning the rights of large bodies of citizens? And what are the different classes of legislators but advocates and parties to the causes which they determine? Is a law proposed concerning private debts? It is a question to which the creditors are parties on one side and the debtors on the other. Justice ought to hold the balance between them. Yet the parties are, and must be, themselves the judges; and the most numerous party, or in other words, the most powerful faction must be expected to prevail. Shall domestic manufacturers be encouraged, and in what degree, by restrictions on foreign manufacturers? are questions which would be differently decided by the landed and the manufacturing classes, and probably by neither with a sole regard to justice and the public good. The apportionment of taxes on the various descriptions of property is an act which seems to require the most exact impartiality; yet there is, perhaps, no legislative act in which greater opportunity and temptation are given to a predominant party to trample on the rules of justice. Every shilling with which they overburden the inferior number is a shilling saved to their own pockets.

It is in vain to say that enlightened statesmen will be able to adjust these clashing interests and render them all subservient to the public good. Enlightened statesmen will not always be at the helm. Nor, in many cases, can such an adjustment be made at all without taking into view indirect and remote considerations, which will rarely prevail over the immediate interest which one party may find in disregarding the rights of another or the good of the whole.

The inference to which we are brought is that the causes of faction cannot be removed and that relief is only to be sought in the means of controlling it effects.

If a faction consists of less than a majority, relief is supplied by the republican principle, which enables the majority to defeat its sinister views by regular vote. It may clog the administration, it may convulse the society; but it will be unable to execute and mask its violence under the forms of the Constitution. When a majority is included in a faction, the form of popular government, on the other hand, enables it to sacrifice to its ruling passion or interest both the public good and the rights of other citizens. To secure the public good and private rights against the danger of such a faction, and at the same time to preserve the spirit and the form of popular government, is then the great object to which our inquiries are directed. Let me add that it is the great desideratum by which alone this form of government can be rescued from the opprobrium under which it has so long labored and be recommended to the esteem and adoption of mankind.

By what means is this object attainable? Evidently by one of two only. Either the existence of the same passion or interest in a majority at the same time must be prevented, or the majority, having such coexistent passion or interest, must be rendered, by their number and local situation, unable to concert and carry into effect schemes of oppression. If the impulse and the opportunity be suffered to coincide, we well know that neither moral nor religious motives can be relied on as an adequate control...

... From this view of the subject it may be concluded that a pure democracy, by which I mean a society consisting of a small number of citizens, who assemble and administer the government in person, can admit of no cure for the mischiefs of faction. A common passion or interest will, in almost every case, be felt by a majority of the whole; a communication and concert results from the form of government itself; and there is nothing to check the inducements to sacrifice the weaker party or an obnoxious individual. Hence it is that such democracies have ever been spectacles of turbulence and contention; have ever been found incompatible with personal security or the rights of property; and have in general been as short in their lives as they have been violent in their deaths. Theoretic politicians, who have patronized this species of government, have erroneously supposed that by reducing mankind to a perfect equality in their political rights, they would at the same time be perfectly equalized and assimilated in their possessions, their opinions, and their passions.

A republic, by which I mean a government in which the scheme of representation takes place, opens a different prospect and promises the cure for which we are seeking. Let us examine the points in which it varies from pure democracy, and we shall comprehend both the nature of the cure and the efficacy which it must derive from the union.

The two great points of difference between a democracy and a republic are: first, the delegation of the government, in the latter, to a small num-

ber of citizens elected by the rest; secondly, the greater number of citizens and greater sphere of country over which the latter may be extended.

The effect of the first difference is, on the one hand, to refine and enlarge the public views bypassing them through the medium of a chosen body of citizens, whose wisdom may best discern the true interest of their country and whose patriotism and love of justice will be least likely to sacrifice it to temporary or partial considerations. Under such a regulation it may well happen that the public voice, pronounced by the representatives of the people, will be more consonant to the pubic good than if pronounced by the people themselves, convened for the purpose.. -1

... It must be confessed that in this, as in most other cases, there is a mean, on both sides of which incoveniencies will be found to lie. By enlarging too much the number of electors, you render the representative too little acquainted with all their local circumstances and lesser interests; as by reducing it too much, you render him unduly attached to these, and too little fit to comprehend and pursue great and national objects. The federal Constitution forms a happy combination in this respect; the great and aggregate interests being referred to the national, the local and particular to the State legislatures.

The other point of difference is the greater number of citizens and extent of territory which may be brought within the compass of republican than of democratic government; and it is this circumstance principally which renders factious combinations less to be dreaded in the former than in the latter...

... Hence,itclearlyappearsthatthesameadvantegBw/u'c/iarepub-lic has over a democracy in controlling the effects of faction is enjoyed by a large over a small republic — is enjoyed by the Union over the States composing it. Does this advantage consist in the substitution of representatives whose enlightened views and virtuous sentiments render them superior to local prejudices and to schemes of injustice? It will not be denied that the representation of the Union will be most likely to possess these requisite endowments. Does it consist in the greater security afforded by a greater variety of parties, against the event of any one party being able to outnumber and oppress the rest? In an equal degree does the increased variety of parties comprised within the Union increase this security. Does it, in fine, consist in the greater obstacles opposed to the concert and accomplishment of the secret wishes of an unjust and interested majority? Here again the extent of the Union gives it the most palpable advantage.

1 Thus Congressional representatives are not supposed to vote in the way even a majority of their constituents want them to. They are supposed to be smarter and more knowledgeable than those they represent. Yet some Congressmen make a big thing out of polling their constituents (seeking their views) prior to voting on an issue.

The influence of factious leaders may kindle a flame within their particular States but will be unable to spread a general conflagration through the other States. A religious sect may degenerate into a political faction in a part of the Confederacy; but the variety of sects dispersed over the entire face of it must secure the national councils against any danger from that source. A rage for paper money, for an abolition of debts, for an equal division of property, or for any other improper or wicked project will be less apt to pervade the whole body of the Union than a particular member of it, in the same proportion as such a malady is more likely to taint a particular county or district than an entire State.2

In the extent and proper structure of the Union, therefore, we behold a republican remedy for the diseases most incident to republican government. And according to the degree of pleasure and pride we feel in being republicans ought to be our zeal in cherishing the spirit and supporting the character of federalists. (Emphasis added)

In the final analysis, our Founding Fathers viewed government as a protection from bullies and other forms of social and political predators (both foreign and domestic) that would interfere with their liberty and pursuit of happiness as they viewed it. It should also be noted that the American Revolution was the only revolution where the revolutionists did not seek any property or favors for themselves but only sought their own personal freedom as compared to, for example, the Russian or Cuban revolutions.

America Is Different

Americans today have no concept of what makes America different from all other countries. In Europe, for instance, through century after century, kings and emperors ruled and commoners had practically no rights at all. Bit by bit over the centuries, though, Europeans gained the rights they now have (though in many European countries, even today, individual rights as we know them — such as habeas corpus — are still unknown). After the American Revolution, however, Americans had all their rights and did not have to contend with a sovereignty other than that of their own state governments.

Unlike Europe (and most other places on earth) the U.S government did not give the people their rights — it was the other way around. The people gave the Federal government its power, limiting it to certain restricted areas. These restrktions are what the U.S government has

8 Note that America eventually got all three of the "wicked projects" referred to by Madison: 1) paper money, 2) abolition of debt via government-created inflation and, at times, specific legislation suspending debt payments, and 3) legislation designed to equalize wealth via confiscatory estate, gift and income taxes.

constantly, over the years, sought to throw off. The U.S. government would like to operate like other interfering foreign governments^ but our Constitution forbids it!

The Purpose Of Government In America

American politicians (along with many of our nation's "educators" and media representatives) have thoroughly misled the American public concerning the legitimate role of government in America. Government now attempts to tell us what we can and cannot eat, who we can and cannot hire, what we must pay our employees, and how we must save for our old age. And now, according to the IRS, Americans are expected to keep daily logs of how they use their automobiles and home computers to justify tax deductions. Great numbers of Americans ("factions" as Madison would say) want something for nothing, and American politicians — in exchange for votes — seek to get it for them.

But, as worthwhile as some of these projects might appear, pursuing them is simply not the legitimate role of government in America, i The real role of government in America is the protection of individual rights — not the pursuit of economic or social goals. The forces of free enterprise and private social agencies (which free citizens always create) will deliver more goods faster, better, and cheaper than any collection of politicians and bureaucrats. The real problem is keeping them out of the way.

The Declaration Of Independence Defines The Role Of Government In America

A fundamental principle of American jurisprudence is 'The intent of the lawmaker is the law!' Since the U.S Constitution is our supreme law, the intent of the lawmakers who drew it up is, therefore, as important as the law itself. That intent is clearly and eloquently revealed in the second paragraph of the Declaration of Independence:

We hold these Truths to be self-evident, that all Men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty, and the pursuit of Happiness — That to secure these Rights, Governments are instituted among Men... (Emphasis added) '

So, in America, the proper role of government is to protect and "secure" our unalienable rights, not to try and provide us with all manner of economic services or to dictate how we should live or conduct our affairs (so long as we do not interfere with the rights of others).

If, however, our government's role is to protect both an individual's life and right to happiness, then it must also protect his property, since without property one can be deprived of both life and happiness.3

And, if individuals have an unalienable right to their property, how can the U.S government lay claim to so much of it under the guise of legitimate taxation and give it to others under various and sundry government programs such as farm subsidies, business loans, and "welfare" payments, to name only a few? It cannot. The U.S. government was not created so that politicians and bureaucrats could run our lives or the American economy.

The U.S. government was created to protect rights, period.4 The American economy, operating on the principles of free-enterprise, was expected to do the rest. The following citations from two authoritative sources will help illustrate this. The first comes from Grover Cleveland's Second Annual Message to Congress, delivered in December, 1886. The second is from the Supreme Court case of Loan Association vs.Tbpeka(1874).

When more of the people's sustenance is exacted through the form of taxation than is necessary to meet the just obligations of government and expenses of its economical administration, such exaction becomes ruthless extortion and a violation of the fundamental principles of a free Government. (Emphasis added)

And this is what the Supreme Court had to say on the subject:

To lay with one hand the power of the government on the property of the citizen, and with the other to bestow it on favored individuals . . .is none the less robbery because it is done under the forms of law and is called taxation.

3 If one has a right to life then one surely has a right to sustain that life. But it takes food, clothing and shelter to sustain life. Without such property one could die of starvation or of the elements. So depriving an individual of his property is tantamount to depriving him of his life and right to happiness. Liberals often talk about "human" rights as somehow being superior and often opposed to "property" rights. But "property" rights are "human" rights - they are a human's right to his own property and it is just as sacred and important as one's right to life. If, for example, slaves on a Southern plantation had all the rights with which we are generally so concerned (such as the right of free speech, of religion, of assembly, etc.) but all their productivity still belonged to their master, what good would all their other "rights" be? The difference between a slave and a free person is that a free person owns what he produces and a slave does not.

4 The U.S. Constitution did authorize the government to "establish post offices and post roads" but every other grant of power under the Constitution involved the protection of rights and/or the government's authority to regulate trade between the states, foreign governments or with the Indians.

Forgetting about the economic merits of free-enterprise over bureaucratic planning, what is clear is that the intent of the framers of the Constitution was to write a document that would protect an American's unalienable right to both his life and his property so he could pursue his own happiness — free of both private and public interference. Today the average working American has 60 percent of his spendable income taken to support government and its activities.5 How can Americans pursue their own happiness when government takes away more than half of their spendable income? It was the absence of such taxes prior to World War II that accounted for America's spectacular growth and its economic superiority and moral power — both of which are now largely gone.

The U.S. Constitution

Our Founding Fathers understood and distrusted the nature of government and knew the danger of endowing it with too much power. Almost to a man each understood what the famous British historian Lord Acton was to say generations later, "The government that governs best is the government that governs least!' Thomas Paine (whose pamphlet, Common Sense, paved the way for the Declaration of Independence) observed that "Government, even in its best state, is but a necessary evil; in its worst state, an intolerable one." And Thomas Jefferson summed up the purpose of the Constitution with these words, "In questions of power, then, let no more be heard of confidence in man, but bind him down from mischief by the chains of the Constitution."

Laws That Apply To Government

The U.S. Constitution is "...the supreme law of the land, and the judges in every state shall be bound thereby..." In addition, all members of Congress and all executive and judicial officers both of the United States and "of the several states, shall be bound by oath or affirmation to support this Constitution..."6 Americans forget that this document is a body of law directed at government, not at individuals. It was designed to protect the people from too much government! It imposes no restraints on the people, only restraints on government.7 These restraints

8 See Appendix A.

6 United States Constitution, Article 6, Clause 2, emphasis added.

7 The problem is, how do we prosecute U.S. government law-breakers when these lawbreakers have now taken over control of the courts and all Federal law enforcement activities?

and the Federal government's legitimate role is clearly and concisely explained in the following quote from James Madison, taken from Federalist Paper #45:

The powers delegated by the proposed Constitution to the Federal Government are few and defined. Those which are to remain in the State Governments are numerous and indefinite. The former will be exercised principally on external objects as war, peace, negotiations, and foreign commerce; with which the last, the power of taxation will, for the most part, be connected. The powers reserved to the several States will extend to all the objects which, in the ordinary course of affairs, concern the lives, liberties, and properties of the people and the internal order, improvement and prosperity of the State.

The operations of the Federal Government will be most extensive and important in times of war and danger; those of State Government in times of peace and security.8 (Emphasis added)

The U.S. Government's Constitutional Taxing Powers

With respect to the government's constitutional taxing powers, the intent of the Founding Fathers can be summarized as follows:

1. Taxes paid by the public directly to government are capitation or direct taxes and fall squarely within Article 1, Sections 2 and 9 of the Constitution and must be levied on the basis of apportionment.

2. All indirect taxes apply only to articles of consumption and fall within the provisions of Article 1 Section 8 of the Constitution and must be levied on the basis of geographic uniformity.

3. It was assumed that the Federal government's direct taxing powers would be used sparingly only during emergencies (principally war) and it was for that reason only that the new government was even given direct taxing powers.

4. The overwhelming majority of those who wrote and ratified the Constitution were totally opposed to the idea of the Federal government having direct taxing powers, but such authority was provided solely to enable it to raise revenue in times of war.

5. Those ratifying the Constitution fully believed that the new government would finance its normal, peace-time activities solely through indirect taxes (derived from taxing items of consumption).

6. Our Founding Fathers never would have given the new government taxing powers that would enable it to create "a Multitude of new Offices" containing "Swarms of Officers to harass our People and eat out their Substance" as is now the case.

8 How many people in the U.S. think of the powers of the Federal government as being "few and defined"? If the powers of the government are indeed "few and defined," how is it possible that it can now control so much of our personal and business lives?

7. The Constitution granted no taxing powers to the new Federal government for the purpose of redistributing wealth or for carrying out social and economic programs (thus establishing the unconstitutional and illegal nature of 60 percent of Federal expenditures),

The Constitution (Article 1, Section 8) only gives Congress power in sixteen clauses, seven of which deal directly with either military or foreign affairs. The so-called "elastic" clause (appearing at the end of that section) under which Congress is authorized to "make all laws which shall be necessary and proper for carrying into execution the foregoing powers," was clearly explained by Madison in Federalist Paper #44 as applying only to the enumerated powers listed in the previous sixteen clauses. Any attempts by the U.S. government to expand these enumerated powers under the "elastic" clause, would be, according to Madison, acts of "usurpation." This clause, however, is continually used by "educators" to justify U.S. involvement in almost any area it chooses to enter on the grounds that it made the Constitution a "living" and "adaptable" document. The 10th Amendment proves that no such "elasticity" was ever intended. And further proves that much of the power now wielded by the U.S. government is wielded illegally. It states:

The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.

You can clearly see that the only powers the U.S. government can legally exercise are those limited powers given to it in the Constitution with the States and individuals retaining all the rest.

The Bill of Rights

As added protection against any attempt on the part of the Federal government to encroach on individual rights, a Bill of Rights was immediately added to the Constitution listing specific rights (such as freedom of speech, of assembly, to petition, to bear arms, etc.), rights which the Federal government could make "no laws" prohibiting. These rights, however, are by no means all the rights secured under the Constitution as the 9th Amendment makes abundantly clear:

The enumeration of the Constitution of certain rights shall not be construed to deny or disparage others retained by the people.

Thus Americans are free to claim and assert numerous other rights not specifically mentioned in the Bill of Rights. For example, the Bill of Rights does not specifically list "privacy" as a protected right. You can,

however, assert this right as retained and protected under the 9th Amendment. Other rights can, of course, be claimed as 9th Amendment rights, such as one's right to take the type of medication one wants and not the type that government feels (however correctly) is appropriate.

A Brainwashed Public

Most Americans believe they must do everything the U.S. government tells them; that they have no rights that politicians, lawless U.S. judges, or the IRS cannot take away. For example, in 1971 three Connecticut chicken farmers were shown on television drowning baby chicks in a large tub. When asked by the reporter why they were doing this, they explained that the Nixon Administration's mandatory price ceilings on chickens would force them to sell their chickens below the cost of bringing them to market. So they destroyed them rather than lose money by marketing them. Incredibly these Americans believed that if it cost them $2.00 to produce a chicken the U.S. government could still compel them to sell it for $1.50. The very idea that the U.S. government has the legal authority to compel anyone to sell a product or service below cost is doubly ridiculous because, in addition to anything else, such an act would be in violation of the 5th Amendment, since it would deprive individuals of property without due process of law. Where in the Constitution, though, is the U.S. government even remotely authorized to dictate to anyone the price at which they can sell their wares? Yet this piece of legislation was passed by a "conservative" administration with a supposed bias for free-enterprise! But what is even more ridiculous is that the American public (including the media) accepted this outrageous piece of legislation without a murmur.

The Interstate Commerce Clause

A substantial amount of the U.S. government's illegally exercised power comes from its total perversion of the so-called "commerce" clause of the Constitution. This appears as the third clause of Article 1, Section 8 and states:

Congress shall have the power... to regulate commerce with foreign nations, and among the several states, and with the Indian tribes.

First of all, it is obvious why the U.S. government was empowered to regulate foreign commerce since one of the express responsibilities of the new government was in the area of foreign affairs, of which foreign commerce is obviously a part. The Indian tribes were treated as foreign

nations (we made treaties with them) so trade with them would also come under foreign affairs. The Federal government was given the power to regulate commerce "among the several states" to prevent individual states from raising tariffs or other trade barriers on the transshipment of goods across state boundaries. Such power was absolutely necessary to insure a free flow of goods between all the states. That this was the sole purpose and intent of this provision is made abundantly clear by Madison in the following passages from Federalist Paper #42:

The defect of power in the existing Confederacy to regulate the commerce between its several members is in the number of those which have been clearly pointed out by experience. To the proofs and remarks which former papers have brought into view on this subject, it may be added that without this supplemental provision, the great and essential power of regulating foreign commerce would have been incomplete and ineffectual. A very material object of this power was the relief of the States which import and export through other States from the improper contributions levied on them by the latter. Were these at liberty to regulate the trade between State and State, it must be foreseen that ways would be found out to load the articles of import and export, during the passage through their jurisdiction, with duties which would fall on the makers of the latter and the consumers of the former. We may be assured by past experience that such a practice would be introduced by future contrivances; and both by that and a common knowledge of human affairs that it would nourish unceasing animosities, and not improbably terminate in serious interruptions of the public tranquillity. To those who do not view the question through the medium of passion or of interest, the desire of the commercial States to collect, in any form, an indirect revenue from their uncommercial neighbors must appear not less impolitic than it is unfair; since it would stimulate the injured party by resentment as well as interest to resort to less convenient channels for their foreign trade. But the mild voice of reason, pleading the cause of an enlarged and permanent interest, is but too often drowned, before public bodies as well as individuals, by the clamors of an impatient avidity for immediate and immoderate gain.

The necessity of a superintending authority over the reciprocal trade of confederated States has been illustrated by other examples as well as our own. In Switzerland, where the Union is so very slight, each canton is obliged to allow to merchandises a passage through its jurisdiction into other cantons, without an augmentation of the tolls. In Germany it is a law of the empire that the princes and states shall not lay tolls or customs on bridges, rivers, or passages, without the consent of the emperor and the diet; though it appears from a quotation in an antecedent paper that the practice in this, as in many other instances in that confederacy, has not followed the law, and has produced there the mischiefs which have been foreseen here. Among the restraints imposed by the Union of the Netherlands on its members, one is that they shall not establish imposts disadvanta-

geous to their neighbors without the general permission. (Emphasis


The sole purpose of this clause was to prevent the states from laying "tolls or customs" on goods shipped across state lines. %t with this simple and limited clause the U.S. government has now taken centralized, bureaucratic control over the nation's entire economy, and with it, has reduced each state to a mere geographic expression.9

Note that the clause does not say the U.S. government can regulate any or all business engaged in commerce — it only gave the U.S. government authority to regulate the "commerce" (i.e. shipment) itself. The dictionary defines "commerce" as "an interchange of goods, usually on a large scale, between cities, states, or countries." What was clearly intended was the regulation of the actual shipment of goods across state lines. There is absolutely nothing in the wording of the clause that even remotely suggests that the law was to apply to the regulation of the businesses engaged in such commerce! No such thought ever entered the minds of those who wrote this clause into the Constitution.

Because the U.S. government was given the power to regulate "tolls and customs" between states, it has "interpreted" this limited power to mean that it can broadly regulate the working conditions and internal affairs of practically every American business — not just those that operate across state lines, but even those that merely use the products and services of out-of-state companies.

In 1976, for example, I operated an insurance agency that did business solely in the state of Connecticut. One day I received a notice from the U.S. Labor Department regarding the new increase in the Federal minimum wage law. Since I did not sell insurance in other states I could not see how I came under Federal labor laws but I decided to check with the Department of Labor anyway. I was asked if I sold insurance issued by out-of-state companies. I said yes.10 "In that case," I was told, "you come under U.S. Labor law!' Such an extension of the "commerce" clause of the Constitution is, of course, totally erroneous and an obvious perversion of both the law as written and the lawmaker's clear intent. But this is what U.S. judges have been allowing the U.S. government to do. Such "judges" have not been "interpreting" the Constitution, they have simply been ignoring it. In so doing they not only have violated their sworn oaths but they have become nothing less than subverters of the Republic.

9 The U.S. government now dictates state highway speeds through the withholding of subsidies. Today states have so little power they cannot even control their own speed limits!

10 It is practically impossible to run an insurance agency limited to the sale of policies issued only by in-state carriers.

U.S. Government's Power Illegally Acquired

Where did the U.S. government get most of the power it now wields if not from the Constitution? It usurped it. Apart from merely ignoring the law and clear intent of the interstate commerce clause, the U.S government "acquired" much of its illegal power by never relinquishing "temporary" emergency powers acquired during times of war.

For example, the U.S government only issued gold and silver coin until 1862 (pursuant to clauses in Sections 8 and 10 of Article 1 of the Constitution) when, for the first time, the government issued a limited amount of paper currency as a "temporary" war-time measure to finance the Civil War. From that moment on, the nation got paper currency on a permanent basis, even though the U.S. Constitution not only did not give the government any power to issue it, but it was specifically designed to eliminate such instruments from ever circulating. A provision allowing the Federal government to issue note currency (paper money) was actually included in the first two drafts of the Constitution, but it was stricken by a vote of ten to two. It was Madison who decided the vote for Virginia and he left this testimony:

The pretext for a paper currency, and particularly'for making the bill a tender, either for public or private debts, was cut off.

Commenting on this aspect of the Constitution, Robert Bancroft wrote:11

So the adoption of the Constitution is to be the end forever of paper money, whether issued by the several States or by the United States, if the Constitution shall be rightly interpreted and honestly obeyed.

Obviously, the Constitution is neither being "rightly interpreted" nor "honestly obeyed." And, because of it, the U.S. government is able to use fiat paper money to loot billions from the savings of an unsuspecting American public. Our Founding Fathers had first-hand experience with the financial tradgedies that stem from the use of such money. They had seen it become totally worthless. Similar currency had been issued by the Continental Congress (known as "continentals") and led to the saying "as worthless as a Continental." Some states also issued such currency. Rhode Island, for example, practically brought its entire economy to a standstill with repeated issues of paper money. Fully knowledgeable of the dangers of issuing paper currency, the framers of the Constitution sought to forever ban its use in America. Despite all

11 Bancroft's History of the Formation of the Constitution, 2 Vol., page 137.

their precautions (and the monetary restrictions written into the Constitution), however, the nation is now flooded with "continentals" — only now they are called "Federal Reserve notes."12 Franklin Roosevelt also ilegally nationalized gold in 1934 by resurrecting an "emergency" power created in 1918 in connection with World War I.

Witholding taxes were first imposed in 1942 as a temporary, World War II "Victory" tax. Subsequently it, too, became permanent and gave the U.S. government far more peacetime influence (since it now had substantially more money) and power than it ever had before. It is obvious that practically all of the monetary and fiscal powers currently exercised by the U.S. government were acquired as "temporary" war-time measures and are currently being illegally exercised in peace-time.

This gradual but relentless usurpation of power by the U.S government (and with it the erosion of both state and individual rights) was accomplished with the help of U.S judges who were far more interested in accommodating their employers (the U.S. government) than they were in enforcing the Constitution, so they continually bent the Constitution out of shape to help them do it. In the past U.S. judges merely bent the Constitution out of shape, today, however, (especially in tax matters) they have made it a dead letter.

Since our Founding Fathers never intended to give the Federal government more power than it needed to achieve its limited purpose (as explained by Madison), the American people are not bound by "laws" that obviously exceed the Federal government's "few and defined" legitimate powers. Regardless of what self-serving Federal judges say, Americans must now, en masse, heed the advice from James Madison as expressed in Federalist Paper #33:

If the federal government should overpass the just bounds of its authority and make a tyrannical use of its powers, the people whose creature it is, must appeal to the standard they have formed, and take such measures to redress the injury done to the Constitution as the exigency may suggest and prudence justify. . .it will not follow from this doctrine that acts of a larger society which are not pursuant to its constitutional powers, but which are invasions of the residuary authorities of the smaller societies will become the supreme law of the land. These will be merely acts of usurpation and will deserve to be treated as such. (Emphasis added)

12 For an in-depth discussion of this, see Chapter 1 ("The U.S. Money Swindle") of The Biggest Con: How the Government is Fleecing You, by Irwin Schiff (FREEDOM BOOKS: 1977).


Federal Real Estate Taxes

— How They Were Levied

and Colkcted

Now that we know the difference between direct and indirect taxes and the restrictions placed upon the Federal government's taxing powers by the Constitution, let us examine early Federal taxing statutes since they will reveal how the Federal government is still supposed to collect taxes (other than taxes on articles of consumption) even today. The first direct Federal tax was enacted on July 14,1798 when war with France appeared imminent. This, at least, fulfilled the expectations of those who argued that the Federal government needed an independent, direct taxing power since the tax was levied in response to an exigency. To prepare for that contingency Congress levied a direct tax of two million dollars.1 Much of the language and principles incorporated into that first direct tax act are still incorporated (though completely disregarded) in today's Internal Revenue Code. By analyzing and understanding this first direct tax law a better understanding of today's Internal Revenue Code, with less likelihood of being hoodwinked by the IRS, becomes possible.

Tax Apportioned To Each State

Under this first statute, the tax was apportioned to each state, right down to the pennies and mills. New Hampshire, for example, was apportioned the sum of $77,705.362, while New York was apportioned a tax of $181,680.707. So, in addition to New York's having to pay some $104,000 more, the state also had to come up with five more mills. The following, moreover, should be noted with respect to this first direct tax:

1 For the full text of this first tax statute, see Appendix C.

1. The tax was a direct tax based upon wealth, but the form of wealth was limited to "dwellings, lands and slaves." These forms of wealth were the easiest to identify and thus the easiest to assess because houses and lands are out in the open (with their ownership recorded in town records) and slaves can be counted. But how could the government pry open a citizen's strongbox and see how much gold and silver coin he had? Under this Act no citizen had to prepare his own tax return (listing his taxable assets) and swear "under the penalty of perjury" that such a "return" was true and correct and that he had computed his tax correctly. Assessing and computing U.S. taxes was the government's job (and still is today though Americans have been led to believe the opposite).

2. The law provided that the tax had to be first assessed before it could be owed. In other words, until an assessment was made no tax was due. The Internal Revenue Code, even today, provides for such assessments, but again, few Americans know this. Today the IRS even confiscates property in payment of taxes which have never been assessed pursuant to law. This first direct taxing statute clearly demonstrates that all taxes collected prior to an assessment being made are illegal, yet this is done today with the full knowledge and cooperation of U.S. courts.

3. In Section 2 the Act provided that dwelling houses "with the out-houses appurtenant thereto" on not more than two acres were to be valued at between $100 and $500, and were to be taxed at the rate of 20tf per $100 of assessed valuation. So the minimum tax in this category could be 200 and the maximum tax $1.00.

4. Taxes were then graduated from 300 per $100 on dwellings valued over $500 to a maximum rate of $1.00 per hundred on dwellings over $30,000.

5. A dwelling valued at $5,000 (which, in those days was a substantial one) would be taxed $25.00.

6. Slaves were to be taxed at the rate of 500 per slave.

7. The above amounts were to be "deducted from the sum. . . apportioned to (each) state" and the rest was to be assessed upon the lands within each state "at such rate per centum as will be sufficient to produce the said remainder!' Thus the tax rate that was to apply to land had to be set locally in order to produce the exact amount of the apportionment.

8. No tax was to be assessed upon properties which were "exempted from taxes by the laws of the states respectively!' Thus the Federal government was careful not to conflict with the taxing laws set up within each state.

This gives us a concrete understanding of how apportionment was supposed to work and what direct taxes are all about. Note that the tax rates themselves were well within (actually lower than) the limits referred to by Adam Smith. No one had to take out a loan to pay his taxes. Also note that all dwellings were taxed (albeit on a graduated basis) and no household escaped the tax because of an initial exemption. In addition, the Act did not provide for any deductions or exemptions. Though the tax was graduated, all those who had dwellings would pay something, even if it was only 200. A variable tax rate (set locally) was needed to produce the apportioned amount.

For the Federal government to legally collect direct taxes, these elements had to be present:

1. the total amount to be collected from all states had to be exactly determined;

2. specific sums then had to be exactly apportioned to each state, based on their congressional representation; and

3. variable rates of tax (of necessity) had to apply to each state to produce the apportioned amount.

It is therefore obvious that the Federal government, in levying direct taxes, cannot use a simple and uniform rate of tax to apply to all citizens throughout the country as it does today but, rather, must call on the states to develop their own variable tax rates.

How The Tax Was To Be Collected

1. Assessments were to be made by "supervisors of the several districts within the U.S" pursuant to instruction from the Secretary of the Treasury, "as soon as the valuations and enumerations had been completed in the state to which such supervisor belongs."

2. The tax became due and payable "after the expiration of three months after these instructions were received" by the supervisors.

3. The supervisors were authorized to reduce the tax rates if the sums assessed "will exceed the sum hereby apportioned." This re-emphasises the principle that individual tax rates must vary from state to state depending on the amount of each state's taxable wealth Lower tax rates would prevail in states with greater per capita wealth and higher tax rates would apply in states with lower per capita wealth. Though this way

seems unfair, it was designed to insure that Federal taxation would be directly related to representation. If a tax would be particularly burdensome to citizens of poorer states their legislators could work to defeat the tax. But our Founding Fathers were determined to make the constituents of voting congressmen directly responsible for the taxes their representatives voted to impose, and not be irresponsible as is the case today. This, again, was to prevent poorer states from using their congressional votes to drain wealth away from richer states (a principle that is reversed today). Thus rates (other than indirect ones on articles of consumption) when applied by the Federal government to the country as a whole, were to vary from state to state in order to fulfill the requirement of apportionment. The laws requiring apportionment are still in force today — that is if the Constitution is still in force. The fact that these laws are disregarded by the Federal government is merely indicative of all the other laws it now disregards. 4. The supervisors were "authorized and required" to appoint their own tax collectors "within their collection districts" who would then collect the tax under the direction of the supervisors according to regulations.

5. After the assessments had been made the supervisors would "by special warrants . . . cause the surveyors of the revenue" to make out "lists" containing the amounts payable for "every dwelling house, tract or lot of land, and slave within each collection district, " and containing such other information as provided in the act. There were therefore three individuals involved in the collection of this tax: a) supervisors, b) collectors, and c) surveyors of the revenue. The surveyors also had to prepare a separate list of "lands, dwelling-houses and slaves" for property that was "not owned, or occupied by, or under the care or superintendance of any persons resident therein" of such owners "where known!'

6. The collectors were to be furnished by the surveyors of the revenue "with one or more of said lists signed and certified by such surveyor!' Before a citizen could be liable for any tax there had to be on record a "signed and certified" statement as to what he owed. Today the government (through the IRS) sends out notices of alleged income tax due that are not certified and, in many cases, are not even signed! Now what Federal official takes the responsibility for certifying that the income taxes the IRS claims is owed is legally owed? The reason for this is that no one can legally "owe" Federal "income" taxes since no such liability for them is written into the law!

7. Each collector, "on receiving a list," was to make three copies: one for the surveyor of the revenue acknowledging the "full and correct copy of such list" (said list to be open to "inspection of any person who may apply to inspect the same"); a second copy to be kept by the "inspector of the survey"; and the third copy to be kept by the "supervisor of the district." Thus all valuations and all taxes due were open to public inspection in much the same way as local property tax records are open to the public today.

8. The collectors were to be bonded "in at least double the amount of the taxes assessed on the collection district for which he may be appointed." This is one area where tax collection has substantially changed. Tax collectors are now full-time government employees.

9. Such assessed taxes would become "a lien upon all lands, and other real estate, and all slaves, of the individual for the same, during two years after the time when it shall become due and payable according to the act." Interestingly no such provision appears in the Code in connection with income taxes. No provision establishes a lien for such taxes or even states that such taxes "shall becomes due and payable." The reason is that the taxes provided for by the Fifth Congress were levied lawfully, pursuant to the Constitution, and did not violate anyone's constitutional rights. Being lawfully levied they could be collected by distraint (i.e. force). Since current income taxes are not levied pursuant to any taxing clause in the Constitution and do violate a number of constitutional rights, they cannot be legally mandatory or legally collected by distraint. That is why there is no requirement for paying income taxes, nor any penalties, nor any provisions for collecting them by distraint anywhere in the Internal Revenue Code. This being the case, the Federal government cannot legally confiscate property (as it now does) in payment of U.S. "income" taxes.2 However, Federal judges (in league with the U.S. Justice Department) allow the IRS to fraudulently use (in connection with income taxes) enforcement provisions that, by law, can only apply to certain valid excise taxes — such as tobacco and alcohol — and the public is none the wiser. Of course, the law is deliberately writ-

2 While the Code does provide for liens in general, the provision restricts their application to taxes for which one is liable, thereby excluding liens for "income" taxes (see pages 254^256.

ten in such a confusing manner as to make this outrageous scam almost impossible to detect.3

10. After the collectors got their lists they were to post them "in at least four public places in each collection district, (to note) that the said tax has become due and payable and the times and places at which they will attend to receive same."

The Revenue Act of 1813

Some fifteen years elapsed before Congress again exercised its power of direct taxation. This occurred on July 22,1813 when, as a result of the War of 1812, Congress levied a direct tax of three million dollars. An examination of that Act will show how the government again attempted to collect direct taxes expediently and lawfully and will bring us even closer to the language and principles contained in today's Internal Revenue Code. The Act differed from the Act of 1798 in four significant ways:

1. It provided for the apportionment of the tax down to the county as well as state level;

2. it did not contain any overall tax rates at all but left their determination to local assessors;

3. it provided for the making of "lists" by taxpayers; and

4. it provided that the states themselves could pay their apportioned amount and take a 15% discount.4

Federal Collection Districts

The Act created 382 Federal collection districts which conformed to county districts and apportioned the tax right down to these collection districts. The first page of this thirteen page Act (see Appendix C) shows how it provided for such districts in the eighteen states that made up the Union. It also provided for "one collector and one principal assessor" for each of these districts.

A Companion Act of August 2, 1813 provided for the exact apportionment of the three million dollar Federal tax both by state and district (county) level. This district breakdown accounted for seventeen of

3 For in-depth proof of this deception (and a discussion of how Treasury Regulations deliberately misstate the law) see The Schiff Report, Volume 1, Numbers 2, 3, 5 and 6 and Volume 2, Numbers 4,5 and 6.

4 For relevant sections of this Act see Appendix C.

the nineteen pages in the bill. The Act also provided for the appointment by the principal assessor of assistant assessors. All assessors were required to take an oath that they would execute their office "without favor or partiality" and that they would seek to do "justice in every case." It further provided for penalties against those assessors who did not take this oath. These penalties were to be in favor of both the United States and "to him who shall first sue for same, to be recovered with costs of suit, in any court having competent jurisdiction!' This penalty provision was further supplemented by Section 29 which provided for penalties against collectors who shall "be guilty of any extortion or oppression under color of law!' Note that Congress attempted to keep the assessors and collectors honest and within the law. No such consideration now even enters the minds (let alone the law) of the Federal government. In providing that individuals could sue in "any court having competent jurisdiction," the Federal government apparently made no attempt to limit such suits to Federal courts but allowed citizens to bring them in state courts—where they belong.5 Today if a citizen sues an IRS agent in a state court the Federal government sees to it that it is removed to a Federal District Court where it is assured that its own judges will "bag" the case by seeing to it that the charges are arbitrarily dismissed.6


This Act established a new procedure requiring taxpayers to furnish the assessors with written "lists" of their taxable property. Such lists (while entirely different from today's tax "return") obviously served as their forerunner.

First, note that Section 5 specifies that the tax provided for is a direct tax and further states that such a tax "shall be assessed." This demonstrates that a taxing statute should identify the type of tax it is and, before anyone can be liable for the tax, it must be assessed by the government. The Internal Revenue Code today, however, does not give the government any power to assess income taxes on its own. Unlike excise taxes, income taxes (by law) are based on self-assessment. The gov-

5 Challenges to Federal taxes should be heard in state courts and vice versa since state and Federal judges cannot be impartial concerning the taxes in which they have a direct stake. Judges, by definition, must be impartial, but such impartiality simply does not exist among Federal Judges sitting on Federal tax cases,

6 In case after case Federal judges routinely dismiss as "frivolous" or rule "these issues have already been decided, case dismissed" when the grievance concerns the IRS's illegal enforcement of income taxes.

ernment and Federal courts, however, allow the IRS to contrive assessments on their own in violation of law. And, unlike the Act, nowhere does today's Code identify whether the income tax is a direct or an indirect (excise) tax. Code Section 4986, for example, clearly identifies the windfall profit tax as being an indirect, excise tax7, while numerous other Federal taxes are grouped in the Code in sections specifically labelled as excise taxes. But nowhere is the income tax identified in the Code (as is shown in Section 5) as being either an excise or a direct tax.

Let me repeat that Section 6 required that "all persons owning, possessing, or having the care or management of any land, lots of ground, dwelling-houses or slaves . . ." had to deliver "written lists of the same" to the assistant assessors, "in such manner as may be directed by the principal assessor!' This was a significant departure from the Act of 1798 since no such lists were required of taxpayers under that Act.

Section 7 further provided that if individuals did not provide these lists, but should "consent to disclose" such information, then "it shall be the duty of the officer to make such list, which being distinctly read and consented to, shall be received as the list of such person." This wording is almost identical to the current wording of Code Section 6020 which covers the voluntary making of tax returns.

Note further that Section 8 provided for a civil penalty if anyone submitted a "false or fraudulent list, with intent to defeat or evade" the tax. There were no criminal penalties for filing fraudulent lists or for failing to file any lists at all. The government criminally prosecutes individuals today for such tax "crimes." These "crimes" were not enumerated in this Act because tax statutes are civil statutes and the government cannot, by civil statute, create "crimes." In fact, nothing in today's Criminal Code (Title 18) gives Federal courts criminal jurisdiction over "crimes" enumerated in the Internal Revenue Code (Title 26), which is why the Code does not even refer to criminal jurisdiction. In contrast, civil jurisdiction (which is clearly provided for in Section 1340 of Title 28 — the rules of civil procedure) is repeatedly mentioned in the Code. For example, Section 7402(f) states that Federal District courts have jurisdiction in "civil actions involving internal revenue!'

However, when this matter is raised by pro se litigants in the tax resistance movement when fighting false, criminal charges such as failing to file income tax returns — there is no such requirement in the

7 The windfall profits tax is an illegal excise because it is not levied on a consumable product or even on a contrived privilege. In addition, it is not levied on the basis of geographic uniformity since Alaskan oil is excluded from the tax.

Code nor is there any provision making that a crime — Federal judges simply ignore the matter and/or fabricate jurisdiction. But Section 8 of the Act of 1813 clearly shows that all criminal prosecutions for alleged tax crimes are illegal and that no criminal penalties in connection with such "crimes" were ever intended.

Section 10 provided that if taxpayers failed to submit lists of their own then it was to "be the duty of the assessor . . . to enter upon the lands, dwelling-houses and premises ... of such persons ... to make ... his own . . . list!' Taxpayers refusing to provide their own list could be fined $100.00. Note again that there were no criminal penalties for not filing, only civil ones. Also note that the government could not simply levy the fine but had to bring suit in court. Today the government levies $500 fines for allegedly filing "frivolous" tax returns or incorrect W-4s (employee withholding forms) without hearings of any kind and then proceeds illegally to collect these "fines" by garnishing wages and bank accounts without court orders.

Difference Between A List And A Return

There are tremendous differences between a list and a return. For one thing, a list enumerated the individual's taxable property and no attempt was made either to value the property or to determine the tax due. The list only included the real estate owned and the number of one's slaves. In addition, a list did not ask for any personal financial information or require that taxpayers provide other personal information such as medical expenses or charitable contributions in order to arrive at their proper tax. As mentioned above, the most important distinction between a return and a list is that there was no attempt on a list to value the property listed or to calculate the tax due.

No Specific Tax Rates Applied

Another interesting aspect of this tax Act was that it made no attempt to establish specific tax rates! All applicable rates were to be established locally as provided in Section 16. The principal assessors were to "make out lists containing the sums payable according to the assessment . . . so as to raise upon the county or counties . . . the quota of the direct tax laid by the United States." Thus it became apparent that it was futile (due to the requirement of apportionment) to attempt to establish any uniform tax rate since the applicable rate would depend on the taxable wealth contained in each collection district.

Let us say, for example, there were 500 families in the county of Rockingham, New Hampshire, all living in houses worth approximately $3,000 each. This would amount to $1.5 million worth of "dwelling-houses!' Suppose the value of all land in Rockingham County was $500,000, making the total value of all land and real estate $2 million. The tax rate would have to be $12.65 per $1,000 to generate the total Federal tax due. Therefore, the average dwelling would be taxed at $37.95 and, if we assume that the land value was ten percent of the dwelling, we would get a total tax of $41.74 for the typical lot and house.

Suppose, however, that in Strafford County (which had to raise $17,698.60) there were only 300 dwellings worth approximately $2,000 each with all other land in the county worth $200,000. The tax rate in this county would have to be $22.10 per $1,000 to generate the apportioned tax. Therefore, in Strafford County the average household would pay $48.60 ($44.20 for the dwelling and $4.42 for the land) versus the average tax in Rockingham County of $41.74. So, while the average homeowner in Strafford was poorer than the average homeowner in Rockingham County, Strafford residents would have to pay a higher tax. A homeowner in Strafford County (having the same value dwelling and lot as a resident in Rockingham) would pay $72.93 as opposed to the Rockingham resident's tax of $41.74 — or 74 percent more. However, the Act provided that the States, by an act of their legislatures, could equalize the apportionments between the collection districts within their state! And even the assessors, in certain cases, were permitted to equalize the valuations between assessment districts. So every effort was made to assess the tax equitably within each state, and the Act provided for local authority to do it.

A State's 15 Percent Discount

The companion Act of August 2,1813 contained another interesting provision. It allowed each state to take a 15 percent deduction if it paid its quota before the 10th of February, and ten percent if paid before May 1st. This almost converted the Federal tax to a requisition (as provided for in the Articles of Confederation) and forcefully drove home the principle of apportionment. So individual states, if they so chose, could eliminate Federal tax collectors completely — and get a 15 percent discount to boot.

These were the major changes in the Act of 1813 over the Act of 1796, though the Act also contained more extensive provisions for hearings and appeals before assessments became final and prior to any tax becoming due. This is a big departure from today's method of collecting Federal taxes with individuals expected to pay such taxes before any assessments are made and before any hearings take place.

The third direct tax was for $6 million and was enacted on January 9,1815. This tax also was levied because of the War of 1812 and was similar to the Act of 1813 except that the Act made no attempt to apportion taxes down to the assessment districts, although the districts themselves were still maintained. The act provided for a "board of principal assessors" who would be responsible for equitably establishing the assessment for each district and the rate of tax in order to equalize assessments and tax rates within the state.

With respect to persons who did not pay up, the collector was to go at "once to their respective dwellings. . . and there demand the taxes payable!' If the taxes were not paid within twenty days, collectors were authorized to collect them by distress sale, for which they could keep an 8 percent commission. Certain items such as "tools or implements of a trade or profession. . . and household utensils" were to be exempt from such distress sales. There is no comparable section (relating to income taxes) in the current Internal Revenue Code. The Code actually establishes that property cannot be taken except by court order, but this provision is totally ignored by the IRS, the U.S. Department of Justice and the courts. IRS revenue officers routinely seize property for income taxes allegedly owed without court orders or hearings of any kind. For the constitutionally required due process and the requirements of the statute, the IRS has substituted intimidation—aided and abetted by the courts.

The Act also provided for dismissal of collectors and included specific penalties if any one of them willfully refused or neglected "to surrender his collection list and to render a true account of all monies collected". More importantly, it provided for specific penalties in lawsuits brought against collectors who resorted to "extortion or oppression under color of this act or shall demand other or greater sums than shall be authorized by law ..." This was an important provision since it sought to protect the public from unlawful acts of tax collectors, a class who historically have a reputation for such abuses, and would serve to deter them from breaking the law.

Today the public apparently has no comparable protection. IRS agents now break both Federal and state law with impunity and the public tamely accepts it8. There is no comparable section in the Internal Revenue Code for the protection of the public. On the contrary, Section 7422 (c) of the Internal Revenue Code actually seeks to protect IRS lawbreakers and interposes the doctrine of res judicata in suits "against any officer or employee of the United States... for the recovery of any internal revenue tax alleged to have been wrongfully collected, or of any

8 Effective measures that citizens can take to fight back are discussed in Chapter 18.

penalty claimed to have been collected without authority, or any sum alleged to have been wrongfully collected." So where the Fifth Congress sought to protect the public from the abuses of tax collectors, present legislation does everything possible to protect tax collectors who engage in abusive and illegal acts. Indeed, all the enforcement activities of the IRS are practiced illegally and designed to terrorize the public into believing that our income tax system is really compulsory.


The Civil War: The Seeds Of Tax Tyranny Are Sown

Some forty-five years passed before America got another direct tax. This one was for $20 million and was enacted on August 5,1861 during the Civil War. Fort Sumter had been bombarded four months previously and the North had already suffered its first major military defeat at the first Battle of Bull Run in July. It was under such circumstances that the tax was passed.

The Act containing the tax also provided for another type of tax never before levied in America — a Federal income tax. This tax was plainly unconstitutional on its very face and never could have been adopted except for the War (just as withholding tax never could have been foisted on the people had America not been in the throes of World War II). In passing this "income" tax, Congress contrived it as an indirect tax in order, it hoped, to circumvent the apportionment provisions of the Constitution, even as it flagrantly violated the Bill of Rights. The 1861 income tax was allowed to stand even after the war was over, until 1871, and set the stage for a pattern of complicity between the Federal judiciary and power-hungry Washington politicians who have since used it to expand the power of the U.S. government while eroding the rights of citizens and the lawful authority of state governments.

The Direct Tax Aspects of the Act of 1861

Since three prior direct tax acts had already been passed in which constitutional rights and procedures were preserved, this war-time Congress must have labored long to so radically subvert the taxing powers in the Constitution.

The Act (similar to all prior acts) apportioned the tax among all thirty-four states that then constituted the Union — including the states in the Confederacy — plus seven territories and the District of Columbia. Again, no rate of tax was established in the Act. Tax rates were to be set locally (depending on the amount of taxable property) to pro-

duce the apportioned amount. The provisions for levying and collecting the tax were similar in almost every respect to the provisions of the Act of 1815, in sharp contrast to its "income" tax provisions.

No Criminal Penalties Applied to Public

First of all, the Act stated that it was a direct tax to be "assessed and laid on the value of all lands and lots of ground, with their improvements and dwelling-houses" but unlike all prior Acts, did not provide for the inclusion of slaves when determining the tax due. Taxpayers were required to submit lists of their taxable property while the collectors were authorized to enter the "lands, buildings, dwelling-houses, and premises" and make lists of their own in cases where no lists were submitted. In addition, the Act only provided for civil penalties for those who filed either fraudulent lists or filed no lists at all. The President was authorized to appoint, for each assessment district, an assessor and collector who had to be "freeholders and residents within same." All collectors were required to be bonded and they (as well as the assessors) were authorized to appoint assistants who also had to be "freeholders? All assessors and assistant assessors were required to take the same oath as covered on page 61, and were liable to both the government and the public if they did not. A board of assessors was provided for and it was authorized 1) to establish the rate of tax, based upon the amount of taxable property in each collection district, 2) to hear appeals, and 3) to equalize assessments. The Act provided that if any inequality were found in the apportionment, it was to be reported to Congress so that it could be corrected. Section 22 established an appeals procedure wherein the assessors were to "receive, hear, and determine, in a summary way, according to law and right, upon any and all appeals. . . " In addition, Section 12 provided that the assessors, in preparing their lists of taxable property, were to do so "by all other lawful ways and means." The only criminal penalties provided by the Act were to apply to the collectors themselves — those who did not turn over or account for the monies collected (as explained on page 65) while taxpayers were further protected by provisions in Section 47.

Pay for the assessors and assistant assessors was provided for in Section 30 while collectors were to be paid according to Section 48. The Act also contained provisions in Section 53 that allowed each State to pay its total quota of the direct tax and to deduct either 10 percent or 15 percent from the amount due, depending upon when the tax was paid. Thus the wording of the direct tax act of 1861 was almost verbatim to that of the Act of 1815.

The Income Tax Rears Its Ugly Head

The income tax portion of the Revenue Act of 1861 took up less than four pages and was covered in seven sections. For that feat we can, at least, take off our hats to the 34th Congress. Today's income tax and related sections, by contrast, take up more than 2,000 sections and 1,000 pages with thousands of pages of Treasury regulations.1 The four pages of the Act of 1861, nevertheless, laid the groundwork for an eventual American Gestapo through which the government would abolish every right contained in the Constitution. The full text of the income tax provisions of that Act can be found in Appendix C.

Three Percent Tax Rate

Note that the rate of tax was 3 percent for incomes in excess of $800 though Americans living abroad were taxed at 5 percent while "income" from U.S notes and other securities were to be taxed at 1-lVz percent. To put the tax in its proper perspective, it should be noted that an American earning $1,000 per year (better than average since the per capita annual income in America in 1860 was approximately $150) would owe $6.00 in income taxes. This was, at least, reasonable and close to the levels referred to by Adam Smith. Such a tax rate did not convert taxpayers into slaves or serfs (which rates in excess of 25 percent obviously do). In contrast, income tax rates reached 90 percent from 1944 to 1964. High levels of taxation may be justified in time of war when greater sacrifices from the people can be expected and demanded, so income tax rates reached a height of 3 percent during the Civil War for Americans living in the states.

What Constitutes "Income"?

With the exception of a deduction permitted for taxes, the Act did not provide for any deductions or exemptions. On the face of it, therefore, it should have been an easy tax to figure. The reality was something else. Since no "lists" were required to be completed (either by the assessors or the taxpayers) showing the "income" subject to the tax, how could one determine what type of documentation was used to establish the tax? It would appear from the wording of the law that, initially, it

1 So complicated is this overwhelming mass of regulations that IRS tax collectors are frequently found to be ignorant of its provisions.

was to be based on the assessor's best judgement. In addition, if no deductions were provided for, how was "income" determined?

Were farmers, for example, allowed to deduct the cost of seed, fertilizer, and the wages of hired hands (including the cost of their keep)? Could ranchers deduct the cost of their stock and all the costs of bringing their cattle to market? Could grocers and other merchants deduct the cost of their wares (as well as such costs as advertising, salaries, maintenance of their place of business, etc.) before their "income" was determined? The original Act did not say. It would appear that "income" had to be determined on a purely arbitrary basis if only by its vagueness and, as such, the tax had to be illegal, regardless of any other consideration. But, to the extent that the tax was arbitrary, it was not unlike today's income tax — because what constitutes "income" today is just as arbitrary (regardless of the 1,000 pages in the current "law") and thus it too has to be illegal.

A Phony "Duty" Is Created!

In order to avoid the apportionment provisions of the Constitution, the Act of 1861 labelled the income tax "an internal duty!' This was done so that the tax would fall under Article 1, Section 8 of the Constitution and not under Article 1, Sections 2 and 9 and, therefore, it could be collected as an indirect tax — one not subject to apportionment. An income tax is not, by any stretch of the imagination, a "duty" — internal or otherwise. A "duty" is a tax applied to articles as they are imported into a country (though there are sometimes export duties) and is obviously an indirect tax. The tax is added to the price of the product and is passed on to the ultimate consumer who pays the tax indirectly. To the extent that such "duties" are levied internally, they are referred to as excise taxes. An income tax, however, is clearly not a "duty" — it is a dir-rect tax, plain and simple. It is not paid indirectly by the public — it is paid directly by them to the government. It is a direct tax, based not on real estate or slaves, but on "income," whatever that means. (Moreover, such a term can never apply to individuals! See page 222.) How can a tax based on income fall into a different basic category than one based upon wealth? The government could have just as logically called the tax based on real estate an "internal duty" and proceeded to collect it without apportionment, though since Congress had already correctly identified it as a direct tax, Congress could not now change it. But the income tax was a new tax — so Congress felt that it could call it anything it wanted to, and who would be the wiser?

This was a clear case of government levying a direct tax in the guise of an indirect tax in obvious violation of the Constitution. The

government got away with it until 1872 when the tax was repealed. But this illegal, war-imposed tax, provided the basis for many other arbitrary and lawless acts to follow. It also laid the foundation for the Gestapo-like IRS we have today.

Act Created a New Federal Agency

Section 50 of the Act states that one principal assessor and one principal collector shall be appointed "in each of the States and Territories of the United States and in the District of Columbia, to assess and collect the internal duties or income tax imposed by this act. . . " Section 56 of the Act created a new position in the U.S. Treasury Department: a Commissioner of Taxes whose job it was to superintend "the collection of the direct tax and internal duties of income tax laid by this act!' Note that the word "duties" (in connection with income taxes) is used three times in this section. Note also that the Commissioner's salary was to be $3,000 per year and he was authorized to have "the necessary clerks . . . whose aggregate salaries shall not exceed six thousand dollars." In addition, Section 50 further authorized the assessors and collectors to appoint, with the approval of the Secretary of the Treasury, "so many assistants as the public service may require." The salaries of the principal assessors and collectors were to be $2,500 and $1,200 for their assistants — a juicy patronage plum for the President. In addition, the collectors were to be bonded.

First, note that the assessors and collectors (in the case of the income tax) were to be Federal employees, as opposed to the assessors and collectors of the direct tax who were not. Second, the collectors and assessors of the direct tax had to be residents of the collection districts they were in charge of. No such residence requirement was attached to these positions in connection with income taxes. Thus the assessors and collectors of the income tax could be strangers in the community and could be shifted from one state to another. They would be rootless and thus ruthless.

Criminal Penalties Now Created for Taxpayers

There were no criminal penalties that applied to the public in connection with the direct tax but such penalties were now created in connection with income taxes! In addition, there was no oath that the assessors or collectors of income taxes had to take that was comparable to the one imposed on those collecting direct taxes, nor did the Act provide for any penalties for income tax collectors if they collected the tax unlawfully or extracted more from the public than the law demanded — as was provided in previous statutes.

Tax Assessments Arbitrary

The most glaring omission regarding income taxes, however, was the absence of any "list" or "tax return" that had to be completed by either the taxpayer or the assessor. How then were the "assessments" provided for in Section 49 to be determined? On what document were they to be based? The Act did not say. It said only that the tax "shall be assessed upon the annual income of the persons hereinafter named. . . " but the Act itself does not give us a clue as to how the assessments were to be determined. At least under the direct tax the assessors were specifically authorized to visit the taxpayer's property to determine its value (if the taxpayer did not provide his own list) but no such direction or authorization is included in connection with income taxes. Were the assessors supposed to visit employers and ask questions concerning the salaries of their employees? Were they authorized to get information from the banks as to the possible interest earnings of the taxpayer? Were employers and banks required to give out this information? On all these points the Act was silent.2

In fact, Section 51 contains the only provision in the Act wherein citizens could be required to give the government information — and it concerns examining "under oath the person assessed under this act" in connection with discovering where he might have assets that could be seized by the tax collectors to satisfy the taxes owed. But this section has nothing to do with determining the tax itself. Notice, too, that no provisions were included that provided for due process or that indicated under what legal form these "examinations" were to take place. In addition, the section incredibly stated that "in case he refuses to testify, the said several collectors and assistants shall have power to arrest such person and commit him to prison, to be held in custody until the same shall be paid, with interest thereon, at the rate of six per centum per annum, from the time when the same was payable as aforesaid, and all fees and charges of such commitment and custody!' (Emphasis added.) In short, these provisions scrapped the Bill of Rights and placed the tax collector above the law. The Act provided that individuals could be thrown in jail for refusing to testify against themselves without a trial of any kind. Assessments could be levied with no prescribed documentation at all, with no machinery for appeals. Perhaps, since President Lincoln had suspended habeas corpus as a war-time measure, the Congress felt that it could abrocate the rest of the Constitution.

2No attempt was made in this chapter to comment on the various amendments and changes that were subsequently added to this Act. Eventual amendments provided that citizens had to supply either a "return or a list" and provisions were made for deductions from gross income.

Notice that these "examinations" took place only when tax collectors could not locate enough "visible property" or real estate of taxpayers to seize and sell in order to satisfy alleged tax liabilities. The collectors had to pry out of them where their other assets might be located. If direct taxes are based on the ownership of real estate then the property needed to satisfy the taxes is known and such "examinations" are unnecessary. This raises the question of why direct taxes should be based on only real estate. Why, for example, should a man with $100,000 in cash pay less of a direct tax than one who owns $100,000 in real estate? The answer is, he will not. The individual with $100,000 in cash has to live somewhere. The property where he lives will be taxed and his rent will therefore be higher in order to absorb the tax. In these cases, the direct tax on the landlord converts itself into an indirect tax on the tenant. The problem for society, however, is how to collect taxes equitably while still preserving the public's right to privacy (and all the other rights guaranteed by the Constitution) and how to avoid the abuses referred to by Hamilton on page 27 so that citizens do not end up as the property of the state.

An income tax, apart from being the most economically destructive tax possible,3 inevitably leads to the loss of almost every constitutional right as illustrated by Section 51 and as demonstrated by the manner in which the IRS collects income taxes today. When taxes are collected on the basis of real estate and on articles of consumption, such tyranny can be avoided. The easiest way, however, for the government to collect taxes is to have them be reasonable so the public will not cheat or try to avoid them, but rather, will regard them as a cheap price to pay for the economic and social benefits that presumably result from a well-run government. Today, runaway taxation is directly responsible for government waste running into billions of dollars.4

The avoidance of taxes in America is now a full-time activity, with tax shelters a twenty billion dollar a year industry. Almost every American business decision is now based upon tax implications. Income tax considerations affect such decisions as whether or not to own a home, when a child should be born, when people should be married or if they should stay married, as well as the financial terms of a divorce.

3 See The Biggest Con: How The Government is Fkecing You (by Irwin Schiff, Hamden, CT: Freedom Books, 1977), Chapter 7: "U.S. Taxes — How They Have Coverted the American Worker into a Serf and Chapter 8: "Taxes: The Arsenic in Our System."

4 J. Peter Grace, head of The Grace Commission, President Reagan's private-sector group formed to survey areas of cost-control inefficiencies within government recently commented, "If you are still paying taxes. . . Hi, sucker!'For the complete commentary on this report by the late Jason Tyrell, State Chairman of The Committee To Stop IRS Tax Abuses headquartered in Darien, Connecticut, see The Schiff Report, Volume 2, Number 4.

Government Usurps Power To Seize Private Property Unconstitutionally

As explained earlier, the most important constitutional right Americans have (and what probably distinguishes us—theoretically— from citizens of any other country) is contained in the Fifth Amendment which states: "No person shall. . . be deprived of life, liberty, or property, without due process of law!' In essence, "due process of law" means a hearing before an impartial judge with all the judicial safeguards provided in the 6th and 7th Amendments. Note, however, in Section 51 that collectors were authorized "to levy [i.e. seize] the same on the visible property of any such person." Collectors were authorized to seize property for the U.S. government without hearings or due process of any kind, in total disregard, and in complete violation of, the 5th Amendment. The IRS seizes property without hearings or court orders of any kind in exactly the same manner as provided for in Section 51 — only the technique appears to be a little more legal. The "laws" that apparently allow the IRS to get away with this are more elaborate, ensuring that the public cannot figure them out.5 But, in essence this aspect of the government's illegal income tax activities has not changed one iota from the obviously illegal nature of the original Act that inspired it.

The Tax Return Is Born

Strange as it may seem, the Tax Act of 1861 created the infamous income tax return, but that document was not for the public to complete, it was to be completed by the tax collectors themselves. The income tax return was born within the confines of Section 50 and authorized the Secretary to "prescribe the forms of returns to be made to the department by all assessors and collectors appointed under the authority of this act. He shall also prescribe the form of oath or obligation to be taken by the several officers authorized or directed to be appointed and commissioned by the President under the act, before a competent magistrate duly authorized to administer the oaths, and the form of the return to be made thereon to the Treasury Department." (Emphasis added.) Returns were to be prepared by the assessors and collectors and not by the public — why else would they be called "returns"? "Return" means "to go or come back, as to a former place: to revert to a former owner. . . "; and assessors and collectors (working for the government) could "return" the information they collected to the Treasury Department

B For an in-depth study of how the IRS goes about illegally seizing bank accounts, wages, homes, etc., see The Schiff Report, Volume 2, Numbers 4 and 6.

(which obviously was the real owner of all such information), and the documents containing the information were properly called "returns." But when private citizens complete and submit 1040s, are they returning anything to the government that belongs to the government? What citizens make out, therefore, are not "returns" at all — they are "confessions."

Citizens submit sworn "confessions" listing their receipts and disbursements (which they have been deceived into believing reflect their "income") and what they believe they owe in taxes; and the government has conned the public into believing that such "confessions" are really "returns." Would the government chance telling the public: "Tax confessions have to be in by April 15th?" 6 However, given the present level of understanding among Americans concerning their constitutional rights, they might at this point even believe they have to submit "confessions" if ordered by the government to do so!

Note also that "oaths" were to be administered (which presumably would be part of the "return") in much the same way as tax returns are signed today under penalty of perjury. But oaths can only be voluntarily given. You cannot be compelled to take an oath. Government employees, on the other hand, could be required to take an oath as a prerequisite to employment. If they objected to the oath, they did not have to work for the government but would still be free to work elsewhere. But private citizens, not on the public payroll, cannot be required to take oaths, which is why the filing of tax returns must be voluntary and why there is no provision in the Internal Revenue Code requiring anyone to file a tax return. True, some people have gone to jail for not filing income tax returns, but that is because Federal judges are willing to subvert the law and their oath to uphold the Constitution in order to extort income taxes from the American public. Because of such judicial perversion the public has been misled into believing that it is required to file income tax returns when such is not the case.

If citizens could be required to file anything, it would be "lists," not "returns"—and this distinction is still preserved in the law! In Section 6201 (Exhibit 7, page 257) of the Internal Revenue Code, the Secretary of the Treasury is authorized only to "assess all taxes determined by the taxpayer or by the Secretary as to which returns or lists are made under this title." (Emphasis added.) The Secretary, therefore, has no authority to assess any income tax unless taxpayers send in either a tax return or a list admitting receipts and expenditures. In this case, the government is authorized to make their assessments based on the in-

6In United States vs Kahriger 345 US 22, Supreme Court Justice Hugo Black observed, "The United States has a system of taxation by confession."

formation they voluntarily supplied. Code Section 6201 also clearly establishes that even today income taxes, by law, still have to be assessed before they can be lawfully due and payable. And the "list" (as referred to in the tax statute of 1798) is still preserved in our laws today — except that nobody in America (including the entire legal establishment) has any idea as to what the list referred to in Code Sections 6011 and 6201 actually mean. Now they should know!

The legal community will now know what a "list" is, while we know the source and basis of current Federal tax tyranny — it was a war-inspired tax. During a war-time crisis, the Federal government arbitrarily took the power to deprive people of both their liberty and their property (in total violation of the due process clause of the Constitution — to say nothing of a citizen's 5th Amendment right not to be compelled to be a witness against himself) and Federal judges allowed the government to do this — despite their sworn oaths to protect and defend that Constitution.

As far as providing the North with money to fight the War, both taxes were relatively unimportant. The North was forced to raise the bulk of its revenue through borrowing and the printing of paper money — eventually redeemed for gold subsequent to 1878.

The direct tax eventually took in about $17 million while the income tax took in about $347 million over the ten year period it remained in force. By comparison, the North raised approximately $2.683 billion in long-and short-term notes, including the $433 million raised through the issuance of "greenbacks" — unredeemable paper money. The total amount received by the North through all forms of taxation was only $667 million, showing the relative importance of debt creation as compared to taxation in the North's financing of the Civil War. It was this debt creation that was responsible for the Civil War inflation that cut the value of the dollar in half, though sounder money policies subsequently restored its value. In comparison, the inflation generated by the Federal Reserve (since its establishment) has reduced the value of our 1909 "dollar" by 94 percent.

The next time an income tax reared its ugly head was in 1894 when the Congress enacted another income tax statute. This time, however, in one of the greatest — but most ignored — Supreme Court decisions, the Court declared it unconstitutional.


The Supreme Court

Declares an Income Tax


In Pollock vs Farmers' Loan & Trust Co., the United States Supreme Court achieved its finest hour.1 In that momentous 1895 decision the Court declared the income tax act of 1894 unconstitutional and, in the process, corrected and clarified a number of prior Supreme Court decisions. This was, therefore, a rare decision since it took the unusual position of holding that a string of prior decisions were in error or misconstrued. In this case the Court refused to be bound by stare decisis (the powerful legal principle which generally binds Federal courts to blindly following and upholding prior court decisions). In this instance the Court maintained that it would be bound by a higher legal principle — fidelity to the U.S. Constitution. For such fidelity the Court received much harsh criticism which depicted it as a lackey of the rich.

In holding the income tax unconstitutional, the Supreme Court did an exhaustive review of:

1. the taxing provisions of the Constitution;

2. their historic underpinnings; and

3. a number of prior Court decisions.

Chief Justice Fuller wrote the opinion and his comments and research in these areas (together with a concurring opinion by Justice Stephen J. Field) provide an excellent background of the history and philosophy of American taxation.

The Pollock decision represents the most important weapon in the arsenal of those seeking a return to limited, republican government in America and it must, therefore, be resurrected from the judicial graveyard to which it has been consigned by both the Federal government and

There were two decisions in this case: 1) 157 US 429 was decided on April 8,1895, and 2) 158 US 601 was a rehearing that was decided on May 20,1895. Most of these excerpts were taken from the former case.

the American legal establishment. For ninety years this decision has been misrepresented, distorted and maligned by the entire legal establishment. Even the honesty and integrity of the judges who decided the case have been impugned.2 The Pollock decision offers concrete proof that the Supreme Court has been systematically subverting the U.S. Constitution.

Bear in mind that this landmark case has never been reversed. The legal principles expressed in it still hold and can be cited as valid legal precedent even today. Federal judges simply ignore the case (as if it never existed) since they can cite nothing to refute it. In addition, American law schools teach their students that the case was actually overturned by the 16th Amendment which is not true at all.

A thorough knowledge of this decision will provide a better understanding of the lawful basis of taxation in America than now exists among 99 percent of all practicing lawyers and the professors who "teach" them. Before turning to the decision itself, it should be noted that Pollock was represented by two outstanding attorneys — Joseph Choate of New York, one of the most renowned lawyers of his time, and George Edmunds, a former Senator from Vermont. Choate ended his remarks at the first hearing with the following statements:

I do not believe that any member of this court ever has sat or ever will sit to hear and decide a case the consequences of which will be so far-reaching as this — not even the venerable member who survives from the early days of the civil war, and has sat upon every question of reconstruction, of national destiny, of state destiny that has come up during the last thirty years. No member of this court will live long enough to hear a case which will involve a question of more importance than this, the preservation of the fundamental rights of private property and equality before the law, and the ability of the people of these United States to rely upon the guaranties of the Constitution. If it be true, as my friend said in closing, that the passions of the people are aroused on this subject, if it be true that a mighty army of sixty million citizens is likely to be incensed by this decision, it is the more vital to the future welfare of this country that this court again resolutely and courageously declare, as Marshall did, that it has the power to set aside an act of Congress violative of the Constitution, and that it will not hesitate in executing that power, no matter what the threatened consequences of popular or populistic wrath may be. With the deepest earnestness and confidence we submit that all patriotic Americans must pray that our views shall prevail. We could not magnify the scope of your decision, whatever it may be. No mortal could rise above "the height of this great argument." (Emphasis added)

2"The question arises, how far a court is entitled to indulge in bad history and bad logic without having its good faith challenged." Court Over Constitution (Princeton: 1938), page 188, by E. S. Corwin.

Income Tax Violated Apportionment Provisions

The Supreme Court declared the income tax of 1894 unconstitutional on the grounds that it was essentially a direct tax — one not apportioned and, therefore, unconstitutional. In a separate opinion (not adopted by the Court) Justice Field also argued that the tax was unconstitutional even if levied as an indirect tax, since its discriminatory features rendered it void of any uniformity.

Chief Justice Fuller first explained the Court's judicial duty in upholding the Constitution as follows:

Since the opinion in Marbury v. Madison, 1 Cranch, 137,177, was delivered, it has not been doubted that it is within judicial competency, by express provisions of the Constitution or by necessary inference and implication, to determine whether a given law of the United States is or is not made in pursuance of the Constitution, and to hold it valid or void accordingly. "If," said Chief Justice Marshall, "both the law and the Constitution apply to a particular case, so that the court must either decide that case conformably to the law, disregarding the Constitution; or conformably to the Constitution, disregarding the law; the court must determine which of these conflicting rules governs the case. This is of the very essence of judicial duty!' And the Chief Justice added that the doctrine "that courts must close their eyes on the Constitution, and see only the law,. .. would subvert the very foundation of all written constitutions" Necessarily the power to declare a law unconstitutional is always exercised with reluctance; but the duty to do so, in a proper case, cannot be declined, and must be discharged in accordance with the deliberate judgement of the tribual in which the validity of the enactment is directly drawn in question.3 (Emphasis added)

Then he went on to explain in detail the reasons for apportionment:

The men who framed and adopted that instrument had just emerged from the struggle for independence whose rallying cry had been that "taxation and representation go together."

The mother country had taught the colonists, in the contests waged to establish that taxes could not be imposed by the sovereign except as they were granted by the representatives of the realm, that self-taxation constituted the main security against oppression. As Burke declared, in his speech on Conciliation with America, the defenders of the excellence of the English constitution "took infinite pains to inculcate, as a fundamental principle, that, in all monarchies, the people must, in effect, themselves, mediately or immediately, possess the power of granting their own money, or no shadow of liberty could subsist." The principle was that the

^Pollock vs Farmers' Loan 157 US 429, page 554.

consent of those who were expected to pay it was essential to the validity of any tax.

The States were about, for all national purposes embraced in the Constitution, to become one, united under the same sovereign authority, and governed by the same laws. But as they still retained their jurisdiction over all persons and things within their territorial limits, except where surrendered to the general government or restrained by the Constitution, they were careful to see to it that taxation and representation should go together, so that the sovereignty reserved should not be impaired, and that when Congress, and especially the House of Representatives, where it was specifically provided that all revenue bills must originate, voted a tax upon property, it should be with the consciousness, and under the responsibility, that in so doing the tax so voted would proportionately fall upon the immediate constituents for those who imposed it.

More than this, by the Constitution the States not only gave to the Nation the concurrent power to tax persons and property directly, but they surrendered their own power to levy taxes on imports and to regulate commerce. All the thirteen were seaboard States, but they varied in maritime importance, and differences existed between them in population, in wealth, in the character of property and of business interests. Moreover, they looked forward to the coming of new States from the great West into the vast empire of their anticipations. So when the wealthier States as between themselves and their less favored associates, and all as between themselves and those who were to come, gave up for the common good the great sources of revenue derived through commerce, they did so in reliance on the protection afforded by restrictions on the grant of power*

Fuller then examined and reviewed the two great classes of taxation that were established in the Constitution:

Thus, in the matter of taxation, the Constitution recognizes the two great classes of direct and indirect taxes, and lays down two rules by which their imposition must be governed, namely: The rule of apportionment as to direct taxes, and the rule of uniformity as to duties, imposts and excises.

The rule of uniformity was not prescribed to the exercise of the power granted by the first paragraph of section eight, to lay and collect taxes, because the rule of apportionment as to taxes had already been laid down in the third paragraph of the second section.

And this view was expressed by Mr. Chief Justice Chase in The License Tax Cases, 5 Wall. 462, 471, when he said: "It is true that the

"Ibid., pages 556, 557.

power of Congress to tax is a very extensive power. It is given in the Constitution, with only one exception and only two qualifications. Congress cannot tax exports, and it must impose direct taxes by the rule of apportionment, and indirect taxes by the rule of uniformity. Thus limited, and thus only, it reaches every subject, and may be exercised at discretion."

And although there have been from time to time intimations that there might be some tax which was not a direct tax nor included under the words "duties, imposts and excises" such a tax for more than one hundred years of national existence has as yet remained undiscovered.. .5

In the above excerpt, Fuller reiterates the fact that there can be no lawful tax that does not fall into one class or the other.6 It should be noted that even in the following quotation Fuller did not hit the nail precisely on the head when explaining the differences between direct and indirect taxes, though he came close to it, and also conscientiously pointed out that "the Constitution may bear a different meaning (which) must be recognized." Instead of explaining that indirect taxes are simply taxes paid indirectly to the government on consumable items as opposed to taxes paid directly to the government based on various criteria, he chose to explain the differences in this manner:

Ordinarily, all taxes paid primarily by persons who can shift the burden upon someone else, or who are under no legal compulsion to pay then, are considered indirect taxes; but a tax whether real or personal, or of the income yielded by such estates, upon property holders in respect of their estates, and the payment of which cannot be avoided, are direct taxes.7

This was, of course, a good definition of direct versus indirect taxes and was, by far, the best definition to have appeared in any court case either before or since. Prior distinctions made by other courts were entirely incorrect. To say, as Fuller did, that an indirect tax is one where the payer can shift the burden of the tax to someone else is to state what happens when taxes are placed on articles of consumption. His definition does describe what actually happens when taxes are levied on articles of consumption, but it still unnecessarily complicates the distinction and fails to explain that the purpose of all such taxes is to tax the public indirectly rather than attempting to tax them directly.

5Ibid., page 557.

"Since the current income tax is levied neither as an excise tax nor as an apportioned, direct tax, it falls into neither of these "two great classes" and, therefore, cannot be a lawful tax as the Court explains.

^Pollock vs Farmers' Loan, supra, page 558.

Fuller then pointed out that "a tax upon property holders in respect of their estates, whether real or personal or of the income yielded by such estates and the payment of which cannot be avoided are direct taxes." This definition (which was ultimately adopted by the Court) again falls short of defining what a direct tax actually is, since it could be interpreted as limiting the tax to accumulated, tangible property, both real and personal. Thus some could argue that this definition excludes taxes based on wages or earnings from self-employment. But if one understands that an individual's labor is also personal property8 this (coupled with Fuller's recognition that a direct tax is one "which cannot be avoided") clearly establishes that taxes based on wages or the net earnings from self-employment must also fall into this category and, therefore, they too must qualify as direct taxes. Fuller's seemingly narrower definition, however, is understandable since by this time Federal courts had totally distorted the meaning and distinctions between the two classes of taxes. His definition, however, is certainly good enough to demonstrate that the government's present enforcement of the income tax (as well as gift and estate taxes) is totally illegal.9

Court Rules That an Income Tax is a Direct Tax

The important thing to note in this decision is that this Court ultimately ruled that a tax on income from real estate or personal property (such as dividends and interest) is, without question, a direct tax and, therefore, illegal if not apportioned. This principle is as valid today as it was then. The Court did not rule on whether a tax based on wages or self-employment income was also a direct tax because neither item was an issue in this case.

The case was initiated by Charles Pollock, a stockholder in Farm-

"In Butchers' Union vs Cresent 111 US 746 (1884), Justice Field (quoting from Adam Smith's The Wealth of Nations) said, "The property which every man has in his own labor, as it is the original foundation of all other property, so it is the most sacred and inviolable. The patrimony of the poor man lies in the strength and dexterity of his own hands, and to hinder his employing this strength and dexterity in what manner he thinks proper, without injury to his neighbor, is a plain violation of this most sacred property!'

8Notice I said the "enforcement" of the tax was illegal. The tax itself is not illegal since there is nothing in the Internal Revenue Code that requires anyone or any business to pay it or to provide the government with any information with respect to any aspect of it. The government is able to enforce it illegally — and thoroughly deceive the public — because of the cooperation it gets from the Federal judiciary, the U.S. "Justice" Department and all the rest of America's lawyers. For a fuller explanation of the voluntary nature of the income tax (as provided by law), see How Anyone Can Stop Paying Income Taxes (Schiff), and Chapter 15 of this book.

ers' Loan & Trust Company (a New Ifork corporation). He brought the action on behalf of himself and all other stockholders to restrain the company from paying the tax. The suit, therefore, was not a frontal attack on the act itself but came to the Court in the nature of a restraining order that had been denied by a lower court (see page 399). Pollock claimed "that voluntary compliance10 with the income tax provisions would expose the company to a multiplicity of suits not only by and on behalf of its numerous shareholders, but by and on behalf of numerous minors and others for whom it acts in a fiduciary capacity!' The trust company's assets were invested exclusively in real estate, municipal bonds, and common stocks and it was Pollock's contention that a Federal tax on these items was unconstitutional if not apportioned. The question of the taxability of wages and self-employment earnings, not being at issue in this case, was not ruled on. But the Court's analysis and decision relating to these other forms of income makes it clear that a tax on wages and self-employment earnings must also (employing the same logic) qualify as a direct tax (see page 121).

Getting Around Prior Case Law

In reaching this decision, Fuller had to dispose of a number of prior Supreme Court decisions which had obviously been made in error. This undoubtedly took a good deal of judicial courage and conscientiousness. After examining several earlier, erroneous Court decisions, Fuller explained why the Court would not be bound by the doctrine of stare decisis:

We proceed then to examine certain decisions of this court under the acts of 1861 and following years, in which it is claimed that this court has heretofore adjudicated that taxes like those under consideration are not direct taxes and subject to the rule of apportionment, and that we are bound to accept the rulings thus asserted to have been made as conclusive in the premises. Is this contention well founded as respects the question now under examination? Doubtless the doctrine of stare decisis is a salutary one, and to be adhered to on all proper occasions, but it only arises in respect of decisions directly upon the points in issue.11

The Court's Embarrassment

After quoting Chief Justice John Marshall and other authorities as a basis for not having to be bound by precedent, the Court, in a rare expression of its embarrassing predicament, explained:

10Note the admission here of the "voluntary" nature of the income tax. See also The Schiff Report, Volume 2, Number 5. "Pollock vs Farmers' Loan, supra, page 574.

... It is the decision in the case of The Thomas Jefferson which mainly embarrasses the court in the present inquiry. We are sensible of the great weight to which it is entitled. But at the same time we are convinced that, if we follow it, we follow an erroneous decision into which the court fell, when the great importance of the question as it now presents itself could not be foreseen; and the subject did not therefore receive that deliberate consideration which at this time would have been given to it by the eminent men who presided here when that case was decided.

... Manifestly, as this court is clothed with the power, and entrusted with the duty, to maintain the fundamental law of the Constitution, the discharge of that duty requires it not to extend any decision upon a constitutional question if it is convinced that error in principle might supervene.12 (Emphasis added)

Let us now examine some of the earlier Supreme Court decisions that the Pollock Court examined and temporarily corrected.

The 1794 Carriage Tax

It did not take long for the Supreme Court to begin its assault on the Constitution. The faulty 1796 Hylton decision could have resulted from simple error rather than from design. It involved an insignificant carriage tax passed by Congress in 1794. Though the tax remained in force for only two years, it was to directly and erroneously affect every tax law and decision that followed. So, in essence, the American public has been victimized for two hundred years by a 1794 tax on carriages, chariots, phaetons, and coaches. In reviewing the Supreme Court decision which upheld this carriage tax as an excise tax, the Pollock Court referred to the debates that took place in Congress in connection with its passage. For example, the Court quoted a House member as saying that

"... a capitation tax, and taxes on land and on property and income generally, were direct charges, as well in the immediate as ultimate sources of contribution. He had considered those, and those only, as direct taxes in their operation and effects. On the other hand, a tax imposed on a specific article of personal property, and particularly if objects of luxury, as in the case under consideration, he had never supposed had been considered a direct tax, within the meaning of the Constitution."13

The Court then provided additional statements made by other Congressmen, all of which indicate a surprising misunderstanding on their

"Ibid., pages 575,576. 13Ibid., page 568.

part of the specific nature of an indirect tax. Fuller continued with his analysis of the passage of the bill as follows:

At a subsequent day of the debate, Mr. Madison objected to the tax on carriages as "an unconstitutional tax" but Fisher Ames declared that he had satisfied himself that it was not a direct tax, as "the duty falls not on the possession but on the use.. "

Mr. Madison wrote to Jefferson on May 11,1794: "And the tax on carriages succeeded, in spite of the Constitution, by a majority of twenty, the advocates for the principle being reinforced by the adversaries to luxuries. . . Some of the motives which they decoyed to their support ought to premonish them of the danger. By breaking down the barriers of the Constitution, and giving sanction to the idea of sumptuary regulations, wealth may find a precarious defence in the shield of justice. If luxury, as such, is to be taxed, the greatest of all luxuries, says Paine, is a great estate. . ,"14 (Emphasis added)

We see, then, that Madison was of the opinion that the tax was unconstitutional and said that it was passed by men who were "adversaries to luxuries."

When Fisher Ames suggests that the "tax falls not on the possession but on the use" we can begin to see the type of confusion that politicians inject into the field of taxation. To suggest that the tax did not fall "on the possession" but on the "use" is sheer casuistry. If someone happens to own a carriage but does not "use" it, will he be excused from the tax? Conversely, if someone "uses" a carriage but does not own it, will he be taxed? The tax obviously fell on those individuals who owned carriages and they were expected to pay a new tax based on that ownership — and "use" had nothing to do with it. As cited in Pollock, the Act provided:

"... that there shall be levied, collected, and paid upon all carriages for the conveyance of persons, which shall be kept by or for any person for his or her own use, or to be let out to hire or for the conveyance of passengers, the several duties and rates following," and then followed a fixed yearly rate on every coach; chariot; phaeton and coachee; every four-wheel and every two-wheel top carriage; and upon every other two-wheel carriage; varying according to the vehicle."16

Elements of Two Taxes in One

The real problem with the carriage tax is that it actually combined, in one act, both an indirect and a direct tax. But since the ma-

14Ibid., page 569. 16Ibid., page 570.

jority of the members of Congress evidently did not care to see the distinction, they wandered off into legislative error. If Congress had simply taxed all carriages used for hire, such a tax would be indirect since it would be passed on to the public in the form of higher rental fees. The tax thus imposed could be handled by stamp, with the stamp displayed on all carriages used for hire. But when the tax is applied to carriages not for hire, such a tax is obviously not indirect at all. It is not a tax on the "use" of carriages but a direct tax based on their ownership and, as such, can neither be passed on nor avoided. It is no different than a tax based on the ownership of real estate or slaves — the only difference is in the nature of the property upon which the tax is imposed. But the Congress (for its own reasons) proclaimed that such a tax, allegedly being indirect, did not require apportionment. Such a determination and conclusion by Congress was obviously incorrect.

The Hylton Case — A Monstrous Supreme Court Error

Before refuting the fundamental error in this decision (i.e., that the carriage tax was an indirect, excise tax), Fuller sought to establish that the framers of the Constitution knew full well the differences between both classes of taxes and fully expected that each would be levied according to its own constitutional restrictions. To help dispel the myth that the Founding Fathers were unsure of the meaning of both direct and indirect taxes, the Pollock Court cited numerous historical references to establish that these terms meant exactly what we know them to mean, and that those who wrote the Constitution knew it too! No less than twenty-six excerpts from The Elliot Debates (see Appendix B) were included along with numerous quotes from The Federalist Papers, Adam Smith and other sources. This is the only place where the Supreme Court ever presented a comprehensive study of the meaning of these terms and the historical and constitutional setting in which they evolved. Despite all this, law book references to Pollock simply disregard the wealth of evidence the decision presents and disparage the decision out of hand. For example, in The American Constitution, Its Origins and Development,16 the authors claimed, with respect to Chief Justice Fuller, that:

His appeal to history did not bear out his contention. If his evidence proved anything, it was merely that the term "direct taxes" had as of 1787 no certain and fixed meaning at all...

It is difficult to escape the conclusion that the two Pollock cases con-

16Fifth Edition, (NORTON: New York), by Alfred H. Kelly and Winfred A. Harbison, pages 535 and 538-539.

stituted exceedingly unsound and unwise decisions on the part of the Court. The opinions disregarded one hundred years of decisions by the Court itself in which the meaning of a direct tax had been narrowly and definitely established...

The speciousness of Chief Justice Fuller's historical argument hardly needs further comment. He could not, in fact, show that in 1787 there was any general understanding about direct taxes.

Such contentions by the authors in this influential text are, of course, sheer nonsense since the evidence is overwhelming that the Court was right.

Fuller then discoursed on the development of the two taxing classes and the constitutional distinction between Federal and state governments. This sort of understanding is completely foreign to the thinking of most Americans today, though it is vital to this nation's welfare that the American public rediscover these distinctions and press for their enforcement.

Congress under the articles of confederation had no actual operative power of taxation. It could call upon the States for their respective contributions or quotas as previously determined on; but in ease of the failure or omission of the States to furnish such contribution, there were no means of compulsion, as Congress had no power whatever to lay any tax upon individuals. This imperatively demanded a remedy; but the opposition to granting the power of direct taxation in addition to the substantially exclusive power of laying imposts and duties was so strong that it required the convention, in securing effective powers of taxation to the Federal government, to use the utmost care and skill to so harmonize conflicting interests that the ratification of the instrument could be obtained.

The situation and the result are thus described by Mr. Chief Justice Chase in Lane County v. Oregon, 1 Wall. 71,76: "The people of the United States constitute one nation, under one government, and this government, within the scope of the powers with which it is invested, is supreme. On the other hand, the people of each State compose a State, having its own government, and endowed with all the functions essential to separate and independent existence. The States disunited might continue to exist. Without the States in union there could be no such political body as the United States. Both the States and the United States existed before the Constitution. The people, through that instrument, established a more perfect union by substituting a national government, acting, with ample power, directly upon the citizens, instead of the confederate government, which acted with powers, greatly restricted, only upon the States. But in many articles of the Constitution the necessary existence of the States, and within their proper spheres, the independent authority of the

States, is distinctly recognized. To them nearly the whole charge of interior regulation is committed or left; to them and to the people all powers not expressly delegated to the national government are reserved. The general condition was well stated by Mr. Madison in the Federalist, thus: 'The Federal and state governments are in fact but different agents and trustees of the people, constituted with different powers and designated for different purposes! Now, to the existence of the States, themselves necessary to the existence of the United States, the power of taxation is indispensable. It is an essential function of government. It was exercised by the colonies; and when the colonies became States, both before and after the formation of the confederation, it was exercised by the new governments. Under the Articles of Confederation the government of the United States was limited in the exercise of this power to requisitions upon the States, while the whole power of direct and indirect taxation of persons and property, whether by taxes on polls; or duties on imports, or duties on internal production, manufacture, or use, was acknowledged to belong exclusively to the States, without any other limitation than that of non-interference with certain treaties made by Congress. The Constitution, it is true, greatly changed this condition of things. It gave the power to tax, both directly and indirectly, to the national government, and, subject to the one-prohibition of any tax upon exports and to the conditions of uniformity in respect to indirect and of proportion in respect to direct taxes, the power was given without any express reservation. On the other hand, no power to tax exports, or imports except for a single purpose and to an insignificant extent, or to lay any duty on tonnage, was permitted to the States. In respect, however, to property, business, and persons, within their respective limits, their power of taxation remained and remains entire. It is indeed a concurrent power, and in the case of a tax on the same subject by both governments, the claim of the United States, as the supreme authority, must be preferred; but with this qualification it is absolute. The extent to which it shall be exercised, the subjects upon which it shall be exercised, and the mode in which it shall be exercised, are all equally within the discretion of the legislatures to which the States commit the exercise of the power. That discretion is restrained only by the will of the people expressed in the state constitutions or through elections, and by the condition that it must not be so used as to burden or embarrass the operations of the national government. There is nothing in the Constitution which contemplates or authorizes any direct abridgment of this power by national legislation. To the extent just indicated it is as complete in the States as the like power, within the limits of the Constitution, is complete in Congress.17 (Emphasis added)

Fuller further explained the "great" constitutional compromise that resulted in the development of the two classes of taxation and the fear that still existed among the states even after the classes and the

"Pollock vs Farmers' Loan, supra, pages 559-562.

restrictions were established. No Supreme Court (either before or since the Pollock case) ever explored these constitutional considerations with greater thoroughness.

Thus was accomplished one of the great compromises of the Constitution, resting on the doctrine that the right of representation ought to be conceded to every community on whkh a tax is to be imposed, but crystallizing it in such form as to allay jealousies in respect of the future balance of power; to reconcile conflicting views in respect of the enumeration of slaves; and to remove the objection that, in adjusting a system of representation between the States, regard should be had to their relative wealth, since those who were to be most heavily taxed ought to have a proportionate influence in the government.

The compromise, in embracing the power of direct taxation, consisted not simply in including part of the slaves in the enumeration of population, but in providing that as between State and State such taxation should be proportioned to representation. The establishment of the same rule for the apportionment of taxes as for regulating the proportion of representatives, observed Mr. Madison in No. 54 of the Federalist, was by no means founded on the same principle, for as to the former it had reference to the proportion of wealth, and although in respect of that, it was in ordinary cases a very unfit measure, it "had too recently obtained the general sanction of America, not to have found a ready preference with the convention, " while the opposite interests of the States, balancing each other, would produce impartiality in enumeration. By prescribing this rule, Hamilton wrote (Federalist, No. 36) that the door was shut "to partiality or oppression" and "the abuse of this power of taxation to have been provided against with guarded circumspection;" and obviously the operation of direct taxation on every State tended to prevent resort to that mode of supply except under pressure of necessity and to promote prudence and economy in expenditure.

We repeat that the right of the Federal government to directly assess and collect its own taxes, at least until after requisitions upon the States had been made and failed, was one of the chief points of conflict, and Massachusetts, in ratifying, recommended the adoption of an amendment in these words: "That Congress do not lay direct taxes but when the moneys arising from the impost and excise are insufficient for the public exigencies, nor then until Congress shall have first made a requisition upon the States to assess, levy, and pay, their respective proportions of such requisition, agreeably to the census fixed in the said Constitution, in such way and manner as the legislatures of the States shall think best." 1 Elliot, 322. And in this South Carolina, New York, New Hampshire, and Rhode Island concurred.18 (Emphasis added)

I8lbid., pages 563-564.

So the Court thoroughly established the constitutional differences between direct and indirect taxes (and why and how they were to be levied) and then turned to the Hylton case. Apparently there were six judges then sitting on the Supreme Court and Fuller noted that "Chief Justice Ellsworth and Mr. Justice Gushing took no part in the decision, and Mr. Justice Wilson gave no reasons." The other three Justices in the case wrote, as was then the practice, their own, separate opinions.

The Opinion of Justice Chase

The Court commented on Justice Chase's opinion as follows:

In Hylton v. United States, 3 Ball. 171, decided in March, 1796, this court held the act to be constitutional, because not laying a direct tax. Chief Justice Ellsworth and Mr. Justice Gushing took no part in the decision, and Mr. Justice Wilson gave no reasons.

Mr. Justice Chase said that he was inclined to think, but of this he did not "give a judicial opinion," that "the direct taxes contemplated by the Constitution, are only two, to wit, a capitation, or poll tax, simply, without regard to property, profession, or any other circumstance; and a tax on land;" and that he doubted "whether a tax, by a general assessment of personal property, within the United States, is included within the term direct tax!' But he thought that "an annual tax on carriages for the conveyance of persons, may be considered as within the power granted to Congress to lay duties. The term duty, is the most comprehensive next to the generical term tax; and practically in Great Britain, (whence we take our general ideas of taxes, duties, imposts, excises, customs, etc.,) embraces taxes on stamps, tolls for passage, etc., and is not confined to taxes on importation only. It seems to me, that a tax on expense is an indirect tax; and I think, an annual tax on a carriage for the conveyance of persons, is of that kind; because a carriage is a consumable commodity; and such annual tax on it, is on the expense of the owner!'19 (Emphasis added)

Fuller made no further specific comment on Chase's opinion but it is obvious that Chase was, indeed, confused. He believed that direct taxes only encompassed capitation taxes (personal taxes levied without regard to "property, profession, or any other circumstance"). If this were so, Article I, Section 9, Clause 4 of the Constitution would have read "No capitation or taxes on land shall be laid unless. . ." But the clause reads "No capitation or other direct taxes shall be laid unless. . ." This clearly signifies that capitations were merely one of many forms of taxes that might fall within that clause. Thus the framers of the Constitution

19 Ibid., pages 570-571.

were obviously talking about a class, a power of taxation, and not limiting the government's taxing power to specific items of taxation. His confusion resulted, no doubt, from the fact that "land" was the most common type of property used to levy a direct tax based on wealth. But direct taxes are not limited to one form of wealth.20 If land is property, would a tax measured by one kind of property fall into a different tax class (given only two classes) than a tax measured by another type of property? What also could have confused Chase was the fact that England apparently placed an excise tax on the sale of carriages and such a tax would indeed, be indirect. What he missed was that while a tax on the purchase of a carriage is an indirect tax (since the tax is paid to the seller), a tax paid directly to the government (based upon the ownership of a carriage) is obviously a direct tax. Such distinctions, however, were apparently lost on Chase who appears to have been hopelessly confused on this whole subject.

Justice Paterson's Opinion

Concerning this opinion Fuller wrote:

Mr. Justice Paterson said that, the Constitution declares, that a capitation tax is a direct tax; and, both in theory and practice, a tax on land is deemed to be a direct tax. ..Itis not necessary to determine, whether a tax on the product of land be a direct or indirect tax. Perhaps, the immediate product of land, in its original and crude state, ought to be considered as the land itself; it makes part of it; or else the provision made against taxing exports would be easily eluded. Land, independently of its produce is of no value ... Whether direct taxes, in the sense of the Constitution, comprehend any other tax than a capitation tax, and taxes on land, is a questionable point... But as it is not before the court, it would be improper to give any decisive opinion upon it!' And he concluded: "All taxes on expenses or consumption are indirect taxes. A tax on carriages is of this kind, and of course is not a direct tax'. This conclusion he fortified by reading extracts from Adam Smith on the taxation of consumable commodities."21 (Emphasis added)

It is obvious from the above that Paterson was just as confused as Chase. He also fails to understand that a tax on "expenses or consumption" is indirect because it is paid to the seller of the taxed product and the government would not even know who the actual payer of the tax was.

^The fact that slaves were included as taxable property in the direct tax acts of 1796, 1813, and 1815 is proof that Congress certainly did not believe that direct taxes were limited only to land.

31Pollock vs Farmers'Loan, supra, page 571.

A tax paid directly to government by an individual based on any type of property (consumable or otherwise) is, by definition, a direct tax. It should also be noted that all property (with the possible exception of land) is, in essence, "consumable." Homes get "consumed" as they age and deteriorate and money gets "consumed" as it is spent. It is obvious, therefore, that despite Paterson's apparent familiarity with Adam Smith's work (a work that he obviously misread) he, too, remained as confused as Chase.

The Opinion of Justice Iredell

Fuller wrote the following about Justice Iredell's opinion:

Mr. Justice Iredell said: "There is no necessity, or propriety, in determining what is or is not, a direct, or indirect, tax in all cases. Some difficulties may occur which we do not at present foresee. Perhaps a direct tax, in the sense of the Constitution, can mean nothing but a tax on something inseparably annexed to the soil; something capable of apportionment under all such circumstances. A land or a poll tax may be considered of this description... In regard to other articles, there may possibly be considerable doubt. It is sufficient, on the present occasion, for the court to be satisfied, that this is not a direct tax contemplated by the Constitution, in order to affirm the present judgement."22

Iredell's comments are so vague and inconclusive that it is obvious he did not have the faintest idea of what he was talking about either and was basically flying by the seat of his pants.

So here we have a Supreme Court decision based on the opinions of three Justices — none of whom obviously had the foggiest idea of what they were talking about. And, based upon such a totally erroneous decision, numerous, far-reaching Supreme Court decisions rest.

Fuller, out of obvious kindness to his former colleagues (and in order to preserve the dignity of the Court), avoids making specific comments concerning any of these separate opinions, and only summarizes the totality of these opinions in one short and restrained paragraph.

It will be perceived that each of the justices, while suggesting doubt whether anything but a capitation or a land tax was a direct tax within the meaning of the Constitution, distinctly avoided expressing an opinion upon that question or laying down a comprehensive definition, but confined his opinion to the case before the court.23


MIbid., pages 571, 572.

Hamilton's Inconsistency

An interesting aspect of the Hylton discussion was the part played by Alexander Hamilton (who prepared the government's case). After stating that Hamilton's brief "obviously influenced" the Court, Fuller quotes from that brief as follows:

... he [Hamilton] said: "The following are presumed to be the only direct taxes: Capitation or poll taxes, taxes on lands and buildings, general assessments, whether on the whole property of individuals, or on their whole real or personal estate. All else must of necessity be considered as indirect taxes."24 (Emphasis added)

While Hamilton's definition of what constitutes a direct tax is certainly broader than those of the three Justices (since his definition also includes "general assessments" and taxes upon personal property), he suddenly introduces the word "whole" as a significant criterion in determining whether a tax is direct or indirect. Presumably since the carriage tax did not attempt to tax the "whole (of a) personal estate" its status changed from direct to indirect. Such a distinction by Hamilton was, of course, absurd and can be found nowhere in his clear exposition of both forms of taxes as shown on pages 25—27. In any case, now that he was a part of the government, Hamilton enjoyed the fruits of power; while — when he wrote The Federalist Papers — he had none, save that which comes from an ability to logically and forcefully present the truth. Thus the corrupting influence of government service can be seen working even on an Alexander Hamilton.

Commenting further, Fuller noted that Hamilton stated in his brief that

If the meaning of the word "excise" is to be sought in a British statute, it will be found to include the duty on carriages, which is there considered as an "excise".. .25

and further,

that if "so important a distinction in the Constitution is to be real-, ized" its meaning should be sought in terms of "the statutory language of that country from which our jurisprudence is derived."26

First of all, why examine the statutory language of British law regarding the meaning of excises when Hamilton had explained them so

24Ibid., page 572.



well in Federalist Papers 12 and 21 (see pages 25 and 27)? In any case, why should an obscure tax on one item in the British economy settle a major American constitutional question? Since, however, Hamilton's observation did have a particular bearing on the income tax then under consideration, the Pollock Court was moved to observe:

If the question had related to an income tax, the reference would have been fatal, as such taxes have been always classed by the law of Great Britain as direct taxes.27

Court Reviews Tax Acts

Having disposed of any legal restraints imposed by the Hylton decision, Fuller next turned to briefly reviewing all the direct tax acts covered in Chapter six. Following that, the Court arrived at the Income Tax Act of 1861 which obviously presented the Court with a tax entirely similar to the one it was now considering. If the income tax before the Court was unconstitutional, so too was the income tax of 1861. Yet taxes under that Act had been collected for ten years! Had the government then extracted millions in taxes illegally? This obviously presented the Court with a terrible dilemma. Swallowing hard, the Court sought to distinguish the two income tax acts in the following manner:

The differences between the latter acts and that of August 15,1894, call for no remark in this connection. These acts grew out of the war of the rebellion, and were, to use the language of Mr. Justice Miller, "part of the system of taxing incomes, earnings, and profits adopted during the late war, and abandoned as soon after that war was ended as it could be done

safely!' Railroad Company u. Collector, 100 U.S. 595, 598___The act of

that date was passed in a time of profound peace, and if we assume that no special exigency called for unusual legislation, and that resort to this mode of taxation is to become an ordinary and usual means of supply, that fact furnishes an additional reason for circumspection and care in disposing of the case.28 (Emphasis added)

Court Distinguishes Between War and Peace

In contrast to these prior income tax acts (imposed in time of war), the Court pointed out that the Tax Act of 1894 was different in that it was imposed "in time of profound peace."


28Ibid., pages 573, 574.

Before discussing a number of Court cases upon which the constitutionality of the Income Tax Act of 1861 relied, Fuller firmly explained that, based upon all the direct taxing acts that had been passed, and all other things considered

1. That the distinction between direct and indirect taxation was well understood by the framers of the Constitution and those who adopted it. 2. That under the state systems of taxation all taxes on real estate or personal property or the rents or income thereof were regarded as direct taxes. 3. That the rules of apportionment and of uniformity were adopted in view of that distinction and those systems. 4. That whether the tax on carriages was direct or indirect was disputed, but the tax was sustained as a tax on the use and an excise. 5. That the original expectation was that the power of direct taxation would be exercised only in extraordinary exigencies, and down to August 15, 1894, this expectation has been realized.29

Three Important Cases

Of other Supreme Court decisions examined, three were most important: Insurance Co. vs Soule 7 Wall 433, VeazieBank vsFenno 8 Wall 533, and Springer vs U.S. 102 US 586.

Insurance Co. vs Soule

Fuller pointed out that in this 1869 decision

... the validity of a tax which was described as upon the business of an insurance company was sustained on the ground that it was "a duty or excise," and came within the decision in Hylton's Case.30

In checking the Soule case itself, however, we discover that that Court was for more enamored of the Hylton decision than the brief quote from Pollock suggests. I think it might be instructive to quote directly from the Soule decision.

What are direct taxes, was elaborately argued and considered by this court in Hylton v. United States.. .31 (Emphasis not added)

I suggest that that statement is not true, but then the Court added:

28Ibid., page 574.


^Insurance Co. vs Soule 7 Wall 433, page 444,

If a tax upon carriages, kept for its own use by the owner, is not a direct tax, we can see no ground upon which a tax upon the business of an insurance company can be held to belong to that class of revenue charges.32

Thus, we see how judicial error becomes compounded and codified into "law!' Despite the fact that the insurance company's brief explained the historic differences between direct and indirect taxes, the government was able to overcome all valid arguments solely because of theHyl* ton decision. The government merely claimed that:

The tax on incomes is not a "direct tax" within the meaning of the Constitution and is not subject to the rule of apportionment prescribed by Article 1, section 2, of the Constitution.

The case ofHylton v. U.S. 3 Dall, 171 seems conclusive on the point here raised.33

End of argument. The government apparently based its whole case on the totally erroneous Hylton decision and the Souk Court went along with it. Such is the power of prior Court decisions. In rendering its decision, the Court (in Soule) elaborated as follows:

The consequences which would follow the apportionment of the tax in question among the States and Territories of the Union, in the manner prescribed by the Constitution, must not be overlooked. They are very obvious. Where such corporations are numerous and rich, it might be light; where none exist, it could not be collected; where they are few and poor, it would fall upon them with such weight as to involve annihilation. It cannot be supposed that the framers of the Constitution intended that any tax should be apportioned, the collection of which on that principle would be attended with such results. The consequences are fatal to the proposition.34

This objection, while missing from the Pollock decision itself, was none-the-less decisively answered by that Court in the following manner:

Nothing can be clearer than that what the Constitution intended to guard against was the exercise by the general government of the power of directly taxing persons and property within any State through a majority made up from the other States. It is true that the effect of requiring direct

32Ibid., page 446. 33Ibid., page 439. 34Ibid., page 446.

taxes to be apportioned among the States in proportion to their population is necessarily that the amount of taxes on the individual taxpayer in a State having the taxable subject matter to a larger extent in proportion to its population than another State has, would be less than in such other State, but this inequality must be held to have been contemplated, and was manifestly designed to operate to restrain the exercise of the power of direct taxation to extraordinary emergencies, and to prevent an attack upon accumulated property by mere force of numbers.35 (Emphasis added)

In commenting directly on the Souk case the Pollock Court stated:

The arguments for the insurance company were elaborate and took a wide range, but the decision rested on narrow ground, and turned on the distinction between an excise duty and a tax strictly so termed, regarding the former a charge for a privilege, or on the transaction of business, without any necessary reference to the amount of property belonging to those on whom the charge might fall, although it might be increased or diminished by the extent to which the privilege was exercised or the business done. This was in accordance with Society for Savings v, Coite, 6 Wall. 594; Provident Institution v. Massachusetts, 6 Wall. 611; and Hamilton Company v. Massachusetts, 6 Wall. 632; in which cases there was a difference of opinion on the question whether the tax under consideration was a tax on the property and not upon the franchise or privilege.36 (Emphasis added)

A "privilege" tax is another fallacious issue (as explained fully on pages 141-143) that was created by Federal courts and apparently helped the government in this case. At least a tax on insurance premiums (as levied by many states) is indirect, since it is passed on to insurance buyers in the form of higher premiums. But how can there be any such thing as a "privilege" in connection with insurance? Those who buy insurance merely attempt to (collectively) protect themselves from a hazard of life, risks everyone faces. Insurance is not something that anyone really wants — it's a cost that responsible people absorb for the protection of themselves, their families, and society. By electing to pay (and thus allow for the pooling of risks), those who insure are less likely to become (or leave spouses and/or children to become) public charges because of death, disability or any of the other hazards one insures against. The pool of money formed by "insurance" is not created from the sale of any product or desired consumable service. It merely constitutes a common pool out of which the losses suffered by those in the pool can be paid. The building up of such a pool naturally creates many

^Pollock vs Farmers'Loan, supra, page 583. ^Ibid., page 576.

other expenses (in addition to the raw, actuarial cost of the risk itself) which also have to be absorbed by those insured. Any artificial increases in these expenses (such as taxes placed on insurance) only increases the cost to the public of insuring against life's hazards. All governmental taxes on insurance do is simply increase the price society has to pay to protect itself against tragedy. Is this a "product" that any sane and responsible government should consider taxing? In addition, of course, many of the social programs urged upon us by government and its supporters are responsibly handled by people through insurance. So government, by artificially increasing the cost of insurance by taxing it, diminishes its use and increases government's ability to propose its own wasteful alternatives.

A tax (allegedly on the profit of an insurance company) is, however, another matter and is a direct tax on the company itself (but related to profit rather than to the ownership of real estate, for instance). It can, by no stretch of the imagination, be said to be indirect. In addition, to suggest that it is a "duty" on the "privilege" of operating an insurance company is sheer judicial nonsense.37

Veazie Bank vs Fenno

In this decision, the Supreme Court upheld as legal a Federal tax laid on the circulation of state banknotes. In reaching its decision in this case, the Veazie Court again relied heavily on the Hylton case. The Court also said that the tax was a "duty" that fell within the same category of tax as that in the Soule case. Commenting on this decision the Pollock Court observed:

In Bank v. Fenno, 8 Wall. 533, a tax was laid on the circulation of state banks or national banks paying out the notes of individuals or state banks, and it was held that it might well be classed under the head of duties, and as falling within the same category as Soule's Case 7 Wall. 433.

S7Nb corporation (or any other business) should pay any form of direct tax — including property taxes. As explained earlier, in the final analysis only people pay taxes. It is important, therefore, that they realize exactly how much taxes they do pay. All business taxes are ultimately passed on to the public either in the form of higher prices, lower wages, lower dividends, or a combination of all three. Tax money that the government extracts from business must, eventually, come from all the people that these businesses serve — either their stockholders, employees or the consuming public. The public, however, never fully realizes that they actually pay all those Federal taxes ostensibly paid by "business!1 So in taxing "business", the politicians are able to hide the actual amount of taxes the public pays. If people were taxed directly (rather than indirectly through taxes on "business") they would realize how much in taxes they really pay and would never allow politicians to spend so much of their money. For more on this, see Irwin Schiff s How Anyone Can Stop Paying Income Taxes,

It was declared to be of the same nature as excise taxation on freight receipts, bills of lading, and passenger tickets issued by a railroad company. Referring to the discussions in the convention which framed the constitution, Mr. Chief Justice Chase observed that what was said there "doubtless shows uncertainly as to the true meaning of the term 'direct tax', but it indicates also an understanding that direct taxes were such as may be levied by capitation and on land and appurtenances, or perhaps by valuation and assessment of personal property upon general lists; for these were the subjects from which the states at that time usually raised their principal supplies." And in respect of the opinions in Hylton's Case the chief justice said: "It may further be taken as established upon the testimony of Paterson that the words 'direct taxes', as used in the constitution, comprehended only capitation taxes and taxes on land, and perhaps taxes on personal property by general valuation and assessment of the various descriptions possessed within the several states."38 (Emphasis added)

This decision was, therefore, based on two erroneous prior Supreme Court decisions and also on the fallacy that those who wrote the Constitution did not know what they were writing about. While the Pollock Court cites little else from this decision, digressing from the Pollock decision and covering the Veazie case in far more detail is relevant here since it was an extremely important, though totally erroneous, decision. Substantially (and illegally) it increased the Federal government's power in two vital areas: 1) its ability to create paper money; and 2) its ability to levy taxes illegally. Therefore, it represents one of the most important decisions to ever come before the Court — yet the extent of the deception involved in this case has never been fully explored. The case vividly demonstrates how the Supreme Court can throw both fact and law to the winds when it wants to contrive a decision favorable to the government.

It must be noted that this decision was written by Chief Justice Samuel Chase who was Lincoln's Secretary of the Treasury when these taxing statutes were adopted. Since he was largely responsible for designing these measures, he was not exactly an impartial judge. In all fairness to him, though, it must also be said that he did not let such considerations influence his decisions in the legal rendering of such cases as Hepburn vs. Griswold 8 Wall. 513 andKnox vs. Lee 12 Wall. 281 which are totally irreconsilable to his opinion here. In Hepburn he wrote the majority opinion which held that U.S. notes issued during the Civil War were not legal tender for debts contracted prior to the War. In Knox (which reversed Hepburn) he wrote the minority opinion. His opinions in both cases are excellent and certainly deserve reading.

^Pollock vs Farmers' Loan, supra, page 577.

In Hepburn it was assumed that Chase would be on the other side since he was instrumental in creating the notes in question. Chase, however, provided an unusually forthright explanation when he wrote in Hepburn:

It is not surprising that amid the tumult of the late Civil War, and under the influence of apprehensions for the safety of the Republic almost universal, different views, never before entertained by American statesmen or jurists, were adopted by many. The time was not favorable to considerate reflection upon the constitutional limits of legislative or executive authority. If power was assumed from patriotic motives the assumption found ready justification in patriotic hearts. Many who doubted yielded their doubts; many who did not doubt were silent. Some who were strongly averse to making government notes a legal tender felt themselves constrained to acquiesce in the views of the advocates of the measure. Not a few who then insisted upon its necessity, or acquiesced in that view, have, since the return of peace, and under the influence of calmer time, reconsidered their conclusions.39 (Emphasis added)

Tax on State Banknotes

The case actually involved a tax that was passed just before the Civil War ended. On March 3,1865 Congress placed a "duty" of 10 percent on notes issued by state banks, though no comparable duty was imposed on notes issued by the newly created Federal banks. In addition, a 5 percent "duty" was placed on dividends paid out, a monthly "duty" of 1/24 of one percent was placed on all deposits, and the same monthly "duty" was levied on the capital of each state bank. The North was, admittedly, hardpressed for money with which to fight the War. One of the devices used early in the War to raise money was the establishment (by the Federal government) of a system of federally chartered "national" banks. These banks were required (under the Act of February 25,1863) to invest a percentage of their paid-in capital in government bonds and to maintain a reserve of Federal bonds as backing for a new type of "national banknote" that was also created under the Act. (These new, national banknotes were in addition to the federally issued "greenbacks" that were also a product of the Civil War.)

A new post, "controller of the currency" was also created to supervise the issuance of these banknotes. This new "national" currency and the adoption of a system of "national" banks were created solely to help the North finance the War. There is no question that if there had been no Civil War the need for a "national" currency or a new system of "na-

39Hepburn vs. Griswold 75 US 603 (1869), page 625.

tional" banks would never have been proposed or adopted. No national currency or system of federally chartered banks had ever before been considered (although the Federal government did, at one time, run its own bank) since neither were authorized by or suggested in the Constitution. It is, of course, one thing for the government to adopt certain procedures as emergency, war-time measures (dismantling them as soon as the emergency is over), and even to justify them on that basis alone. It is quite another thing, however, for the Supreme Court to attempt to legitimatize unusual war-time usurpations as being authorized by and in harmony with the U.S. Constitution (when they obviously are not) because the principles developed in such decisions are adopted by other courts in order to justify other unlawful, Federal acts. When this happens, error is piled on error and the government's illegal powers grow. This is precisely the type of influence the Veazie case had. The case itself was based upon prior Court error which the Veazie Court proceeded to enlarge. The government's action in laying a 10 percent tax on state banknotes was patently unconstitutional and could only be justified as a necessary and desperate war-time expedient. The Supreme Court, however (instead of simply treating it as such) tried to justify the tax as a constitutionally authorized tax and, in so doing, had to stand both logic and law on their heads—making it a whole lot easier for future Supreme Courts to do the same thing.

Civil War Changes The Monetary System

The Veazie decision started out as follows:

The necessity of adequate provision for the financial exigencies created by the late rebellion, suggested to the administrative and legislative departments of the government important changes in the systems of currency and taxation which had hitherto prevailed. These changes, more or less distinctly shown in administrative recommendations, took form and substance in legislative acts. We have now to consider, within a limited range, those which relate to circulating notes and the taxation of circulation.

At the beginning of the rebellion the circulating medium consisted almost entirely of bank notes issued by numerous independent corporations variously organized under State legislation, of various degrees of credit, and very unequal resources, administered often with great, and not un-frequently, with little skill, prudence, and integrity. The acts of Congress, then in force, prohibiting the receipt or disbursement, in the transactions of the National government, of any thing except gold and silver, and the laws of the States requiring the redemption of bank notes in coin on demand, prevented the disappearance of gold and silver from circulation. There was, then, no National currency except coin; there was no general regu-

lation of any other by National legislation; and no National taxation was imposed in any form on the State bank circulation.40 (Emphasis added)

By the Court's own admission it was obvious that:

1. changes in the nation's "system of currency" were necessitated by the "financial exigencies" created by the Civil War;

2. until that time there was no -rational currency;

3. only gold and silver coin circulated as lawful money;

4. notes (promises to pay lawful money, i.e. gold and silver coin) were issued by state banks as well as private citizens;

5. Federal law prohibited the Federal government from receiving or disbursing anything but gold and silver; and

6. state laws required the redemption of banknotes in either gold or silver coin, on demand.

Not one of these conditions exists today, though they did exist during the first eighty years of our nation's history! Why? Because until the Civil War the Constitution was generally obeyed. Due to decisions such as Veazie, however, the Federal establishment has since been able to practically scrap the entire document and institute Federal programs entirely foreign to it.

Next, the Veazie Court briefly reviewed the development of paper currency in the United States, including the suspension of specie payments (gold and silver coin) by the state banks on December 31,1861. (It was the issuance of non-redeemable currency by the Federal government that caused a run on the banks that eventually culminated in the suspension of specie payments.) After reviewing the development of Federal note-currency that occurred subsequent to 1861, the Court stated:

This currency, issued directly by the government for the disbursement of the war and other expenditures, could not, obviously, be a proper object of taxation.41

Just why Federal currency could not be "a proper object of taxation" is not explained. The Court then reviewed the development of the tax on state banknotes as follows:

But on the 25th of February, 1863 [in connection with the national banking act]... Congress recognized the expediency and duty of imposing a tax upon currency.. ,42

^Veazie vsFenno 75 US 533, pages 536, 537.

41Ibid., page 538.


Federal Government Taxes Capital

Under this Act the Federal government admittedly also taxed capital as an excise tax. The Court blandly admitted that:

Both acts also imposed taxes on capital and deposits, which need not be noticed here.43 (Emphasis added)

The Court then reviewed the succession of increases in these levies and explained the issues before it as follows:

The general question now before us is, whether or not the tax often per cent, imposed on State banks or national banks paying out the notes of individuals or State banks used for circulation, is repugnant to the Constitution of the United States.44

Note also how the Veazie Court (in the following excerpt) misrepresented the government's taxing power by: 1) misstating the taxing clauses in the Constitution by suggesting that it is difficult to define "with accuracy the terms used in the Constitution" with respect to those powers; and 2) suggesting that because (under the Articles of Confederation) the "General Government... had been reduced to im-potency" the Constitution obviously sought to convey "comprehensive" taxing powers — supposedly not limited by either apportionment or uniformity.

In support of the position that the act of Congress, so far as it provides for the levy and collection of this tax, is repugnant to the Constitution, two propositions have been argued with much force and earnestness.

The first is that the tax in question is a direct tax, and has not been apportioned among the States agreeably to the Constitution.

The second is that the act imposing the tax impairs a franchise granted by the State, and that Congress has no power to pass any law with that intent or effect.

The first of these propositions will be first examined.

The difficulty of defining with accuracy the terms used in the clause of the Constitution which confers the power of taxation upon Congress, was felt in the Convention which framed that instrument, and has always been experienced by courts when called upon to determine their meaning.

The general intent of the Constitution, however, seems plain. The General Government, administered by the Congress of the Confederation,


"Ibid., pages 539, 540.

had been reduced to the verge ofimpotency by the necessity of relying for revenue upon requisitions on the States, and it was a leading object in the adoption of the Constitution to relieve the government, to be organized under it, from this necessity, and confer upon it ample power to provide revenue by the taxation of persons and property. And nothing is clearer, from the discussions in the Convention and the discussions which preceded final ratification by the necessary number of States, than the purpose to give this power to Congress, as to the taxation of everything except exports, in its fullest extent.

This purpose is apparent, also, from the terms in which the taxing power is granted. The power is "to lay and collect taxes, duties, imposts, and excises, to pay the debt and provide for the common defence and general welfare of the United States? More comprehensive words could not have been used. Exports only are by another provision excluded from its application.46 (Emphasis added)

The Court began to address the first of these two questions in the following eight paragraphs in which Chase attempted to add confusion to a very simple issue. He erected numerous straw men to argue against it. And, while there are references to apportionment and uniformity, their meaning is not explained. Indeed, such limitations would appear to be meaningless since Chase went on to note an alleged "absence of any attempt by members of the Convention to define... the terms of the grant!'

There are, indeed, certain virtual limitations, arising from the principles of the Constitution itself. It would undoubtedly be an abuse of the power if so exercised as to impair the separate existence and independent self-government of the States, or if exercised for ends inconsistent with the limited grants of power in the Constitution.

And there are directions as to the mode of exercising the power. If Congress sees fit to impose a capitation, or other direct tax, it must be laid in proportion to the census; if Congress determines to impose duties, imposts, and excises, they must be uniform throughout the United States. These are not strictly limitations of power. They are rules prescribing the mode in which it shall be exercised. It still extends to every object of taxation, except exports, and may be applied to every object of taxation, to which it extends, in such measure as Congress may determine.

The comprehensiveness of the power, thus given to Congress, may serve to explain, at least, the absence of any attempt by members of the Convention to define, even in debate, the terms of the grant. The words used

46Ibid., page 540.

certainly describe the whole power, and it was the intention of the Convention that the whole power should be conferred. The definition of particular words, therefore, became unimportant.

It may be said, indeed, that this observation, however just in its application to the general grant of power, cannot be applied to the rules by which different descriptions of taxes are directed to be laid and collected.

Direct taxes must be laid and collected by the rule of apportionment; duties, imposts, and excises must be laid and collected under the rule of uniformity.

Much diversity of opinion has always prevailed upon the question, what are direct taxes? Attempts to answer it by reference to the definitions of political economists have been frequently made, but without satisfactory results. The enumeration of the different kinds of taxes which Congress was authorized to impose was probably made with very little reference to their speculations. The great work of Adam Smith, the first comprehensive treatise on political economy in the English language, had then been recently published; but in this work, though there are passages which refer to the characteristic difference between direct and indirect taxation, there is nothing which affords any valuable light on the use of the words "direct taxes" in the Constitution.46 (Emphasis added)

For Chase to suggest that "the definition of particular words, [i.e., direct versus indirect taxation], therefore, became unimportant" has no justification. It is "unimportant" if one does not want to face the obvious differences in these terms — which is what Chase obviously did not want to do. In addition, his assertion that in the "great work of Adam Smith ... there is nothing which affords any valuable light on the use of the words 'direct taxes' in the Constitution" is flagrantly untrue. The Court concluded its examination of the subject and completely fudged on the subject of direct versus indirect taxes by stating:

It may be safely assumed, therefore, as the unanimous judgment of the court, that a tax on carriages is not a direct tax. And it may further be taken as established upon the testimony of Paterson, that the words direct taxes, as used in the Constitution, comprehended only capitation taxes, and taxes on land, and perhaps taxes on personal property by general valuation and assessment of the various descriptions possessed within the several States.

It follows necessarily that the power to tax without apportionment extends to all other objects. Taxes on other objects are included under the heads of taxes not direct, duties, imposts, and excises, and must be laid

46Ibid., pages 541, 542.

and collected by the rule of uniformity. The tax under consideration is a tax on bank circulation, and may very well be classed under the head of duties. Certainly it is not, in the sense of the Constitution, a direct tax. It may be said to come within the same category of taxation as the tax on incomes of insurance companies, which this court, at the last term, in the case of Pacific Insurance Company v. Soule held not to be a direct tax. 47

The Court then asked:

Is it, then, a tax on a franchise granted by a State, which Congress, upon any principle exempting the reserved powers of the States from impairment by taxation, must be held to have no authority to lay and collect?48

Tax on Banknotes Compared to Taxes on Railroad Tickets

Next, the Court equated a tax on debt (banknotes) with a tax on a consumable service — railroad tickets. This, of course, demonstrates a complete lack of knowledge concerning the principles of taxation.

We do not say that there may not be such a tax. It may be admitted that the reserved rights of the States, such as the right to pass laws, to give effect to laws through executive action, to administer justice through the courts, and to employ all necessary agencies for legitimate purposes of State government, are not proper subjects of the taxing power of Congress. But it cannot be admitted that franchises granted by a State are necessarily exempt from taxation; for franchises are property, often very valuable and productive property; and when not conferred for the purpose of giving effect to some reserved power of a State, seem to be as properly objects of taxation as any other property.

But in the case before us the object of taxation is not the franchise of the bank, but property created, or contracts made and issued under the franchise, or power to issue bank bills. A railroad company, in the exercise of its corporate franchises, issues freight receipts, bills of lading, and passenger tickets; and it cannot be doubted that the organization of railroads is quite as important to the State as the organization of banks. But it will hardly be questioned that these contracts of the company are objects of taxation within the powers of Congress, and not exempted by any relation to the State which granted the charter of the railroad. And it seems difficult to distinguish the taxation of notes issued for circulation from the taxation of these railroad contracts. Both descriptions of contracts are means of profit to the corporations which issue them; and both, as we think may properly be made contributory to the public revenue.49 (Emphasis added)

47Ibid., pages 546, 547. ••"Ibid., page 547. ""Ibid, page 547, 548.

Note here how the Court talked about a "tax on a franchise" as being "as properly objects of taxation as any other property!' First, the Court (as do all courts) became involved in the fallacy that property gets taxed when, in reality, it is always people who get taxed. In addition, to compare a Federal tax on railroad tickets to a Federal tax on capital stock or banknotes was totally devoid of logic, mainly because a tax on a railroad ticket was an obvious excise tax. The tax was levied on those who could afford this mode of transportation, with the price of tickets raised accordingly. Such taxes were legitimately levied in order to raise revenue (not to discourage the use of railroads), which was not the purpose of the 10 percent tax on state banknotes. The tax on state banknotes was not levied to raise revenue (for any of the purposes shown on page 31) but to penalize state banks in order to create a strong incentive for banks to join the newly created Federal banking system — where no such punitive tax applied.

Further, the taxes levied as a monthly "duty" on bank deposits and capital were apparently not an issue in this case. It was not an indirect "duty" but a direct tax imposed on each bank, based upon its deposits and capital stock. Such taxes cannot be avoided or passed on like taxes on railroad tickets can because they are taxes based on the accumulation of wealth or property and, therefore, no different than taxes related to other forms of wealth such as real estate. But a tax on banknotes is another type of tax altogether — it is a tax based on debt rather than on wealth! The fallacy of such a tax will be covered in excerpts from the dissenting opinion. But to say that a tax on a debt instrument is comparable, in any way, to a tax based on wealth (or on the purchase of consumable goods or services such as a railroad ticket) escapes understanding.

Tax Blatantly Discriminatory

What the Court also failed to take into consideration in this matter was that the tax on banknotes was not uniform because it did not apply to notes issued by all banks. The tax was, admittedly, discriminatory and designed to speed up applications for Federal bank charters, which it did. It was, therefore, flagrantly unconstitutional (for the reasons covered in Field's opinion, see page 118) on this one issue alone.

The tax represented an attempt by Congress to interfere and curtail (through the abuse of Federal taxing powers) legitimate state functions. Since the Federal government could not pass a law directly outlawing state-chartered banks, it sought to kill them off through this tax in order to sell government bonds to Federal banks to finance the War. But the Supreme Court (trying to legally justify such a war-time expediency) resorted to creating absurd and high-handed legal doctrine that rmild and did serve as le.g-al nrecederit for s-eneratinns tfi CQim

Misstating the Law on Money

The Veazie Court went even further in making its own amendments to the Constitution:

It cannot be doubted that under the Constitution the power to provide a circulation of coin is given to Congress. And it is settled by the uniform practice of the government and by repeated decisions, that Congress may constitutionally authorize the emission of bills of credit.50

While there is no argument that the Constitution gave Congress the power to provide for "a circulation of coin," there is absolutely nothing in it that authorizes "the emission of bills of credit." (How such "emission" was deliberately denied was explained on page 53.) Note, too, how the Court cleverly twisted phrases in order to create the illusion that the Constitution authorized such an "emission!" In the first sentence Chase clearly stated that the Constitution provided for a "circulation of coin." But when talking about the "emission of bills of credit," he switched to such phraseology as "the uniform practice of the government" and "repeated decisions!' He could not say, "under the Constitution the power to provide for a circulation of currency (paper money) was also given to Congress" because he knew that no such power was given to Congress "under the Constitution," and he also knew that few would recognize the linguistic subtrefuge he used to create that false impression. If, as tacitly admitted by Chase, the Federal government did not get its power to emit bills of credit from the Constitution, where did it get the power? It usurped it — on the basis of those "uniform practices" and "repeated decisions" to which he referred.

The reason the Federal government only circulated silver and gold coin up until the time of the Civil War was because it was the only form of money the Constitution authorized. Further on we find this statement in connection with this very issue:

These powers [the alleged power to issue note currency] until recently, were only partially and occasionally exercised. Lately, however, they have been called into full activity, and congress has undertaken to supply a currency for the entire country.51

The Constitution has absolutely no provisions authorizing Congress to supply any form of paper currency whatsoever. Had there been any such provision, Congress certainly would have "undertaken" to supply it long before 1861.

'"Ibid., page 548. "Ibid.

The Dissenting Opinion

Two justices of that Court evidently felt a greater responsibility to uphold both law and reason in connection with this case as is obvious from the following excerpts taken from their excellent dissenting opinion.

Since the adoption of the Constitution, down to the present act of Congress, and the case now before us, the question in Congress and in the courts has been, not whether the State banks were constitutional institutions, but whether Congress had the power conferred on it by the States, to establish a National bank. As we have said, that question was closed by the judgment of this court in McCulloch v. The State of Maryland. At the time of the adoption of the Constitution, there were four State banks in existence and in operation — one in each of the States of Pennsylvania, New York, Massachusetts, and Maryland. The one in Philadelphia had been originally chartered by the Confederation, but subsequently took a charter under the State of Pennsylvania. Theframers of the Constitution were, therefore, familiar with these State banks, and the circulation of their paper as money; and were also familiar with the practice of the States, that was so common, to issue bills of credit, which were bills issued by the State, exclusively on its own credit, and intended to circulate as currency, redeemable at a future day. They guarded the people against the evils of this practice of the State governments by the provision in the tenth section of the first article, "that no State shall" "emit bills of credit" and, in the same section, guard against any abuse of paper money of the State banks in the following words: "nor make anything but gold and silver coin a tender in payment of debts" As bills of credit were thus entirely abolished, the paper money of the State banks was the only cur-rency or circulating medium to which this prohibition could have had any application, and was the only currency, except gold and silver, left to the States. The prohibition took from this paper all coercive circulation, and left it to stand alone upon the credit of the banks.

It was no longer an irredeemable currency, as the banks were under obligation, including, frequently, that of its stockholders, to redeem their paper in circulation, in gold or silver, at the counter. The State banks were left in this condition by the Constitution, untouched by any other provision. As a consequence, they were gradually established in most or all of the States, and had not been encroached upon or legislated against, or in any other way interfered with, by acts of Congress, for more than three-quarters of a century — from 1787 to 1864...

The constitutional power of the States, being thus established by incontrovertible authority, to create State banking institutions, the next question is, whether or not the tax in question can be upheld, consistently with the enjoyment of this power.

The act of Congress, July 13th, 1866, declares, that the State banks

shall pay ten per centum on the amount of their notes, or the notes of any person, or other State bank, used for circulation, and paid out by them after the 1st of August, 1866. In addition to this tax, there is also a tax of five per centum per annum, upon all dividends to stockholders, besides a duty of one twenty-fourth of one per centum, monthly, upon all deposits, and the same monthly duty upon the capital of the bank. This makes an aggregate of some sixteen per cent, imposed annually upon these banks. It will be observed, the tax often per centum upon the bills in circulation is not a tax on the property of the institutions. The bills in circulation are not the property, but the debts of the bank, and, in their account of debits and credits, are placed to the debit side. Certainly, no government has yet made the discovery of taxing both sides of this account, debit and credit, as the property of a taxable person or corporation. If both these items could be made available for this purpose, a heavy National debt need not create any very great alarm, neither as it respects its pressure on the industry of the country, for the time being, or of its possible duration. There is nothing in the debts of a bank to distinguish them in this respect from the debts of individuals or persons. The discounted paper received for the notes in circulation is the property of the bank, and is taxed as such, as is the property of individuals received for their notes that may be outstanding.

The imposition upon the banks cannot be upheld as a tax upon property; neither could it have been so intended. It is, simply, a mode by which the powers or faculties of the States, to incorporate banks, are subjected to taxation, and, which, if maintainable, may annihilate those powers...

It is true, that the present decision strikes only at the power to create banks, but no person can fail to see that the principle involved affects the power to create any other description of corporations, such as railroads, turnpikes, manufacturing companies, and others.

This taxation of the powers and faculties of the State governments, which are essential to their sovereignty, and to the efficient and independent management and administration of their internal affairs, is, for the first time, advanced as an attribute of Federal authority. It finds no support or countenance in the early history of the government, or in the opinions of the illustrious statesmen who founded it. These statesmen scrupulously abstained from any encroachment upon the reserved rights of the States; and, within these limits, sustained and supported them as sovereign States.

We say nothing, as to the purpose of this heavy tax of some sixteen per centum upon the banks, ten of which we cannot but regard as imposed upon the power of the States to create them. Indeed, the purpose is scarcely concealed, in the opinion of the court, namely, to encourage the National banks. It is sufficient to add, that the burden of the tax, while it has encouraged these banks, has proved fatal to those of the States; and, if we are at liberty to judge of the purpose of an act,

from the consequences that have followed, it is not, perhaps, going too far to say, that these consequences were intended.52 (Emphasis added)

There can be no doubt that the minority opinion clearly exposes the majority opinion in this case to be a fraud and a hoax.

Springer vs. U.S. 102 US 586

The Pollock Court next discussed the Springer case (closely related to the issue under consideration) which, it noted, was "urged upon us as decisive." The Springer case involved an individual who claimed (correctly) that the seizure of his property in payment of income taxes was illegal because the tax, being direct, was not apportioned. The Springer Court, however, had disagreed. In connection with that decision the Pollock Court stated:

The statement of the case in the report shows that Springer returned a certain amount as his net income for the particular year, but does not give the details of what his income, gains, and profits consisted in.

The original record discloses that the income was not derived in any degree from real estate but was in part professional as attorney-at-law and the rest interest on United States bonds. It would seem probable that the court did not feel called upon to advert to the distinction between the latter and the former source of income, as the validity of the tax as to either would sustain the action.

The opinion thus concludes: "Our conclusions are, that direct taxes, within the meaning of the constitution, are only capitation taxes, as expressed in that instrument, and taxes on real estate; and that the tax of which the plaintiff in error complains is within the category of an excise or duty!'53 (Emphasis added)

The Springer case cut close to the issue raised in this case, but the Pollock Court escaped it in the following manner:

While this language is broad enough to cover the interest as well as the professional earnings, the case would have been more significant as a precedent if the distinction had been brought out in the report and commented on in arriving at judgement, for a tax on professional receipts might be treated as an excise or duty, and therefore indirect, when a tax on the income of personalty might be held to be direct.54

52Ibid., pages 551-556.

^Pollock vs Farmers' Loan, supra, pages 578,579.

"Ibid., page 579.

Income From Professional Earnings Not Relevant

The Court refused to be bound by Springer because it felt Springer's income came largely from professional earnings while (in the case at hand) the issue involved income not from professional earnings but income from real estate, stocks and bonds. In distinguishing both cases, the Court observed "that a tax on professional receipts might be treated as an excise or duty, and therefore indirect, when a tax on the income of personalty might be held to be direct." The subtleties involved in this statement indicate that the Pollock court had a good grasp of the differences between both types of taxes.

Note that the Court speaks of an excise tax on "professional receipts, " not professional "income'.' This is distinguished from "income of personalty" which was used to describe a direct tax. The indirect tax would, therefore, apply to gross receipts from a profession while the direct tax would apply to the net receipts from personal property. What the Court was getting at was that a tax on "professional receipts" implied a form of sales tax that conceivably could be tacked onto the price of the professional service — and, therefore, was a tax that could be passed on to those receiving that service. But a tax "on the income of personalty" (since it could not be passed on) would have to be direct. Such a distinction allowed the Court to differentiate this case from Springer, though lesser Courts would have undoubtedly found the issues in both cases practically identical.

Taxes on Land and Rent — Direct Taxes

Having thus disposed of a variety of prior tax cases (all of which were decided incorrectly), Chief Justice Fuller warmed up to the issue at hand by first establishing the following:

Be this as it may, it is conceded in all these cases, from that of Hylton to that of Springer, that taxes on land are direct taxes and in none of them is it determined that taxes on rents or income derived from land are not taxes on land.55

Having clearly established that taxes on land were always regarded as direct, the Court then established that taxes "on" rents must also be direct and logically so the income from personal property—dividends and interest from stocks and bonds.

We admit that it may not unreasonably be said that logically, if taxes on the rents, issues, and profits of real estate are equivalent to taxes on

56Ibid, page 580.

real estate, and are therefore direct taxes, taxes on the income of personal property as such are equivalent to taxes on such property, and therefore direct taxes. But we are considering the rule stare decisis, and we must decline to hold ourselves bound to extend the scope of decisions — none of which discussed the question whether a tax on the income from personalty is equivalent to a tax on that personalty, but all of which held real estate liable to direct taxation only — so as to sustain a tax on the income of realty on the ground of being an excise of duty.

As no capitation or other direct tax was to be laid otherwise than in proportion to the population, some other direct tax than a capitation tax (and, it might well enough be argued, some other tax of the same kind as a capitation tax) must be referred to, and it has always been considered that a tax upon real estate co nomine, or upon its owners in respect thereof, is a direct tax, within the meaning of the constitution. But is there any distinction between the real estate itself or its owners hi respect of it and the rents or income of the real estate coming to the owners as the natural and ordinary incident of their ownership?

If the constitution had provided that congress should not levy any tax upon the real estate of any citizen of any state, could it be contended that congress could put an annual tax for five or any other number of years upon the rent or income of the real estate? And if, as the constitution now reads, no unapportioned tax can be imposed upon real estate, can congress without apportionment nevertheless impose taxes upon such real estate under the guise of an annual tax upon its rents or income?,..

The requirement of the constitution is that no direct tax shall be laid otherwise than by apportionment. The prohibition is not against direct taxes on land, from which the implication is sought to be drawn that indirect taxes on land would be constitutional, but it is against all direct taxes; and it is admitted that a tax on real estate is a direct tax. Unless, therefore, a tax upon rents or income issuing out of lands is intrinsically so different from a tax on the land itself that it belongs to a wholly different class of taxes, such taxes must be regarded as falling within the same cat' egory as a tax on real estate co nomine. The name of the tax is unimportant. The real question is, is there any basis upon which to rest the contention that real estate belongs to one of the two great classes of taxes, and the rent or income which is the incident of its ownership belongs to the other? We are unable to perceive any ground for the alleged distinction. An annual tax upon the annual value or annual user of real estate appears to us the same in substance as an annual tax on the real estate, which would be paid out of the rent or income. This law taxes the income received from land and the growth or produce of the land. Mr. Justice Paterson observed in Hylton's Case, "land, independently of its produce, is of no value," and certainly had no thought that direct taxes were confined to unproductive land.

If it be true that by varying the form the substance may be changed, it is not easy to see that anything would remain of the limitations of the constitution, or of the rule of taxation and representation, so carefully recognized and guarded in favor of the citizens of each state. But constitutional provisions cannot be thus evaded. It is the substance, and not the form, which controls, as has indeed been established by repeated decisions of this court. Thus in Brown v. Maryland, 12 Wheat. 419,444, it was held that the tax on the occupation of an importer was the same as a tax on imports, and therefore void. And Chief Justice Marshall said: "It is impossible to conceal from ourselves that this is varying the form without varying the substance. It is treating a prohibition which is general as if it were confined to a particular mode of doing the forbidden thing. All must perceive that a tax on the sale of an article imported only for sale is a tax on the article itself!'56 (Emphasis added)

Field's Thunderous Opinion

The following quotations are taken from Justice Field's concurring opinion. His remarks throw needed light on the whole subject of taxation and the legality of current income tax "law," as well as the legitimacy of all its "loopholes, " "incentives, " "exclusions, " and "deductions."

Development of Tax Classes Reviewed

The subject of taxation in the new government which was to be established created great interest in the convention which framed the Constitution, and was the cause of much difference of opinion among its members and earnest contention between the States. The great source of weakness of the confederation was its inability to levy taxes of any kind for the support of its government. To raise revenue it was obliged to make requisitions upon the States, which were respected or disregarded at their pleasure. Great embarrassments followed the consequent inability to obtain the necessary funds to carry on the government. One of the principal objects of the proposed new government was to obviate this defect of the confederacy by conferring authority upon the new government by which taxes could be directly laid whenever desired. Great difficulty in accomplishing this object was found to exist. The States bordering on the ocean were unwilling to give up their right to lay duties upon imports which were their chief source of revenue. The other States, on the other hand, were unwilling to make any agreement for the levying of taxes directly upon real and personal property, the smaller States fearing that they would be overborne by unequal burdens forced upon them by the action of the larger States. In this condition of things great em-

"Ibid., pages 580, 581.

barrassment was felt by the members of the convention. It was feared at times that the effort to form a new government would fail. But happily a compromise was effected by an agreement that direct taxes should be laid by Congress by apportioning them among the States according to their representation. In return for this concession by some of the States, the other States bordering on navigable waters consented to relinquish to the new government the control of duties, imposts, and excises, and the regulation of commerce, with the condition that the duties, imposts, and excises should be uniform throughout the United States. So that, on the one hand, anything like oppression or undue advantage of any one State over the others would be prevented by the apportionment of the direct taxes among the States according to their representation, and, on the other hand, anything like oppression or hardship in the levying of duties, imposts, and excises would be avoided by the provision that they should be uniform throughout the United States. This compromise was essential to the continued union and harmony of the States. It protected every State from being controlled in its taxation by the superior numbers of one or more other States.

The Constitution accordingly, when completed, divided the taxes which might be levied under the authority of Congress into those which were direct and those which were indirect. Direct taxes, in a general and large sense, may be described as taxes derived immediately from the person, or from real or personal property, without any recourse therefrom to other sources for reinbursement. In a more restricted sense, they have sometimes been confined to taxes on real property, including the rents and income derived therefrom. Such taxes are conceded to be direct taxes, however taxes on other property are designated, and they are to be apportioned among the States of the Union according to their respective numbers. The second section of article I of the Constitution declares that representatives and direct taxes shall be thus apportioned. It had been a favorite doctrine in England and in the colonies, before the adoption of the Constitution, that taxation and representation should go together. The Constitution prescribes such apportionment among the several States according to their respective numbers, to be determined by adding to the whole number of free persons, including those bound to service for a term of years, and excluding Indians not taxed, three-fifths of all other persons.

Some decisions of this court have qualified or thrown doubts upon the exact meaning of the words "direct taxes." Thus in Springer v. United States, 102 U.S. 586, it was held that a tax upon gains, profits, and income was an excise or duty and not a direct tax within the meaning of the Constitution, and that its imposition was not therefore unconstitutional. And in Pacific Insurance Co. v. Soule, 1 Wall. 433, it was held that an income tax or duty upon the amounts insured, renewed or continued by insurance companies, upon the gross amounts of premiums received by them and upon assessments made by them, and upon dividends and undistributed sums, was not a direct tax but a duty or excise.

In the discussions on the subject of direct taxes in the British Parliament an income tax has been generally designated as a direct tax, differing in that respect from the decision of this court in Springer v. United States. But whether the latter can be accepted as correct or otherwise, it does not affect the tax upon real property and its rents and income as a direct tax. Such a tax is by universal consent recognized to be a direct tax.

As stated, the rents and income of real property are included in the designation of direct taxes as part of the real property. Such has been the law in England for centuries, and in this country from the early settlement of the colonies; and it is strange that any member of the legal profession should, at this day, question a doctrine which has always been thus accepted by common-law lawyers.. .S7 (Emphasis added)

Field: Law Violated Principle of Uniformity

Historically, the courts had always defined the uniformity provision of the Constitution solely to mean geographic uniformity, but Field further broadened the concept of uniformity which made far more sense. He packed his analysis with good sense, historical references and sound republican principles.

But the law is not invalid merely in its disregard of the rule of apportionment of the direct tax levied. There is another and an equally cogent objection to it. In taxing incomes other than rents and profits of real estate it disregards the rule of uniformity which is prescirbed in such cases by the Constitution. The eighth section of the first article of the Constitution declares that "the Congress shall have power to lay and collect taxes, duties, imposts, and excises, to pay the debts and provide for the common defence and general welfare of the United States; but all du' ties, imposts, and excises shall be uniform throughout the United States? Excises are a species of tax consisting generally of duties laid upon the manufacture, sale, or consumption of commodities within the country, or upon certain callings or occupations, often taking the form of exactions for licenses to pursue them. The taxes created by the law under consideration as applied to savings banks, insurance companies, whether of fire, life, or marine, to building or other associations, or to the conduct of any other kind of business, are excise taxes, and fall within the requirement, so far as they are laid by Congress, that they must be uniform throughout the United States.

The uniformity thus required is the uniformity throughout the United States of the duty, impost, and excise levied. That is, the tax levied cannot be one sum upon an article at one place and a different sum upon the same article at another place. The duty received must be the same at all places throughout the United States, proportioned to the quantity of

57Ibid., pages 587-589.

the article disposed of or the extent of the business done. If, for instance, one kind of wine or grain or produce has a certain duty laid upon it proportioned to its quantity in New York, it must have a like duty proportioned to its quantity when imported at Charleston or San Francisco, or if a tax be laid upon a certain kind of business proportioned to its extent at one place, it must be a like tax on the same kind of business proportioned to its extent at another place. In that sense the duty must be uniform throughout the United States.

It is contended by the government that the Constitution only requires an uniformity geographical in its character. That position would be satisfied if the same duty were laid in all the States, however variant it might be in different places of the same State. But it could not be sustained in the latter case without defeating the equality, which is an essential element of the uniformity required, so far as the same is practicable.

In United States v. Singer, 15 Wall. Ill, 121, a tax was imposed upon a distiller, in the nature of an excise, and the question arose whether in its imposition upon different distillers the uniformity of the tax was preserved, and the court said: "The law is not in our judgment subject to any constitutional objection.. The tax imposed upon the distiller is in the nature of an excise, and the only limitation upon the power of Congress in the imposition of taxes of this character is that they shall be 'uniform throughout the United States! The tax here is uniform in its operation; that is, it is assessed equally upon all manufacturers of spirits wherever they are. The law does not establish one rule for one distiller and a different rule for another, but the same rule for all should be alike."

. . . One of the learned counsel puts it very clearly when he says that the correct meaning of the provisions requiring duties, imposts, and excises to be "uniform throughout the United States" is, that the law imposing them should "have an equal and uniform application in every part of the Union."

If, there were any doubt as to the intention of the States to make the grant of the right to impose indirect taxes subject to the condition that such taxes shall be in all respects uniform and impartial, that doubt, as said by counsel, should be resolved in the interest of justice, in favor of the taxpayer.

Exemptions from the operation of a tax always create inequalities. Those not exempted must, in the end, bear an additional burden or pay more than their share. A law containing arbitrary exemptions can in no just sense be termed uniform. . .

Where property is exempt from taxation, the exemption, as has been justly stated, must be supported by some consideration that the public, and not private interests will be advanced by it. Private corporations and private enterprises cannot be aided under the pretence that it is the ex-

ercise of the discretion of the legislature to exempt them.58 (Emphasis added)

Exemptions in Tax Laws Capricious and Illegally Discriminatory

Cooley, in his treatise on taxation (2d Ed. 215) justly observes that: "It is difficult to conceive of a justifiable exemption law which should select single individuals or corporations, or single articles of property, and, taking them out of the class to which they belong, make them the subject of capricious legislative favor. Such favoritism could make no pretence to equality; it would lack the semblance of legitimate tax legislation."

The income tax law under consideration is marked by discriminating features which affect the whole law. It discriminates between those who receive an income of four thousand dollars and those who do not It thus vitiates, in my judgment, by this arbitrary discrimination, the whole legislation. Hamilton says in one of his papers, (the Continentalist,) "the genius of liberty reprobates everything arbitrary or discretionary in taxation. It exacts that every man, by a definite and general rule, should know what proportion of his property the State demands; whatever liberty we may boast of in theory, it cannot exist in fact while [arbitrary] assessments continue" 1 Hamilton's Works, ed. 1885,270. The legislation, in the discrimination it makes, is class legislation. Whenever a distinction is made in the burdens a law imposes or in the benefits it confers on any citizens by reason of their birth, or wealth, or religion, it is class legislation, and leads inevitably to oppression and abuses, and to general unrest and disturbance in society. It was hoped and believed that the great amendments to the Constitution which followed the late civil war had rendered such legislation impossible for all future time. But the objectionable legislation reappears in the act under consideration. It is the same in essential character as that of the English income statute of 1691, which taxed Protestants at a certain rate, Catholics, as a class, at double the rate of Protestants, and Jews at another and separate rate. Under wise and constitutional legislation every citizen should contribute his proportion, however small the sum, to the support of the government, and it is no kindness to urge any of our citizens to escape from that obligation. If he contributes the smallest mite of his earnings to that purpose he will have a greater regard for the government and more self-respect for himself feeling that though he is poor in fact, he is not a pauper of his government. And it is to be hoped that, whatever woes and embarrassments may betide our people, they may never lose their manliness and self-respect. Those qualities preserved, they will ultimately triumph over all reverses of fortune.

68Ibid., pages 593-595.

There is nothing in the nature of the corporations or associations exempted in the present act, or in their method of doing business, which can be claimed to be of a public or benevolent nature. They differ in no essential characteristic in their business from "all other corporations, companies, or associations doing business for profit in the United States."

As stated by counsel: "There is no such thing in the theory of our national government as unlimited power of taxation in Congress. There are limitations," as he justly observes, "of its powers arising out of the essential nature of all free governments; there are reservations of individual rights, without which society could not exist, and which are respected by every government. The right of taxation is subject to these limitations." Loan Association v. Topeka, 20 Wall. 655, and Parkersburg v. Brown, 106 U.S. 481

The inherent and fundamental nature and character of a tax is that of a contribution to the support of the government, levied upon the principle of equal and uniform apportionment among the persons taxed, and any other exaction does not come within the legal definition of a tax.

This inherent limitation upon the taxing power forbids the imposition of taxes which are unequal in their operation upon similar kinds of property, and necessarily strikes down the gross and arbitrary distinctions in the income law as passed by Congress. The law, as we have seen, distinguishes in the taxation between corporations by exempting the property of some of them from taxation and levying the tax on the property of others when the corporations do not materially differ from one another in the character of their business or in the protection required by the government. Trifling differences in their modes of business, but not in their results, are made the ground and occasion of the greatest possible differences in the amount of taxes levied upon their income, showing that the action of the legislative power upon them has been arbitrary and capricious and sometimes merely fanciful. . .

Here I close my opinion. I could not say less in view of questions of such gravity that go down to the very foundation of the government. If the provisions of the Constitution can be set aside by an act of Congress, where is the course of usurpation to end? The present assault upon capital is but the beginning. It will be but the stepping-stone to others, larger and more sweeping, till our political contests will become a war of the poor against the rich; a war constantly growing in intensity and bitterness.

"If the court sanctions the power of discriminating taxation, and nullifies the uniformity mandate of the Constitution," as said by one who has been all his life a student of our institutions, "it will mark the hour when the sure decadence of our present government will commence." If the purely arbitrary limitation of $4000 in the present law can be sustained, none having less than that amount of income being assessed or taxed for the support of the government, the limitation of future Congresses may be fixed at a much larger sum, at five or ten or twenty

thousand dollars, parties possessing an income of that amount alone being bound to bear the burdens of government; or the limitation may be designated at such an amount as a board of "walking delegates" may deem necesary. There is no safety in allowing the limitation to be adjusted except in strict compliance with the mandates of the Constitution which require its taxation, if imposed by direct taxes, to be apportioned among the States according to their representation, and if imposed by indirect taxes, to be uniform in operation and, so far as practicable, in proportion to their property, equal upon all citizens. Unless the rule of the Constitution governs, a majority may fix the limitations at such rate as will not include any of their own number.

I am of opinion that the whole law of 1894 should be declared void and without any binding force — that part which relates to the tax on the rents, profits or income from real estate, that is, so much as constitutes part of the direct tax, because, not imposed by the rule of apportionment according to the representation of the states, as prescribed by the constitution; and that part which imposes a tax upon the bonds and securities of the several states, and upon the bonds and securities of their municipal bodies, and upon the salaries of judges of the courts of the United States, as being beyond the power of congress; and that part which lays duties, imposts, and excises, as void in not providing for the uniformity required by the constitution in such cases.59 (Emphasis added)

Two Decisions Necessary

Despite the above, however, the first Pollock decision was inconclusive. Only eight Justices took part (Justice Jackson being absent) and the only majority positions reached were:

1. the unconstitutionality of the provisions that sought to tax municipal bonds; and

2. that income from real estate was a direct tax, requiring apportionment (though two justices dissented).

But since the Court was equally divided (four to four) on all the other issues and couldn't decide whether its opinion on muncipal bonds and real estate income rendered the entire Act unconstitutional, a rehearing of the case was requested.

It was assumed that Justice Jackson's early return would give the full Court an opportunity to rule on the issues. The case was re-argued on May 6, 7, and 8 and a second opinion was handed down on May 20. This time the Pollock forces — and the forces of constitutional govern-

^Ibid., pages 596-608.

ment — gained a complete victory. In a five to four60 decision the Court struck down all the income tax provisions of the Wilson-Gorman Tariff Act as unconstitutional. In this second opinion (apart from holding that the government could not tax the interest of municipal bonds and that the income from real estate was a direct tax) the Court also held that taxes on personal property (and on the income from personal property) were direct and had to be apportioned. This latter holding was crucial and established that all Federal taxes on wages (the personal property of wage earners), as well as taxes on dividends and interest, were only lawful if levied by the rule of apportionment. The Court expressed it this way:

First. We adhere to the opinion already announced, that, taxes on real estate being indisputably direct taxes, taxes on the rents or income of real estate are equally direct taxes.

Second. We are of opinion that taxes on personal property, or on the income of personal property, are likewise direct taxes.

Third. The tax imposed by sections twenty-seven to thirty-seven, inclusive, of the act of 1894, so far as it falls on the income of real estate and of personal property, being a direct tax within the meaning of the Constitution, and, therefore, unconstitutional and void because not apportioned according to representation, all those sections, constituting one entire scheme of taxation, are necessarily invalid.

The decrees hereinbefore entered in this court will be vacated; the decrees below will be reversed, and the cases remanded, with instructions to grant the relief prayed.61 (Emphasis added)

Thus the Pollock decision clearly established that all Federal taxes on wages (the personal property of the laborer), as well as all taxes on interest and dividends, are lawful only if apportioned. This decision has never been challenged, let alone reversed or overturned, and proves the total illegality of the Federal government's entire income tax collecting activities and its contention that it can lawfully tax such income without apportionment.

The Federal government has been able to illegally extract income taxes from the American public by promoting the fiction that the 16th Amendment voided the Pollock decision. This is not true. The Pollock decision is the law of the land (untouched by the 16th Amend* ment) and, therefore, clearly establishes that the enforcement of the current income tax (i.e., by directly taxing wages, dividends, rents, alimony, etc.) is illegal!

""When Justice Jackson returned he voted with the minority so one of the other Justices switched his vote. Which one did remains a mystery. "Pollock vs Farmers'Loan, 158 US 601, page 637.


The Agitation For The Income Tax: 1895-1909

Public agitation regarding an income tax really began with the Pollock decision which polarized public attitudes toward the tax as noted by both Choate and the U.S. Attorney General (see page 78). In contrast to the income tax of 1894, the Civil War income tax had been generally accepted as an emergency war-time measure and it was considered unpatriotic to even question the validity of it. In any event, its importance had dwindled to the point where it produced less than $5 million in revenue in 1873, whereas it had raised $72 million in 1866.

The determined opposition to the tax (in and out of Congress) prior to its becoming law; the violent opposition to it after it became law; plus the decision itself (and Choate's characterization of the tax) all combined to set off a minor class struggle on its behalf. This struggle generally pitted the less affluent against the more affluent — those whose swollen fortunes (proponents of the income tax contended) should bear a greater burden of the cost of government.

Such an argument struck responsive chords in various segments of society (especially agragarian interests and the laboring class) because of the way the Federal government raised its revenue — generally through internal excises on products such as tobacco and spirits as well as a system of protective tariffs.1 Therefore, agitation regarding an income tax developed largely because of a growing public feeling that Americans were being cheated by the rich, Eastern industrial class whose fortunes they believed were generated and protected by such tariffs. The consensus was that not only were the rich not paying their fair share of taxes but that they were actually growing richer at the expense of the working and consuming public. It is important to note that the

1 Though they insulated American goods from the full impact of foreign competition, protective tariffs also raised consumer prices.


public at large did not equate protective tariffs (now referred to as import duties and quotas) with job protection as is the vogue today. Such protective tariffs were perceived as a means of protecting industrial profits and the fortunes of the rich at the expense (and to the detriment) of the consuming public. They were right — protective tariffs and import quotas do exactly that. They penalize the public and compel them to pay higher prices in order to support the activities of non-competitive producers.

America's protective tariffs, however, were erected during a period when America was still a debtor nation. (America only became a creditor nation around the time of World War I.) These tariffs originally sought to protect America's fledgling industrial businesses from competing with their older, more established European counterparts. This tariff protection gave U.S. industries time to accumulate the necessary capital and expertise to eventually become truly competitive on a world-wide basis. In addition, these tariffs were applied during a period of continually falling domestic prices (not increasing prices as is the case today). This was mainly because domestic competition (both labor and industrial), coupled with a far better monetary system and a far better economic climate (primarily due to the absence of government and its fiscal policies), combined to produce low interest rates and expanded employment opportunities — even for the millions of penniless immigrants that streamed to our shores. Though such arguments might have been academically correct, the absence of income taxes (and government interference in general) created a climate that allowed consumer prices to fall for the ultimate benefit of the consuming public. To the extent that tariff policies did (to any extent) swell the fortunes of the Eastern establishment, these fortunes were used to increase America's industrial power and to finance the nation's economic expansion (see Chapter Addendum, page 130).

Although America's working consumers felt exploited by this system of protective tariffs, such abuse was mostly an illusion. For example, in 1900 the gross revenue of the Federal government was $567 million of which $233 million (or 41 percent) came from tariffs (including tonnage taxes). America's population in 1900 was 76 million which means that, on the average, each American only paid $3.00 in tariff taxes as his/her contribution to government. If these consumers felt exploited by such a rate of tax then, how should consumers feel today when the average American works at least four months to support the Federal government and its myriad activities? Under what system were America's working consumers better off — paying taxes through tariffs or being subjected to an income tax?

Typical of the initial press reaction to the Pollock decision was an

editorial that appeared in the New York World which called the decision "the triumph of selfishness over patriotism." In another editorial the newspaper suggested, "If the Constitution really prevents equal and just taxation, the people can amend their Constitution. And they will!" Other newspapers such as the New York Tribune, however, echoed the sentiments of Choate: that the decision preserved the Constitution against communistic assault. In any case, the lines were drawn.2

Many people saw an income tax as simply a tax on wealth — the wealth of the rich who, the public believed, were escaping their fair share of taxes. They believed an income tax would remedy that, but in light of the Pollock decision they now also viewed the Supreme Court as the protector of the rich.

Strangely enough, the income tax of 1894 was adopted without any social pressure for it. Neither of the two major political parties had called for such a tax in their 1892 party platforms (although the need for such a tax, especially in time of war, had been discussed). The tax was first mentioned by President Cleveland in his message to Congress on December 4,1893.3 He alluded to the action of the "Committee" in recommending a "small tax upon incomes derived from certain corporate investments!' On January 24, the House Committee on Ways and Means recommended an income tax modelled after the Civil War acts. This was subsequently incorporated into the general revenue measure and passed on February 1,1894. The income tax had been resurrected to help the government close the sudden deficit that developed because of the Panic of 1893. The Panic produced the first Federal deficit in twenty-eight years and was, itself, caused by the government, irresponsibly increasing silver coinage pursuant to the Bland-Allison and Sherman Silver Purchase Acts of 1878 and 1890.4

It is apparent that Congress conceived of an income tax as a tax on wealth itself. For example, in the final debate on the income tax bill in the House of Representatives, Congressman Crisp, speaking for the majority party, said:


8 26 Cong. Rec., Part 1,53rd Congress, 2nd Session, pages 2, 9.

4 Under the Bland-Allison Act the Treasury had to purchase $2 million worth of silver each month thereby inflating the money supply to that extent. Up until 1873 only 8 million silver dollars had been coined, so under the Bland-Allison Act one year's coinage amounted to three times as many silver dollars as had been coined up until that time. Under the Sherman Act the mandatory purchases (and, therefore, the rate of inflation) was doubled. This inflationary lunacy was finally stopped in 1893 with the repeal of the Sherman Act but the damage (which culminated in the Panic of 1893) had already been done,

We propose in this new system simply to put part of the burden of the support of this Government upon wealth, and to take off a portion of the burden from consumption.8

Along the same lines Congressman Lane stated:

We are confronted with a deficit of revenue, and the question is presented whether it is best to put a light income tax on the rich man's income or to tax the poor man's sugar.6

And Congressman Bretz considered it as a means to

... emancipate the people of this country from an unjust system of taxation. . . (and hailed) with welcome the demand of the American people that the accumulated wealth of the land shall be taxed.7

Congressman Hudson of Kansas said:

This method [the income tax] lays the burdens on those possessing the ability to pay, and compels those who reap the largest harvests. . . to give more of that harvest for the common good. I know that many wealthy men are generous and charitable ... On the other hand, the majority of the very wealthy are haughty, overbearing, autocratic, mean, and it is that class in particular that the income tax is designed to reach.8

There can, therefore, be no doubt that the income tax was sold to the nation as a "tax the rich" scheme and, since it represented an admitted attempt to tax wealth (i.e. relate taxes to wealth) by taxing income, it should be obvious that the tax was basically dishonest and unconstitutional. If Congress wanted to "tax" wealth it had the power to do so; but that, obviously, would have required apportionment. In order to avoid the republican principle of apportionment and the restraints it imposed, Congress sought to tax wealth by the democratic (but unprincipled) method of taxing "income" in its stead. In so doing, it concocted a tax never conceived by those who wrote and ratified the U.S. Constitution.

6 26 Cong. Rec., Part 2,53rd Congress, 2nd Session, page 1791.

6 Ibid., page 1753.

7 Ibid., page 1709.

8 26 Cong. Rec., Part 9,53rd Congress, 2nd Session, page 1714.

9 Official Proceedings of the Democratic Convention (1896), pages 252-253.

Public agitation for an income tax did not begin in earnest until the tax was held to be unconstitutional. From Pollock up until the 16th Amendment, advocates of an income tax believed that the Pollock decision could be reversed.

The Presidential Campaign of 1896

The first time the income tax played a role in a Presidential campaign was in 1896. That year the Democratic Party became the first major political party to endorse the tax. Its 1896 platform stated that:

It is the duty of Congress to use all the Constitutional power which remains after that (the Pollock) decision, or which may come from its reversal by the court as it may hereafter be constituted, so that burdens of taxation may be equally and impartially laid, to the end that wealth may bear its due proportion of the expense of Government.9

The Populist party platform of 1896 also demanded a graduated income tax "to the end that aggregated wealth shall bear its just proportion of taxation";10 and middle-of-the-road Populists called for a graduated income tax and "a constitutional amendment to secure the same, if necessary";11 while that year's platform for the Farmers' Alliance and Industrial Union also called for an income tax and pledged its support to candidates to be nominated by the Democrats.12

The Socialist Labor Party asked for an income tax that year at its Ninth Annual Convention, as did the Silver Republicans, who also declared in favor of a graduated income tax and a constitutional amendment, if needed13 and in his campaign for the Presidency, William Jennings Bryan also called for the adoption of an income tax.14

The demand for an income tax was generally advocated by those seeking basic socio-economic changes in the American economic and social scenes. This involved a shift away from trust in a laissez faire environment (an environment that had built up the country in a relatively

10 A History of the Presidency From 1897 to 1909 (1912), by Edward Stanwood, pages 32-33.

11 Ibid., page 43.

12 Ibid., pages 32-33.

13 Proceedings of the Ninth Annual Convention, Resolution 8, page 65.

14 Charles Beard, author of Contemporary American History, published in 1914 (page 194) wrote: "Some of Mr. Bryan's utterances, particularly on the income tax, frightened the rich into believing or pretending to believe, that his election would be the beginning of a wholesale confiscation!'

short time) to greater trust in government and government interference in the economy, supposedly done in the public's interest.16


Charles and Mary Beard said:

, , , It was no accident therefore that in the movement toward social democracy a deliberate and overt attempt was made to shift a part of the burden of sustaining the federal government from the consuming masses to the possessors of great fortunes. It is true that the Supreme Court had declared the income tax law of 1894 unconstitutional and that citizens who enjoyed large revenues from enterprises and investments imagined themselves securely wrapped in the strong mantle of protective legality. But Bryan and his legions were still active in the field, vociferously demonstrating to farmers and wage earners the justice of a levy on the incomes of the prosperous. In fact at the turn of the century, discontent with established practices in taxation — that is, collecting federal revenues from the masses by indirection — was spreading like a virus through the left wings of both political parties, especially in the regions where great estates were few in number.

In the 1900 campaign the platforms of both major parties were silent on the issue of income taxes. Theodore Roosevelt, however, raised it himself between 1904 and 1908. In his message to Congress in 1906 he said that the income tax was, in essence, a "question of the proper adjustments of burdens to benefits," although he recognized the problems presented by the Pollock decision.17 In 1907 he again urged "a graduated income tax of the proper type" and expressed the hope that an income tax might be devised that the Supreme Court would uphold.18

16 The tragic consequences in this shift should be painfully apparent in America's failing economy as evidenced by the squalor of American cities (urban blight), the growing inability of America to manufacture goods at competitive prices (our huge trade deficit), and the growing number of women forced by economic need to join the work force.

16 The Rise of American Civilization, \blume II, (The MacMillan Company, New Edition, 1935), pages 580-581.

17 41 Cong. Rec., Part 1, 59th Congress, 2nd Session, pages 27-28.

18 See Taxation of Government Bondholders and Employees, U.S. Department of Justice, J1.2:T19/939, pages 131-132, which will provide numerous other references on this subject. Throughout this chapter I have freely quoted from this source.

The 1908 Presidential Campaign

The 1908 Democratic platform again called for

a constitutional amendment specifically authorizing Congress to levy and collect a tax upon individual and corporate incomes, to the end that wealth may bear its proportionate share of the burdens of government.19

This statement was indicative of Bryan's return to Party leadership. Calls for an income tax now also came from the Prohibition Party while the Socialists called for an income tax as "an opportunity of using the power of taxation for the purposes of social control." No mention of an income tax was included in the Republican platform. Taft, however (in accepting the nomination), gave a limited endorsement to an income tax if it could be written in a manner that would be constitutional.

We can see that public demand for an income tax came first from agrarian and radical Populist groups who had strong ties to causes such as cheap money, redistribution of wealth, and other views generally compatible with socialism. This idea found increasing acceptance among a coalition of western and southern congressmen — its chief advocates in Congress — who were opposed to apportionment for the very reason that it was included in the Constitution. The political appeal for an income tax (a tax on the rich) proved overwhelming, and increasing numbers of eastern politicians (both Republican and Democrat) jumped on the income tax bandwagon.

The Final Push For The Income Tax

Congress was convened on March 15,1909 for a special session to revise tariffs. On the first day of the session Cordell Hull of Tennessee offered an income tax bill as an amendment to the tariff bill but the bill was returned by the Committee on Ways and Means without Hull's amendment. The House bill that was laid before the Senate on April 10, 1909 did not contain an income tax amendment. Between April 15 and April 21, two Senators (Bailey of Texas and Cummins of Iowa) introduced in the Senate amendments to the tariff bill calling for an income tax. These two men would lead the Senate drive (spearheaded mainly by other Western and Southern Senators) for the income tax which they believed a changed Supreme Court would now find constitutional.

While Congress was in session, wrestling with the tariff bill and on the verge of passing such a measure, Taft sent his June 15 message calling for 1) a constitutional amendment authorizing a general income

19 Ibid., page 132.

tax; and 2) a corporate income tax (under the guise of an excise tax on corporate profit) that could, he suggested, be passed immediately.

It is obvious that Taft's recommendation for an income tax amendment to the Constitution was done to derail what looked like certain passage of some type of income tax measure in Congress which would appear as a political victory for the Democrats (who had been pushing for such a tax). Favorable passage of the amendment (as recommended by a Republican President) would deny the Democrats any such political advantage. Speculation has it that Taft was persuaded that such an amendment would not be ratified by three-quarters of the States and congressional approval of such an amendment, therefore, would not necessarily produce an income tax.

In any case, the Senate voted for the amendment 77 to 0 and it passed the House 318 to 14.20 In this way Congress sought to amend the Constitution in order to add a tax called for by the Second plank in Karl Marx's Communist Manifesto. In that endeavor, however, they failed — but that failure has been the best kept secret of the 20th Century.

Chapter Addendum

Current import restrictions (such as those imposed on Japanese automobiles, for example, and as are suggested for steel and certain other products) are not like the protective tariffs erected to protect American industry in the 19th Century. For one thing, current import protection is asked for in the name of large, well-established American industries that, at one time, were larger than the combined industries of the rest of the world. The pervasive business attitude of "its deductible" literally promotes wasteful and unnecessary business expenditures which result in higher consumer prices. In addition, excessive American wage demands (not tied to increased productivity), brought about by unrealistic union pressure (encouraged and protected by government), has also played a significant role in pricing American goods out of markets they once dominated.

144 Cong. Rec., Part 4, 61st Congress, 1st Session, page 4121.


The Corporation Excise Tax

of 1909

In 1909 the U.S. Congress once again sought to impose an unap-portioned income tax on the nation. That attempt failed. In order to really understand current income tax "law" and how it came about, it is necessary to be familiar with another income tax that no longer exists — the corporation income tax of 1909, which was deceptively called the Corporation Excise Tax of 1909. This corporate income tax is closely related to the current income tax for a number of reasons.

President Taft Recommends An "Excise" Tax and The 16th Amendment

As noted previously, on June 15, 1909 President Taft sent a message to Congress about the tariff bill then under consideration. In his message he advised Congress that a "rapidly increasing deficit" imposed an "obligation" on Congress to arrange the new tariff bill "so as to secure an adequate income (and) that it was not possible to do so by import duties, (and that) new kinds of taxation must be adopted." Taft recommended, therefore, that Congress pass legislation establishing 1) a graduated inheritance tax; 2) a general income tax; and 3) a new corporate income tax.

Since Taft recognized that the Pollock decision actually prevented the government from establishing a general income tax, he recommended that:

both Houses by a two thirds vote, shall propose an amendment to the Constitution conferring the power to levy an income tax upon the National Government without apportionment among the States in proportion to population.

Though the President stated he was "convinced that a great majority of the people of this country are in favor of investing the National

Government with power to levy an income tax," he still conceded that the time needed to ratify such an amendment would prevent money from being brought "into the Treasury to meet the present deficiency!' Actually, there really was no deficiency problem since Congress could have increased both tariffs and legitimate internal excises in order to raise the necessary revenue. A tax levied on "big business" and on the "rich," however, was infinitely better politically so Taft proposed:

an amendment to the tariff bill imposing upon all corporations and joint stock companies for profit, except national banks (otherwise taxed), sav-ings banks, and loan associations, an excise tax measured by 2 per cent on the net income of such corporations. This (would be) an excise tax upon the privilege of doing business as an artificial entity and of freedom from a general partnership liability enjoyed by those who own the stock.

Taft believed that Congress could pass such an income tax on corporations (under the guise of an alleged excise tax on corporate "privileges") on the basis of a 1904 Supreme Court decision. He explained that the Spreckles Sugar Refining case1 seemed:

clearly to establish the principle that such a tax as this (an income tax) is an excise upon privilege and not a direct tax on property and is within the federal power without apportionment according to population". He then added, "the tax on net income is preferable to one proportionate to a per* centage of the gross receipts, because it is a tax upon success and not failure . . . Another merit of this tax is the federal supervision which must be exercised in order to make the law effective over the annual accounts and business transactions of all corporations.

Taft then went on to explain:

While the facility of assuming a corporate form has been of the utmost utility in the business world, it is also true that substantially all of the abuses and all of the evils which have aroused the public to the necessity of reform were made possible by the use of this very faculty. If now, by a perfectly legitimate and effective system of taxation, we are incidentally able to possess the Government and the stockholders and the public of the knowledge of the real business transactions and the gains and profits of every corporation in the country, we have made a long step toward supervisory control of corporations which may prevent a further abuse of power.

1 Spreckles Sugar Refining Co. vs McClain 192 US 397, decided February 23,1904.

Income Taxes Urged for "Control"

So, in addition to providing revenue for the government (for the purposes listed on page 31), the corporate income tax of 1909 was admittedly imposed to gain "supervisory control of corporations." Where in the Constitution is the Federal government empowered to have such "supervisory" control? And where in Article 1, Section 8, clause 1 is the government authorized to impose taxes for these purposes? Taxes imposed for such purposes violate the spirit and clear intent of the Constitution! And if a corporate income tax can give the Federal government control over corporations because it gives the government access to the "annual accounts and business transactions of all corporations, " does not a personal income tax give the government the same power and control over individuals'? More importantly, who is more likely to abuse its power — government or business? Because there are so many companies competing for business, few businesses can force the consumer to buy their products. But if the government decides to provide a service, the taxpayer is forced to pay for it through taxation regardless of how costly and overpriced.

The story of mankind is a tale of the constant struggle against the tyranny of government and its abuse of power. As Woodrow Wilson stated, "the struggle for liberty is the struggle to contain government power!' And, as President Taft tacitly admitted, another reason for an income tax was to give the Federal government illegal control and power over American business, and individuals as well.

Profit — Not Income — To Be Taxed

It is obvious from Taft's remarks that this so-called excise tax was not to be based on corporate income but on corporate profit and, in reality, would be & profits tax not an income tax. This is easy to see by Taft's own statement that the tax was to be determined by net income rather than gross receipts.2 This is further substantiated by Taft's assertion that the tax was to be "upon success and not failure." Today's alleged income tax is actually & profits tax and because individuals do not generate "profits" they cannot be subject to it. Individuals are not subject to this tax for a variety of other reasons, but this one is basic.

2 Net corporate income is actually a corporation's profit since net receipts (as used by Taft) represent receipts (income) less disbursements (outgo). So to refer to a corporations "net income" really means to talk about a corporation's profit.

The Spreckles Case

As a result of the Spanish-American War, Congress passed the War Revenue Act of 1898 which levied an excise tax of one-quarter of one percent on the gross annual receipts in excess of $250,000 of any corporation or company refining sugar. In challenging the tax before the Supreme Court, the Spreckles Company had raised two issues: 1) the tax was unconstitutional on the basis that it was direct and not apportioned; and 2) if it were constitutional, the tax could not apply to income from stocks and dividends. The Supreme Court found in favor of Spreckles on the stock and dividend issue but ruled that the tax (overall) was a valid excise tax.

In declaring the tax an "excise," the Court cited the Souk case (see pages 95-98) in which that Court held that a tax on gross premiums "was not a direct tax, but an excise duty or tax within the meaning of the Constitution." It also cited the Veazie decision (see page 98-111) and said:

... in Nicol v. Ames, 173 U.S. 509, that the tax imposed (30 Stat. 448) upon each sale or agreement to sell any products or merchandise at an exchange, or board of trade, or other similar place, either for present or future delivery, was not in the constitutional sense a direct tax upon the business itself, but in effect "a duty or excise law upon the privilege, opportunity or facility offered at boards of trade or exchanges for the transaction of the business mentioned in the act" which was "separate and apart from the business itself;" in Knowlton v. Moore, 178 U.S. 41,81, that an inheritance or succession tax was not a direct tax on property, as ordinarily understood, but an excise levied on the transmission or receipt of property occasioned by death; and, in Patton v. Brady, 184 U.S. 608, that the tax imposed by the act of June 13,1898, upon tobacco, however prepared, manufactured and sold, for consumption or sale, was not a direct tax, but an excise tax which Congress could impose; that it was not "a tax upon property as such but upon certain kinds of property, having reference to their origin and intended use"

In view of these and other decided cases, we cannot hold that the tax imposed on the plaintiff expressly with reference to its "carrying on or doing the business of ... refining sugar," and which was to be measured by its gross annual receipts in excess of a named sum, is other than is described in the act of Congress, a special excise tax, and not a direct one to be apportioned among the States according to their respective numbers. This conclusion is inevitable from the judgements in prior cases, in which the court has dealt with the distinctions, often very difficult to be expressed in words, between taxes that are direct and those which are to be regarded simply as excises. The grounds upon which those judgements were rested need not be restated or reexamined. It would subserve no useful purpose to do so. It must suffice now to say that they clearly

negative the idea that the tax here involved is a direct one, to be apportioned among the States according to numbers.

It is said that if regard be had to the decision in the Income Tax Cases, a different conclusion from that just stated must be reached. On the contrary, the precise question here was not intended to be decided in those cases. For, in the opinion on the rehearing of the Income Tax Cases the Chief Justice said: "We have considered the act only in respect of the tax on income derived from real estate, and from invested personal property, and have not commented on so much of it as bears on gains or profits from business, privileges or employments . . ."3 (Emphasis added)

We are being told here that taxes are not levied on people directly, or indirectly through the products they buy, but levied on "privileges," "opportunities, " "facilities offered at boards, " and on "exchanges for the transaction of business, " which we are supposed to believe are "separate and apart from" the business itself. In addition, the Knowlton decision is cited (another monumental Supreme Court swindle) wherein the Court ruled that the Federal estate tax (passed because of the Spanish-American War) was not "a direct tax on property, as ordinarily understood, but an excise tax on the transmission or receipt of property occasioned by death." To top it off, we are also told that excise taxes can apply to property (not because of its ownership) but because of its "origin" (whatever that means) or its "intended" use!

All of this is pure, legalistic mumbo-jumbo. If the Constitution contained an absolute bar against taxing the public directly, the U.S. government (with the aid of its "judges") would have gotten around it by taxing the public on the basis of their "use" of certain objects or by taxing "privileges" such as breathing (the "use" of one's lungs), walking (the "use" of one's legs and feet), talking (the "use" of one's brain and speech organs), on writing letters (the "use" of one's arms, hands and fingers), or even on the "privilege" of being born or reaching a certain age! Such is the ingenuity employed by government lawyers (masquerading as Federal judges) to concoct taxes (and laws) to help the government avoid the restraints imposed by the Constitution.

Notice also how the Court claims that distinctions between direct and indirect taxes are "often very difficult to express in words" — true only if the honorable Court did not know the difference, or if it did, did not want to explain it. Generally, all taxes paid directly to government are direct and all taxes paid indirectly are indirect—how much simpler can it be?

The Court next stated that it was suggested that based upon "the income taxes cases (Pollock) a different conclusion" would have to be

3 Spreckks vs McClain, supra, pages 412-413.

reached. This suggestion is resisted by the Spreckles Court on the grounds that the Pollock Court decision only applied to income "derived from real estate, and from invested personal property," and that it did not comment on the "gains or profits from business, privileges or employments." The reason the Pollock Court did not comment on these items is that none of them applied in that case (see page 83). In any case, Pollock did not apply here because that case involved a profits tax (a tax on net income) and Spreckles involved a tax on gross receipts (or gross income). Since the economic consequences of each tax are fundamentally different, different considerations would apply in any analysis of whether one or the other was either direct or indirect. If the Spreckles Court wanted to avoid the Pollock case, it had ample grounds to do so — but not those used.

In holding for Spreckles on the dividends and interest issue, the Court interestingly enough relied on the dissenting opinion in the lower court case that had initially upheld the tax — which the Court would now strike down. Citing that dissenting opinion the Court said:

Keeping in mind the well settled rule, that the citizen is exempt from taxation, unless the same is imposed by clear and unequivocal language, and that where the construction of a tax is doubtful, the doubt is to be resolved in favor of those upon whom the tax is sought to be laid.4

It was this decision that persuaded Taft that the government could legally tax corporate income (despite the Pollock decision) on the grounds that it could levy the tax not on corporate income directly but on the privilege of operating as a corporation and that the tax could be measured by the income (actually profit) earned. The Spreckles case, however, involved an excise tax on gross receipts and not on profits (as Taft now viewed the corporate tax). The Spreckles decision, therefore, provided no legal basis whatsoever for an excise tax on profits. Based upon his misconception of the Spreckles decision, Taft nevertheless used it as the basis for recommending the Corporation Excise Tax of 1909 and Congress passed it presumably as an excise tax on the privilege of operating as a corporation (though non-corporate entities such as joint stock companies and associations were also taxed, while various other businesses that also fell into this category were excluded).

The Act provided for:

A special excise tax with respect to the carrying on or doing business by such corporation, joint stock company or association, or insurance com-

4 Ibid., page 416. This principle alone brands the income tax "law" illegal!

pany, equivalent to one per centum upon the entire net income over and above five thousand dollars received by it from all sources during such year, exclusive of amounts received by it as dividends upon stock of other corporations, joint stock companies, subject to the tax hereby imposed.

The Act further provided

that when determining "such net income," corporations could deduct "all the ordinary and necessary expenses actually paid within the year out of income in the maintenance and operation of its business and properties." It then enumerated the types of expenditures that could be deducted including "all amounts received by it within the year as dividends upon stock of other corporations . . . subject to the tax hereby imposed."

This dividend deduction is not authorized today (see page 190) with the result that many corporations and individuals pay taxes on the receipt of corporate dividends upon which Federal taxes have already been paid! In small, family-owned corporations this double taxation of corporate profits is brutal. The same situation occurs in public corporations whose profit (as far as public stockholders are concerned) is also taxed twice. And such profits could theoretically be taxed three or four times — depending on the number of corporations through which such profits might flow before reaching the final, individual taxpayer. Such outrageous taxing policies have enabled the Federal government to nationalize all of America's major corporations — and the public is not even aware that such a de facto nationalization has occurred!5

In addition, the Act omitted the following types of corporations from the tax: labor, agricultural or horticultural organizations, fraternal beneficiary societies, orders or associations operating under the lodge system, domestic building and loan associations, corporations and associations organized and operated for religious, charitable, or educational purposes.

The hypocrisy of the Act is revealed in the following coloquiy that took place in the U.S. Senate:

Mr. HUGHES. It is apparent that the business or occupation of the corporation is not the object sought to be reached by this law as was attempted to be done by the peculiar and guarded language of that act which the court construed in sustaining the validity of that particular act. I do not believe that anyone who studies this amendment believes that it is the business conducted which is sought to be taxed; but the incomes of these

6 For an in-depth explanation and irrefutable proof that the government has, in fact, nationalized all major U.S. businesses, see pages 137-139 of The Biggest Con: How The Government is Fleecing You, by Irwin Schiff.

corporations are in fact sought to be subjected to the tax, while the language of the act is —

Mr. RAYNER. Mr. President —

Mr. HUGHES. That is what was said in the President's message; that is what he said in his speech of acceptance; that is what he told his Attorney-General to do — to draw an income-tax law that would be consistent with the construction of the Constitution; and that is what this is in its essence, in my judgement — an income tax, a tax upon all Incomes from all sources of the corporations enumerated.8

Senator Cummins (one of the two leaders in the Senate pushing for an income tax) had this to say about the corporate excise tax:

Congress cannot make an income tax a special excise tax by so denominating it. It cannot make an excise tax a direct tax by so nominating it. We must look further into the subject than the language used by the committee.

Congress cannot justly levy a tax on business unless it includes all those who are engaged in that business. I deny the right, in fairness, of Congress to levy a tax upon John Smith because he is engaged in the dry goods business, if John Jones is next to him and is doing the same dry goods business without being taxed. That is not an excise tax.7

In the House, Congressman Pickett raised some of the same issues. Pickett, however, also noted that only "four hours had been set aside for discussion" of the corporation tax and that the tax did not originate in the House but "came before us for the first time as an amendment to (a) Senate Bill!' The revenue measure, therefore, did not originate in the House as called for by the Constitution. Commenting on the short time allowed the House for discussing the tax, Pickett said:

I venture to say that such action on a measure of so vast importance, so comprehensive in character, is without a precedent or a parallel in the history of parliamentary procedure.8

He then commented on the corporate excise tax as follows:

I realize that the corporation tax comes before us with the recommendation of the President, for whom, and for whose judgement, I have the pro-foundest respect. The recommendation should be treated with a consideration commensurate with his high office and great ability. I can not, however, either forget or ignore the wisdom of our forefathers in the

6 44 Cong. Rec., 61st Congress, 1st Session, page 4043.

7 Ibid., page 3976.

8 Ibid., page 4395.

distribution of the powers of government. As a part of the legislative branch, we are expected to , and ought to, be guided by our own best thought and convictions — otherwise our form of government would cease, except in name. I am quite sure the President, with his exalted and patriotic conception of duty wherever vested, would not wish us to do otherwise.

Time does not permit more than a pointed reference to the merits of the tax. It is urged in justification of it that it is a tax on the privilege of doing business as an artificial entity and of freedom from general partnership liability. I concede that corporations should pay for that privilege, but it does not follow that the Federal Government should charge for it, at least in respect to certain classes of corporations. The privilege is granted by the state and should be taxed by the State.

The right of the Federal Government to tax a privilege granted by a State can not be justified upon any reasoning other than the power to do so.

Taxation is one of the gravest problems of government. History is replete with illustrations which establish the rule of governmental action, that all doubt as to the justice or equity of a tax should be resolved against it. There is a vital distinction, from a legislative point of view, between the power to impose a tax and the justice of doing so.

I do not affirm that this tax would not be sustained by the courts on the reasoning which controlled the decision in the inheritance tax case of Knowlton v. Moore. My objection goes to the equity of the tax and the unlimited powers given the Federal Government over matters which seem to me to be purely within the jurisdiction of the States.

There are many corporations organized for and engaged in business of a purely local character. They derive no special privilege from the Federal Government as distinguished from individuals. To illustrate: in the city where I live, on opposite corners are two office buildings of the same general character. One of these buildings is owned by a corporation, the other by an individual. The corporation will come within the operation of the proposed tax. I can not reconcile the collection of a tax by the Federal Government on one, for that is what it amounts to, and not on the other. Numerous illustrations of the same character might be urged as between competitors in every community.9

Taxes On Privileges

In this tax we again see how important the issue of a tax on a "privilege" is to the government. Let us examine this issue in greater detail since it represents a totally false and judicially contrived "tax" that few Americans are hardly aware of.

9 Ibid.

There can be no such thing in America as a tax on a privilege. Taxes, as you already know, are always levied on individuals since it is only individuals who pay taxes (either directly or indirectly). So a so-called tax on a "privilege" is really a tax on an individual (or business) based upon their receiving or enjoying some alleged special "privilege."

A number of U.S. taxes are based on the public's alleged receipt of a "privilege." Apart from the Corporation Excise Tax, Federal estate and gift taxes were held to be excises placed upon the "privilege" of bequeathing property at death or giving away property during life.

The Corporation Excise Tax of 1909 was being based on the alleged "privilege" of operating as a corporation with the amount of the tax measured by the corporation's profit in exercising this "privilege." So this tax was not levied on profits themselves (as Congress and the courts said), but supposedly on the "privilege" of operating as a corporation. Why was the tax allegedly levied on the "privilege" and not on the profits themselves? The latter would generate the same revenue for the government as the former and a "profits" tax would be more descriptive and accurate than a "privilege" tax. The reason was that the Pollock Court had already ruled that a tax levied on income was direct and, therefore, had to be apportioned; while taxes levied on supposed privileges had been "interpreted" by some courts as being indirect and, therefore, did not have to be apportioned. In this way the government (with the help of its "courts") could get at the income (really profits) of corporations by claiming that it was not taxing their income but merely taxing their privilege of "doing business in a corporate capacity"; while measuring the amount of the tax by the income generated by the exercise of this "privilege" — a shameless semantic swindle!

The government operates the same scam in connection with Federal estate and gift taxes. You now know that such Federal taxes are not levied on the property bequeathed at death or gifted during life, but, rather, are "excise" taxes levied on the "privilege" of making such bequests and gifts. The tax levied on these "privileges," however, is measured by the value of the property left or given so the government receives the same amount it would if the taxes were levied directly on the property itself rather than on any "privilege." Why then did Federal judges and politicians insist on creating "privileges" to tax rather than taxing profits, bequests and gifts directly? Because they needed to create fictitious excise taxes in order to avoid the apportionment provisions of the Constitution.

Taxing Real Estate as a Privilege

Look, for example, at the Federal estate tax and how it works. If a man left his heirs $1,000,000 worth of real estate could the Federal government impose an "estate tax" on this real estate without apportion-

ing it? It could not since Federal taxes "on" real estate have been, in every case, held to be direct. How then could the Federal government "tax" such real estate without apportioning it? It simply levied the tax on the real estate but claimed that what was actually being taxed was a privilege. Then they taxed the privilege (based on the value of the real estate) and viold, the real estate was "taxed" and the government claimed it only really "taxed" a privilege! This is how the Federal government had been able to avoid apportioning direct taxes "on" real estate — despite the fact that every Federal court (including the Hylton Court) has agreed that a tax "on" real estate is a direct tax requiring apportionment.

Americans Receive "Privileges"?

The whole concept of taxing Americans on the basis of their receiving certain "privileges" is vicious nonsense. There are no such things as "privileges" in America. Under a monarchy, the nobility might enjoy certain privileges that commoners do not share. In America, however, Article 1, Section 9 of the Constitution bars the granting of nobility — that is the granting of privileges. Where in the Constitution, for example, is the Federal government authorized to grant privileges? Americans either have a right to do something or they do not. Even if the activity requires a license or a certificate of incorporation, getting that license or certificate does not constitute a privilege since anyone who meets the requirements and pays the license or certificate fee has a right to them. A citizen's right to the license or certificate is established by law and is not granted on the basis of any arbitrary decision made by a king or a bureaucrat as to who should be granted the "privilege" of such license or certificate. A king, of course, can arbitrarily confer knighthood or elevate someone in the peerage (to which certain privileges might attend). But no such system of "privileges" can exist in America and, therefore, neither can taxes be levied on the basis of the receipt of such fictitious "privileges."

Government Illegally Taxes Rights

What the government has been taxing are rights, not privileges. But rights cannot be taxed since, if they could, they would not be "un-alienable" as established in the Declaration of Independence. Chief Justice John Marshall correctly pointed out that "the power to tax involves the power to destroy!' If the U.S. government had the lawful power to tax rights, it would have the lawful power to abolish them — which it obviously does not have. If the individual owns property, a right recognized by the Constitution, does he not possess the right to use it, consume it, or give it away? If he does not have the right to give it away

(if it is a "privilege" that can be taxed — as in the case of gift taxes), then by extension, he should not have the right to use or consume it either except with the government's permission. And if he does not have these rights, then obviously the government, not he, owns the property. Based upon the government's enforcement of the income, estate, and gift tax "laws" (and the public's docile acceptance of them), today's taxes are a veiled but real declaration that the government owns everything — and that what we possess we do so only with government's sufferance. In effect, the government (through taxation) has abolished private ownership of practically all property.

Corporate "Privileges"

Organizing a corporation in America does not involve the receipt of any "privilege." It is a right Americans enjoy as long as they conform to the laws which govern such organizations. In essence, this is no different than an American's right to life, which may be forfeited only if he feloniously takes another's life. The Federal government did not create corporate "privileges" since corporations existed as early as the Middle Ages. In fact, by the 15th Century, English courts had already established the principle of limited corporate liability—"Si quid universitas debetur, singulis non debetur, nee quod debet universitas, singuli" (If something is owed to the group, it is not owed to the individuals nor do the individuals owe what the group owes). Therefore, the issue of limited liability referred to by Taft was no privilege created or conferred by government but, instead, was established in the common law long before our government was formed. In addition, limited liability is merely one of many attributes characteristic of a corporate entity. In reality, a corporation is an artificial person created by law — it can own property in its own name; it can sue and be sued; it has perpetuity, since it cannot die, though it can be disolved; and it confers a limited liability on its owners (the stockholders) who can lose their initial investment but no more. This limited liability that according to Taft made corporations subject to an excise, is a two-edged sword since corporate owners (stockholders) have no direct ownership of any of the assets they theoretically "own." All of these attributes (or "privileges" as our courts refer to them) are simply the economic and legal characteristics of any corporate entity and the things that give almost instant liquidity to corporate stock (as demonstrated by our numerous regional and national stock exchanges). This gives corporations the unique ability (as opposed to other forms of business organization) to be able to generate large pools of capital from a multitude of investors. It also permits corporations to launch large scale, economic and social projects for the ultimate economic benefit of society. Without such limited liability, large

pools of capital could not be quickly or easily raised and would be detrimental to the economy and society as a whole as we have seen when there is little capital accumulation. America would not have had its railroads, its utilities, its steel and auto industries (and in many cases even its hospitals or churches) without the limited liability inherent in corporate organization and stock ownership. Indeed, Japan's miraculous post-war economic boom is largely attributable to the introduction of American-style corporations during the American occupation after World War II and the breaking up of Japanese zaibatsu (family-owned and controlled holding companies) which had totally dominated the prewar Japanese economy. To suggest that such limited liability is a "privilege" conferred by government to stockholders for their exclusive benefit is absurd, and typical of the type of economic nonsense that usually emanates from the nation's politicians.

In addition, corporate charters are actually granted only by state governments, so any Federal claim of "privilege" is a violation of the 9th and 10th Amendments and constitutionally repugnant. It is, as has been demonstrated, a "legal" sleight of hand trick to allow the Federal government to contrive an unapportioned "excise" tax. Even a tax on an alleged "privilege" is nothing but a direct tax based upon that "privilege".

The Corporation Excise Tax was passed as recommended by Taft and was incorporated into the Payne-Aldrich Tariff Act — the constitutionality of which ultimately reached the Supreme Court in March, 1911.

Flint vs Stone Tracy220 US 107

A number of individual cases challenging the Act's constitutionality on a variety of grounds were consolidated and brought before the Court in the above referenced case. Some of the issues raised included:

1. that the Act was unconstitutional because it singled out businesses created by the states and therefore invaded state sovereignty;

2. that no opportunity for a hearing was given to the corporations by any committee of the Senate or House, nor was any revenue measure ever passed by Congress with less scrutiny;

3. that the Act was arbitrary and discriminatory since individuals and co-partnerships (though carrying on the same type of business) were exempt from the tax; and

4. that requiring a corporation to make a return constituted a "search" within the language of the 4th Amendment.

Throwing both law and logic to the winds, the Supreme Court found in favor of the government in all instances. Among other things the Court held:

1. that the corporate tax was not a direct tax but an excise on the privilege of doing business in a corporate capacity:

2. that the corporate tax provisions of the Tariff Act of 1909 were not unconstitutional, although they were a revenue measure not originated in the House;

3. that joint stock companies and associations (while differing somewhat from corporations) have many of the same attributes and enjoy many of the same privileges and are therefore properly classified with corporations in a tax measure such as the Corporation Tax;

4. that while the legislature cannot (by declaration) change the real nature of a tax it imposes, its declaration is entitled to weigh when construing the statute;

5. that excises are taxes laid upon the manufacture, sale or consumption of commodities within the country, upon licenses to pursue certain occupations, and upon corporate privileges. The requirement to pay such taxes involves the exercise of the privilege and, if business is not done in the manner prescribed, no tax is payable;

6. that Congress's power to raise revenue is essential to national existence and cannot be impaired or limited by individuals incorporating and acting under state authority. The mere fact business is transacted pursuant to state authority creating private corporations, does not exempt it from the power of Congress to levy excise laws upon the privilege of so doing;

7. that there are distinct advantages to carrying on business in the manner specified in the Corporation Tax Law (as opposed to carrying it on as a partnership or individual) and it is this privilege that is the subject of the tax — not the mere buying, selling or handling of goods;

8. that it is not part of the essential government function of a state to provide means of transportation or to supply artificial light, water and the like. Although the people of the state may derive a benefit therefrom, the public service companies carrying on such enterprises are private and therefore subject to the same legitimate Federal taxation (such as the Corporation Tax) as are other corporations;

9. that the unreasonable search and seizure provisions ot the 4th Amendment do not prevent the Federal government from re-

quiring ordinary and reasonable tax returns (such as those required by the Corporation Tax Law);

10. that the Court would not pass on questions of constitutionality of the statute until they arose and no questions was presented concerning the provisions of the Corporation Tax Law that might offend the self-incrimination provisions of the 5th Amendment or whether the penalties for non-compliance were so high as to violate the Constitution. The penalty provisions of the Act were separable and their constitutionality could be determined if a proper case arose.

The self-serving hypocrisy of the Supreme Court was clearly evident from this decision since the Act could have been held unconstitutional on any one of a variety of grounds. Though these grounds will not be analyzed in detail, some comment on them is in order. (The following observations are numbered to correspond to the previous findings of the Court.)

1. By no stretch of the imagination could anyone (with an understanding of the U.S. Constitution and the subject of taxation) hold this tax to be an "excise!' The following excerpt from Pollock exposes the illegality of the Act:

The substance, and not the shadow, determines the validity of the exercise of the power.10

2. A minor matter in view of everything else, but a possible violation of the Constitution, nevertheless.

3. Joint stock companies and associations are not corporations and if they could be taxed under this Act, why should it not apply to partnerships and sole proprietors? Field's commentaries on taxation (see page 118) are very appropriate here and expose the repugnancy of the Court's holding, in this area, to the Constitution.

4. That is, however, exactly what Congress did — change, by declaration, the real nature of the tax. The Court saw it but conveniently turned its head.

5. The Court tailored its definition to fit the tax. The Court should have ended its definition after the second phrase since excises have nothing to do either with "licenses" or "privileges." Any tax connected with either of the latter are paid directly by those taxed. It might be argued that (in certain cases) a uniform franchise tax unrelated to income might be

l°Pdlock vs Farmers' Loan 157 US 429, page 582.

regarded as an indirect tax to the extent that it is passed on to consumers in terms of higher prices for the products or services sold. However, any such tax related to income or wealth is obviously a tax "on" income or wealth and not on any "franchise" or "privilege." Adding to the definition the provision that "if business is not done in this manner described no tax is payable" was, of course, done to legally justify all those unincorporated businesses that had been discriminatorily left out of a tax "on doing business!' Here we have the Federal government's own "Court" tailor making a definition to fit the law.

6. This, again, is a perfect example of either the bias or ignorance of the Court. When individuals incorporate, "the power of Congress to raise revenue" is in no way "impaired or limited" as claimed by the Court. Congress still has all the power it ever had to directly tax citizens according to their wealth, their income, or on any other criteria — as long as the tax is apportioned — while still possessing the power to tax them indirectly through taxes on consumable products. Congress, of course, was never given carte blanche to tax on any basis it wished—and that was by design. Its ability to "raise revenue" is not "impaired" or "limited" by how people conduct their business affairs, but by the Constitution itself. The Constitution was deliberately written to deny the Federal government the power to "raise revenue" in any way it wished. This was done to prevent Federal politicians from passing class and regional legislation (especially in connection with taxes — as represented by the Corporation Excise Tax). It is obvious the government simply wanted to avoid the restraints imposed upon it by the apportionment provisions of the Constitution. In addition, if the Court thought the power of Congress to "raise revenue" was "essential," what about constitutional rights and safeguards? The latter are far more "essential" than the former because the purpose of the Federal government is not to arbitrarily raise revenue merely to support and perpetuate itself, but to preserve and protect the rights of the people. It is "essential" to preserve a republican form of government and to keep government in check to avoid bureaucratic tyranny (two considerations which obviously held no interest for this Court and which obviously hold little interest for Federal courts in general — the Pollock case being a rare exception).

7. More judicial double talk reflecting the Court's willingness to uphold a tax which is clearly arbitrary in applications and obviously illegal on this one issue alone.

8. Since the tax was allegedly levied on "privilege," some utility companies argued that their services (such as public transportation, light and water) were "essential" to the public. How, then, could it be claimed that in delivering such "essential" services they were themselves receiving a "privilege"? If the tax had been honestly levied on the basis of profit or capital or even if it applied to all businesses this argument could not have been made, but the tax (it was claimed) was being levied on their supposed exercise of a "privilege!" In addition, of course, public utilities are, indeed, subject "to legitimate Federal taxes" but not illegitimate ones.

9. Such a consideration certainly does violate the 4th Amendment. If a business is required to provide a return then it is required to allow an inspection (search and seizure) of its books and records in order to substantiate the deductions claimed or risk losing them. Therefore, its books and records become open to government scrutiny and to actual seizure — as happened to the author.

10. The inquisitorial nature of a tax (requiring that information be supplied under penalty of perjury — and upon which further inquisitorial audits can be based) has to be repugnant (and is) to the 4th and 5th Amendments to the Constitution as even current IRS audit manuals admit!

In upholding the legality of this Act, the Stone Tracy Court threw out both the apportionment and uniformity provisions of the Constitution, the 4th Amendment, the equal protection clause, as well as various 5th Amendment guarantees — all in a day's work for the Supreme Court!


The Sixteenth Amendment

The 16th Amendment did not amend or change the U.S. Constitution. This, however, is not what American law schools teach nor what is conveyed to the public in many current "readings" of the Constitution. The fact that the 16th Amendment did not change one word or phrase of the Constitution has, for years, been the U.S. government's best kept secret. If the government had a choice, it would undoubtedly prefer that the Russians get all our military secrets rather than that the American public get the truth about that Amendment.

As finally adopted the Sixteenth Amendment states:

The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.

It appears to have changed the apportionment provisions of the Constitution (at least with respect to an income tax) and to give the Federal government a new taxing power. However, those assumptions are incorrect. When the Amendment and income tax law were passed, Congress

L believed it was amending the Constitution (which turned out not to be the case);

2. admittedly did not even know what "income" was, but taxed it anyway;

3. stated that its purpose was to shift the tax burden to the rich while lowering taxes for everyone else; and

4. justified the Amendment as necessary in the event of war.

Prior to receiving President Taft's message of June 15, 1909, the Senate was already deeply engrossed in considering an income tax amendment to the revised Dingley Tariff Bill. Senator Bailey's amendment had been submitted on April 15 and was almost exactly like the one passed in 1894 except that it:

1. excluded from taxation interest received on state and municipal bonds;

2. raised the initial exemption from $4,000 to $5,000; and

3. increased the rate of tax from 2 to 3 percent.1

A week later, Senator Cummins introduced another amendment which contained some rather interesting departures from both Bailey's Amendment and the Act of 1894. Cummins, an attorney, demonstrated that he had a considerable understanding of the economics of a tax on income and even the inherent problem of trying to tax it but, nonetheless, he favored an unapportioned income tax.2 The income tax bill ultimately adopted by Congress was almost exactly the bill he submitted — including his suggestion of graduating the tax. Surprisingly, Cummins' amendment also excused all corporations from the tax and the income tax finally adopted by Congress did not tax corporations! It is true that between the time Cummin's amendment was submitted and the income tax was actually adopted the corporation (excise) tax previously discussed went into effect, but it was not for that reason that corporations were excluded. They were excluded because of Cummin's forceful explanation (still valid today) as to why corporations should not be subject to an income tax. Not one Senator could refute' Cummin's arguments, as is illustrated by the following dialogue from the Congressional Record:

The second important particular in which this amendment differs from the amendment already before the Senate is that it is confined to individual incomes; that is to say, the duty is not imposed upon corporate incomes. The reasons that moved me in preparing the amendment in this wise are that the policy of an income law, the policy indeed in almost every kind of law, is to exempt those who are least able to bear the burden from the burden. An income duty imposed upon the aggregate income of a corporation rests with equal weight upon those persons who derive some income from a corporation and yet have an aggregate income below the minimum fixed by the statute and those large incomes upon which it is the policy of the Government to attach a duty.

Further than that, I regard a graduated income duty as impossible if levied upon the incomes of corporations. The reason is obvious. This

"The interest on state and municipal bonds was excluded because the Pollock Court had unanimously agreed that such taxes were unconstitutional, while Bailey believed that increasing both the initial exemption and the rate of tax would raise more revenue and also, I suggest, make the tax more appealing as a "tax the rich" scheme.

8 It is also apparent that Cummins was misinformed concerning the economic and legal distinctions between direct and indirect taxes and the valid political reasons that made these distinctions necessary.

amendment, for instance, imposes a duty of 2 per cent in the case of an income not exceeding $10,000 upon that part of such income exceeding $5,000. It imposes a duty of 6 per cent upon all incomes in excess of $100,000.

I will take the instance which is in every mind the very moment a corporation is mentioned, namely, the United States Steel Corporation. It had last year, according to its report, an income, not deducting the rewards upon its capital, of $91,000,000. Under any logical or scientific system of graduated tax this income would bear the highest rate, and yet, as we know, there are twenty-five or thirty million dollars of the stock of the United States Steel Corporation held by employees of the corporation whose incomes will average less than $1,200 per year. Therefore, if a graduated tax be accepted and the duty is imposed upon the aggregate income of corporations, the stockholders whose incomes are below the minimum fixed by the amendment would bear the highest rate of duty attached to the largest income. In my opinion, such a result would not only be unjust, but it would destroy the essential and fundamental principle that underlies an income duty.

There is another reason of a legal character which led me to attach these duties to individual incomes only. The very moment that you include a corporation within the scope of an income tax, that moment you must begin a classification of corporations. The law of 1894 excluded from its operation a great number of corporations, and properly excluded them. But this classification had a tendency, in the opinion of the Supreme Court, both of its majority members and its minority members, to destroy the uniformity which the Constitution requires shall inhere in an indirect tax.

I do not suggest, Mr. President, that the amendment I have presented removes all the objections found to such a law in the decision of the Supreme Court in the Pollock case. I recognize that it challenges that opinion in one particular, but I believe that it removes all the points of collision save one. That is this: Is a tax levied upon an income derived from an investment in either real or personal property a direct tax? That question is one so broad and fundamental, that, in my opinion, was utterly impossible to frame any income-tax law that will not run counter to the opinion expressed by a majority of the members of the Supreme Court. If that opinion is to stand in its full scope and with its full vigor, then the United States must abandon for all time, or until the Constitution be amended, the exercise of a power and authority which had been recognized for a hundred years before the opinion was announced.

Therefore, in these two particulars, or, broadly speaking, in this one particular, the amendment I have presented challenges the opinion of the Supreme Court in just the same manner that the amendment offered by the Senator from Texas does.

... Mr. RAYNER. Then you have an amendment providing for an

income tax which practically exempts every corporation in the United States from paying an income tax? That is the point.

Mr. CUMMINS. Just exactly as the law of 1894 did. The law of 1894 provided that the income derived by the individual from a corporation that had paid an income tax should be deducted from his individual income, and this amendment reaches precisely the same result in, I think, a much more satisfactory and equitable way.

Mr. RAYNER. This amendment, in my judgment, does not at all reach the same practical result. What I want to get at is this: Under the law of 1894, corporations paid taxes on their incomes, while under the Senator's amendment no corporation in the United States would pay a dollar to the Government of the United States except in a roundabout way in which the Senator figures it out that it comes out of the pockets of individuals who get dividends from corporations.

Mr. CUMMINS. The Senator from Maryland is too good a lawyer and is too intelligent a man, I am sure, to put a misconstruction upon this amendment. I ask him again to recur to the point. The steel corporation —

Mr. RAYNER. What I want to ask the Senator is this: When you are imposing an income tax — I am not arguing the income tax at all — why not put the income tax on corporations and exempt whatever corporations you think are proper from the operation of the income tax, provided it is a geographically uniform tax? Why not put a tax on corporations? Why do you exclude corporations from the tax? We have not read the amendment; and I should like to hear some reason for such a provision.

Mr. CUMMINS. I will answer the Senator with pleasure.

Mr. RAYNER. We are after the corporations also, and I thought you were, too.

Mr. CUMMINS. I am after justice; I am not after the coporations.

Mr. RAYNER. No: I am after equal justice, but you are letting the corporations out.

Mr. CUMMINS. I favor an amendment which will accomplish justice throughout the United States. I answer the Senator from Maryland further in this way: The amendment which I have offered provides that the tax shall be levied upon all the dividends received from corporations. It is to be levied not only upon all the dividends received from corporations, but it is to be levied upon all undivided surplus or undivided profits of corporations. In that way it reaches every penny that is accumulated by a corporation in the way of net income.

Now, mark you, the reason that I prefer to reach the individual directly rather than the corporation is the one I have so repeatedly expressed. If you tax the corporation alone, or if you tax the corporation upon its entire net income, suppose that I were receiving from that corporation and from other sources an income of $100,000 — a most impossible hypothesis, but I nevertheless assume it for the moment — and the Senator from Maryland was receiving an income from all sources, partially from the dividends of corporations, of $5,000 —

Mr. RAYNER. That is impossible. Mr. CUMMINS. Which is no impossible hypothesis — Mr. RAYNER. It is impossible to myself in the same sense that it is as to the Senator.

Mr. CUMMINS. But do you not see the immediate injustice of it? The Senator would pay an income tax of 6 per cent on the income that he received from that corporation, although his entire income was less than the taxable amount, and I would be taxed also 6 per cent, being in the enjoyment of an income taxed at the highest rate. I am sure that if you once indorse a graduated income tax you must agree that it should be levied in the way that I have suggested, because in the end, I repeat, the income tax reaches the earnings of every corporation in the land and at the same time it does absolute justice among individuals.

Mr. SMITH of Michigan. Mr. President —

The VICE-PRESIDENT. Does the Senator from Iowa yield to the Senator from Michigan?

Mr. CUMMINS. With pleasure.

Mr. SMITH of Michigan. I should like to ask the Senator from Iowa just how he proposes to reach this net income — whether in the form of surplus or undivided profits, where the advantage to the stockholder is in the book value of his stock, or in a suspense account that may not even take the form of surplus? Does the Senator propose to reach that value by some inquisitorial means?

Mr. CUMMINS. Mr. President, it will be necessary for the Senator from Michigan to define what he means by the word "inquisitorial." In a sense every taxing process is inquisitorial.3

This discussion also shows that Cummins believed an income tax was an indirect tax. He wanted to make sure his proposed income tax would be uniform and explained why this uniformity might be impaired if some corporations were included and others were not. He did not want his proposed tax to be held unconstitutional on this ground.

It was feared that exempting corporations would enable some to evade the tax by employing foreign holding companies. Cummins addressed these concerns as follows:

344 Cong. Reg., 61st Congress, 1st Session, pages 1421 — 1423. The Senator is not at all forthright in this statement. An income tax must be "inquisitorial" by its very nature while taxes on articles of consumption certainly are not. When one pays gasoline, liquor, tobacco and import taxes, for example, no government agent investigates you with respect to the payment of those taxes. Have you ever been "audited" in connection with your payment of those taxes? Regarding income taxes, however, taxpayers are forced to submit to IRS inquisitions (or lose deductions) which is why enforcement of such a tax cannot be compatible with constitutional rights. Proof of this can be found in the fact that Federal "judges" now disregard every constitutional right in enforcing this tax.

. . . It provides that every corporation shall make a report showing its gross income and its net income, showing the amounts that it has paid in the way of interest, in the way of dividends, showing what the amount of the undivided profits of the year are, and also showing the distributive share of each stockholder in the undivided profits, and that is added to the income of the individual precisely as the income that he has actually received in money.

. . . Mr. SMITH of Michigan. But I do not hesitate one moment to say that there is a large part of the stock and securities of prosperous American corporations held abroad in the leading financial centers of the world. I do not understand why these corporations should be relieved of this additional burden or the exactions by the Government, unless it is as a favor to them and not as a right.

Mr. CUMMINS. Mr. President, with the general sentiment expressed by the Senator from Michigan I am in entire accord, and I think that he does not mean to be understood as accusing me of any desire to favor corporations.

Mr. SMITH of Michigan. No.

Mr. CUMMINS. There is a history behind every man which either approves or condemns his course in any such respect as that; and I have a history which, I think, relieves me of any such imputation.

Mr. SMITH of Michigan. Mr. President —

The VICE-PRESIDENT. Does the Senator from Iowa yield to the Senator from Michigan?

Mr. CUMMINS. I do.

Mr. SMITH of Michigan. With that history I am very familiar. I am well aware of the consistent record of the Senator from Iowa in his desire to have all property, whether corporate or personal, bear its just proportion of the expenses of the Government. I have no criticism to make upon him; in fact, I have nothing but praise for him, and I am listening to what he has to say with a great deal of interest. I regret very much that he seems by force of circumstances to be obliged to speak so briefly this morning, for I had hoped to hear him more at length, and shall examine his amendment with a great deal of care. My respect for the Senator from Iowa is such that I acquit him promptly of any desire to furnish immunity to corporations.

Mr. CUMMINS. Mr. President, I did not believe for a moment that the Senator from Michigan entertained a thought of that character. I said what I did only to prevent the possibility of misapprehension on the part of others. In this amendment I have used all the ingenuity I possess to reach the very persons to whom he has referred. If I have failed in that respect, I can not doubt that before the discussion has gone far in a tribunal of this character that defect will be remedied.

Mr. SUTHERLAND. Mr. President —

The VICE-PRESIDENT. Does the Senator from Iowa yield to the Senator from Utah?

Mr. CUMMINS. Certainly.

Mr. SUTHERLAND. If I will not disturb the Senator from Iowa, I should like to ask him a question for my own information. I did not have the opportunity of hearing the amendment read.

Mr. CUMMINS. It has not been read.

Mr. SUTHERLAND. But if I understand what the Senator has said, his amendment proposes to tax the incomes of individuals only; it makes an exemption of incomes under $5,000, and entirely relieves the incomes of corporations from the tax, provided it has been paid in the shape of dividends. Am I correct about that, I will ask the Senator?

Mr. CUMMINS. The Senator is correct.

Mr. SUTHERLAND. Let me ask the Senator this question: Suppose we have a corporation which distributes dividends amounting to $100,000. It has 50 shareholders, and we will assume that each shareholder has an equal amount of stock, so that each shareholder would receive $2,000 in dividends. Under the Senator's proposed amendment none of those shareholders would pay any tax at all, as I understand.

Mr. CUMMINS. I have not so said.

Mr. SUTHERLAND. Well, then, the Senator did not —

Mr. CUMMINS. If the Senator will permit me, I will correct him just at that point.

Mr. SUTHERLAND. I will be glad to have the Senator do so.

Mr. CUMMINS. In the case that he has imagined, if the $2,000 received as dividends on stock in the corporation constitutes the only income received by the shareholders, then that income would be exempt. If, on the other hand, the income from other sources raises the income of the individual to $5,000 or more, then this tax would fall upon him.

Mr. SUTHERLAND. Mr. President, I did not misunderstand the amendment, only I did not put my supposition quite far enough. We will suppose, then, that the 50 shareholders receive an equal amount of the dividend, $2,000 each and that no one of them has an income from any other source, so that the $2,000 represents the entire income. In that case not one of those shareholders would pay a cent of tax. That is correct, is it not?

Mr. CUMMINS. That is true.

Mr. SUTHERLAND. And, notwithstanding the fact that the corporation had an income of $100,000, the corporation would pay no tax?

Mr. CUMMINS. That is true — no income tax.

Mr. SUTHERLAND. So that there is an income of $100,000 of the corporation upon which no tax at all is paid? Is that the result?

Mr. CUMMINS. That would be the result in the particular instance

the Senator has given. But, Mr. President, I am not to be terrified by any such result. I do not believe that an individual with an income of $2,000 derived from a corporation should be taxed any more than an individual receiving $2,000 by way of a salary. I am attempting to reach the aggregate, the ultimate, the final result. The corporation is simply the instrumentality for the enrichment of its stockholders, and if that instrumentality results in conferring upon its stockholders an income above the minimum fixed by the amendment, then it should be taxed; but if that income is below the minimum, there is no more reason for imposing a tax upon it than there would be if it were derived as a salary or as profit in a real estate transaction or as the profits of a farm. *

Mr. RAYNER. Mr. President —

The VICE-PRESIDENT. Does the Senator from Iowa yield to the Senator from Maryland?

Mr. CUMMINS. Certainly.

Mr. RAYNER. We have not had an opportunity to look at the Senator's amendment. I should like to give the Senator a concrete, but at the same time a supposititious, case. Let us take the case, for instance, of Mr. Carnegie. That merely exemplifies hundreds of cases, because there are hundreds of people living abroad who draw their income and dividends from domestic corporations. There is no doubt about that. Now, suppose that Mr. Carnegie to-day was getting an income of $500,000 a year in the way of dividends from the Bethlehem Steel Company. The Senator's amendment does not touch the steel company, and there is no way on the face of the earth to collect an income tax from him unless he has property in the United States that you can distrain on.

Mr. CUMMINS. The Senator has not read the amendment.

Mr. RAYNER. You can not make an amendment to cover that case.

Mr. CUMMINS. Very well.

Mr. RAYNER. If the man has no property, how will you collect an income tax if he lives abroad?

Mr. CUMMINS. It is evident the Senator does not desire to ask me a question, and I will yield at the proper time to any argument that he may desire to make.

Mr. RAYNER. I ask the Senator how he would get that tax?

Mr. CUMMINS. The Senator says it can not be done.

Mr. RAYNER. If I may be permitted to ask a question. How does the Senator propose to collect an income tax in such a case as I have given?

Mr. CUMMINS. I propose that the corporation shall pay that tax.

Mr. RAYNER. Does the amendment of the Senator say that the corporation shall pay it?

4Who can find fault with this logic? It clearly explained why corporations should not pay any "income" taxes at all yet today such earnings are taxed at least twice and even more.

Mr. CUMMINS. As I understand, the duty could be collected from the corporation, but I will strengthen it in that particular.

. . . Mr. CUMMINS. I again congratulate the Senator.

Mr. President, I am sure the Senate will acquit me of any original intent to delay the regular order of the Senate by such an extended discussion. I am not at all blamable, I think. I rose simply to make some observations with regard to an income tax generally. The details of the amendment I have offered will be better understood and more intelligently debated after the amendment shall have been printed and after Senators shall have carefully considered it.

But I was rather entertained this morning in reading a newspaper containing the suggestion that it was the purpose of Republican Senators who favor an income-tax law to invade in some way the system of protection — that it was an insidious attack upon this fundamental principle of the Republican organization. I desire to disclaim any such purpose upon my part. There is no Senator who yields allegiance to the Republican party who is more firmly wedded to the doctrine of protection than 1.1 understand that I came into the Senate with some suspicion respecting my soundness upon the policy of protection. I frankly admit, if I am to be measured by the test imposed by that association of selfishness and slander known as the "Protective League," that I am not sound upon the doctrine of protection; but if I may be measured by Republican platforms, by the utterances of McKinley and of Garfield and of Allison and of Elaine, then I am as sound as any Senator who marches under the political banner to which I yield my loyalty.

I am not in favor of an income tax for the purpose of destroying the efficiency of the system of protection, and if it be true that an import-duty law can not be adjusted so as to afford ample and adequate protection to American industry without foreclosing the opportunity for the operation of an income-tax law, then I abandon the income-tax provision, for I have no desire to invade by a hair's breadth the established and long continued policy of the party to which I belong of giving full and ample protection to the American as against every other man on the face of the earth.

I have heard it said — and I think it was first said by a very distinguished Democrat — that an income tax was a Populistic doctrine. If it be Populistic, if it be the emanation of that party that we know as the Populist party, then we owe that party a deep and abiding obligation.5

First Income Tax Amendment Submitted

On April 27, Senator Brown of Nebraska (believing that any income tax measure passed by Congress could be struck down by the Supreme Court) introduced a joint resolution calling for a constitutional amend-

644 Cong. Rec., 61st Congress, 1st Session, pages 1423-1425.

ment. His proposed amendment included provisions for an inheritance tax as well and read:

The Congress shall have power to lay and collect taxes on incomes and inheritances.

The Hylton Case Comes Up

The Senate discussions concerning the income tax were largely dominated by those favoring the tax. One of the few exceptions came from Senator Sutherland of Utah (who later became a Supreme Court Justice). He was obviously more knowledgeable than anyone in the Senate regarding the apportionment provisions of the Constitution, the distinction between direct and indirect taxes, why such distinctions were made, and the legal decisions upon which American tax law was based. If others agreed with Sutherland's views on the Pollock case they did not more than make unsubstantiated comments. For example, Senator Borah of Idaho said:

I am aware, Mr. President, that there are those who believe that the framers of the Constitution did not know the meaning of the language that they were using in the great charter which they were making. . . I am not of that faith.6

Sutherland, on the other hand, went to great lengths to analyze the Hylton decision (as well as others bearing on taxes) and correctly pointed out:

. . . inasmuch as the Hylton case is the foundation for the decision of the Supreme Court in every one of the cases which followed, I think a somewhat careful analysis of that case should be made first, because if that case, which was the foundation case upon which the other cases rest, is incorrect, they all fall. If you put in a foundation which is insecure, it makes no difference how high the superstructure may be. When you tear out the foundation, the superstructure comes with it. And if the Hylton case is bad law, necessarily the cases which follow it and depend upon it must be equally bad. When I say the cases which follow, I mean the dictum in the various cases upon that subject of direct taxation.7 (Emphasis added)

Sutherland dissected the Hylton case and explained in detail why it could not possibly have been correct and told the Senate:

"Ibid., page 2094. 7Ibid., page 2093.

Clearly in the opinion of Adam Smith, which the Supreme Court in this earliest case cited with approval, a direct tax is upon the revenue of the taxpayer, while an indirect tax is a tax upon his expense.8 (Emphasis added)

Sutherland further defended the Pollock decision when he said:

Mr. SUTHERLAND. . . The Senator invokes the rule of stare de-cisis. I do not. Stare decisis is an adviser, not a dictator. Stare decisis operates by way of persuasion, not by way of compulsion. I submit that there is as much virtue in setting aside a wrong precedent as there is in following a right precedent.

It has been said that this decision in the Pollock case is entitled to little weight because it overrules former decisions; but, on the contrary, it may be entitled to more than ordinary weight, for the very reason that it does overrule the former opinions, if it does so.

The Supreme Court of the United States is the greatest court this world has ever seen. In the year 1895, when the Pollock case was decided, its members were as magnificently equipped in learning and ability as any who have sat in that August tribunal before or since. It is apparent from the reading of this case and the opinion upon the rehearing, that they gave to the question more careful consideration by far than was ever given to it in any preceding case. If the effect of their decision is to set aside the prior decisions of the court for a hundred years, we may be sure that those judges did not do that for light or trivial reasons. The rule of stare decisis was invoked there; indeed it was made the basis of at least one dissenting opinion, that of Mr. Justice Brown; but even if we concede its application, the reasons for a contrary judgement were so imperious and controlling that a majority of the court refused to be governed by the rule. The majority decision in the Pollock case is condemned on the ground that it is a dangerous infraction of the rule of store decisis, and yet those who make this complaint in the same breath take the astounding position that the Pollock case which is now stare decisis upon that question in its turn shall be reviewed, discredited, and reversed.9 (Emphasis added)

Unlike Sutherland, however, almost every Senator believed the Pollock Court had been in error.

On that same day, Senator Depew of New %rk (one of the few voices in the Senate against the income tax) commented on those Senators who inveiged against the Pollock decision and said that apparently the only remedy "left for defeated attorneys. . . was to go down to the tavern and curse the court," and additionally pointed out:


"Ibid., page 2096.

No one has been able to refute the conclusions of the Finance Committee that the bill under discussion will yield several millions in excess of expenditures. It is claimed that the income tax will produce between sixty and eighty millions of dollars annually. This would create a dangerous surplus and impose a burden for no other purpose than to establish a theory. A theory which will cost the taxpayers of the country, and, in the analysis of distribution, all the people, $80,000,000 which the Government does not need and for which it has no use, is the most expensive educational propaganda ever exploited.

. . . The Constitution was a compromise between the large and populous and the small and sparsely populated States. The small States demanded that in some way they should be protected. The device to protect them was that, regardless of their population, each State should have in the Senate practically two ambassadors with equal vote and equal power. There was as great disparity then as there is now between the States of large population and those of smaller population. The taxing power and its destructive possibilities were thoroughly understood, and the great States of New York, Pennsylvania, Virginia, and Georgia never intended that they should be outvoted and made to bear undue burdens because of the votes in the Senate of the smaller States. There are 15 States with 30 Senators in this body whose aggregate population differs only a few thousand from that of the single State of New York with two Senators. New York has one-seventh of the property of the country. It has one-twelfth of the population. Yet, under an income tax, it would pay 33 per cent of the burdens of the Government. It is absurd to suppose that with the States rights views that existed among the statesmen of the formative period and in the Constitutional Convention they ever intended that any system should prevail which would distribute so unequally the burdens of the Government among the various States.10 (Emphasis added)

Passage of the Income Tax Assured

By June 11, Cummins and Bailey had ironed out their differences and Cummins offered their compromise measure to the Senate. Now united, the Senate forces favoring an income tax were confident they could pass it as an amendment to the Tariff Bill. At this time Senator Aldrich (a Rhode Island Republican) succeeded in postponing consideration of the amendment until June 18.u

IOIbid., page 2103.

"Around June 10 a meeting was held between President Taft and the Republican Senate leadership. This unquestionably led to Taft's June 15 message that was apparently designed to head off certain passage of the income tax amendment and with it the appearance of Democratic success and vindication.

The Sixteenth Amendment Introduced

Early on June 17 (following Senate receipt of President Taft's June 15 message) Senator Brown introduced his second joint resolution calling for a constitutional amendment. This differed12 from the one he previously submitted and read as follows:

The Congress shall have power to lay and collect direct taxes on incomes without apportionment among the several States according to population.13

On June 28 Senator Aldrich reported that the Committee on Finances proposed an amendment to the Constitution which he urged be "disposed of without debate." It read as follows:

Article XVI. The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States and without regard to any census or enumeration.14

Aldrich's amendment differed from Brown's in- two significant ways:

1. Brown's amendment called for a tax "on incomes" — Aid-rich's called for a tax "on incomes, from whatever source derived." The difference is tremendous. See page 191.

2. Brown's amendment would have labelled the tax on income a "direct" tax while Aldrich's omits such classification.

Although both amendments were obviously different — and the Senate rejected Brown's and adopted Aldrich's — the historic irony is that the income tax is actually enforced on the basis of Brown's amendment not Aldrich's (see page 265).

Congress Not Sure What "Income" Is

Although the amendment was passed and an income tax law was written (supposedly based on that amendment); and although approximately 96,000,000 Americans pay taxes on "income" each year, few Americans realize that the Congress admitted that it did not even know

12This second proposal eliminated the reference to inheritance taxes and also

added the word "direct" to the proposed tax on income. "44 Cong. Rec., 61st Congress, 1st Session, page 3377. "Ibid., page 3900.

(nor had the authority to determine) what "income" was when it decided to tax it. Few Americans realize that Congress has never defined "income" and TIO such definition can be found anywhere in the Internal Revenue Code.15 According to the Supreme Court, therefore, no American can be subject to such a tax since the "law" neither defines nor identifies what is being taxed! Ironically, it is the very Supreme Court case16 that paved the way for the income tax that clearly explains why this is so (see page 136).

No Law Can Tax What It Does Not Define

It is this "well settled rule" referred to in the Spreckles case that is now being totally ignored by our "courts" when they deal with "income" taxes. This also clearly explains why no American can be legally liable for an income tax and why no such "liability" appears anywhere in the Code. As explained in Chapter 13, "income" is an abstract concept so relating taxes to "income" is not like relating taxes to the value of a house, or placing a tax on wine, or cigarettes, or imported products. Congress not only realized it did not know what it was taxing when it taxed "income" — it even admitted it! This is easily seen by examining the Senate discussions that took place prior to the passage of the "law" itself. The following excerpts clearly reveal that the Senate did not understand how "income" was to be determined.

Mr. WILLIAMS. The Senator seems to attach to the word "income" a meaning that is not attachable to it in this connection. "Income" means the net gains or profits. He seems to think that the word "income" is a broader word than "gains, or profits derived from any source whatever!'

Mr. CUMMINS. What is it used for?

Mr. WILLIAMS. A man's taxable income means his gains and profits during the year. Those gains and profits or income derived from any business of any description are taxed. If a man is engaged in dealing in horses, if he buys horses and sells horses and makes a profit or an income out of that dealing, he must pay tax upon the income.

I do not know that I exactly catch the Senator's point. But if I do catch it, he seems to have in mind the idea that the word "income" means receipts of every sort. The income within the contemplation of a tax law does not mean that. It means net income, and is so denned in the bill. That means profits or gains.

Mr. CUMMINS. The Senator from Mississippi must certainly understand what I am trying to say. If applied to a general business, in

16 "The general term 'income' is not defined in the Internal Revenue Code" U.S. vs Bal-lard 535 F2d 400,404.

16 Spreckles Sugar Refining Co. vs McClain 192 US 397.

which purchases and sales take place and gains and profits are reckoned. I can very well understand that the Senator from Mississippi is right, under the language of this bill. But suppose 10 years ago I had bought a horse for $900, and this year I had sold him for $1,000, what would I do in the way of making a return?

Mr. WILLIAMS. I will tell the Senator precisely what he would do.

Mr. CUMMINS. I mean, what would other men do?

Mr. WILLIAMS. I know; but what I mean is precisely what the Senator would do, or precisely what he ought to do. He bought the horse 10 years ago and sold him this year for a thousand dollars. That thousand dollars, and being a part of his receipts, that much will go in as part of his receipts, and from it would be deducted his disbursements and his exemptions and various other things.

Mr. CUMMINS. Would the price I paid for the horse originally be deducted?

Mr. WILLIAMS. No, because it was not a part of the transactions in that year; but if the Senator turned around and bought an-other horse that year it would be deducted.

Mr. CUMMINS. Mr. President, the answer of the Senator from Mississippi has disclosed very clearly the weakness that I have been attempting to point out. This provision, in the form in which it appears, is utterly unworkable. It would involve chaos among the people of this country if returns were attempted to be made in the way suggested by the Senator from Mississippi.

I have no amendment that will meet the emergency, because I did not dream that we would enter upon the consideration of the income-tax provision to-day. I only have to suggest that the sort of thing involved in the homely illustration of the purchase and sale of a horse — an instance which might not occur very often — would occur thousand of times every day in the sale of other kinds of property.

Mr. GALLINGER. Particularly real estate.

Mr. CUMMINS. Yes; by men who are not engaged in what is known generally as a vocation, but who do have occasion to buy and sell property from time to time.

Mr. BRISTOW Mr. President. I desire to ask a question, and see if I have this matter clear in my mind. As I understood the question of the Senator from Iowa, it was, if he bought a horse 10 years ago for $100 —

Mr. CUMMINS. Nine hundred dollars.

Mr. BRISTOW And sold it this year for a thousand dollars, whether or not that thousand dollars would be counted as a part of his income for this year, regardless of what he paid for the horse 10 years ago. Is that correct?

Mr. WILLIAMS. No; I did not say that. It would be a part of his gross receipts for the year, of course, but it may not necessarily be a part of his net receipts, and therefore not a part of his income that is taxable.

Mr. CUMMINS. But I asked the Senator from Mississippi specifically whether, in the case I put, the price that was originally paid for the horse could be deducted from the price received.

Mr. WILLIAMS. The price paid 10 years ago? No: of course not. How could it? When a man puts in his return for his income of the previous year in order to be taxed he puts down everything he has received and everything he has paid out, subject to the exemptions and limitations otherwise provided in the bill. Necessarily that is so. To answer the Senator, I want to read the precise language of the provision.17

Senator Williams (a member of the Senate Finance Committee) specifically admited that "income" did not mean "receipts of every sort" but only contemplated "profits or gains!' To further demonstrate the confusion that existed in Congress concerning even the way income was to be calculated, look at the problem they encountered when they tried to determine the income generated by the sale of a mere horse. Williams was under the impression that its original cost had nothing to do with any "income" derived from its sale, while if another horse was purchased its cost could be deducted from "income." Does the IRS and Federal Tax Court go along with such reasoning today?

A group of men who were totally confused about what constituted "income" on the sale of a simple $1,000 horse could hardly be expected to know what "income" was in a variety of other situations far more complicated than this. And if Congress could not figure out what "income" was, how could they write legislation to tax it and how can anyone else figure out what it is? They cannot, which is why no such "liability" with respect to an "income" tax appears anywhere in the Code! (See page 254.)

Senator Cummins (the most influential man trying to shape this legislation in the Senate) explained why Congress could not even define "income," as shown in the following exchange.

Mr. CUMMINS. It will be observed that here is an attempt, Mr. President, to define the meaning of the word "income, " to describe its scope, to determine its effect. I reiterate that the attempt will be ineffective and may be exceedingly dangerous.

Great Britain might employ such words as these in modification or explanation or enlargement of the word "income," because Great Britain has no constitutional restriction upon her Parliament. A State might use these words with perfect propriety, because a State has a right to include whatever she likes within the meaning of the word "income"; but the Con-

17 50 Cong. Rec., 63rd Congress, 1st Session, pages 3775,3776.

gress has no right to employ them, because the Congress can not affect the meaning of the word "income" by any legislation whatsoever. The people have granted us the power to levy a tax on incomes, and it will always be a judicial question as to whether a particular thing is income or whether it is principal.

Mr. LEWIS. Mr. President, knowing the Senator from Iowa to be an excellent lawyer, will he give me his views on this point: Does the Senator contend that the word "income," therefore, as stated in the Constitution, must be construed to mean what it meant and was understood to mean at the date of its adoption as part of the Constitution?

Mr. CUMMINS. I do not so say. What I have said is, however, that it is not for Congress to interpret what it means; it is for the courts of the country to say, either at this time or at any other time, what it means. If it were within the power of Congress to enlarge the meaning of the word "income" it could, as I suggested a moment ago, obliterate all difference between income and principal, and obviously the people of this country did not intend to give to Congress the power to levy a direct tax upon all the property of this country without apportionment.18

Mr. LEWIS. Then, assuming that the matter would have to be determined finally by the court, which concession we all must make, would the Senator's legal mind revert to the theory that the court, then, would have a right to define the word "income" to mean whatever was understood judicially by "income" at the date of the adoption of this act?

Mr. CUMMINS. I do not accept that at all, because it is entirely beyond the domain of Congress. In 1789,1 believe, the people of this country gave Congress the power to regulate commerce among the States. It is not within the power of Congress to say what commerce is. "Commerce" may mean a very different thing now as compared with what it meant in 1789; it has broadened with the times; the instrumentalities have changed with the course of years; but Congress can not make a thing commerce. The court must declare whether a particular regulation is a regulation of commerce, and in so declaring it defines for the time being what commerce is.

Why, Mr. President, should Congress attempt to do more than is declared in the first section of the proposed bill? It is right; it is comprehensible; it embraces everything — no, I will withdraw that; it does not embrace the full power of Congress, because Congress can levy a tax upon gross incomes if it likes, it may diminish the extent of its taxing power or not exercise it all; it may exclude certain things from the taxing power that it might include; but it can not change the character of the taxation; and when it is declared in the first lines of this bill that a tax is levied upon the entire net income of all the citizens of this country, we have exercised all the power we have. If we desire to limit ourselves to net income, we can not define "net income"; we can not say what shall be in-

16 This, however, is precisely how the Federal government now uses the income tax!

eluded in income and what shall not be included in income. We are only preparing ourselves for delay, for disappointment, and possible defeat if we endeavor to interpret the meaning of the word "income."

Mr. SHIVELY Mr. President

The PRESIDING OFFICER (Mr. Chilton in the chair). Does the Senator from Iowa yield to the Senator from Indiana?

Mr. CUMMINS. I do.

Mr. SHIVELY. I can readily agree with the Senator that the courts will finally give a definition of "income"; but that does not prevent Congress from limiting the application of the word in legislation.

Mr. CUMMINS. Not at all. I have so said.

Mr. SHIVELY. If the Senator will observe the words "except as hereinafter provided" in the first subdivision of this section —

Mr. CUMMINS. I have not sought to strike out any part of the limitations save the gift, devise, bequest, or descent, and I do not think there is any man in America, were it not for what precedes those words, who would contend or could contend that a gift or devise or bequest of property or property coming to one by descent is income. I never heard of it being so construed; and it is not possible that it could be so construed. It would not have been put in there were it not for the attempted enlargement of the word "income" contained in the previous part of the paragraph.19

Mr. WILLIAMS. How does the Senator think that is an attempt to enlarge it? Tell us specifically to what words the Senator refers.

Mr. CUMMINS. Mr. President, if it has not that effect, or attempted effect, it can have none. It is certainly not an attempt to limit or to restrict the meaning of the word "income"; and if it has not the effect or if it is not thought or if it was not in the mind of the person who drew it to enlarge the meaning of the word "income," then the draftsman of the bill has offended against the first principles of legislation by incorporating language that is absolutely meaningless.

Mr. WILLIAMS. Now, if the Senator will pardon me a moment —

The PRESIDING OFFICER. Does the Senator from Iowa yield to the Senator from Mississippi?

Mr. CUMMINS. I do.

Mr. WILLIAMS. It was not the intent there to enlarge or to stretch the meaning of the words "net income," which is the income referred to here, and not gross income at all.

Mr. CUMMINS. I have not said it was gross income.

Mr. WILLIAMS. The Congress in undertaking to specify what it proposes to tax does undertake neither to enlarge nor to restrict the meaning of the words "net income," but to define their meaning for the

19 The Senate had originally sought to tax gifts and bequests as "income" but, through Cummins' initiative, this was struck out.

purposes of this bill, for the purposes of this taxation. It may be that a court might come to the conclusion that Congress had wrongfully defined the term. If so, the court will correct the definition, and if the court corrects the definition, then this bill will be to that extent altered or changed; but the contention is that this is a correct definition of the articles which, under a bill seeking to tax net incomes, will be taxed. The question I asked the Senator was in what respect he thinks that this definition enlarges the meaning of the words "net income" or restricts them, either?

Mr. CUMMINS. Mr. President, as I remarked before, if these words qualifying, modifying, and explanatory are not intended either to enlarge or to restrict, they are entirely useless. I think, however, with deference —

Mr. WILLIAMS. Does the Senator think it is useless in a tax bill to try to define the thing you propose to tax?

Mr. CUMMINS. Mr. President, I do think in this instance that it is worse than useless; I think it is dangerous, and I will proceed to show why.

Mr. SIMMONS. Mr. President —

The VICE PRESIDENT. Does the Senator from Iowa yield to the Senator from North Carolina?

Mr. CUMMINS. I do.

Mr. SIMMONS. I readily agree with the Senator in his contention that we have no authority to tax anything except income, and I readily agree with him that, in the last analysis, the court must decide what is income and what is not income; but before the court can get jurisdiction of that question, there must be a levy; there must be an assessment; there must be an attempt to collect. I can see no other way in which the court could possibly acquire jurisdiction. So that before the matter can ever reach the court there must be some one who will decide the question of what is "income."20 (Emphasis added)

Note that Cummins stated it would be "exceedingly dangerous" to define the meaning of "income!'

Then, not even challenging Cummins, Senator Williams asked, "Does the Senator think that it is useless in a tax bill to try to define the thing you propose to tax?"

And Cummins replied, "Worse than useless; I think it is dangerous!'21

Senator Simmons concurred and said that in the "last analysis the court must decide what is income and what is not income!'

20 50 Cong. Rec., 63rd Congress, 1st Session, page 3844.

21 How can it be "useless" and "dangerous" for a government to define something it proposes to tax?

American Public Does Not Know What "Income" Is

The point is, I do not think the American public understands that when Congress passed the income tax, it did not even know what it was taxing and it still does not know it to this day! The Supreme Court, which under the Constitution has no legislative authority, ultimately had to legislate the meaning of "income" precisely as Cummins predicted — and its definition conformed loosely to Senator William's description of income as meaning "profits or gains!' Finally, Americans today are totally unaware that neither the IRS nor the courts use or conform to the definition of "income" that was originally "adopted" by the Supreme Court! For the purposes of this chapter, however, it is only important to understand that Congress never knew or had the vaguest knowledge of what it was taxing when it sought to tax "income"; and that to this day no definition of "income" exists in the law. On this basis alone (see the Supreme Court's clear statement in Spreckles) how can any judge claim that the payment of such a tax can be mandatory?

Income Tax Sold To The Public As A "Tax The Rich" Scheme

The Federal government sold an income tax to the pubic based on the myth that such a tax would be a tax on wealth (which only the wealthy would pay) as opposed to tariffs (taxes on consumption) which presumably fell on everyone, rich and poor alike. If the public had not believed this, Congress could never have enacted such a tax! In 1909 the people would never have amended the Constitution in order to give the Federal government power to levy a new tax on them. People voted for the Amendment because they believed an income tax would not affect them and that an income tax levied on the rich would enable Congress to lower tariffs thus actually reducing their other taxes.

Today's Income Tax Falls on the People

The people's misconception of how an "income" tax would actually work was based on the claims made for it by its early proponents and on the initially proposed bills themselves which were written to tax only the wealthy. Today, however (contrary to the claims made for it), the tax falls hardest not on the rich but on the general public22 — the very people it was supposed to avoid taxing. The rich have numerous ways to es-

32 Not that the rich (considering everything else) do not pay enough taxes, they do. But what they pay merely intrudes on their comforts or luxuries (and sometimes not even on these) while what the general public pays intrudes on their necessities.

cape the punitive affects of the tax. They can, for example, use their businesses to funnel non-taxable benefits to themselves, or pocket cash receipts as well as deduct the cost of cars, travel, dinners, or theater tickets as "business" expenses which, of course, ordinary wage earners cannot do.

Several years ago 60 Minutes did a segment about two California "farmers" who (because they had poor credit and could not get local bank loans) received millions of dollars in low interest loans from the Department of Agriculture. A number of area farmers objected to these loans and complained that because they were efficient farmers and qualified for local bank loans they had to pay much higher interest rates than the inefficient farmers who qualified for government loans. They argued that not only were they being penalized for being efficient but that if the inefficient farmers did not get the low cost, taxpayer-subsidized government loans, they would have to sell their land to more efficient farmers. Government loans, therefore, merely kept thousands of acres of California farm land out of the hands of efficient producers and in the hands of inefficient ones at a substantial cost to taxpayers.

When the two farmers who had received the government loans were interviewed it was evident that they both lived in luxurious homes. One bred and raised horses as a sideline while the other conducted tennis clinics on the tennis courts situated on his property; and both drove expensive cars. When asked how much they had each paid in income taxes the previous year, both said they had paid nothing. Obviously, both "farmers" were living high on the hog and enjoying a standard of living far exceeding anything the average office or factory worker could even dream of— yet such workers not only pay far more in income taxes than those "farmers," but they are actually taxed to subsidize them.

Today, of course, there is a multi-billion dollar tax shelter industry devoted entirely to structuring and marketing investments to lower taxes. In addition, tax lawyers get upwards of $100.00 an hour to figure out ways to lower their clients' taxes. Do factory and office workers go into tax shelters or can they afford the services of high priced tax lawyers? The point is that the real burden of income taxes falls directly on the backs of working, middle class Americans — the very people Congress claimed would not be affected by the tax when it was sold to the public.

To illustrate this further, here are some additional excerpts from the Congressional debates. When Senator Bailey offered his income tax proposal to the Senate he said:

But knowing as we all do know, that it is necessary for the Government to raise a vast sum of money to support its administration, my judge-

merit is that a large part of that money ought to be raised from the abundant incomes of prosperous people rather than from the backs and appetites of people who, when doing their best, do none too well.23 (Emphasis added)

According to Bailey, such a tax would not only not fall on the "backs" of those who do "none too well," it would not even be burdensome to the rich as explained in the following passage:

The people who have incomes subject to tax under this amendment can not complain that we undully burden them. The exemption of $5,000 (more than enough to buy a good size house) leaves the man with an income of $10,000 to contribute under the provisions of this amendment only $150 to support the General Government; and surely a man whose abounding prosperity nets him an income of '$10,000 a year may be fairly asked to contribute the moderate sum of $150. . ,24 (Emphasis added)

In addition, Bailey said the income tax bill will enable Congress to make

the duties lower, [and]. . . lift from the backs and appetites of the toiling millions of the Republic and lay a large part of the burden of government upon the incomes of those who could pay the tax without the subtraction of a single comfort from their homes.

25 (Emphasis added)

When he introduced his first constitutional amendment Senator Brown of Nebraska stated:

I want to appeal first to those of us who believe in passing a law which shall reach the luxurious incomes of this country and ask them to help pass this resolution that the Constitution may have in it a section that can not be misunderstood.26 (Emphasis added)

On April 28 Senator Rayner from Maryland said:

It is the theory of the friends of the income-tax proposition that property should be taxed and not individuals.27 (Emphasis added)

23 44 Cong. Rec., 61st Congress, 1st Session, page 1351.

24 Ibid., page 2455. As finally adopted, the bill actually made the tax on this individual $60.00 if married or $70 if single.

26 Ibid. I wonder how many Americans who pay income taxes today do so without the subtraction "of a single comfort from their homes"?

28 Ibid., page 1569.

27 Ibid., page 1570.

Today, however, many pay a considerable amount of income tax even though they have no property at all\ There are numerous Americans living in furnished rooms, for example, who just get by and who have no property to speak of at all. "Vet income taxes alone28 will take better than 15 percent of their wages (not including other state and city taxes) while the other 7 percent in Social Security taxes paid by their employers must also really be paid by them (as it is paid by all American workers) either in terms of lower wages or higher consumer prices or both.

Meanwhile, in the House of Representatives, the rhetoric concerning how an income tax would soak the rich reached poetic heights. Representative Adir of Indiana stated:

It is a shame and a disgrace, Mr. Speaker that under our system of taxation the poor laboring man and his wife and four and five children to support, contributes more toward the expenses of the Government than does the millionaire who is too proud to raise a family and has no one to clothe and feed except a wife and a poodle dog.29 (Emphasis added)

Representative Rucker of Missouri:

I heartily endorse and support the income-tax proposition. I would make a graduated income tax, and I would adjust the rates as to compel the millionaires of this country, who have been immune from taxation, to pay a just and liberal part of the revenues required for the support of government.30 (Emphasis added)

Representative Clark of Missouri:

It is monstrous to say that the accumulated wealth of this country shall not bear its just proportion of the public burdens.31 (Emphasis added)

Congressman Henry of Texas:

. . . there should be some method by which the untold wealth and riches of this Republic may be compelled to bear their just burdens of government and contribute an equitable share of their incomes to supply the treasury with needed taxes.32 (Emphasis added)

28 Including Social Security taxes which, in reality, are just another income tax. For further details, see The Social Security Swindle — How Anyone Can Drop Out (FREEDOM BOOKS, 1984) by Irwin Schiff.

29 44 Cong. Rec., 61st Congress, 1st Session, page 4434.

30 Ibid., page 4426.

81 Ibid., page 4392.

82 Ibid., page 4414.

The point repeatedly made in both the Senate and the House was that is was "wealth and riches" that were to be reached by an "income" tax, something to be remembered by low and middle income people the next time they pay their income taxes.

Income Tax Not To Interfere With Basic Standard of Living

In line with Congress's purpose to tax "wealth and riches," it also maintained that an income tax would not apply to income needed to give an American family a "reasonable" amount to live on and a "proper standard of living" including the cost of educating his children.

Senator Cummins said:

My desire is to relieve the incomes of men to the extent necessary to maintain their families, to support and educate their children, because I believe that they owe a higher duty to their families than they owe to the government.33 (Emphasis added)

Senator Borah added these comments:

After a man pays the tax which he must pay on consumption, then give him a chance to clothe and educate his family and meet the obligations of citizenship and preparation of those dependent upon him for citizenship before you add any additional tax that is the basis of this exemption and it is fair and just to all and toward all.34 (Emphasis added)

And Senator Williams stated:

The House framed its bill upon the theory that $4,000 was a reasonable amount, in its opinion, for an American family to live upon, with a proper standard of living, and that a sum below that ought not to be taxed.35 (Emphasis added)

So "men owe a higher duty to their families than they owe to the government" — what kind of strange political heresy is this? Try telling that to Federal politicians bent on relieving you of thirty to forty percent of your income for the benefit of lobbyists, pressure groups, and subsidy-seeking factions of all kinds. Can you even conceive of anyone rising in the Senate today to proclaim such a weird doctrine? I have seen an ac-

33 Ibid., page 3975.

34 50 Cong. Rec., 63rd Congress, 1st Session, page 3841. 36 Ibid., page 3851.

tual instance where a working wife's net salary (after taxes) was lower than the taxes taken from her husband's wages. She was working full-time just to help pay a portion of her husband's taxes which, in reality, means that one spouse was working full-time (without pay) just for the government. How could such a situation occur if indeed a husband or wife owes a higher duty to his/her family than to government?

It should also be clearly noted that Congress sold an income tax to the nation on the basis that the tax would not interfere with what a family needed to maintain a "proper standard of living" and that amounts below that would not be touched by an income tax. That was the specific reason given for the $4,000 initial family deduction and is clearly substantiated by the following:

The protective system will remain, but it will be supplemented for revenue purposes by federal taxation upon inheritances and incomes. It is not a socialistic scheme for the redistribution of wealth. It is a plan for an equitable distribution of burdens. There are 7,000,000 families of wage-earners in the United States living upon a medium wage of $436 a year and 5,000,000 farmers whose average income is about $350 a year. The vast majority of American families live on $500 or less per year. In the great iron and steel industries, in 1900, the income of the family was about $540 a year, and in 1905, $580 per year. The cost of living has increased from $74.31 in 1896 to $107.26 in 190636; coal increased in price $1 per ton; manufactured commodities advanced 32 per cent. Under these circumstances, it seems to me that where competition has been destroyed and the market price of a commodity is maintained at a high price by a trust?7 the tariff on that commodity should be materially reduced, if not entirely removed, and that the large incomes, both of individuals and of corporations, should be required by an income tax to bear a larger share of the burden of federal taxation than they do now.

A graduated income tax exempting all incomes of less than $3,000 a year would place upon the wealth of the country a share of the burden of maintaining the Federal Government, which it ought to bear and bear gladly and willingly.38 (Emphasis added)

Since the vast majority of American families lived on "$500 or less" in 1909 and the tax for married individuals started at $4,000, a family

36 Consider the extent to which the Federal government has illegally debased U.S. money! Many Americans now get a higher electric bill for one month than what many Americans lived on for a whole year around the turn of the Century. This is what Washington politicians call "economic growth:'

37 Today, "the market price of a commodity is maintained at a high price" not by trusts but by the Federal government through such Federal programs as agricultural subsidies and import restrictions.

38 44 Cong. Rec., 61st Congress, 1st Session, page 1962.

living on eight times the national average would have paid no income taxes.

What is the situation today? A married couple with a combined39 taxable income exceeding $24,600 is in the 29 percent tax bracket. However, when you add in the Social Security tax the effective income tax rate becomes 36 percent for employees and 43 percent for the self-employed. On the other hand, a single individual with the same taxable income could find himself in a 42 percent to 49 percent bracket. And assuming an additional $10,000 in taxable income, these brackets could climb as high as 58 percent — and this still does not include state income taxes.

Since we have only a six cent dollar (as compared to a $1.00 dollar in 1913 when gold was officially valued at $20.00 per ounce40), both married and single taxpayers would need to have, by comparison, at least $60,000 and $45,000 (respectively) of taxable income today before being subject to the tax. This means that present day Americans, whose comparative 1913 incomes would not even have subjected them to any income tax at all, could, today, find themselves in the 40 percent to 50 percent tax brackets!

When the 16th Amendment was passed and the tax adopted in 1913, would Congress have dared propose such outrageous brackets even for the Carnegies, Astors, Vanderbilts and Rockefellers? Since the tax was only 1 percent on incomes from $4,000 to $20,000, a tax that was initially installed to tax the super rich (at a maximum rate of 7 percent) now subjects families that are just getting by to rates of from 30 percent to better than 50 percent.

Typical of the type of fabrication used by those favoring the income tax are the following remarks made by Senator Borah:

... I am not willing, Mr. President, for one, to concede that the policy which fixes the burdens of government upon property and wealth is not a Republican principle. I am not willing to concede, above all things, that there has been engrafted upon our constitutional power that which is an absolute exemption of property and wealth from the burdens of government. I am not willing to have it admitted that the Constitution, as made and framed by the fathers, was such as to exempt the great property interests of this country from the taxing power of the Government even in the hour when the very exigencies of government may involve the life of the Government

39 "Combined" because both spouses would probably be working as opposed to conditions in 1909 where undoubtedly only one family member was required to be employed to support the family unit.

40 Today the price is approximately $350 an ounce reflecting a 94 percent devaluation.

itself. "Vet I say to you that if the Pollock case be the correct interpretation of the law, there is no exigency by which this Government can call upon the great property and wealth of this Nation to meet a portion of its burdens, even if it involves the very life of the Nation itself.41 (Emphasis added)

Apart from admitting (as did all Senators) that the real purpose of an income tax was to tax wealth and not income, Borah's suggestion that he was "not willing to concede. . . that there has been engrafted upon our constitutional power that which is an absolute exemption of property and wealth from the burdens of government" and that the Constitution exempted "the great property interests of this country from the taxing power of the Government" was pure rhetorical hogwash. Such wealth and property has always been subject to the Federal government's direct taxing powers as long as such taxes are apportioned. It was the principle of apportionment and not any lack of taxing power that Borah was inveighing against. These Congressional hypocrites merely objected to the restraints intelligently imposed on their taxing power by men who understood how such power could and would be abused. The politicians did abuse it — precisely as forseen by our Founding Fathers and despite the limitations placed in the Constitution to prevent it from happening.

The Income Tax As A Necessary, Wartime Power

Another major reason advanced to justify the income tax amendment was the necessity of being able to raise revenue in the event of war. While there might be some basis to the argument that the Federal government needs the power to levy an unapportioned income tax in time of war, I suggest that at such times an emergency national sales tax combined with a gross receipts tax (and/or an apportioned, direct tax on property) could be used to raise as much revenue as an income tax. Such taxes could be equitably levied at less cost and repression than an income tax. More importantly, this could be done without violating constitutional rights and thoroughly corrupting Federal courts — which the income tax has done.

In addition, any war-related tax must include an absolute bar against its continuance during peacetime. American history is replete with proof that U.S. politicians simply cannot be trusted with "emergency" wartime powers in peacetime. Overlooking completely the special problems that a compulsory income tax must create (such as being violative of numerous constitutional rights), the war argument was

4144 Cong. Rec., 61st Congress, 1st Session, page 1682.

used to justify the establishment of an income tax in peacetime. Fbr example, on April 21 Senator Cummins said:

It is true that we are not in the midst of war; but there is no Senator so keen in his prophecies as to attempt to declare the moment in which we may become involved in war, and then, at least, there will be the same imperious necessity for invoking this authority that there was in 1861.42

And on July 12 Congressman Keifer said:

It is said that this amendment proposed is to be useful in time of war. If there ever is any necessity for an income tax of course it is when the Nation is at war.43

So another reason working Americans pay high income taxes today (in times of peace) is because Congress claimed it needed an income tax in time of war. How high would income tax rates really have to go if we ever needed the tax to fund, for example, another World War II?

Perhaps the best commentary on how a Federal income tax would operate occurred in the House when Congressman Hill of Connecticut spoke against it and said:

Mr. HILL. Mr. President and gentlemen of the House of Representatives. I shall vote against this amendment for the following reasons: In the first place, I do not believe that this extra session of Congress was called to completely change and revolutionize the taxation system of the United States. I think that a question of such magnitude should be submitted to the people and discussed in a campaign preparatory to the presentation of so important a matter as an amendment to the Constitution of the United States. This proposition was found in the Democratic platform and not in the Republican platform on which the presidential campaign of 1908 was won. My understanding is that Congress was called together for the sole purpose of revising the Dingley tariff law on the basis of the difference in the cost of production at home and abroad, and, so far as the House is concerned, an honest attempt has been made to do that. I voted in the Ways and Means Committee for a supplement to that revision in the shape of an inheritance tax. My judgment was then and is now that it was not necessary. I am a firm believer that in times of peace the revenues of this country should be derived from customs duties and internal-revenue taxes, and that if these are not sufficient, as prudent people we ought to reduce our expenses to a point where they will be covered by such revenues; and yet, under all the circumstances, and realizing that the in-

42 Ibid., page 1422. "Ibid., page 4399.

heritance tax would bear hardly upon the people of my State, I voted for an inheritance tax.

I do not know how but that I may ultimately vote for a corporation tax. My mind is not yet made up on that question. I shall not vote for an income tax. I agree with the chairman of the Ways and Means Committee [Mr. Payne], who made the opening remarks in this discussion, that we ought to have the power to lay an income tax in time of war, but I am not in favor of giving this Government the power to lay an income tax in time of peace. With an amendment limiting it to time of war or other extraordinary emergencies, I would gladly vote for it; yes, I would vote to take every dollar of the property of every citizen of the United States, if need be, to defend the honor, dignity, or life of this Nation in the stress of war; but when it comes to a question of current expenses in time of peace, I would cut the expenses of the Government so as to keep them within our natural income.

We are a Nation of 90,000,000 of the most extravagant people on the face of the earth, and yet we are now pleading that the system of taxation which the fathers of the Republic provided and which for more than a century has met all expenditures and furnished a surplus besides, from which we have reduced our national debt incurred in war time faster than any nation on earth ever reduced its debt, that such a system is not sufficient to meet our ordinary peace expenses.

Stop a moment and consider what we are doing in voting to give this Government the power to lay an income tax in time of peace. I know of no better measure of the way in which this burden would fall on the various States in the Union than to judge of it by the inheritance tax laid to meet the expenses of the Spanish-American war, for the last income tax that was collected from our people was back in the civil-war period, and conditions have mightily changed since then; but we did have an inheritance tax in 1900 to 1909.

The last full year of that tax showed as follows: The State of New York paid $1,608,000 of it; the collection district of Connecticut and Rhode Island $660,000; the State of Pennsylvania, $641,000; the State of Massachusetts, $559,000; the State of Illinois, Mr. Speaker, paid $325,000; making all told in those five collection districts $3,795,000 that was raised out of a total of $4,842,000 in the last full year of this tax, so that of the entire amount collected from the inheritance tax in the whole Union six states paid three-fourths of it.

Let me give you a more startling illustration than that. Take the collection district which I have the honor to represent in part, the revenue office being located at Hartford and the collection district including Connecticut and Rhode Island. That district paid $660,753 of that inheritance tax in the year ending June 30,1902. How many other States did it take to equal that amount? Permit me to name them to you; they are as follows: Alabama, Arkansas, Colorado, Wyoming, Florida, Georgia, Territory of Hawaii, Indiana, Kansas, Oklahoma, Indian Territory, Ken-

tucky, Louisiana, Mississippi, Michigan, Minnesota, Nebraska, New Mexico, Arizona, North Carolina, South Carolina, North Dakota, South Dakota, Oregon, Washington, Tennessee, Texas, Virginia, West Virginia, Wisconsin, California, Nevada, Missouri, New Jersey, and Ohio. All told, 35 States paid $31,000 less than the little States of Connecticut and Rhode Island, and yet you come and ask me in time of peace and to pay the ordinary current expenses of this Government to vote now for a constitutional amendment which will enable these 35 States to impose a far greater tax upon my people. But it is claimed that the property in these Eastern States escapes taxation. That is not true. In the State of Connecticut more than 80 per cent of all the expenses of our state government is now paid by corporations, and during the past ten years no state tax has been laid upon our people, but the whole amount has been met by corporation, inheritance, and other forms of direct taxation imposed by the State. Every corporation in the State is taxed; every legacy under the inheritance tax law, which we have, pays its fair share.

For more than two centuries our people, by rigid economy and great industry, in the face of conditions which would have discouraged almost any other people in the world, have built up a prosperous community and developed a State, and have done this at their own expense. To-day we are spending millions of dollars for good roads and other public improvements. We have never asked the General Government to share with us in the cost of these things.

To-day the State of New York is spending $100,000,000 in the construction of a canal to connect the Lakes with the ocean and another $100,000,000 in the improvement of its highways, and doing it at its own cost, without asking for any contribution on the part of the General Government.

I believe that such a work as the Panama Canal, costing as it probably will $500,000,000, is a fair and proper call upon all of the people of this country for contributions, through a general income tax, to meet such expenditure; but you and I know that there are projects now pending by which the Federal Treasury will be called upon for at least $500,000,000 for the canalization of the Mississippi River and other inland waterways, largely local in their character; that a demand is being made for an annual contribution from the Federal Treasury of $50,000,000 for the irrigation of the arid lands of the West, which means five hundred millions more in the next decade; and that the project of the improvement of the highways of the whole country, through the aid of the National Treasury, has only been held back during recent years by the most strenuous exertions on the part of the leaders in Congress. How much of an obligation upon the National Treasury such a movement would involve no living man can even estimate, but certainly a thousand millions of dollars would be but a drop in the bucket; and the project once entered upon, the maintenance would be more costly for all time to come than even the original construction.

Is it fair now, after two hundred years of expenditure on our part,

that you should come and ask us to vote to tax ourselves in time of peace for a duplication of these things in all of the new and undeveloped States of the Union? It is not because our people desire to avoid taxation, and as

1 have shown you, the accumulation of wealth in these Eastern States does not escape a fair and just charge upon it. We are ready to vote for an income tax to meet any emergencies which may arise in this Union and to stand by the Government in time of war; but do not ask us, at least without consultation with our people at home, to put this burden on them in addition to one already severe because of local expenditures, made necessary by our geographical position, but cheerfully assumed for the general good.44

Hill's comments clearly explained the danger of acceeding to the belief that any allegedly necessary, wartime taxing power should be made available to politicians in peacetime too. In addition, the government's total abuse of its taxing powers clearly demonstrated that those who wrote the apportionment restrictions into the Constitution were indeed right in doing so.

It was the abandonment of these restrictions that allowed Washington politicians to spend money like drunken sailors while encouraging many states to abandon their own governmental responsibilities and barter away their own inherent sovereignty for Federal handouts (persuading the Federal government to tax others on their behalf). As Congressman Hill pointed out, at one time some states actually did conduct themselves responsibly—which is no longer the case today. Con-fiscatory taxes at the Federal level, combined with a system where states vie for Federal subsidies and grants, have made control of public expenditures at all levels of government virtually impossible.

As finally passed, the first income tax law was contained in only fourteen pages. Today it rambles through more than one thousand pages which no single person can possibly understand.45 The original law levied a delicate tax of 1 percent, graduated as follows:

2 percent on $20,000 — $50,000

3 percent on $50,000 — $75,000

4 percent on $75,000 — $100,000

5 percent on $100,000 — $250,000

6 percent on $250,000 — $500,000

7 percent thereafter.

44 Ibid., pages 4393, 4394.

45 This renders it void as law on this issue alone. Can anything that nobody can understand be "law"? Even Tax Court finds in favor of taxpayers 20 percent of the time (which means it is wrong at least 80 percent of the time) which proves that even the IRS, using its own cockeyed version of the law, does not really know what is taxable under it.

As explained earlier, the personal exemption of $3,000 eliminated practically all Americans from the tax. In 1916, for example, only 362,970 Americans out of a population of 102 million paid any income taxes — or less than four-tenths of one percent. Would the public have voted for the Amendment if it believed it would increase their own taxes and subject them to IRS harassment as the law is enforced today? Obviously not. The 16th Amendment, therefore, was ratified and an income tax established

1. on something the U.S. Congress could not define;

2. that was to apply only to the rich and prosperous (and only modestly on them);

3. that would lower taxes for the general public; and

4. that would provide necessary wartime revenue.

In reality, the Amendment did none of these. The Amendment was not used by the U.S. government to either impose a modest tax on the rich or to lower taxes for the general public or to merely finance wars. It was, in fact, used (especially after World War II) to substantially increase Federal taxes across the board in order to finance (in peacetime) all manner of unconstitutional Federal schemes while burdening the general public with tax rates that far exceeded anything that would have been attempted by King George III or any medieval tyrant. However, the supreme irony is that all of this was accomplished by the Federal government while it completely ignored the 16th Amendment itself!


Surprise — An Income Tax

Is An Excise Tax: The

Brushaber Decision

There is not one graduate of an American law school who does not believe that the 16th Amendment:

1. amended the U.S. Constitution;

2. overturned the Pollock decision; and

3. gave the Federal government a new taxing power.

For example, at my "trial" in 1980 (for allegedly failing to file tax returns for the years 1974 and 1975 — I did file returns for those years, see page 279) when I raised the Pollock case, Chief Judge T. Emmet Clarie (who also turned out to be the government's chief prosecutor) asked, "What was the date of that case?"

"1895 your Honor," I replied from the witness stand.

"That was before the Sixteenth Amendment," Claire admonished me (in a voice tinged with authority and incredulity), reflecting his belief that the 16th Amendment overturned Pollock.

Correcting him I said, "\bu are right, but that case is still holding, your Honor!'

And Clairie meekly replied, "All right."

In line with Clairie's misconception, note the following excerpt from Mertin's (the definitive income tax commentary used by accountants, tax lawyers and even the courts themselves) we find this entry in Chapter 4, page 11:

The Sixteenth Amendment, however, where it is applicable, obliterates any previously existing distinction between income taxes as direct and indirect, putting on the same basis all income "from whatever source derived." (Emphasis added)

The irony of that statement is that while it contains a germ of truth, it conveys a meaning totally opposite to the affect of the Amendment. Since the typical lawyer or accountant does not have the vaguest idea of what the Supreme Court said in connection with the 16th Amendment, he would completely misconstrue this misleading reference in Mertin's. Such misleading inferences help explain how the Federal government has been able to hide the truth about the 16th Amendment for so long.

The truth of the matter, however, is that the 16th Amendment did none of the things suggested in my opening paragraph or as suggested by Mertin's. In the Brushaber1 decision (the decision that held the income tax of 1913 constitutional), the Supreme Court ruled that the legal effect of the Amendment was merely to establish an income tax as an indirect, excise tax so it would not require apportionment — the basis upon which it was held unconstitutional by the Pollock Court. In other words, it is the very issue of whether a tax on income is imposed as a direct or indirect tax that establishes its legality. The Brushaber Court, though, said that in order to impose an income tax as an indirect tax, income had to be separated from its "sources" since "the whole purpose of the Amendment was to relieve all income taxes when imposed from apportionment from a consideration of the source whence the income was derived" (see page 197). I doubt if five years ago there were twenty people in the U.S. who knew what those last twenty words mean yet, without such an understanding, no comprehension of Federal income taxes is possible. This chapter is devoted to establishing such a comprehension.

The Brushaber Decision

It is the Brushaber decision to which the Federal government turns whenever the constitutionality of the income tax is challenged. "The income tax is constitutional," says the government, because "the Brushaber decision says so!' That is true but what the government fails to add is that it does not collect Federal income taxes in accordance with that decisionl In other words, the Brushaber decision and the 16th Amendment have absolutely nothing to do with how the Federal government goes about collecting income taxes. Both the decision and the Amendment only serve as a smokescreen behind which the government can hide its illegal enforcement of the Federal income tax. Simply put, while the Brushaber Court held an income tax (based on the 16th Amendment) constitutional, the government enforces the income tax contrary to both the Amendment and the decision!

lBrushaber vs Union Pacific RR 240 US 1, decided January 24,1916.

Brushaber Practically Impossible to Penetrate

Compared to the Pollock decision (which is written in clear and logical prose), the Brushaber decision is written in a style that practically defies understanding. I am convinced that almost nobody can read and understand it. It is also my belief that it was probably written that way intentionally! My understanding of the case only came about because I read it repeatedly and used highlighting pens to color code related concepts. In addition, if I did not have an accounting background or had not done considerable related study, I doubt if, even then, I could have understood it. Here, for example, is a two hundred and fifteen word sentence taken from that decision.

We say this because it is to be observed that although from the date of the Hylton case because the statements made in the opinions in that case it had come to be accepted that direct taxes in the constitutional sense were confined to taxes levied directly on real estate because of its ownership, the Amendment contains nothing repudiating or challenging the ruling in the Pollock case that the word direct had a broader significance since it embraced also taxes levied on personal property because of its ownership, the Amendment contains nothing repudiating or challenging the ruling in the Pollock case that the word direct had a broader significance since it embraced also taxes levied on personal property because of its ownership, and therefore the Amendment at least impliedly makes such wider significance a part of the Constitution — a condition which clearly demonstrates that the purpose was not to change the existing interpretation except to the extent necessary to accomplish the result intended, that is, the prevention of the resort to the sources from which a taxed income was derived in order to cause a direct tax on the income to be a direct tax on the source itself and thereby to take an income out of the class of excises, duties, imposts and place it in the class of direct taxes.2 (Emphasis added)

When I first read that sentence I was surprised to discover that the Amendment did not challenge or repudiate the Pollock case — but what else did it say? Hopefully by the time you finish this chapter you will know.

Pollock Decision Not Overturned By The 16th Amendment

The first fact to be learned from the Brushaber case is that (contrary to what Judge Clarie believed) the 16th Amendment did not overturn or change anything in the Pollock decision. This is stated in that

"Ibid., page 19.

two hundred fifteen word sentence but it deserves repeating. "The Amendment, " said the Court, "contains nothing repudiating or challenging the ruling in the Pollock case." Here the Brushaber Court confirmed that everything in Pollock (including its holding that direct taxes "embraced also taxes levied on personal property") still held true — despite the 16th Amendment. So if the Congress thought it was doing away with the Pollock decision, it was mistaken. The Brushaber Court acknowledged that in upholding the income tax it was not "repudiating or challenging the ruling in the Pollock case" so when the Pollock Court ruled that taxes on dividends, interest, rents and personal property (and the income from personal property) were direct taxes that had to be apportioned, that holding still stands today and was not changed one wit by the 16th Amendment or the Brushaber decision! \et the government taxes such items today without apportionment, in violation of the Pollock decision, under the guise of taxing "income" but, by definition, it does not. The government (and its "courts") ignore the legal definition of "income" in enforcing the "income" tax.

The 16th Amendment Did Not Amend The Constitution

Another fallacy promoted by the government and the legal establishment is that the 16th Amendment amended the Constitution. The Brushaber Court, however, clearly explained that, in reality, the 16th Amendment did not alter the taxing clauses of the Constitution:

But it clearly results that the proposition and the contentions under it, if acceded to, would cause one provision of the Constitution to destroy another; that is, they would result in bringing the provisions of the Amendment exempting a direct tax from apportionment into irreconsil-able conflict with the general requirement that all direct taxes be apportioned. Moreover, the tax authorized by the Amendment, being direct, would not come under the rule of uniformity applicable under the Constitution to other than direct taxes, and thus it would come to pass that the Amendment would be to authorize a particular direct tax not subject either to apportionment or to the rule of geographical uniformity, thus giving power to impose a different tax in one state or states than was levied in another state or states. This result instead of simplifying the situation and making clear the limitations on the taxing power, which obviously the Amendment must have been intended to accomplish would create radical and destructive changes in our constitutional system and multiply confusion.3 (Emphasis added)

3Ibid., pages 11,12

Here the Court pointed out that any belief that the 16th Amendment gave the government a new, direct taxing power (not limited by either apportionment or the rule of uniformity) would "cause one provision of the Constitution to destroy another", and "if acceded to ... would create radical and destructive changes in our constitutional system!' But that is precisely the assumption that current Federal courts and the entire U.S. legal establishment now make. How could such a false belief have developed when the Brushaber Court (at least here) clearly stated that it was acceding to no such belief! As a matter of fact, the Brushaber Court reaffirmed and reinforced the Pollock decision.

Pollock Case Reaffirmed

In the following excerpt, the Brushaber Court refers to Pollock in its discussion of the "two great classes" of taxes:

In fact, the two great subdivisions embracing the complete and perfect delegation of the power to tax and the two correlated limitations as to such power were thus aptly stated by Mr. Chief Justice Fuller in Pollock v. Farmers' Loan & Trust Company, supra; at page 557. "In the matter of taxation, the Constitution recognizes the two great classes of direct and indirect taxes, and lays down two rules by which their, imposition must be governed, namely: The rule of apportionment as to direct taxes, and the rule of uniformity as to duties, imposts and excises" It is to be observed, however, as tong ago pointed out in Veazie Bank v. Fenno, 8 Wai. 533, 541, that the requirement of apportionment as to one of the great classes and of uniformity to the other class were not so much a limitation upon the complete, and all embracing authority to tax, but in their essence were simply regulations concerning the mode in which the plenary powwer was to be exerted. In the whole history of the Government down to the time of the adoption of the Sixteenth Amendment, leaving aside some conjectures expressed of the possibility of a tax lying intermediate between the two great classes and embraced by neither, no question has been anywhere made as to the correctness of these propositions* (Emphasis added)

The Court affirmed that there were only "two great classes" of taxes and that while there might be a tax "lying intermediate between the two great classes and embraced by neither," such a proposition had nowhere been sustained. What the Court was getting at, of course, was that if it had sustained the right of the government to levy an income tax in the form of a direct tax without apportionment, it would be creating a tax not limited either by the rule of uniformity or apportionment, creating a new kind of Federal tax "lying" between the "two great classes" recognized by the Constitution — and the Brushaber Court said it would not do thatl

"Ibid., pages 13,14

The Income Tax Is An Excise Tax

In essense, the Brushaber Court ruled that the 16th Amendment (while not amending the Constitution and thus establishing a new type of tax restricted neither by uniformity nor apportionment) established the income tax as an excise. Simply put, the Court said:

1. The 16th Amendment states that taxes on income do not have to be apportioned;

2. under the Constitution, Federal taxes that do not have to be apportioned fall into Article 1, Section 8, Clause 1;

3. ergo, a tax on income must fall into that section too, in order to fall into one of the taxing classes recognized in the Constitution.

What the Supreme Court, in essence, said is that the 16th Amendment gave the government the right to tax income without apportionment if it imposed the tax as an excise tax. It cannot, however, be an excise in name only — it must be levied as one. Therefor, if an income. tax is levied as a direct tax, it does not fall within the 16th Amendment and is illegal for want of apportionment. The affect of the Amendment was not to amend or change the Constitution but, rather, to throw an income tax into the section that provided for excise and other indirect taxes. The problem was that the Court stated this proposition in such an obtuse way that hardly anyone realized what the Court had actually said.

This begins to explain that two hundred fifteen word sentence. Instead of simply saying that an income tax was an excise tax, the Court said that the purpose of the Amendment was to prevent the courts from taking such a tax "out of the class of excises, duties, imposts" and placing it in "the class of direct taxes" which is what the Pollock Court had already done. That was the Court's roundabout way of saying that the purpose of the 16th Amendment was to establish a tax on "income" as a form of excises as opposed to its being a direct tax.5 It would appear that a few influential congressmen must have realized that this is what the Court would do. It would also account for the elimination of the word "direct" from the proposed 16th Amendment (see page 161). The specific inclusion of the word "direct" would, I suspect, have prevented the Supreme Court from reaching the decision it did and would have presented the Court with an unsolvable dilemma — could it then rule that an income tax was "indirect" when the Amendment itself called it "direct" or that Congress could legally create a tax not limited by any constitu-

BTo see how Federal courts now completely and illegally reverse this, see page 265.

tional restraints whatsoever? The Brushaber Court, however, in order to hold an income tax indirect and not be in conflict with the Pollock decision — which held that taxes on income from stock, bonds, and real estate were direct taxes and had to be apportioned — had to come up with a different meaning for the word "income." The meaning it adopted differed from that used by the Pollock Court and from what the public understands income to mean. It did this (once again in a confusing manner) by separating income from its sources.

Separating Income From Its Source

The only way that income can be taxed as an indirect, excise tax is to separate it from its source. A tax levied directly on any "source" of income becomes a direct tax on the source itself, and (according to both Pollock and Brushaber) requires apportionment. Therefore, a tax on rent is tantamount to a tax on real estate, the "source" that produced it; a tax on dividends is tantamount to a tax on stocks, the "source" that produced it; a tax on interest is tantamount to a tax on the money, the "source" that produced it; and a tax on wages is tantamount to a tax on labor, the "source" that produced it. Thus all such taxes are not taxes on "income" but are property taxes, levied on real estate, stocks, bank accounts, and labor. For over seventy years the U.S. government has been collecting property taxes (without apportionment) under the guise of taxing "income" — and it has been getting away with it! If it was the Brushaber Court's intention to help the government fool the public, it certainly succeeded.

How and where is income separated from its "sources?" It should prove helpful to realize that the Pollock and Brushaber Courts did not use the word "income" in the same manner, and that is the crux of the confusion. The Brushaber Court must have realized it was using the word "income" in a different way than the Pollock Court did, but that was the only way the Court could arrive at a decision upholding the income tax while harmonizing the new tax with the 16th Amendment, the Pollock decision, prior income tax statutes and, most importantly, the taxing provisions of the Constitution. In order to do all this the Court had to come up with a new definition for income. The Court, however, did it in such a confusing manner that nobody would understand what it had done — and those who could figure it out would not say anything because it was in their best interest to keep silent. In essence, what the Court did was to define income to mean "profit" so, in reality, the 16th Amendment established not an income tax but a "profits" tax.

Back To The Corporation Excise Tax

The Brushaber decision, in effect, brought the income tax back to the Corporation Excise Tax of 1909 since an unapportioned income tax can only apply to corporate profits and individuals can never be subject to such an income or profits tax. Corporations might be subject to it if it were properly imposed; but even U.S. corporations are not subject to the current income tax because it is not being imposed as an excise tax on their profits. To understand all this you simply have to understand what the Brushaber Court meant when it said that when taxing income the "source" cannot be taxed.

The Court actually made the word income a misnomer since the only way income can be viewed without "a consideration of the sources from which the taxed income may be derived" is if all (so-called) income (actually receipts) are funnelled through a corporate profit and loss statement. When this is done, income (what comes in less what goes out) becomes profit — and it is this "profit" (not income) that is separated from the "source."

Exhibit 1 is an example of a corporate profit and loss statement. Note that the corporation had income from real estate commissions, rents, fees, dividends and interest, and that the total income from these "sources" was $395,000. Now, would Ajax have to pay any income taxes on its income? No, despite all its income Ajax does not have to pay a dime in income taxes. Why not? Because, even though it had all that income, the company did not have a profit. And, because it did not have a profit, it had no "income" and, therefore, no "income" tax liability.6

If the Corporation did not have a $1,000 loss carry-forward, it would have had a $1,000 profit and would have paid an "income" tax on that profit. So even though the corporation had $395,000 in income, it had no profit and, therefore, paid no taxes. This, of course, proves that the so-called income tax is really a profits tax and not an income tax at all.

Corporate Profit — Not Traceable to Source

If the Ajax Company had no loss carry-forward it would have paid a tax on its $1,000 of "income." But could it be determined exactly how much of that tax applied to its income from commissions, rents, dividends, or to any of the other sources of income listed? No, it could not. No matter how good a firm's accounting, it still could not trace (with precision) exactly how much of its profit came from any one particular source of "income!' A tax on its profit, therefore, would not be a tax on any of the sources that contributed to it — and only on this basis can

6Actually, it would not have had a tax liability even if it showed a profit, for the reasons explained on page 254.

any of the sources that contributed to it — and only on this basis can a tax be classified as an "income" tax under the 16th Amendment. The key to the income tax puzzle is the word "from" and it is overlooked by the public and illegally ignored by the government.

The Significance of "From"

The 16th Amendment and the law itself (Section 61, Exhibit 2) only gives the government authority to tax "income from whatever source derived." These four words actually describe the government's only legal income taxing authority.


Ajax Real Estate & Investment Company, Inc.

Profit and Loss Statement January 1 - December 31,1983

Total Income:

Commissions on sales ............................ $200,000

Rental income...................................... 100,000

Consulting Fees ................................... 15,000

Dividends from stock ............................. 50,000

Bondinterest....................................... 20,000

Interest on bank deposits ........................ 10.000

Total Income............................................$395,000

Less All Expenses:

Rent.................................................. $ 40,000

Salaries.............................................. 175,000

Advertising......................................... 30,000

Postage .............................................. 4,000

Utilities ............................................. 15,000

Depreciation........................................ 40,000

Automobile and insurance....................... 25,000

Travel and Entertainment ...................... 65,000

Total Expenses .........................................$394,000

Gross Profit (or Gross "Income") .............................. 1,000

Loss Carry Over .................................................. 1,000

Net Profit (or Net "Income") ................................... —0—

Taxable "Income" ................................................ —0—

EXHIBIT 2 Sec. 61. Gross income defined.

(a) General definition.

Except as otherwise provided in this subtitle, gross income means all income from whatever source derived, including (but not limited to) the following items:

(1) Compensation for services, including fees, commissions, fringe benefits, and similar items

(2) Gross income derived from business;

(3) Gains derived from dealings in property;

(4) Interest;

(5) Rents;

(6) Royalties;

(7) Dividends;

(8) Alimony and separate maintenance payments;

(9) Annuities;

(10) Income from life insurance and endowment contracts;

(11) Pensions;

(12) Income from discharge of indebtedness;

(13) Distributive share of partnership gross income;

(14) Income in respect of a decedent; and

(15) Income from an interest in an estate or trust.

*Note that Section (a) does not include either "wages" or "salaries" as a component of "Gross Income!' This omission was not accidental. The government, however, has succeeded in tricking the public into believing that "wages" and "salaries" are "similar items" to "compensation for services," "fees," and "commissions!' They are not. A corporation, for example, can receive "compensation for services" as well as "fees" and "commissions, " but it cannot receive "wages" or a salary. So wages and salaries are not similar to the items listed in (a) (1) and thus they can not be legally included in "gross income" or any other kind of "income."

Section 61: Gross Income Defined

Section 61 of the Internal Revenue Code (Exhibit 2) contains the "law" concerning what the government can theoretically tax. A lay person reading that section would believe that the section authorizes taxes on fees, commissions, rents, dividends, alimony, and all of those listed (and unlisted) items—and that is exactly what the Federal government wants the public to believe. Section 61, however, does not say this at all. If the Code intendedto tax these items it would have said, "There is hereby imposed a tax on any and all sources of income including, but not limited to, the following: commissions, wages, rent, dividends, alimony, etc." But it says no such thing. What it says is that the tax is levied on income derived "from" these sources ("from whatever source derived") not "on" the sources themselves. The key word is "from." Income derived "from" rent is not the same thing as rent itself. Income derived "from" commissions is not the same thing as commissions themselves.

This becomes clear when you examine a corporate profit and loss statement. But when individuals pay income taxes on wages, rents, dividends, etc., they are paying a tax on these items (sources), and not a tax on the "income" from these sources. All such "income" taxes paid on such items are, therefore, imposed and extracted illegally.

Under the 16th Amendment the government was only authorized to tax "income" — not commissions, not interest, not wages, not rents, not dividends — but income "from whatever source derived." And "income" (as used in this context, as defined in Brushaber and numerous other decisions — see Chapter 11, and as written into the "law") can only, by definition, be a corporate profit.

Wages Not Taxable On Any Basis

When wage earners pay income taxes on their wages they are not paying a tax on "income" derived "from" wages, they are paying a tax on wages themselves. Nowhere in the Internal Revenue Code does it state that wages are even a component of "income." As a matter of fact, Section 61 does not even mention the words "wages" or "salary!' The confusion again comes about because of the way Section 61 is worded. In its title it purports to define "Gross income" but does not since "income" is used in the "definition" and — as any eighth grader knows — a word cannot be used to define itself. The definition should have been worded as follows: "Except as provided in this subtitle, gross income means all

profit from whatever source derived. . . "7 Such wording would have made clear exactly what "income" is and what could be lawfully taxed. An understanding of what "income" actually means and what it had to mean to the Brushaber Court will make it much easier to understand the actual language used in the decision.

We have already seen one reference to the income tax being an excise tax in the citation shown on page 183. Here are additional references from the Brushaber decision having the same theme.

At the very beginning, however, there arose differences of opinion concerning the criteria to be applied in determining in which of the two great subdivisions a tax would fall. Without pausing to state at length the basis of these differences and the consequences which arose from them, as the whole subject was elaborately reviewed in Pollock v. Farmers' Loan & Trust Company, 157 U.S. 429; 158 U.S. 601, we make a condensed statement which is in substance taken from what was said in that case. Early the differences were manifested in pressing of an act levying a tax without apportionment on carriages "for the conveyance of persons," and when such a tax was enacted the question of its repugnancy to the Constitution soon came to this court for determination. (Hylton v. United States, 3 Ball. 171.) It was held that the tax came within the class of excises, duties and imposts and therefore did not require apportionment, and while this conclusion was agreed to by all the members of the court who took part in the decision of the case, there was not an exact coincidence in the reasoning by which the conclusion was sustained. Without stating the minor differences, it may be said with substantial accuracy that the divergent reasoning was this: On the one hand, that the tax was not in the class of direct taxes requiring apportionment because it was not levied directly on property because of its ownership but rather on its use and was therefore an excise, duty or impost; and on the other, that in any event the class of direct taxes included only taxes directly levied on real estate because of its ownership. Putting out of view the difference of reasoning which led to the concurrent conclusion in the Hylton Case, it is undoubted that it came to pass in legislative practice that the line of demarcation between the two great classes of direct taxes on the one hand and excises, duties and imposts on the other which was exemplified by the ruling in that case, was accepted and acted upon. In the first place this is shown by the fact that wherever (and there were a number of cases of that kind) a tax was levied directly on real estate or slaves because of ownership, it was treated as coming within the direct class and apportionment was provided for, while no instance of apportionment as to any other kind of tax is afforded. Again the situation is aptly illustrated by the various acts taxing incomes derived from property of

7 This lack of definition is recognized by the courts. "The Internal Revenue Code does not define income." US us Ballard 535 E2d 400. For an in-depth analysis of this and other phony "income" definitions, see The Social Security Swindle—How Anyone Can Drop Out by Irwin Schiff, pages 31-36 and 54-60.

every kind and nature which were enacted beginning in 1861 and lasting during what may be termed the Civil War period. It is not disputable that these latter taxing laws were classed under the head of excises, duties and imposts because it was assumed that they were of that character inasmuch, as although putting a tax burden on income of every kind, including that derived from property real or personal, they were not taxes directly on property because of its ownership. And this practical construction came in theory to be the accepted one since it was adopted without dissent by the most eminent of the textwriters.8

. . . Upon the lapsing of a considerable period after the repeal of the income tax laws referred to, in 1894 an act was passed laying a tax on incomes from all classes of property and other sources of revenue which was not apportioned, and which therefore was of course assumed to come within the classification of excises, duties and imposts which were subject to the rule of uniformity but not to the rule of apportionment. The constitutional validity of this law was challenged on the ground that it did not fall within the class of excises, duties and imposts, but was direct in the constitutional sense and was therefore void for want of apportionment, and that question came to this court and was passed upon in Pollock v. Farm,' ers'Loan & Trust Co., 157 U.S. 429,158 U.S. 601. The court, fully recognizing in the passage which we have previously quoted the all-embracing character of the two great classifications including, on the one hand, direct taxes subject to apportionment, and on the other, excises, duties and imposts subject to uniformity, held the law to be unconstitutional in substance for these reasons: Concluding that the classification of direct was adopted for the purpose of rendering it impossible to burden by taxation accumulations of property, real or personal, except subject to the regulation of apportionment,9 it was held that the duty existed to fix what was a direct tax in the constitutional sense so as to accomplish this purpose contemplated by the Constitution. (157 U.S. 581.) Coming to consider the validity of the tax from this point of view, while not questioning at all that in common understanding it was direct merely on income and only indirect on property, it was held that considering the substance of things it was direct on property in a constitutional sense since to burden an income by a tax was from the point of substance to burden the property from which the income was derived and thus accomplish the very thing which the provision as to apportionment of direct taxes was adopted to prevent. As this conclusion but enforced a regulation as to the mode of exercising power under particular circumstances, it did not in any way dispute the all-embracing taxing authority possessed by Congress, including necessarily therein the power to impose income taxes if only they conformed to the constitutional regulations which were applicable to them. Moreover in addition the conclusions reached

8Brushaber vs Union Pacific, supra, page 14,15.

9 This proves that estate and gift taxes are direct taxes (and not indirect as illegally viewed) and must be apportioned.

in the Pollock Case did not in any degree involve holding that income taxes generically and necessarily came within the class of direct taxes on property, but on the contrary recognized the fact that taxation on income was in its nature an excise entitled to be enforced as such unless and until it was concluded that to enforce it would amount to accomplishing the result which the requirement as to apportionment of direct taxation was adopted to prevent, in which case the duty would arise to disregard form and consider substance alone and hence subject the tax to the regulation as to apportionment which otherwise as an excise would not apply to it. Nothing could serve to make this clearer than to recall that in the Pollock Case in so far as the law taxed incomes from other classes of property than real estate and invested personal property, that is, income from "professions, trades, employments, or vocations" (158 U.S. 637), its validity was recognized; indeed it was expressly declared that no dispute was made upon that subject and attention was called to the fact that taxes on such income had been sustained as excise taxes in the past. Id., p. 635. The whole law was however declared unconstitutional on the ground that to permit it to thus operate would relieve real estate and invested personal property from taxation and "would leave the burden of the tax to be borne by professions, trades, employments, or vocations; and in that way what was intended as a tax on capital would remain, in substance, a tax on occupations and labor," (Id., p. 637) a result which it was held could not have been contemplated by Congress.10

At the beginning of this excerpt, the Brushaber Court stated that from "the very beginning" the only question was into which "of the two great subdivisions a tax would fall." The Court pointed out that the Hyl-ton Court ("putting out of view the. . . reasons") held that the tax came "within the class of excises, duties and imposts," and that "wherever a tax was levied directly on real estate or slaves because of ownership, it was treated as" a direct tax and apportioned. The Court then began laying the deceptive groundwork upon which to make its decision in favor of the income tax by saying that "no instance of apportionment as to any other kind of tax is afforded."

The Court expected us to believe that because of this, "real estate and slaves" represent the only two items upon which a direct tax can be based. While it is true these were the only items that were ever honestly used to determine a direct Federal tax, they were, by no means, the only items to which such a tax could apply. The Court's inference that only taxes on "real estate and slaves" could be the objects of a direct tax was totally fallacious.11

l°Brushaber vs Union Pacific, supra, page 16,17.

11 Chief Justice White dissented in the Pollock decision so he can hardly be expected to objectively (or enthusiastically) present the majority opinion of that case as he attempts to do here.

The Court continued building its specious argument by further pointing out that "beginning in 1861 an lasting during what may be termed the Civil War" various acts "taxing incomes derived from property of every kind. . . were classed under the heads of excises." The Court now tried to establish that because the Civil War income tax was classed as an excise tax it was upheld for that reason. What the Court did not say was that the tax was improperly classified and was not held to be unconstitutional simply because no court was honest enough to treat the tax correctly.12 In explaining why such taxes "were classed under the head of excises," the Court stated that it was

because it was assumed that they were of that character inasmuch as although putting a tax burden on income of every kind, including that derived from property real and personal, they were not taxed directly on property because of its ownership.13

This is an example of the type of legal gibberish with which Supreme Court decisions are filled and affords an understanding of the reason why the power of judges (to illegally create law through such legalistic mumbo-jumbo) must be drastically curtailed.

First of all, the tax referred to did not place "a tax burden on income." The burden was obviously placed right on those individuals expected to pay the tax. How could the Court conclude that the "burden" lay elsewhere?

In addition, no tax "is on property," as the Court suggests, but on the individuals who own the property. And when the Court says that income taxes "were not taxes on property because of ownership," it implies that a tax on property can exist because of a different criteria than ownership (such as its "use"). The Civil War income tax was labelled an excise for no other reason than expediency (and to give the Federal government an excuse for not having to contend with the problems of apportionment). Thus Congress arbitrarily and illegally labelled an obviously direct tax an indirect "duty"; and because it was not effectively challenged on that basis, the Brushaber Court said, "See, when income taxes are 'classed' as duties [excises] they are constitutional!" It then inferred that it was because the 1894 income tax was not so classed that it was held to be direct and therefore unconstitutional. To further shore up its contrived decision, the Court then stated that the Pollock decision did not.

12 And if the Pollock Court had done so, the door would have been opened for a rash of

lawsuits against the government as a result of this war-inspired tax. lsBrushaber vs Union Pacific, supra, pages 14,15.

involve holding that income taxes generically and necessarilly came within the class of direct taxes on property, but on the contrary, recognized the fact that taxation on income was in its nature an excise entitled to be enforced as such.14

Here, again, it tried to strengthen its contention that the 16th Amendment established an excise tax because income taxes "had been sustained as excise taxes in the past!'

Courts Cannot Change The Nature of a Tax by Decree

It can be successfully argued that the Pollock Court never claimed that an income tax was "in its nature an excise tax!' But even if the Pollock Court did, that still would not make an income tax "in its nature an excise" for the simple reason that an income tax is, "in its nature," a direct tax and no court (Supreme or otherwise) can, by decree, contravene fact. A court might just as well decree that the moon is green cheese or that two plus two is five. Income taxes are direct taxes based on income just as property taxes are direct taxes based on property — and no Supreme Court decision, or string of decisions, can change that. It is clear, however, that what the Brushaber Court was doing was trying to build a legal case for holding an income tax (under the 16th Amendment) to be an excise tax and desperately looking for some legal support. So, although the Brushaber Court held the income tax (based on the 16th Amendment) to be an excise tax, this does not make it so, except in the Alice-in-Wonderland world of Supreme Court decisions.

An income tax based on gross income (i.e.,a sales tax as in the Spreckles case) might be an excise since such an income tax could be passed on. But a tax levied on net income (i.e. profit) cannot be passed on and is obviously direct. All businesses operate to maximize profits and once a profit has been made, a tax on that profit cannot be avoided or passed on. So a tax on those profits is a direct tax and must be apportioned.15 The Brushaber Court, however, had to know that its basic premise (that the income tax was an excise tax) was nonsense simply because the tax was not levied as one. It was not levied on a product or even on a contrived privilege as defined in the Spreckles and Flint Stone Tracy decisions (see pages 134 and 144). So if the law itself did not claim it was an excise tax, and if the tax was not levied as an excise tax, how could the Court claim it was one?

14 Ibid., page 16,17.

161 suppose that such a direct tax on corporations could be apportioned on the basis of the number of corporations domiciled in each state.

The following quote from the decision will officially tie together practically all of the points so far covered.

This is the text of the Amendment:

"The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration."

It is clear on the face of this text that it does not purport to confer power to levy income taxes in a generic sense — an authority already possessed and never questioned — or to limit and distinguish between one kind of income taxes and another, but that the whole purpose of the Amendment was to relieve all income taxes when imposed from apportionment from a consideration of the source whence the income was derived. Indeed in the light of the history which we have given and of the decision in the Pollock Case and the ground upon which the ruling in that case was based, there is no escape from the conclusion that the Amendment was drawn for the purpose of doing away for the future with the principle upon which the Pollock Case was decided, that is, of determining whether a tax on income was direct not by a consideration of the burden placed on the taxed income upon which it directly operated, but by taking into view the burden which resulted on the property from which the income was derived, since in express terms the Amendment provides that income taxes, from whatever source the income may be derived, shall not be subject to the regulation of apportionment. From this in substance it indisputably arises, first, that all the contentions which we have previously noticed concerning the assumed limitations to be implied from the language of the Amendment as to the nature and character of the income taxes which it authorizes find no support in the text and are in irreconcilable conflict with the very purpose which the Amendment was adopted to accomplish. Second, that the contention that the Amendment treats a tax on income as a direct tax although it is relieved from apportionment and is necessarily therefore not subject to the rule of uniformity as such rule only applies to taxes which are not direct, thus destroying the two great classifications which have been recognized and enforced from the beginning, is also wholly without foundation since the command of the Amendment that all income taxes shall not be subject to apportionment by a consideration of the sources from which the taxed income may be derived, forbids the application to such taxes of the rule applied in the Pollock Case by which alone such taxes were removed from the great class of excises, duties and imposts subject to the rule of uniformity and were placed under the other or direct class. This must be unless it can be said that although the Constitution as a result of the Amendment in express terms excludes the criterion of source of income, that criterion yet remains for the purpose of destroying the classifications of the Constitution by taking an excise out of the class to which it belongs and transferring it to a class in which it cannot be placed consistently with the requirements of the Constitution. Indeed, from another point of view, the Amendment demonstrates that no such

purpose was intended and on the contrary shows that it was drawn with the object of maintaining thelimitations of the Constitution and harmonizing their operation.16

It is obvious from the above that the Court admitted that the 16th Amendment gave the government no new taxing power. It did not "confer power to levy income taxes in a generic sense — an authority already possessed and never questioned." But if it gave the government no power it did not already have, what did the Amendment do? Restating the purpose of the Amendment the Court said that:

the whole purpose of the Amendment was to relieve all income taxes when imposed from apportionment from a consideration of the source whence the income was derived.17

This merely confirms what we already know. In addition, the Court reaffirmed that any contention that the Amendment "treats a tax on income as a direct tax although it is relieved from apportionment" is also "wholly without foundation" and that such a contention would destroy "the two great classifications" or taxes in the Constitution and that only by not taxing the sources from which "the taxed income may be derived, " can we escape "the application of the rule applied in the Pollock case" which caused that Court to take an income tax out of the category of an indirect tax and place it in the category of those taxes that are direct. This, the Brushober Court says (again in a totally obscure manner), is what the Amendment prevents.

The Court said the Amendment "excludes the criterion of source of income" in order to prevent the tax from being transferred "to a class in which it cannot be placed consistent with the requirements of the Constitution." An finally, the Court states (if anyone still has any doubt that the amendment did not change or amend the Constitution) that the Amendment "was drawn" not to change or amend the Constitution but with "the object of maintaining the limitations of the Constitution and harmonizing their operation." This merely reaffirms all we have learned about the 16th Amendment:

1. it gave the government no new taxing power;

2. it did not amend the Constitution;

3. it supposedly established the income tax as an excise tax; and

4. it forbids the levying of income taxes on sources of income without apportionment.

16 Ibid., pages 17,18,19.

17 Ibid., page 17.

There were other issues raised in this case that should have been resolved against the government but were not. For example, the requirement that corporations collect taxes from interest and mortgage payments created administrative costs that, in essence, deprived them of property without due process of law; and other exemptions written into the law robbed the Act of uniformity. Both of these objections were valid, but these and other objections were summarily denied, some on the basis that they were "hypocritical contentions. . . based upon an assumed violation of the uniformity clause."

If there was anything hypocritical connected with the decision, it lay with Chief Justice White who wrote it. He acknowledged that individuals, as well as corporations, were subject to the tax. But the case itself involved a corporation, so individual income taxes were not an issue and were not dealt with. If individual taxes had been the subject of the case, on what basis could the Court have proponded its excise tax theory? How could individuals be expected to separate their income from its sources? And on what privilege would such an excise fall? On the privilege of breathing? Remember that Chief Justice White dissented in the Pollock decision and if Chief Justice Fuller's arguments and Fields' masterful presentation did not persuade him then, what more could be expected now?

Proof That The Federal Government Knowingly Breaks The Law

If you have any doubts that the Federal government is knowingly breaking the law, prepare to shed them now. THe following quotations were taken verbatim from a 1939 study made by the Department of Justice under the direction of Homer Cummings, then the Attorney General.

Further, it was strongly indicated that an income tax under the Amendment is an indirect tax. Thus, the Chief Justice said — that the contention that the Amendment treats a tax on income as a direct tax although it is relieved from apportionment and is necessarily therefore not subject to the rule of uniformity as such rule only applies to taxes which are not direct, thus destroying the two great classifications which have been recognized and enforced from the beginning, is also wholly without foundation since the command of the Amendment that all income taxes shall not be subject to approtion-ment by a consideration of the sources from which the taxed income may be derived, forbids the application to such taxes of the rule applied in the Pollock Case by which alone such taxes were removed from

the great class of excises, duties, and imposts subject to the rule of uniformity and were placed under the other or direct class.

Continuing, Mr. Chief Justice White emphasized that an income tax, in his

view, was an excise by saying that —

This must be unless it can be said that although the Constitution as a result of the Amendment is express terms excludes the criterion of source of income, that criterion yet remains for the purpose of destroying the classifications of the constitution by taking an excise out of the class to which it belongs and transferring it to a class in which it cannot be placed consistently with the requirements of the Constitution. Indeed, from another point of view, the Amendment demonstrates that no such purpose was intended and on the contrary shows that it was drawn with the object of maintaining the limitations of the constitution and harmonizing their operation.18 (Emphasis added)

This report admitted that the income tax "is an indirect tax!'

The following, from this same report, should be of additional interest since it confirms and reveals how the legal profession (especially government lawyers) misstate the Brushaber decision.

The case of Stanton v. Baltic Mining Co. was a suit by a stockholder to enjoin his corporation, a mining company, from voluntarily paying the tax assessed against it under the income tax provisions of the Act of October 3,1913. The basis of the attack was very similar to that in the Brushaber case with the addition that the stockholder contended that the depletion allowance was so small as to make the tax in part a direct tax on the property of the mining company. Mr. Chief Justice White, speaking for a unanimous Court, again made it clear that under the Amendment an income tax is an indirect tax and that the source from whence such income is derived is unimportant. In this connection he said:

"But aside from the obvious error of the proposition intrinsically considered, it manifestly disregards the fact that by the previous ruling it was settled that the provisions of the Sixteenth Amendment conferred no new power of taxation but simply prohibited the previous complete and plenary power of income taxation possessed by Congress from the beginning from being taken out of the category of indirect taxation to which it inherently belonged and being placed in the category of direct taxation subject to apportionment by a consideration of the sources from which the income was derived, that is by testing the tax not by what it was — a tax on income, but by a mistaken theory deduced from the origin or source of the income taxed."

18 Taxation of Government Bondholders and Employees, United States Department of Justice, 1939, page 205.

The statement that the "Amendment conferred no new power" must be carefully considered in its context. The Chief Justice was very obviously inferring that he considered the Pollock decision to be erroneous in treating an income tax as a direct tax, and that therefore the Amendment restored a power rather than granted a new one.19 (Emphasis added)

As we know, Chief Justice White never for a moment contended that the Pollock decision was "erroneous" or that the amendment, in any way, either "restored a power" or "granted a new one" as this government report erroneously suggests.

In addition, on February 20,1980,1 received a report prepared by Howard M. Zaritsky (Legislative Attorney, American Law Division) of the Library of Congress. In that report Zaritsky wrote:

The Court noted that the inherent character of an income tax was that

of an indirect tax, stating:

Moreover in addition the conclusion reached in the Pollock Case did not in any degree involve the holding that income taxes generically and necessarily came within the class of direct taxes on property, but on the contrary recognized the fact that taxation on income tax in the nature an excise entitled to be enforced as such unless and until it was concluded that to enforce it would amount to accomplishing the result which the requirement as to apportionment of direct taxes was adopted to prevent, in which case the duty would arise to disregard from the consider substance alone and hence subject the tax to the regulation as to apportionment which otherwise as an excise would not apply to it. 240 U.S. at 16-17. The language of the Sixteenth Amendment, the Court found in

Brushaber, was solely intended to eliminate:

the principle upon which the Pollock Case was decided, that is, of determining whether a tax on income was direct not by a consideration of the burden placed on the taxed income upon which it directly operated, but by taking into view the burden which resulted on the property from which the income was derived, since in express terms the Amendment provides that income taxes, from whatever source derived, shall not be subject to the regulation of apportionment. 240 U.S. at 18.20 (Emphasis added)

19 Ibid., pages 206, 207.

20 SOME CONSTITUTIONAL QUESTIONS REGARDING THE FEDERAL INCOME TAX LAWS, Report No. 80-19 A 723/275, May 25, 1979, Updated January 17,1980, by Howard M. Zaritsky, pages CRS-5, 6.

Here Zaritsky admitted that the income tax's "inherent character" is "that of an indirect tax" while also using one of the more confusing passages from Brushaber which attempts to distinguish an income tax from the "burden" placed on the source.

Zaritsky, however, must have known that the inquiry to which he was responding was somehow related to the increasing pressure being created by so-called "tax protestors" who were increasingly raising the issue that wages cannot be taxed as income under the 16th Amendment at trials in District Courts and in hearings in Tax Court. Realizing how this report might be used, Zaritzky also wrote:

Types of Taxable Income

In recent years it has been argued unsuccessfully by some taxpayers that, because the income tax is an excise tax by definition, it cannot be imposed on income from wages or certain other designated forms of income. See e.g., Cardinalli v. Commissioner, T.C. Memo. 1979-462 (1979); and Kindred v. Commissioner, T. C. Memo. 1979-457 (1979). It is clear from the history of the judicial interpretation of the income tax that, white the income tax is an excise tax, it may be imposed on wages, salaries, and virtually all other forms of income.21 (Emphasis added)

Zaritsky's opinion that an excise tax can be levied on the wages of labor is obviously erroneous and was made simply to support the government's illegal enforcement of the tax.

Proof That The Current Enforcement Of The Income Tax Is Illegal

It is universally agreed that the income tax is, by law, an excise tax, yet look at Exhibit 3, page 204. It is an excerpt from the IRS's Handbook for Special Agents22 in which the Treasury admits that income taxes and excise taxes are different and even defines and distinguishes their differences. Also note that the handbook states that "Income taxes are based on net income or net profits." Do we have an income tax or a profits tax? It cannot be both. This is an official admission that the income tax is, in reality, a profits tax.

In addition, in Heluering us Davis23 (the totally fallacious and in-

21 Ibid., pages CRS-7, 8.

22 Internal Revenue Manual, MT 9900-26 (1-29-75).

23 Helvering vs Davis 301 US 619 (1937). For a thorough analysis of this absurd Supreme Court Decision see Chapter 5 of The Social Security Swindle—How A nyone Can Drop Out, "The Supreme Court — Playing Games with the Law," by Irwin Schiff.

credible Supreme Court decision that upheld the constitutionality of Social Security), Justice Cardozo (explaining the differences between the employers' and employees' portion of Social Security taxes) wrote as follows:

Title VIII, as we have said, lays two different types of tax, an "income tax on employees," and "an excise tax on employers."

Apart from admitting that employee Social Security taxes are really income taxes, the Supreme Court admits that the government imposes the income tax not as an excise but as a direct tax without apportionment. Thus we have an official admission by the Supreme Court that income taxes are being levied in violation of both the Brushaber and Pollock decisions!

Now you have it all. What can be simpler than understanding that the Federal government is flagrantly breaking the law in connection with income taxes? It is clearly admitted by every government authority that income taxes are excise taxes and, therefore, can only be lawful if they are levied as excise taxes. It is further acknowledged by the highest government sources that the tax is not being levied as such but, rather, is being levied as a direct tax without apportionment in clear violation of the 16th Amendment and the taxing clauses of the Constitution. Today the government throws people in jail and confiscates property in open and flagrant violation of its own laws and the Constitution. On the basis of such evidence, how can anyone argue the fact that an outlaw government has installed itself in our nation's capital?



Excise Taxes

341 Definition and Purposes

(1) Definition—An excise tax is a duty or impost levied upon the manufacture, sale, or consumption of commodities within the country, and upon certain occupations.

(2) Purposes — A few excise taxes are merely regulatory and some are imposed for both regulatory and revenue purposes. Most excise taxes, however, are levied exclusively for the purpose of revenue.


Excise and Income Taxes Distinguished

342.1 Base

Income taxes are based on net income or net profits, and are graduated. Excise taxes are not graduated, and they can be based upon any of the following factors: selling price of merchandise or facilities; services sold or used; number, weight, or volume of units sold; and nature of occupation.

Internal Revenue Manual, MT 9900-26 (1-29-75)


"Income" — What Is It?

This chapter will explore:

1. the difficulty experienced by the Supreme Court in arriving at a definition of "income"; and

2. the policy of illegally ignoring the definition of income ultimately decided upon by the Supreme Court by all Federal courts (past and present) and the IRS.

The basic problem in dealing with the subject of "income" is a semantic one. The word "income" (for income tax purposes) simply does not mean what the public thinks it means.

Not too long ago a Federal district judge in Texas ruled that "income was everything that came in." He made this ruling in rejecting a claim that wages were not income. Income might mean "everything that comes in," but such income might also be called "gross receipts," or "gross earnings," or even (as the government calls it) "gross income" — but such receipts, earnings or income is not at all what is meant by "income" under the 16th Amendment and as defined by the Supreme Court.

A Problem Of Semantics

The root of this semantic problem starts with the Amendment itself. It authorizes a tax on income "from whatever source derived." It does not say that the government can tax wages, dividends, interest, prize money, alimony, and all those other things the public thinks are income. The 16th Amendment only authorizes a tax on income derived from these sources and not a tax on such sources. How do we arrive at a definition for the thing that is "derived from" these sources and tax-

able under the 16th Amendment as "income?" The answer is not as simple as what that Texas judge would have the public believe.

First, the Senate itself did not know what income was when it decided to tax it. Senator Cummins (one of the most knowledgable members on the subject in the Senate) admitted that Congress could not define it and that it would be "worse than useless" even "dangerous" to attempt to do so. If that Texas judge was correct, why did Congress have trouble defining it? Why could Congress not say that "income is everything that comes in?" Because of that semantic problem I referred to earlier. If they had written the law correctly (by stating that they were taxing profits, not income), or if the 16th Amendment used the word "profit" and not "income, " Congress would have had no problem defining what it sought to tax.

Senator Cummins Spots The Problem

Senator Cummins put his finger on the problem when he said, "Great Britain might employ" words to modify or enlarge "income" because its Parliament was not bound by any constitutional restrictions. He also pointed out that a state "has a right to include whatever she likes within the meaning of the word 'income' but the Congress has no [such] right." Cummins (correctly) explained the reason for this when he said, "The people have granted us the power to levy a tax on incomes, it will always be a judicial question as to whether a particular thing is income or whether it is principal" Here Cummins admits that a return of principal is not "'income" in any form — either "gross" or "net"

Developing this theme further, he then went on to point out that Congress was not given the power to "obliterate all differences between income and principal" since "the people of this country did not intend to give Congress the power to levy a direct tax upon all the property of this country without apportionment." As Cummins saw so well, this was the heart of the problem for the government. The reason England (and even state governments) can define income any way they choose is because they are not bound by the rule of apportionment. So if their definition of income happens to include a return of capital, it would present no legal problem since such governments have the power to tax capital without apportionment anyway — but the Federal government has no such comparable power. The Federal government can only tax "income," not capital (i.e. property), without apportionment, so a return of capital cannot fall within the legal definition of "income" on any basis! The fact that Cummins spotted this problem shows that he had a good deal of accounting as well as legal insight. What Cummins was referring to can best be illustrated by the following example.

Returns Of Capital Are Not "Income" Either "Gross" or "Net"

Suppose Johnny Appleseed purchased $20,000 worth of apples and sold them for $50,000. Could the government (under the 16th Amendment) tax the entire $50,000 received on this sale as income? The answer is no, but only because of the principle of apportionment as the following example illustrates.

Suppose Johnny had the $20,000 in the bank prior to purchasing the apples. Could the government lay an income tax on that $20,000? The answer is obviously no. Suppose Johnny took the $20,000 out of the bank and bought a load of apples, has he changed his asset position? Again the answer is no. He simply has his wealth in apples rather than in a bank credit. If he then sold his apples for $50,000 and put the proceeds back in the bank, he only has $30,000 more than he had before. If the government claims it can tax the entire $50,000 received from the sale as "income," Johnny would obviously be paying a tax on his original $20,000 worth of capital.

Carry this one step further.

Suppose Johnny also took $5,000 out of the bank to advertise the fact that he had apples for sale and another $10,000 to pay an individual to handle their actual sale and delivery. Johnny would have taken a total of $35,000 out of the bank in order to buy, advertise and sell his apples so that $35,000 received from their sale would merely represent a "return of capital." Such a return of capital cannot, again, constitute "income" in any way, shape or form — either "gross" or "net." Why then should any such information be supplied on any document asking for information on "gross" or "net" income? If it could be said that Appleseed had any "gross income" at all it could only have been the $15,000 worth of "profit" he realized from the sale, since everything else was merely a return of capital.

As Cummins admitted, returns of capital form no component of "income" so why should such receipts be reported as receipts of "income"? It should be obvious that an "income" tax can only apply to "profits" and not transactions involving capital or property since such items do not even fall within any category of "income" For Johnny to report that he had $50,000 "gross income" from the sale of apples is totally incorrect. An "income" tax can only tax (and inquire about) "profits" while the Federal government must still tax all returns of capital on the basis

of apportionment. Can you begin to see the dimensions of the problem? How can income be defined so as to 1) eliminate from such a definition all returns of capital that might flow back as income, and 2) separate all income from those sources that produced it? The government, by way of the Internal Revenue Code, attempts to get around this problem by trying to restrict the meaning of "income" without actually defining it! The Internal Revenue Code speaks of such things as "gross income," "net income'' and "taxable income," but never defines "income" itself.1 But it is only "income" itself— not net income or taxable income — that the 16th Amendment presumably allows the government to tax. The Amendment does not qualify "income" by referring either to "gross" or "net" or "taxable" income and it is the unadorned and unqualified concept of "income" that the government must define if "income" is to be taxed on any basis. The problem of definition would not arise if the government honestly sought to tax "profit" derived from income.2

Profit could be defined very easily, but "income" derived from various sources (and separated from those sources) is impossible to define unless one defines it as "profit." But then wages and salaries would be excluded from the tax which is what the government wants desperately to avoid and that is essentially what created the problem that Cummins forsaw. The government's illegal ability to tax wages as "income" (forgetting all about the other erroneous forms of "income" taxes) absolutely hinges on its ability to hide the real definition of "income" from the public!

Cummins Misleads Congress

Having said all that (and even given Cummins's insight into the problem) it must now be obvious that he misled the Senate (though I am not saying he did it deliberately) when he said:

Congress can levy a tax upon gross incomes if it likes, it may diminish the extent of its taxing powers or not exercise it at all; it may exclude certain things from the taxing power that it might include. . .

1 "The general term 'income' is not defined in the Internal Revenue Code!' US vs Ballard 535 F2d 400.

2 A and B, for example, have the same "net income" but one makes alimony payments and has three more dependents than the other. He would, therefore, pay far less taxes, despite the fact that they both have the same "net income" How can that be? If A and B both have the same "net income" they both should pay the same tax. The fact that one has more children and makes alimony payments is only indicative of how he chooses to spend his income. Does the 16th Amendment say that "Congress shall have the power to lay and collect taxes on incomes less personal expenditures?" All corporations with the same profit pay the same income tax so how can individuals with the same income legally pay different taxes?

Cummins was dead wrong when he suggested that Congress could tax "gross income" for the very reasons he, himself, stated and as illustrated by the Johnny Appleseed example. Could Congress levy an income tax on the entire $50,000 in the Appleseed sale (as Cummins suggested) by calling it "gross income?" Cummins himself would have been the first to deny it if he were confronted with that example. What could Cummins have possibly meant since he obviously understood that Congress could not tax "gross income?' He was obviously talking about "gross profits," not "gross income," and once that is understood everything else Cummins said begins to make some sense.

Whether he realized it or not, Cummins was thinking about "profit" but was calling it income since Congress might, indeed, tax "gross profits" but limit the tax to something less than this. He had to be thinking this because only "gross profit" excludes all returns of capital (which Cummins had to know because he also knew that capital had to be scrupulously eliminated from "income" in order for "income" to be taxed without apportionment). His apparent confusion obviously resulted from the fact that he could not get himself to talk in terms of a "profits" tax when he was pushing for an "income" tax. He probably felt that only a tax patterned after previous "income" tax measures would be acceptable to Congress and to the public.

Once this is understood, Cummins's remarks and seeming confusion, as well as the rest of what he said, begin to make some sense especially since he went on to say:

If we desire we (can) limit ourselves to net income (but) we cannot define net income; we cannot say what shall be included in income and what shall not be included in income.

His suggestion that it is up to Congress to limit the tax to "net income" again makes no sense if he was not referring to "profit" because, as we already saw, it is not up to Congress at all and Cummins had to know it. This also explains why he said that Congress could not define "income!' If it tried to come up with a definition it would end up with a definition for "profit" and not a definition for income — which is exactly what happened when the Supreme Court tried to define "income!'

The Supreme Court Defines Income

The search to find a definition for "income" basically began when British-owned Stratton's Independence, Ltd. (a company that carried out mining operations in Colorado) challenged the Corporation Excise Tax before the Supreme Court. The company argued that since it was a

mining Company it was essentially in the business of selling land and maintained that land could only be taxed on the basis of apportionment. The Court stated the company's position as follows:

That the provisions of [the act] do not fit the conditions of a mining corporation; that such corporations are not in truth engaged in carrying on business within the meaning of the Act; that the application of the Act to them results in a tax upon capital, while as applied to other corporations it does not result in such a tax, the result being an inequality of operation that is inherently unjust; that the proceeds of mining operations do not represent values created by or incident to business activities of such a corporation and therefore cannot be a bona fide measure of a tax levied at such corporate business activities; that the proceeds of mining operations result from a conversion of the capital represented by real estate into capital represented by cash, and are in no true sense income; and that to measure the tax by the excess of the receipts for one marketed over the cost of mining, extracting and marketing the same, is equivalent to a direct tax upon property and hence unconstitutional.3

This was an interesting argument and exactly fits the situation when the government taxes wages as "income." (Simply substitute the word "labor" and "wages" for "capital," "property," and "real estate" where such words appear in that paragraph). How did the Court answer this? Before answering, the Court said a few other things that bear repeating since they verify and strengthen a few other matters we have already covered.

Continuing Authority of Pollock Shown

Now let us examine another interesting excerpt from Stratton's:

As has been repeatedly remarked, the Corporation Tax Act of 1909 was not intended to be and is not in any proper sense an income tax law. This court had decided in the Pollock Case that the income tax law of 1894 amounted in effect to a direct tax upon property, and was invalid because not apportioned according to population as prescribed by the Constitution. The act of 1909 avoided this difficulty by imposing not an income tax, but an excise tax upon the conduct of business in a corporate capacity, measuring, however, the amount of tax by the income of the corporation, with certain qualifications prescribed by the Act itself.4

Aside from providing official, capsulized proof of the Corporation Excise Tax swindle (the act did not "impose an income tax" — ha!) the

3 Stratton's Independence us Howbert 231 US 406, pages 409-413.

4 Ibid., page 414.

above excerpt demonstrates the continuing authority of Pollock. Getting back to the question raised by Stratton's, the Court answered it in the following manner; and, in so doing, laid the foundation for the definition of income that all future Supreme Courts would follow.

The sale outright of a mining property might be fairly described as a mere conversion of the capital from land into money. But when a company is digging pits, sinking shafts, tunneling, drifting, stopping, drilling, blasting, and hoisting ores, it is employing capital and labor in transmuting a part of the realty into personalty, and putting it into marketable form. The very process of mining is, in a sense, equivalent in its results to a manufacturing process. And, however the operation shall be described, the transaction is indubitably "business" within the fair meaning of the act of 1909; and the gains derived from it are properly and strictly the income from that business; for "income" may be defined as the gain derived from capital, from labor, or from both combined, and here we have combined operations of capital and labor.5 (Emphasis added)

Thus the Court said that "income" may be defined as the gain derived from capital, from labor or from both combined" Here we have the definition of "income" that every Supreme Court — with one minor addition — has used ever since!

Note that "income" is not "everything that comes in" but by the Supreme Court's definition is a "gain!' The Court might have also used the word "profit" since (in this sense) they both mean the same thing. Note also that the "gain" came about (was derived from) the employment of both capital and labor (from which the company derived a gain or a profit. The Court basically said, "True, you are in the business of selling land, but when you dug pits, blasted, drilled, etc., you used capital and labor to transform that realty into personalty and to get the land into marketable and profitable form." The Court concluded that on that basis the sale of that land (now transformed from land to personalty) could be taxed as "income."

Now you can see how labor comes into the income tax picture. The Court pointed out that Stratton's derived gain from the employment of labor and, therefore, had income "derived" from that labor. In this case the tax was not applied on labor, but was applied to the gain derived from its use (or employment). What is the meaning of "income, derived from labor?" It means the gain or profit achieved through the hiring or employing of the labor of others — it does not mean the money (or goods) received from the sale or exchange of one's own labor. Here the Court treated labor and capital as economic equals (as they both are,

5 Ibid., pages 414, 415.

since both represent two of the three basic factors of production,6 the third being land). But since the government cannot tax capital (in the guise of a tax on "income"), neither can it tax labor under the same guise. The Stratton's Court's explanation and definition of "income" clearly demonstrates that "income derived from labor" is not wages or salary at all but profit derived from their employment. In short, the government cannot place a tax on your labor whether its value is received through wages or through self-employment in the guise of an "income" or "profits" tax.

Charlie's Chair

A simple illustration of this might be the following.

Suppose I hired Charlie to make a chair for me out of wood I had found (which cost me nothing), which I believed I could sell for $50.00. I agreed to pay Charlie $25.00 to make the chair and he applied his labor to the task and turned out a magnificent chair in 8 hours. I sold the chair, not for $50,00 but for $100.00! Now, when I sold the chair for $100.00, did I make a gain or a profit derived from Charlie's labor? I apparently made a gain — the question is how much?

It is only in this context that anyone can have "income derived from labor" — but it would appear I gained from Charlie's labor, not my own. Did Charlie have a gain from his labor? No, he merely exchanged the value of his labor for the money I gave him which we had both determined was a fair price for that labor. But, as it turned out, I probably underpaid Charlie, since he worked 8 hours in the hot sun and made me a far better chair than I ever expected. And since I only expected to sell his chair for $50.00,1 probably paid him less than the actual value of his labor. It is obvious from this angle, too, that Charlie lost on the deal. In any case, I made a $75.00 profit on Charlie's labor—or did I? It could be argued that I got that much for the chair, not because of Charlie's labor, but my own; that my ability to get $100.00 for it was largely due to my own skill and hard work in selling the chair and finding a buyer who would pay that much, to say nothing about the time and effort I put into finding the wood. The problem now becomes one of determining how much of my alleged $75.00 gain "derived from Charlie's labor" was actually due to my own labor. Depending on how much labor I had to expend to find the wood and sell the chair, I also might not have had any gain "derived from" Charlie's labor or my own for that matter.

6 The Court spoke of "operations of capital and labor" so both factors of production must stand equally before the law for tax purposes.

Income Is Not "Income"

The 1918 case of Doyle vs Mitchell7 involved the appreciation of assets acquired prior to the income tax taking effect and their subsequent sale. The assets involved trees purchased in 1903 for approximately $20.00 an acre. After the passage of the Corporation Excise Tax Act the company revalued the timber to reflect its appreciated 1909 value of $40.00 an acre and paid taxes for the years 1909 - 1912 on that basis. The Commissioner of Internal Revenue allowed the deduction based on the 1903 cost but disallowed a deduction based upon the 1909 appreciated value. Mitchell Brothers paid the tax in protest and sued for a refund, which they won in both district and appellate courts. The government, however, appealed to the Supreme Court which upheld the lower courts and found against the government. In reaching the decision in this case the Court said:

Starting from this point, the learned Solicitor General has submitted an elaborate argument in behalf of the Government, based in part upon theoretical definitions of "capital," "income," "profits," etc., and in part upon expressions quoted from our opinions in Flint v. Stone Tracy Co., 220 U.S. 107, 147, and Anderson v. Forty-two Broadway, 239 U.S. 69, 72, with the object of showing that a conversion of capital into money always produces income, and that for the purposes of the present case the words "gross income" are equivalent to "gross receipts" the insistence being that the entire proceeds of a conversion of capital assets should be treated as gross income, and that by deducting the mere cost of such assets we arrive at net income.8 (Emphasis added)

Note how the government tried to claim "that a conversion of capital into money always produces income" and that the "words 'gross income' are equivalent to 'gross receipts'." In both cases the Court said they were not. This distinction should still hold true today, except that Federal "courts" illegally refuse to see such differences. The government's attempt to tax as "income" gains that occurred prior to the law's passage, was too blatant even for the Supreme Court!

In deciding the issue the Mitchell Court also said:

Yet it is plain, we think, that by the true intent and meaning of the Act the entire proceeds of a mere conversion of capital assets were not to be treated as income. Whatever difficulty there may be about a precise and sci-

1 Emanuel J. Doyle vs Mitchell Brothers Company 247 US 179, decided May 20,1918. 8 Doyle vs Mitchell, 247 US 179, pages 183,184.

entific definition of "income" it imports, as used here, something entirely distinct from principal or capital either as a subject of taxation or as a measure of the tax; conveying rather the idea of gain or increase arising from corporate activities. As was said in Stratton's Independence v. How-bert, 231 U.S. 399, 415: "Income may be defined as the gain derived from capital, from labor, or from both combined."9 (Emphasis added)

The Court's words must be summarized as follows:

1. Conversions of capital assets "were not to be treated as income" — either gross or net.

2. There is difficulty in arriving at a precise definition for "income!'

3. Whatever difficulty there may be in (2) above, the word "income" conveys "the idea of gain arising from corporate activity" (i.e. corporate profit).

Apart from the fact that the Court established that the income tax must be "void for vagueness" and for the reason given by the Spreckles Court (see page 136), it also established that wages cannot be taxes as "income" since wages are nothing more than a "conversion" of a capital asset, (labor into cash). Notice, too, the development of the idea that "income" is, in reality, a corporate profit.

Income Requires Economic Gain

Another early Supreme Court decision that sheds additional light on the concept of income was the 1918 case of Towne us Eisner.10 In this case Towne challenged the "income" tax on the basis that the stock dividend he received was not "income." The collector of taxes, Mark Eisner of New York, claimed otherwise so Towne paid the tax under duress and sued for a refund. He lost in the lower courts and appealed to the Supreme Court. In this instance the lower courts' rulings were reversed and the Supreme Court ruled that a stock dividend was not "income."

In writing the short opinion in this case, Oliver Wendell Holmes (quoting Billings vs United States 232 US 261) said:

"A stock dividend really takes nothing from the property of the corporation, and adds nothing to the interest of the shareholders. Its property is not diminished and their interests are not increased. . ."n

9 Ibid., pages 184,185.

10 Henry R. Tbwne vs Mark Eisner 245 US 418, decided January 7,1918.

11 Ibid., page 426.

What Holmes was pointing out was that since there was no "gain" to the recipient of the stock dividend, there was no "income."

The Supreme Court: Income Is Not "What Comes In"

The next significant case involving the meaning of "income" was Southern Pacific vs Lowe.12 It involved a distribution to Southern Pacific of profits acquired by a subsidiary prior to the income tax becoming law. The Collector of Internal Revenue in New York, John Lowe Jr., said that the distribution was taxable income, so Southern Pacific paid the tax under duress and sued for a refund. Lowe was upheld in the lower courts and Southern Pacific appealed to the Supreme Court. The Court found in favor of Southern Pacific and again reversed the lower courts' decisions.

In finding in favor of Southern Pacific the Court said:

We must reject in this case, as we have rejected in cases arising under the Corporation Excise Tax Act of 1909 (Doyle v. Mitchell Brothers Co., ante, 179, and flays v. Gauley Mountain Coal Co., ante, 189) the broad contention submitted in behalf of the Government that all receipts — everything that comes in — are income within the proper definition of the term "gross income" and that the entire proceeds of a conversion of capital assets, in whatever form and under whatever circumstances accomplished, should be treated as gross income. Certainly the term "income" has no broader meaning in the 1913 Act than in that of 1909 (see Stratton's Independence v. Howbert, 231 U.S. 399,416,417), and for the present purpose we assume there is no difference in its meaning as used in the two acts.13 (Emphasis added)

The Supreme Court (unlike that Texas judge) rejected the idea that "everything that comes in" is "income" and demonstrates how lower Federal courts today ignore early Supreme Court decisions bearing on the meaning of "income!' Note further the Court's upholding of the meaning of "income" as expressed in Stratton's. Another significant point is the Court's observation that "the term 'income' has no broader meaning in the 1913 Act than in that of 1909. . . and for the present purpose we assume that there is no difference in its meaning as used in the two Acts." This is, of course, official proof (more will follow) that "income" really means "profit" since what was taxable as "income" in the Act of 1909 was simply corporate profit.

12 Southern Pacific Company vs John Z. Lowe, Jr. 247 US 330, decided June 3,1918.

13 Ibid., page 335.

Eisner vs Macomber — Closing The Ring

The Eisner14 case (along with Pollock and Brushaber) completes the triumverate of the most important Supreme Court cases dealing with Federal income taxes. Whereas Pollock established that taxes "on" property and "on" the income (using income in its ordinary, non-tax sense) from property were direct and had to be apportioned; and whereas Brushaber established that income (separated from its source) could be taxed indirectly as an excise, the Eisner Court focused (more than any other Court) on the definition of "income" and came up with the definition that is considered the official, legal definition of income. No other definition supercedes it and no other Supreme Court has attempted to change it.

In arriving at its definition, however, the Eisner Court had a number of interesting things to say about the "income" tax and the 16th Amendment. Because of the weight and authority of this case they bear repeating.

Case Involved Stock Dividends

Like Towne this case involved a stock dividend which had been received by Myrtle Macomber. The tax collector ruled that it was "income." Ms. Macomber paid the tax under protest and sued for a refund. This time she won in the lower courts (that based their decisions on the Towne case (see page 214). The government, nevertheless, appealed to the Supreme Court. The Eisner Court easily sustained the lower courts on the basis of the Towne decision and then used the issue presented as a springboard into other related issues.

Sixteenth Amendment Did Not Amend Constitution

Reafirming that the 16th Amendment did not amend the Constitution, the Court said:

The Sixteenth Amendment must be construed in connection with the taxing clauses of the original Constitution and the effect attributed to them before the Amendment was adopted.15

This was the Court's way of saying, "Forget the 16th Amendment — it didn't change a thing as far as the taxing clauses of the Constitution are concerned." The Brushaber Court had said as much in 1915, but the

'" Mark Eisner vs Myrtle H, Macomber 252 US 189, decided March 8,1920. 16 Ibid., page 205

Supreme Court repeated it in 1920. Apparently the executive branch of government (which operates the IRS) refused to get the message — and even today it still pretends it knows nothing about it. The public thinks the 16th Amendment amended the Constitution and each year thousands of graduating law students believe it too, though the two most important Supreme Court cases that deal with the matter emphatically state otherwise. How is this possible?

Eisner Court Relies on Pollock

Notice how the Eisner Court relied on the Pollock decision in the following excerpts:

In Pollock v. Farmers' Loan & Trust, it was held that taxes upon rents and profits of real estate and upon returns from investments of personal property were in effect direct taxes upon the property from which such income arose, imposed by reason of ownership; and that Congress could not impose such taxes without apportioning them among the States according to population, as required by Art. 1, Sect. 2, Cl. 3, and Sect. 9, Cl. 4, of the original Constitution.16

So again, as late as 1920 (11 years after the 16th Amendment was passed by Congress), the Supreme Court still quoted Pollock and affirmed that taxes on rents and income from investments of personal property (such as bank accounts, stocks and bonds) were direct taxes that required apportionment.17

Restating the 16th Amendment the Court then said:

As repeatedly held, this [the 16th Amendment] did not extend the taxing power to new subjects, but merely removed the necessity which otherwise might exist for an apportionment among the states of taxes laid on income [cases cited].18

When the Court used the word "income" it was referring to "profits" or "gains" separated from their sources, not income in the ordinary sense of the word (meaning money that comes in).

16 Ibid.

17 Remember that T. Emmet Clarie, the Chief Judge for the Connecticut District, at my "trial" tried to tell the jury that the 16th Amendment reversed Pollock.

lBEisner vs Macomber, supra, page 206.

Sixteenth Amendment Should Not Be Extended By "Loose Construction"

The Court next cautioned that the 16th Amendment should not be extended by "loose construction" to repeal the taxing clauses of the Constitution. That is, of course, precisely what the Federal government (with the help of every Federal "court" in the land) has been doing. At least here (perhaps to atone for all its prior lax decisions) the Supreme Court appears to have been trying to make amends in order to stop what it perceived to be the headlong drive of the government (now supposedly armed with the 16th Amendment) to tax everything in sight as "income!" Today every Federal "court" totally disregards Eisner on this issue, but read the Court's words:

A proper regard for its genesis, as well as its very clear language, requires also that this Amendment shall not be extended by loose construction, so as to repeal or modify, except as applied to income, those provisions of the Constitution that require an apportionment according to population for direct taxes upon property real and personal. This limitation still has an appropriate and important function, and is not to be overridden by Congress or disregarded by the courts.19

The Federal courts now do exactly what the Eisner Court said they could not do:

1. allow the U.S. Congress to override the taxing clauses of the Constitution; and

2. disregard these same taxing clauses themselves.

The Meaning Of Income

The Court then turned to the meaning of income and stated:

In order, therefore, that the clauses cited from Article I of the Constitution may have proper force and effect, save only as modified by the Amendment, and that the latter also may have proper effect, it becomes essential to distinguish between what is and what is not "income," as the term is there used; and to apply the distinction, as cases arise, according to truth and substance, without regard to form. Congress cannot by any definition it may adopt conclude the matter, since it cannot by legislation alter the Constitution, from which alone it derives its power to legislate, and within whose limitations alone that power can be lawfully exercised.20 (Emphasis added)

19 Ibid.

20 Ibid.

The Court also stated that Congress cannot by "any definition" it chooses decide what income is. This is, of course, precisely the problem that Cummins forsaw, but it only developed because the word "income" was inaccurate (because it did not automatically exclude returns of capital, nor did it separate income from its source). This meant that the Courts had to develop a constitutional definition so "income" could be taxed without apportionment. If the law had been written as a tax on "profit" no such problem of definition would have developed because "profit" excludes returns of capital and automatically separates "income" from its source(s).

The Official Definition Of "Income"

The Court then turned its attention to defining and describing "income" and stated:

After examining dictionaries in common use (Bouv. L.D.; Standard Diet.; Webster's Internat. Diet.; Century Diet.), we find little to add to the succinct definition adopted in two cases arising under the Corporation Tax Act of 1909 (Stratton's Independence v. Howbert, 231 U.S. 399,415; Doyle v. Mitchell Bros. Co, 247 U.S. 179,185) — "Income may be defined as the gain derived from capital, from labor, or from both combined," provided it be understood to include profit gained through a sale or conversion of capital assets, to which it was applied in the Doyle Case (pp. 183,185).

Brief as it is, this indicates the characteristic and distinguishing attribute of income essential to a correct solution of the present controversy. The government (though basing its argument on the definition as quoted) placed chief emphasis upon the word "gain" (extended to include a variety of meanings) while the significance of "gain derived from capital" was either overlooked or misconceived. "Derived-from-capital"; — "the gain-derived-from-capital, " etc. Here we have the essential matter — not a gain accruing to capital, not a growth or increment of value in the investment; but a gain, a profit, something of exchangeable value proceeding from the property, severed from the capital however invested or employed, and coming in, being "derived" that is received or drawn by the recipient (the taxpayer) for his separate use, benefit and disposal; — that is income derived from property. Nothing else answers the description.

The same fundamental conception is clearly set forth in the Sixteenth Amendment — "income, from whatever source derived" — the essential thought being expressed with a conciseness and lucidity entirely in harmony with the form and style of the Constitution.21 (Emphasis not added)

21 Ibid., pages 207,208.

Note how the Eisner Court accepted the definition of income exactly as it was stated in Strattoris (see page 211) with the provision that it also include "profit gained through a sale or conversion of capital assets."

Based on all this material, "income" was officially defined as follows:

Income is the gain derived from capital, from labor, or from both combined including the profit gained through a sale or conversion of capital assets.

The Court stressed that in trying to tax a stock dividend as "income" (because the stock dividend "came in") even the government emphasized that it was a "gain." The Court said that even if we have a "gain" this gain must be "severed from the capital however invested or employed." Assuming that an asset appreciated in value (a home, for instance), no taxable "gain" is realized until the asset is sold so that the "gain" can be severed from the capital" received and used by the taxpayer "for his separate use, benefit and disposal." Or in simpler terms, a stock dividend was still a part of the original investment and until it was sold for cash there could be no realized taxable gain — no "income."

Eisner Decision Applies Equally to Labor

The principle expressed in Eisner and its definition of "income" has to apply to all forms of property, not merely to stocks. Gain-derived-from-labor must, therefore, be given the same meaning as "gain-de-rived-from-capital, etc!' As Stratton's pointed out (see page 211) capital and labor are equals in the income tax equation and taxing principles that apply to one must also apply to the other. So when the Court says that "income" is "the gain-derived-from-capital, etc." it also must apply to labor.

Therefore, "income" as applied to labor means "the gain-derived-from labor" which is not the same thing as wages or salary (which represents the exchange of labor — an asset — for money).

Coming Full Circle — The Smietanka Case

Finally, in March of 1921, the Supreme Court explicitly admitted (as it did in the Southern Pacific case) that "income" could only mean a corporate profit. This case22 involved the appreciation of stock in an estate and its final distribution by the trustees. Julius E Smietanka, the

^Merchant's Loan & Trust Company vs Smietanka 255 US 509, decided March 28,1921.

tax collector in Illinois, said that the distribution was taxable as income to the recipients. The trustee, Merchant's Loan & Trust Company, said the appreciation was not income within the meaning of the 16th Amendment. So the taxes were paid in protest and the Merchant's Loan & Trust sued to recover the amount paid. The Supreme Court upheld the tax and said:

... it was the purpose of Congress to tax gains, derived from such a sale as we have here [and that] it is the purpose of that act. . . to treat such a trustee as we have as a "taxable person". . . precisely as if the beneficiaries had received it in person.23

In arriving at its decision, the Court felt it had to say something about the meaning of "income" and, therefore, gave what is the most complete and all-inclusive definition of "income" that appears in any Supreme Court case and qualifies as the definitive Supreme Court definition of "income":

It is obvious that these decisions in principle rule the case at bar if the word "income" has the same meaning in the Income Tax Act of 1913 that it had in the Corporation Excise Tax Act of 1909, and that it has the same scope of meaning was in effect decided in Southern Pacific Co. v. Lowe, 247 U.S. 330,335, where it was assumed for the purposes of decision that there was no difference in its meaning as used in the Act of 1909 and in the Income Tax Act of 1913. There can be no doubt that the word must be given the same meaning and content in the Income Tax Acts of 1916 and 1917 that it had in the Act of 1913. When to this we add that in Eisner v. Ma-comber, supra, a case arising under the same Income Tax Act of 1916 which is here involved, the definition of "income" which was applied was adopted from Stratton's Independence v. Howbert, supra, arising under the Corporation Excise Tax Act of 1909, with the addition that it should include "profit gained through a sale or conversion of capital assets," there would seem to be no room to doubt that the word must be given the same meaning in all of the Income Tax Acts of Congress that was given to it in the Corporation Excise Tax Act and that what that meaning is has now become definitely settled by decisions of this court.24 (Emphasis added)

Thus the Smietanka Court said that the "meaning" of "income" had become final and was now "definitely settled by decisions of this court" and that "income" had the same "meaning. . . that was given to it in

23 Ibid., page 516. "Ibid., pages 518, 519.

25 Burnet vs. Harmel 287 US 103 (1932). Additional cases are cited in the motion in Appendix D.

the Corporation Excise Tax Act of 1909!' What was the "meaning" of "income" as used in the Corporation Excise Tax Act? A corporate profit! Therefore, if you do not have a corporate profit you cannot have any income subject to an "income" tax!

Since the recipients of the distributions in this case were not corporations (and did not show a "profit") how could anything they received be classified as "income," including the trust distributions the Smie-tanka Court ruled were "income"? I will return to this anomoly later, but what should be noted now is that this Court finally concluded that the search for a legal definition of "income" was over and that "income" meant a corporate profit. Therefore, nothing but a corporate profit can fit the definition of what "income" has to mean in order for it to be taxable as an indirect excise tax according to the Brushaber Court's interpretation of the 16th Amendment and by all of the Supreme Court cases just discussed.

Courts Affirm Eisner and Smietanka

The following excerpts from Burnet vs. Harmel25 (decided some nineteen years and numerous Court cases after the income tax was passed) provides further legal confirmation of the meaning of "income" as we just established — that it is a corporate profit; and that this meaning has been accepted by every Supreme Court that ever considered the meaning of "income":

. . . before the 1921 Act this Court had indicated (see Eisner v. Ma-comber, 252 U.S. 189,207,64 L.ed. 521, 9 A.L.R. 1570,40 S. Ct. 189), what it later held, that "income," as used in the revenue acts taxing income, adopted since the 16th Amendment, has the same meaning that it had in the Act of 1909. Merchants; Loan & T. Co. v. Smietanka, 255 U.S. 509, 519, 65 L.ed. 751, 755,15 A.L.R. 1305, 41 S. Ct. 386; see Southern Pacific Co. v. Lowe. 247 U.S. 330, 335, 62 L.ed. 114, 1147, 38 S. Ct. 540.26 (Emphasis added)

Stated simply this says that if you do not have a corporate profit you cannot have any "income" subject to an income tax!

26 Ibid., page 108.


Why No One Can Have Taxable Income

It should now be obvious that no individual can have taxable income for the following reasons:

1. Since an unapportioned income tax is, by law, an excise tax (which otherwise requires apportionment), it must be levied as an excise to be legally mandatory. Since the current income tax is not levied as an excise tax (either on individuals or corporations) it cannot be legally mandatory on any basis! In enforcing the income taxes, the government simply disregards both the 16th Amendment and the taxing clauses of the Constitution, which (under both Brushaber and Eisner) it cannot do.1

2. Since the Courts have ruled that "income" (for "income" tax purposes) means "a corporate profit" and since private citizens do not generate "profit" (nor could they be made to keep books from which a contrived "profit" could even be estimated), they can have no "income" that is subject to an "income" tax. 2

The point is that these two facts alone establish why nothing in connection with Federal individual "income" taxes can be legally compelling or required: Not filing, not withholding, not IRS examining of any books and records, not the reporting by banks, other financial institutions, and employers of interest and wages paid, not tax "court" decisions, and certainly not "trials" for failing to file tax returns or for tax evasion, but because the crimes of the Federal government are so vast in connection with this tax and because the numbers of people in the private sector (lawyers, accountants, bank trust departments — which

'For the legal definition of an excise, see Justice Field's opinion, page 116 and the Flint

Stone opinion, page 144. 2There are, of course, a number of other reasons (see page 240,241) why an "income" tax

cannot be mandatory, but we need not concern ourselves with them here.

can be sued for having paid taxes on trust income that was really not taxable at all) who are involved in the hoax is so huge, overkill is probably necessary to slay the income tax dragon.

Individuals Generate No "Profits" So They Can Have No "Income"

Since the Courts have ruled that income must be separated from its sources, it should now be clear that private individuals cannot have "income" because it is impossible for individuals to separate personal income from its sources .3 \bu already know that the 16th Amendment did not overturn the Pollock decision which ruled that a tax on the income from real estate, bonds and bank deposits is a tax on those sources and must be apportioned. So, when the government tries to tax income directly (based on Pollock) it is equivalent to a direct tax on the capital sources themselves and thus constitutes a tax on property not a tax on "income" (again realizing that what is really being taxed in both cases is neither income nor property but the individual, measured by his property or income).4

This taxing principle, as has been carefully demonstrated, was extensively discussed and decided by the Pollock Court and was not overturned by the 16th Amendment nor has it been overturned or subsequently challenged by any other Supreme Court. So this principle laid down in Pollock stands as fundamental tax law and is not to be "disregarded by the courts" (see the Eisner case, page 218).

Since the Pollock decision did not directly concern wages or income from self-employment, the Court rendered no decision on these items. Can these sources of income be taxed as "income" under current tax law or under the 16th Amendment? The question itself supplies its own answer.

Wages and Self Employment Earnings Are Not "Income" and Cannot Be Taxed As Such

There are many reasons why wages cannot be taxed under the Internal Revenue Code — though the fact that the tax is not being imposed as an excise tax would make it illegal (if mandatory) regardless of any other consideration.

"Individuals do not prepare profit and loss statements comparable to the one shown in Exhibit 1, page 189.

"When I put quotes around the word "income" I am using it in its strict, 16th Amendment (taxable) sense to mean income separated from both capital and its source. When I omit the quotes around it I am using it in its ordinary sense which can include returns of capital or when it is related to its source.

A significant clue to the reason why wages and salaries are not "income" is furnished by Section 61 itself (Exhibit 2). Wages or salaries are not even listed there as a source of income, so how can they be "income" on any basis? The Mamelukes (Federal "judges," U.S. Attorneys, and the IRS) insist that salaries and wages fall into the category of "compensation for service" and are "similar" to "fees and commissions" which is simply not true for a variety of reasons.

First, if Section 61 intended to include "wages" why did it not say so? If it could specifically include "commissions, " why could it not have included "wages"? Was it omitted accidentally? Of course not. "Income" must be given the same meaning as it had in the Corporation Excise Tax Act of 1909 and "wages" and "salaries" can never be a component of corporate "gross income." For example, a real estate corporation can manage property, sell property, and give advice. For such services it can receive either management or service fees, commissions on sales, or "similar items" of compensation. But can such a corporation receive wages? No, proving that wages are not similar to "compensation for services" and that wages and salary are not provided for in Section 61. Therefore, "wages" and "salary" cannot be taxable as "income" according to the Code itself.

Payment For Labor Is Not "Income"

Even overlooking the Stratton case which orders that payments for labor (wages) are not "income," we now know that "income" can only mean a "gain" or "profit" and does not mean mere receipt of income. But payments for labor (usually referred to as wages or salary) are not "gains" or "profits." They represent exchanges, with labor (an asset) being exchanged for its dollar equivalent which, in many cases, represents a sale by an individual of the only asset he has — his labor.

For example, take an employer and one of his own employees, say an electrical contractor and one of his electricians such as attended one of my recent tax seminars. I asked the employee, "Does he (pointing to his employer seated next to him) pay you wages?"

"Yes he does, " replied the electrician.

"Are you worth what he pays you?" I asked.

"I'm worth more." His answer — the standard one — evoked laughter from the audience.

I then turned to his employer and said, "Is he really worth more than what you pay him?"

Now the employer appeared perplexed since, if he said yes, he might be hit for an immediate raise. But finally he good naturedly replied, "Yes, he is!' The audience responded with more laughter.

Carrying this admission further, I asked, "In other words, Mr. Em-

ployer, your employee is worth a good deal more than what you are paying him, is that right?"

Once again the employer said yes and drew more laughter from the audience and a good natured reaction from his (admittedly) underpaid employee. I decided to take the pressure off the employer and said to the audience, "Of course his employee is worth more than he pays him. What would be the point of hiring him if he weren't?" And, looking at the employee, I said, "You better hope you're worth more than he's paying you. If you're not then he's overpaying you and his other employees, and he'll soon be broke and out of business and you'll be out of a job!"

Essentially companies are in business to make a profit by paying their employees less (collectively) than what they can sell their work-product for. If they cannot do that they will go out of business and their employees will be out of jobs.

Driving my point further I said to the employer, "In other words, Mr. Employer, you might bill a customer $40.00 an hour for your employee's time but pay the employee only $20.00 an hour, isn't that right?"

"Yes," he replied.

"Now," I continued, "I realize that some of that differential is to cover your overhead, but you still make a direct profit on his labor don't you?"

"Yes," he said, "I do!'

"So, he gives you his labor, and you give him money which we'll call wages, is that correct?"

"Yes," he answered.

"You receive his labor and he receives your money — but, in any case, the labor you get from him is worth more than the money he gets from you. Is that correct?"

"Yes," he replied.

"Now," I asked the employee, "did you pay income taxes last year on the money he gave you?"

"Yes," answered the employee. Obviously this was his first seminar.

Turning once again to the employer I said, "Did you pay income taxes last year?"

"'Vfcs, " he answered. Obviously it was his first seminar, too.

"In the tax return you filed, did you include the value of the labor you received from him?"

With his eyes riveted to mine and a puzzled look on his face the employer replied, "I'm not sure I understand you!'

"Look," I said, "you just admitted that your employee gave you his labor. Did you add the value of that labor — as indicated by his wages — to the income you reported for tax purposes?"

He hesitated before replying, "No."

"Then how did you show the value of the labor you received from him on your tax return?" I asked.

"Well, I took his wages as a tax deduction," he said.

"So, not only didn't you pay a penny of taxes on the labor you received from him but you actually reduced your own taxes by the amount of that labor, correct?"

"That's right," he said.

Turning back to the employee I said, "Did you hear what your employer just said? He said that not only didn't he pay taxes on what you gave him — your labor — but he actually paid less taxes because of it. "¥bu, however, told me a short while ago that you paid taxes on what he gave you. Now we find out that what he got from you actually reduced his taxes. Does that make sense to you?"

"No, it doesn't," he replied.

"Well, it doesn't make sense to me either. So why don't you do what he does? If he deducts from his income taxes the labor you give him, why don't you deduct from your income tax the money he gives you? In other words, since he deducts the value of your labor from his income, why don't you deduct the value of his money from your income and treat his wages the way he treats your labor. Then you won't have any income taxes to pay. Doesn't that make more sense than what you're doing now?"

"It certainly does," he replied. 5

Can you see why the electrician had no "income"? He had no "income" because he had no gain on his labor. His employer admitted he paid him less for his labor than it was worth. As a matter of fact, not only did the electrician not have a "gain" on the transaction, he actually lost on the exchange!

Illogical Situations

There are numerous illogical and inexplicable situations that occur because of the government's erroneous attempt to tax labor (property) as "income" (a profit). Here are several examples.

6At these seminars, of course, I never analyzed the reason why "income" taxes had to be levied as an excise tax nor why "income" (for tax purposes) really means a "profit." Such an explanation would have required more time than I had in a three hour lecture in which I also had to cover other practical subjects such as how to stop employers from taking taxes out of your pay, how to overcome IRS audits and summonses, and how to handle IRS agents (their calls and letters).

Now You See It, Now You Don't Income

In order to reduce taxes many people resort to barter and, as a result, large bartering exchanges have developed all over the country. The IRS, however, takes the position that barter arrangements create taxable income that must be reported. It is, of course, difficult for the IRS to discover these transactions because, in many cases, they do not appear "on the books." Let us take a simple barter arrangement between a physician and a dentist wherein each provides his services to the other in lieu of exchanging money. If the IRS discovered this arrangement, and could prove it, it would impute additional taxable income to each doctor and the IRS would seek to assess the fair market value of the services received and attempt to collect additional taxes.

With this in mind, consider the following example between the same dentist and Mary, his dental hygenist. They also have a "barter" arrangement, but in this case the dentist gives her $10,000 per year for her services rather than exchanging his own dental services for her services as a hygenist. In this instance the IRS would never call Mary's services "income" that the dentist would have to report. As a matter of fact, he can even take a deduction for the $10,000 he pays her. With the physician, the dentist exchanged service for service and the IRS claimed he received taxable "income." With Mary, however, since he exchanged money for service (and not service for service) not only did he not receive any taxable "income" in return (according to the IRS), he even got to lower his taxable "income." This makes no sense at all.

Now assume that Mary has a very large family and that the whole family needs dental care. Mary estimates this care will cost more than the $10,000 a year she earns so, to save on her own income taxes, she proposes the following arrangement to her employer: She will work for him for nothing in exchange for his services to her and her family (just like the barter deal he has with the physician). Assume further that Mary has this arrangement for at least one year and that the following year she and her husband find themselves audited by the IRS. The IRS agent notices that their combined income dropped by $10,000 (and thus they paid less taxes) for the year Mary bartered her services. When he asks why, Mary tells him that she accepted dental services from her employer in lieu of wages.

"Those dental services are taxable income to you!" the IRS agent would exclaim. "%u must include the fair market value of the services you received with your other income for that year and recompute your taxes." 6

6I do not see where Mary had any "gain," but every Federal "court" would agree with the agent.

"Are you going to tell Dr. Smith to include my services in his income, too?" Mary asks.

""¥bu better believe I am," replies the agent, licking his chops at his good fortune at having uncovered a devious plot to cheat the government out of tax revenue. "I'm going to his office as soon as I finish here. He'll have to include the value of your services in his taxable income, too."

"Why," Mary inquires, "didn't he have to include the value of my services before, since he's been getting them for years — whether he pays for them in services or in cash?"

When Returns of Capital Aren't

Suppose Herbert Jones died leaving $50,000 to each of his two sons, Lester and Fred. Suppose Lester, being an adventurous sort (and one who didn't like to work), invests his $50,000 in a piece of land which he hopes will increase in value. Being more conscientious and not wanting to gamble, Fred decides to invest his money in his own education and spends his entire inheritance for tuition and related expenses at college studying architecture. Five years later, as Fred graduates from college, Lester's gamble pays off and he sells his land for $100,000. What are the tax consequences?

First, Lester gets back his $50,000 tax free (since it represents a return of capital) and only has to pay taxes on 40 percent of his gain.7 Since (for reasons that will be explained shortly) this is the only income Lester reports, his income tax would amount to about $3,000 leaving him with $97,000 to either spend or invest.

Fred, on the other hand, leaves college dead broke but with a diploma for which he invested five years of his life and $50,000. Suppose Fred (being a top student who conscientiously put in long hours of study) is immediately able to get a job paying $20,000 a year. After working one year and paying all his living expenses he is able to put $492 in the bank. Has he recovered his capital yet? How about that $50,000 investment (not to mention his investment in time and effort in getting his degree), how does he recover that? The IRS would insist that his entire first year's salary of $20,000 was taxable. If Fred were single his personal income tax would amount to approximately $3,000 plus $1,400 in Social Security taxes giving him a total tax bill of $4,400. Though Fred married Thelma just prior to entering college and also has a child, his married status and two additional dependents still give him a tax due of around $3,000 (including Social Security taxes of $1,400).

'Because this is treated as a "capital gain" he not only gets his capital back — tax free — he also receives 60 percent of his gain tax free and only pays taxes on 40 percent (or $20,000) of it.

Therefore, Fred's income tax on his $20,000 worth of wages is approximately the same as Lester's income tax on the $50,000 he gained on the sale of his property. But Lester put in no time or effort on his $50,000 gain while Fred invested not ony time and effort but used $50,000 of his own money in order to acquire his $20,000 salary. The irony, of course, is that Lester's $50,000 gain on the sale of his property falls (to a far greater extent) within the Supreme Court's definition of "income" than does Fred's $20,000 salary. Yet, by comparision, Lester will pay far less in taxes on that gain than Fred will pay on his salary.

But what about Fred's investment in his education? When will he get that back? Unfortunately he will not get it back at all because the government will contend that it was a "personal" expense. Such a contention, however, is ludicrous.8 How can the government claim that such expenditures are personal rather than business related? Would Fred have received a $20,000 salary from that architectural firm if he had no degree in architecture? How then can the government claim that Fred's costs in acquiring that expertise had nothing to do with the salary he received? With equal logic the government could claim that the $50,000 Lester spent for his property had nothing to do with the $100,000 he received from its sale! The government has been able to get away with such arbitrary and idiotic distinctions between investments in capital and investments in labor because the working public apparently is prepared to accept everything and anything the Mamelukes tell them about "income" taxes. Of course, the Mamelukes do get a lot of help from all the incompetents in the private sector who are involved in the preparation of income tax returns.

Suppose Fred died a year after graduation. His wife, Thelma, would only have $492 in the bank and is out $49,508 ($50,000 minus $492). When does she recover that? According to the IRS and the "courts" — never.

Meanwhile, Lester took the $97,000 he received (after taxes) from the sale of his first piece of property and invested it in another. One year later (around the time of Fred's death) he sold it for $200,000. But suppose now that Lester dies too, what happens? His estate will recover the $97,000 (tax free) and will only have to pay taxes on 40 percent of the gain (or $41,000) — a tax of about $10,000. For the sake of our illustration also suppose that while Lester was waiting for his first land pur-

This claim mighthave some validity if Fred took a general college course in Philosophy or Comparative Literature; but individuals who major in architecture, medicine, engineering, accounting, dentistry, etc. obviously do so because they expect to make money through the application of their studies — money that otherwise could not possibly be earned.

chase to appreciate in value (and while Fred was slaving away in college) Lester went to a tropical island where he spent five years loafing and met and married Tamara. When Lester died Tamara received the after tax proceeds from his second sale ($190,000) and returned to her island paradise and bought the biggest hut available, living in luxury for the rest of her life. After paying the income taxes on Fred's last annual salary ($3,000 including the $1,400 in Social Security taxes), Thelma was forced to apply for welfare.

Who Really Is Penalized By Income Taxes?

While containing some of the elements of the previous example, the following illustration introduces another facet of the income tax hoax. Suppose Mr. I. M. Rich dies leaving $200,000 worth of stock to his son, Dudley. Each year Dudley liquidates $20,000 from that stock portfolio and uses the money to buy food, clothing, and shelter. Assuming that the value of the stock neither increases or decreases in value, Dudley will not have to pay any income taxes when he converts (sells) his capital (the stock) to buy food, clothing and shelter in order to maintain himself.9

I. M. Poor, on the other hand, has no wealth to leave his son, Hy-man, so he has taught him (prior to his own death) a trade. Each year Hyman is able to convert the skill his father gave him into $10,000 which he also converts into the food, clothing, and shelter he needs in order to maintain himself.

The IRS would tell Hyman that he has two "income" taxes to pay on his alleged $10,000 "income": 1) regular "income" taxes, and 2) another "income" tax erroneously called a "self-employment" tax, presumably to fund his Social Security benefits.10 The combination of both of these taxes will take more than $2,000 from Hyman (assuming a standard deduction), or more than 20 percent of what he earns through the sale of his labor.

And what does the IRS take from Dudley? Nothing. Though Hyman is a poor man he is compelled to give the government 20 percent of what he gets for his labor, while Dudley (wealthier by far than Hyman and living on more than twice the income) is required to pay nothing! How can the government justify taxing Hyman $2,000 a year while Dudley

"For the purpose of illustration we will forget any interest he earns or could earn on his capital, since this would only complicate the example without changing the principle involved.

"For proof that all Social Security taxes are nothing but "income" taxes, see The Social Security Swindle —How Anyone Can Drop Out by Irwin Schiff.

escapes taxes altogether? Under these circumstances, any society that taxes Hyman and not Dudley must be sick.

What Is a Kidney Worth?

Not too long ago someone advertised to sell a kidney for $10,000. This presented an interesting income tax question. Suppose the individual sold his kidney for $10,000, how would the IRS treat the sale? The IRS would claim that the $10,000 was taxable as "income." Would the IRS allow the seller a cost basis n for his kidney and if so, how would the cost basis be determined? The point is, would the sale of a kidney constitute "income" within the definition arrived at by the Supreme Court? Would there be any "gain" or "profit" to the seller in connection with the sale? If so, how much? Would you sell your kidney for $10,000? How about $100,000 or $1,000,000? Many people would claim that a kidney is priceless since if the remaining one were to become impaired one's very life could be in danger. Most people would consider a functioning kidney to be worth a whole lot more (though certainly at least as much) as the $10,000 paid for it in this example. Under these circumstances there could be no "gain" or "profit" from its sale. The sale of one's labor (energy, sweat, physical appearance, brain power, etc.), however, contains all the same elements and problems inherent in the sale of one's kidney. So if the sale of a kidney cannot produce "income," neither can the sale of one's labor.

Because of all the nonsense regarding income taxes (as illustrated by these examples) it is important for us to analyze more fully why individuals cannot have "income" as defined by the courts. Since the courts have already ruled that income from real estate and personal property (i.e. rent, dividends, and interest) are direct taxes (equivalent to a direct tax on the "source" — the underlying property), and that direct taxes must be apportioned, such income cannot be taxed as "income" to individuals on any basis. For such income to be taxed it must be separated from its source(s) and this only occurs on corporate profit and loss statements where all expenses are deducted from all income to arrive at a profit (the excess of income over outgo). It is only this gain, this profit, this "income" that can be taxable under the 16th Amendment. The only way individuals can even begin to determine whether or not they have "income" is if they treat all their income and all their expenditures in a similar manner.

The Federal government has completely brainwashed American workers (and most professionals, too) convincing them that, for tax purposes, they are completely different from corporations and businesses in

n"Cost basis" is the accounting procedure for determining the cost of producing an item (materials, labor, marketing, etc.) in order to arrive at an amount that is not subject to tax.

general. The average American worker incurs significant expenses directly related to his ability to sell his labor, as well as significant indirect (but related) costs, all of which he is fraudulently told are "personal" expenditures and not deductible.

Mary Brown, Receptionist

Mary Brown is a receptionist for the Sunshine Advertising Company. If I were to ask Mary if she was in business for herself she would say, "No, I work for Sunshine Advertising" All employees make the same mistake.

My response is usually, "Oh, you're not in business for yourself? Who are you in business for?"

This usually generates some surprise and repartee in which all employees finally say, ""Yes, I guess I am in business for myself!'

Every wage earner is in the business of earning money just as IBM, General Motors or any sole proprietorship is except that the mechanics of how it is done are different. The first thing all American workers must realize is that they are in business just like any corporation; the single difference is that they sell their product (their tabor) to one buyer rather than to many.

Do you think Sunshine Advertising would allow Mary to come to work naked or in a bathrobe? No, she has to come to work dressed properly because, as a receptionist, she is expected to look neat and crisp. Not only does she have to be appropriately dressed, she has to look good, too. This means she has to spend money on makeup, hair dressers, dry cleaning and a variety of other things related to her appearance. In addition, she also has to get to work which means using cab, subway or bus, or the cost of operating a car — insurance, taxes, maintenance, a garage (if she lives in the city), and perhaps parking. It also means higher food costs because Mary simply does not have the time or energy to shop and prepare her own meals after putting in a full day's work. All these expenditures are directly related to Mary's job and her ability to sell her labor to Sunshine Advertising and these business-related expenses could easily come to $50.00 per week or 20 percent of her gross wages of $250.00 (and a far larger percentage of her net, after-tax wages), yet the IRS tells her that these expenditures are not deductible because they are "personal," not business, expenditures.

Mary also has many other expenses that are business-related which, if not incurred, could prevent her from selling her labor. Since she cannot sell substandard or sick labor, she must be in good health. To be in good health she must eat properly, have a place to live, get regular medical and dental care, and pay utility bills, among other things. The IRS, however, also maintains (backed up by the "courts") that these

expenditures are not deductible. If, however, we use the Supreme Court's definition of income, they most certainly are!

Under the "income" tax law "income" must be given the same meaning it was given in the Corporation Excise Act of 1909. What did that Act say was deductible from income (which it called gross income)? It said (see page 137) that a corporation could deduct "all the ordinary and necessary expenses actually paid within the year out of income in the maintanance and operation of its business and properties." For the purpose of figuring Mary's "income" she is the "business" and the "property" and should, therefore, be allowed to deduct all the "ordinary and necessary" expenses paid out "in the maintenance and operation" of her business which is the selling of her own labor. How can the law treat her any differently than it treats any other business? How can she have less rights than an artificial entity created by law? Since she is in business (just like any corporate entity) she has the right to deduct the same expenditures in order to keep her business (in this case herself) running. Regardless of what the government now says, if the IRS and/ or the courts claim differently they are breaking the law. And if they are breaking the law with respect to her "income" taxes, why should Mary (or anyone else for that matter) cooperate with them in any way?

The Supreme Court ruled that "income" is the equivalent of a corporate profit and "Congress (or the IRS) cannot by any definition it may adopt" change it. Does a corporation deduct rent when converting income to "income"? Certainly it does, and so can Mary. Is the paying of rent a "necessary" and "ordinary" expense of Mary's business? Of course. Could she sell her labor to Sunshine Advertising if she lived on a bench in the park?12 Where would she shower, put on her makeup, fix her hair, and get dressed so she could come to work looking neat and crisp as is expected? Would she even have been hired if she had written on her job application that her address was "on a bench in the park"? Paying rent (thus establishing an address) is "necessary" to her busi-

12Recently Public Television aired a report on the homeless in Philadelphia in which one man (once the head of a Teamster's local) explained how he lived on the Philadelphia streets often sleeping in public shelters. He also told of his attempts to get a job and said, "You can't get hired in Philadelphia unless you have a permanent address." This proves that a permanent address is a necessary business expense.

"Actually she should deduct the $50.00 income received as dividends on the stock given to her by her grandfather because in the definition of "income" used in the Corporation Tax Act such income was to be deducted before arriving at taxable "income" (see page 137). Since that is still the official definition of "income," such dividends can still be deducted until the Supreme Court changes its definition. This also proves that the government's taxing of corporate dividends today — which have already been taxed to the corporation — has been illegal for all these years.

ness as is proper food and sleep and taking care of her health. In order for Mary to have "income" from her business she, like any corporation, should complete a profit and loss statement similar to the one in Exhibit 4.

Mary's profit and loss statement shows that her income of $13,080 came from four sources 13 and does not reflect the recovery of any educational or technical training investment she might have made. 14>Jt also does not take into account items such as vacations or gifts.

Mary's profit and loss statement shows a negative cash flow (after taxes) which was covered by a $1,000 cash grant from her grandfather, without whose help she could not even maintain herself even on this modest scale. Also note that despite what government tax tables claim, Mary's "gross income" of $13,000 does not put her in a 19 or even a 50 percent tax bracket, but in a 100 percent tax bracket!

I personally witnessed this outrageous situation a number of years ago. My sister was then living in a New York suburb and worked in New 'York City's garment center as a bookkeeper with some additional showroom duties. This meant she had to pay the cost of commuting as well as a variety of other business-related expenses since she was expected to be well-dressed and professional looking in this highly competitive environment. While her husband was alive there were two salaries to share expenses and two people to share common chores. When he died the full burden of maintaining herself fell on her shoulders. Between her rent (which was modest), commuting, clothing, hairdressers, lunches, and three income taxes (Federal, state, and city) she was left with less than nothing from her wages. She complained that she had to withdraw savings every month just to meet her ordinary living expenses even though she lived very modestly! I could not help but be struck by the injustice of her plight. She was struggling and barely getting by and the government was taxing her in order to provide subsidies and grants to many who were far wealthier than she. She was being taxed to provide "rent supplements" for others when paying her own rent had now become a burden. She was also being taxed (though she could hardly support herself) to provide "aid" for foreign governments and foreign nationals through a variety of government programs and banking commitments.

In any case, by definition, did she have a "gain" from her labor? No, she had a toss which she had to make up each month with withdrawals

"Profit and loss statements made out by individuals must reflect returns of capital expended for college or vocational (barber, beautician, bartender, welder, etc.) training, all of which the IRS now claims are not deductible and are not recoverable. Such expenses can, however, be capitalized and recovered under the Supreme Court's definition of "income"

from her savings account. Tfet the income tax was created, we were told, to tax the wealth of the rich!

Is The Value Of Your Labor Really Worth Nothing?

If a business sells a chair for $250.00, must it report the entire $250.00 as "income"? No, it is allowed to deduct all the costs of getting and marketing the chair. If those costs came to $200.00 the business would deduct that amount and pay a tax on $50.00. But when Mary Brown sells her labor for $250.00 per week the government tells her that all of it is "income" and she is not entitled to any deductions that might reflect a "cost" or value for that labor. Essentially they tell her that her labor is worth nothing, though it is obviously worth at least $250.00 or her employer would not have given her that much for it. Why, then, can't Mary deduct the costs incurred in producing that labor just as other businesses deduct the costs incurred in producing the products/ services they sell?

Labor Includes Putting In Time

The value of labor is obviously worth something based on the time, talent, ability, and sweat that goes into it. Apart from the obvious costs the government says are not recoverable (such as education, transportation, rent, food, etc.) there is also the time, effort, and often sheer drudgery that must be put into it — time that could otherwise be spent in other pursuits or in relaxation and self-indulgence. What is the raw dollar value of eight hours spent in a coal mine as opposed to eight hours spent on a beach? A miner should be able to deduct that cost factor from the money he gets for being in a coal mine rather than not being on the beach. But the government says these costs, efforts, and time have absolutely no dollar value and cannot be recovered from the sale of labor by individuals while, at the same time, allowing business and industry to recover all their costs from the sale of their products and services. Such a claim by the government (besides making no economic sense), violates tax law as well as the equal protection clause of the Constitution.

The Final Insult — Capital Gains

As if the government's refusal to recognize the sweat, effort, and costs that go into producing labor value is not bad enough, look at how the government taxes gains on capital. As explained earlier, when Les-

ter sold his property for $100,000 he had $50,000 of pure gain that he did absolutely nothing to produce. Yet on this $50,000 gain he would only have had to report and pay a tax on 40 percent or $20,000 of that gain. A single coal miner, however, earning $50,000 by the sweat of his brow would have had to pay approximately $16,000 in income taxes (including Social Security taxes) on $50,000 received from the sale of his labor. In addition, a $50,000 capital gain is obviously "a gain derived from capital" and certainly fulfills the legal definition of "income" far more than the wages received by a coal miner. Why, therefore, should anyone with a comparable $50,000 capital gain pay less in taxes than a coal miner earning $50,000 in wages?

In many cases, however, capital gains are illusions since these "gains" are calculated in dollars of ever-decreasing purchasing power. For example, if one purchased a home twenty-five years ago for $25,000 and sold it today for $50,000 the government would claim he had a $25,000 capital "gain." Such a claim, however, would be nonsense because $50,000 today is actually worth less in real purchasing power than $25,000 was twenty-five years ago. The homeowner would, in reality, suffer an economic loss but the IRS would say that he must pay taxes on his "gain."15

So, while an income tax was supposedly installed as a modest, almost "delicate" tax on the wealth of the rich, it ended up as a heavy tax on the labor of the wage earner. As for regressive taxation — there can be no more vicious example than one that places a tax on a worker's gross wages while taxing the appreciation of capital at far lower rates and taxing capital itself not at all.

lsFor a satirical account of this fraudulent phenomenon, see The Kingdom ofMoltz, About Inflation and Where it Comes From, by Irwin Schiff (FREEDOM BOOKS, 1980).


Profit and Loss Statement of

Mary Brown

555 Maple Avenue

Smallville, New York 00001


Wages — @ $250.00 per week......................... $13,000.00

Interest on $239.00 in Savings Account — @ (6%) 14.00

Dividend on 10 Shares of Stock given to

me by my grandfather — @ $5.00 per share..... 50.00

Winnings in office football pool (less losses) ........_____16.00

TOTAL INCOME ......................................... $13,080.00


Rent — @ $250 per month ..............................$ 3,000.00

Food — @ $50 per week.................................. 2,600.00

Utilities — @ 60 per month............................. 720.00

Clothing..................................................... 1,000.00

Medical & Dental.......................................... 450.00

Cosmetics & Hair Dresser............................... 350.00

Miscellaneous.............................................. 500.00


Upkeep, gas, oil, maintenance .................... 520.00

Insurance —@ $15.00 per week.................. 780.00

Depreciation ......................................... 1,000.00

LESS TOTAL EXPENSES.............................. $10,920.00

Profit ("Income") from Income ................................. $ 2,160.00

Income taxes paid (including Social Security taxes)............................................................. 2,200.00

NET LOSS..................................................($ 40.00)


Income Tax "Laws" And How The IRS Disregards


"Law" (as it applies to income taxes) is in quotes because there really are no laws in connection with income taxes. Laws are mandatory and have penalties attached to them for non-compliance. Income taxes, however, are based on voluntary — not mandatory — compliance so there can be no legal penalties for non-compliance. The only law that can apply to income taxes relates to employers that elect to withhold taxes from their employees. They are not required to do so, though the IRS says they are. It is legally mandatory that they account for that money to the Federal government. Apart from this there is nothing in the Internal Revenue Code (with respect to income taxes) that requires anyone or any corporation to:

1. file tax returns;

2. pay such taxes or have them withheld from wages, commissions, dividends or interest;

3. file or pay estimated taxes;

4. submit to IRS audits or turn over books and/or records in connection with an IRS summons;

5. report to the IRS wages, dividends, or commissions paid;

6. provide the IRS with any records or information with respect to income taxes for either yourself, your employees, or anyone you do business with; and

7. surrender property solely on the strength of IRS liens or levy notices.

In other words, there is simply nothing in the Internal Revenue Code or Federal law that requires anyone or any corporation to do any-thing at all with respect to Federal income taxes. If this is so, how can

the Federal government confiscate billions in taxes, throw people in jail for not filing, and intimidate 98 million Americans into believing that they are required to file income tax returns and pay federal income taxes when such is not the case? Americans must face the disquieting fact that we have largely criminals — not judges—presiding over Federal courts. The criminal culpability of the Federal judiciary is patently obvious and is the main reason the government has managed to intimidate the public into filing and paying income taxes.

There are two other factors that explain how the "income" tax hoax was successfully carried out for so long:

1. the general incompetence and mendacious nature of the American legal profession; and

2. the Pravda-like mentality of much of the American press when confronted with the IRS's illegal activities.

Income Tax Laws Would Be Unconstitutional If Mandatory

The reason the income tax "law" is voluntary is simple — if it were not it would be unconstitutional. The government contends that those of us who oppose the tax claim it is unconstitutional. This is nonsense. We maintain (and the government admits) that the tax is voluntary and anything inherently voluntary cannot be unconstitutional. The tax, however, is enforced unconstitutionally. The IRS claims that the income tax was upheld as being constitutional. This is true, but neither the IRS nor the "courts" enforce the tax in the manner that it was upheld or in the manner the "law" is written — and this is the crux of the problem.

The income tax was held to be an excise tax but the government does not impose it as such (see pages 203,204). If the government does not impose the income tax as an indirect, excise tax, and if the government does not apportion it as a direct tax, then the tax does not fall into either of the taxing clauses of the Constitution. And if the income tax does not fall into either of the taxing clauses of the Constitution, it cannot be mandatory and nothing in connection with it can be mandatory: not filing, not withholding, not paying, not the supplying of records, and not the confiscation of property. In addition, all such IRS activities violate a number of other constitutional rights. *

By law, all the information on a tax return can be turned over to the Department of Justice, numerous other Federal and state agencies, and foreign governments. All of these government agencies are free to use the information against the taxpayer in any way they choose, including criminal prosecution. Any "law" that compels individuals to

'The mere requirement to file income tax returns, as we have seen, violates the Fourth, Fifth, Ninth and Thirteenth Amendments at the very least.

turn over such information to the government is repugnant to the Fifth Amendment and, therefore, is unconstitutional on this ground alone. This is why there can be no provision in the "law" that requires the filing of income tax returns. Anyone who files such returns does so (whether he knows it or not) voluntarily, which is why they can be used against him. In all income tax evasion trials, the defendant's tax return is introduced and used against him. Since the Fifth Amendment bars the use of compelled testimony against individuals in criminal trials, if tax returns were required (i.e. compelled) the information contained in them could not be used against alleged tax evaders and income tax "evasion" could never be prosecuted. In addition, verification of individual tax returns requires that taxpayers produce their personal books and records (or forfeit claimed deductions) so any such "requirement" also violates the Fourth Amendment.

Tax Returns Violate Right to Privacy

The requirement to submit all the personal and financial data requested on a tax return also violates an individual's right to privacy "retained" under the Ninth Amendment. The Nixon Administration's use of such information and IRS audits against those on its "enemies list" was widely reported. Senator Eagleton, for example, was forced to drop out of the vice-presidential race because of publicized disclosures that he had undergone psychiatric treatment. The Nixon people lifted this information from his tax returns (where the treatments were listed to get medical deductions) and leaked it to the media — obviously political blackmail. In addition, being required to keep records (giving the government all sorts of tax information) or being forced to collect taxes (such as employee withholding) without compensation, all violate the 13th Amendment which abolished involuntary servitude along with slavery.

The point is that a compulsory income tax encompassing all of its myriad procedures not only violates the taxing clauses of the Constitution but a number of other constitutional clauses as well. Some of these issues were raised in connection with the Stone Tracy decision (see page 147) and were resolved in favor of the government. But that case involved corporations, entities which do not have certain 5th Amendment rights. In addition, corporations keep records anyway since (legally) they have to report to stockholders and these reports are a matter of public record. But individuals do not have to report to anybody nor do they have to keep records and they cannot be compelled, by law, to keep records solely to accommodate the government.2

Manufacturers of products subject to excise taxes can be required to keep records and perform certain acts with respect to their products, but that is a far cry from requiring private citizens to keep all kinds of records and to produce them for government inspection.

Voluntary Compliance

In the first chapter of How Anyone Can Stop Paying Income Taxes ("Surprise: The Income Tax Is \foluntary") I provided numerous excerpts from government documents that attested to the voluntary nature of the income tax. For example, the Appendix of How Anyone. . . contains the entire introductory statement (over the signature of IRS Commissioner, Jerome Kurtz) that appeared in the 1979 Annual Report of the Commissioner of Internal Revenue wherein he said no less than six times that complying with income tax "laws" is "voluntary!' Kurtz said,

To put these figures in context, [comparing statistics on non-filers] in the same year individuals voluntarily reported nearly $1.1 trillion in income tax and paid a total of $142 billion in income taxes.

Why would Kurtz say that individuals voluntarily file tax returns if they are required to do so?

But other IRS Commissioners have admitted the same thing. For example, in the 1975 IRS Audit Manual Commissioner Mortimer Ca-plan said, "Our tax system is based on individual self-assessment and voluntary compliance." Even the Supreme Court has admitted that the payment of income taxes is voluntary:

Our tax system [income] is based upon voluntary assessment and payment, not upon distraint [force].3

The Mission of the Internal Revenue Service The Federal Register defined the mission of the IRS as follows:

The mission of the Service is to encourage and achieve the highest possible degree of voluntary compliance. . . 4

Once individuals discover that the income tax system is indeed voluntary, the IRS tries to confuse them regarding the meaning of "voluntary compliance." The IRS claims that because it does not have the personnel to make everyone file that — only in this sense — income taxes are voluntary. But it is the way the law is written that compels compliance and not the supervisory ability of IRS personnel. "Voluntary compliance" pertains to everything connected with income taxes including the paying of the tax, the furnishing of records, and even wage

'Flora vs U.S. 362 US 145, page 176.

4 Volume 39, No. 62, Friday, March 29,1974.

withholding. If the filing, paying and reporting of income taxes were mandatory why would the government say that anything to do with it is "voluntary?"

Voluntary vs Mandatory Price Controls

Under the Nixon Administration price controls were initially voluntary. When prices continued to rise, however, controls were (unconstitutionally) declared mandatory. The difference between voluntary and mandatory price controls is not very complicated. When controls are made mandatory it does not mean that swarms of government agents suddenly descend like locusts on all businesses, making sure their current posted prices do not exceed their prior posted prices. It only means that penalties for violating the controls are now included in the law. When they are based on "voluntary compliance" no penlaties are provided by law. The same is true for the income tax — nowhere in the Internal Revenue Code are there any penalties for not filing income tax returns, nor are there any requirements or penalties with respect to any aspect of the income tax "law" because compliance is "voluntary!'

Distinctions between voluntary and compulsory compliance can be found in other government pamphlets, too. A four page booklet containing information for aliens 5 states:

7. US Federal Tax Information. Because the American tax system is based on voluntary compliance and self assessment, each year taxpayers make their own determination of their tax liability and file returns reporting the correct tax. (Emphasis added)

In this pamphlet aliens are also informed:

2. Notification of your Address. You must report your address to the Immigration and Naturalization Service. . . no later than ten days after the change on Form AR-11.

They are not similiarly informed, however, that such reporting is based on "voluntary compliance" because it is not.

IRS Regulations Also Admit Income Tax "Laws" Are Voluntary

Additional proof of the voluntary nature of income taxes can be found in the IRS's own regulations. For example, under Section 601.601 dealing with "Objectives and Standards for Publication" we find this admission:

'WELCOME to the United States of America, Form 1-357 Re. 7-19-80, the United States Department of Justice, Immigration and Naturalization Service.

The purpose of publishing revenue rulings and revenue procedures in the Internal Revenue Bulletin is to promote correct and uniform applications of the tax laws by the Internal Revenue Service employees and to assist taxpayers in attaining maximum voluntary compliance. . . (Emphasis added)

Section 601.602 dealing with "Tax Forms and Instructions" states:

The tax system is based on voluntary compliance, and the taxpayers complete and return forms with payment of the tax owed. (Emphasis added)

And on July 8, 1981 a report6 issued by the Controller General of the United States claimed that illegal tax protesters threaten our tax system because

. . . they represent a threat to our nation's voluntary tax system. (Emphasis added)

How many official government documents does it take to convince the public that the Federal income tax is, by law, voluntary?

Making "Voluntary Compliance" Compulsory

The primary technique used by the government to illegally compel compliance to "income tax laws" is the use of enforcement provisions of the Internal Revenue Code that do not apply to income taxes at all but, rather, that relate to other taxes that are compulsory such as liquor and tobacco. In short, the Federal government seizes and confiscates property, throws people in jail, and destroys lives because of income taxes when there is absolutely nothing in the law that allows them to do it. The government has been able to get away with such outrageous behavior because of a totally corrupt or incompetent Federal judiciary, a KGB-like Department of Justice, and a Congress that goes along.

Criminal Conduct Of The IRS

The April 12th, 1981 issue of Parade Magazine (a Sunday newspaper supplement) carried a feature story detailing various criminal actions of the IRS which the public was led to believe were legal. Entitled "Fear The IRS," it described an armed raid on the home of Dwight Sny-der and began (on the cover)

"Illegal Tax Protesters Threaten Tax System, GGD-81-83.


According to the article, the IRS admitted that at least "two dozen" men participated in the raid while Snyder claimed there were at least forty. In any case, the raiding party included

U.S. marshalls, state patrolmen, IRS revenue officers and IRS special agents — some brandishing M-16 automatic rifles, shotguns and sidearms. . . [and] all of his vehicles, his machinery, tools and stock were seized-from a pickup truck and tractor down to towel holders, soap dishes, sink strainers, toothbrush holders and a half-empty box of staples.

Another incident described in the article took place in Fairbanks, Alaska and involved an IRS seizure of an automobile belonging to Stephen and Mona Oliver. The IRS claimed that the Oliver's owed the government $4,700 and had, accordingly, filed a levy against Mr. Oliver's wages. The Olivers disagreed with the assessment and tried to get a court hearing whereupon the IRS

decided to teach them a lesson by grabbing their 1970 Volkswagen while it was parked in downtown Fairbanks. The Olivers, however, locked themselves in the car and refused to hand over the keys, whereupon IRS agents smashed the windows, dragged Mona Oliver out of the car and across a sidewalk littered with broken glass and towed their car away — in full view of astonished bystanders and a local newspaper photographer.

The story of Dr. Eugene Brasseur was also reported. He was an op-thalmologist and father of six from Richland, Washington, who also ran an optical shop and laboratory. According to the article "a tough economy" caused Brasseur to hold off paying withholding taxes on his thirteen employees. Legally he may have been wrong, but under the circumstances the article pointed out, "Dr. Brasseur felt that his position was morally defensible. The IRS did not."

The IRS refused to allow the doctor to pay his $11,000 debt in installments and proceeded to clean out his bank account. As a result, his ability to get credit vanished and he was forced to close his optical business and fire his employees. The IRS then hit him with an additional $15,000 lien for back personal taxes (including interest and penalties) and seized his car. The article said that agents

broke into this opthalmology offices, changed the lock, padlocked the doors and put up warning signs ordering him and his patients to stay out.

According to the Doctor,

I had patients who needed help, but the IRS wouldn't let me back into the office for three months. My practice was dead in two weeks. I had no way of seeing patients and no way to make a living. And no way to pay the IRS.

Further, to satisfy his IRS lien he made a crash sale of his house and, as a result, only realized $20,000. After paying off state taxes and attorneys he was left with nothing. So, the article continued, with

no home, no money (and with his credit and reputation ruined) and no immediate way to make a living, the Brasseurs farmed out their children with families from their church and moved in temporarily with friends. "

All these actions were totally illegal and the IRS agents involved could and should have been arrested on the spot. Not only did they violate the Internal Revenue Code itself, they also violated Sections 241 and 242 of the U.S. Criminal Code (Exhibit 11, page 294) as well as the instructions contained in their own Legal Reference Guide for Revenue Officers. IRS goons such as these routinely and illegally confiscate property and terrorize private citizens all across the country because they know the courts and the Department of Justice will back them up.

Proof That All The IRS Seizures Described Were Illegal

IRC Section 7608 (Exhibit 5) is entitled "Authority of internal revenue enforcement officers." The first paragraph of that section relates to the enforcement "provisions of subtitle E" and says that the authority of revenue officers to "carry firearms" is specifically limited to the collection of taxes covered in that subtitle. The taxes covered in Subtitle E are "Alcohol, Tobacco, and Certain other excises." The subtitle deals with these and other excise taxes related to machine guns and certain other firearms. Income taxes fall into Subtitle A of the Code and IRS agents are not permitted to carry firearms to collect Subtitle A taxes. Therefore, if any IRS revenue officers in the Snyder raiding party mentioned above carried guns to enforce the payment of income taxes, such enforcement was not authorized by law. Anyone in that raiding party who took Snyder's possessions at gun point could and should have been arrested and prosecuted for violating both state and Federal law. But since the government knows that revenue agents are not authorized to carry guns in connection with the collection of income taxes (while private individuals can carry guns to protect themselves against unlawful seizures of their property), the IRS (for its own protection) tries to con local law enforcement people into accompanying them on these illegal siezures, which makes it appear that such seizures are really lawful.


Sec. 7608. Authority of internal revenue enforcement officers.

(a) Enforcement of subtitle E and other laws pertaining

to liquor, tobacco, and firearms.

Any investigator, agent, or other internal revenue officer by whatever term designated, whom the Secretary charges with the duty of enforcing any of the criminal, seizure, or forfeiture provisions of subtitle E or of any other law of the United States pertaining to the commodities subject to tax under such subtitle for the enforcement of which the Secretary is responsible may— »•• (1) carry firearms;

(2) execute and serve search warrants and arrest warrants, and serve subpoenas and summonses issued under authority of the United States;

(3) in respect to the performance of such duty, make arrests without warrant for any offense against the United States committed in his presence, or for any felony cognizable under the laws of the United States if he has reasonable grounds to believe that the person to be arrested has committed, or is committing, such felony; and

(4) in respect to the performance of such duty, make seizures of property subject to forfeiture to the United States.

(b) Enforcement of laws relating to internal revenue other than subtitle E.

(1) Any criminal investigator of the Intelligence Division or of the Internal Security Division of the Internal Revenue Service whom the Secretary charges with the duty of enforcing any of the criminal provisions of the internal revenue laws or any other criminal provisions of law relating to internal revenue for the enforcement of which the Secretary is responsible is, in the performance of his duties, authorized to perform the functions described in paragraph (2).

*Note: Income taxes do not fall into Subtitle E but into Subtitle A, so the use of firearms is not authorized for the collection of income taxes.

The IRS's Legal Reference Guide For Revenue Officers (MT 58 [10][0]-14) says:

332 (10-29-79) 58(10)0

Constitutional Limitations

(1) During the course of administratively collecting a tax, an occasion may arise where service of a levy or notice of levy is not adequate to seize property of the taxpayer. However, it cannot be emphasized too strongly that constitutional guarantees and individual rights must not be violated. Property should not be forceably removed from the person of a taxpayer. Such conduct may expose a revenue officer to an action in trespass, assault and battery, conversion, etc. Larson v. Domestic and Foreign Commerce Corp., 337 U.S. 682 (1949), rehearing denied, 337 U.S. 682 (1949). Maule Industries v. Tomlin-son, 224 F. 2d 897, (5th Cir. 1949). If there is reason to suspect a failure to honor a notice of levy or an interference with a levy, the matter should be referred for proper legal action against the offending party. Remedies available to the Government, as coiT-tained in the Code and other statutes, are more than adequate to cope with the problem.

(2) The Supreme Court in G.M. Leasing Corp. v. United States, 429 U.S. 336 (1977) held that warrantless entries into the private premises of a person by the Internal Revenue Service for the purpose of seizing property to satisfy a tax liability is a violation of that person's reasonable expectation of privacy under the Fourth Amendment to the Constitution. Before levies or seizures of property located on pri-it_hoax-3.jpg vate premises are made, permission of the occupant ^of the premises on which the seizure is to take place must be obtained. If the occupant refuses to permit the entry, the matter should be referred to District Counsel so that a court order authorizing the entryit_hoax-4.jpg may be obtained.

334.2 (W-29-79) 58(10)0

Final Demand

Where a notice of levy is served upon a third party and there is no response within ten days, it is followed by service of a Final Demand (Form 668-C). IRC 6332(a) states that except as otherwise pro-

vided in subsection (b), (which contains a special rule for life insurance and endownment contracts) a person in possession of property or rights to property upon which levy has been made shall, upon demand, surrender such property. The demand is contained in the Notice of Levy (Form 668-A). A Notice of Final Demand (Form 668-C) is not required to be served under the Code, although use of the form as an administrative tool is generally uniform. In the event the Final Demand is not responded to, a suit will ordinarily be required to reach the property.it_hoax-5.jpg

334.3(10-29-79) 58(10)0


(2) As previously indicated, force should not be used in seizing property of a taxpayer. The same reasoning applies where property has been levied upon and seized and, at some later date, it is sought to remove the levied property to another location or to sell such property. Local or other law enforcement authorities may be contacted to assist the revenue qf-ficer in performing his/her duties. Also, resort can be had to the courts to restrain the taxpayer or third party from interfering with such removal or sale. (Emphasis added)

(Emphasis added)

Under Sections 332 and 334.3 revenue officers are specifically instructed that "force should not be used in seizing property of a taxpayer [and that] such conduct may expose a revenue officer to an action in trespass, assault and battery, conversion, etc!' Did the revenue officers in Mona Oliver's case have her "permission" to smash "the [car] windows [and drag her] out of the car and across a sidewalk littered with broken glass" as provided for in Section 332 of their own Legal Reference Guide. . . ?

It also states that before seizures of property located on "private premises are made, permission of the occupant. . . must be obtained." And "If the occupant refuses to permit entry" a court order has to be obtained. Snyder's raiding party did not have his permission to burst into his home and confiscate all of his goods. Neither did it have a court order. But the raiding party got away with these unlawful acts because the criminals who preside over our Federal courts permit, and even encourage, this sort of illegal behavior.

In another case the government prosecuted and convicted an individual of willfully resisting, opposing, impeding, and interfering with Federal officers in the exercise of their official duties when he placed himself in a doorway and refused to allow IRS revenue officers to enter his property and confiscate assets for non-payment of quarterly corporate taxes. Apparently a scuffle took place as this private citizen sought to protect his property from a threatened illegal seizure by IRS storm troopers 7 who sought to confiscate it without a court order — in payment of a tax for which no liability could exist and for which no forcible seizure is provided for by law. These agents used procedures that violated their own legal reference manual (as well as other laws as previously mentioned) and, therefore, were acting like common criminals. Yet the private citizen — who was legally within his rights — was prosecuted instead of the revenue "officers."

Another example of Gestapo-type justice in America involved an individual who was prosecuted because he appeared in his doorway "in either his pajamas or underwear" with a double-barrelled shotgun as Internal Revenue agents were backing his truck out of his driveway. The agents had no court order, were trespassing on private property, and were actually in the process of stealing his truck! Yet there is no law that could have authorized the forcible seizure of his truck by the IRS in payment of taxes 8 but the individual was prosecuted for protecting his property from this illegal government seizure.

These kinds of prosecutions are part of another technique used by the government to intimidate and fool the public — calling IRS agents revenue "officers." The public is led to believe that such "officers" are comparable to police "officers," FBI agents, or Secret Service personnel.

With respect to income taxes they are no more "officers" than you or I are. These "officers" have no official, lawful duties other than to request that individuals voluntarily pay whatever it is the government claims is owed. Once they are told to "get lost" they have no further "lawful duties." IRS revenue "officers, " however, are encouraged to break the law and exceed their "lawful duties" by engaging in a type of extortion in order to compel "voluntary compliance." When their intended victims legally resist (even in a modest manner) the Federal Mafia sees to it that these innocent citizens are prosecuted for "interfering with the duties of an IRS revenue officer!' At their trials these victims do not understand that they could not have interfered with the agent's "duties" since agents do not have any lawful "duties" so they never put up a proper defense and have, invariably, been convicted. The

7U.S. us Johnson CA.N.J. 462 F2nd 423 (1972), certiary denied 410 US 937. 8U.S. vsRybicki C. A. Mich. 403 F2nd 599 (1968).

presiding "judge" cooperates with the prosecuting attorney to erroneously convey to the jury that revenue "officers" are comparable to FBI agents or Secret Service officers who, in reality, do have lawful "duties" that can be interfered with.

IRS "Notices of Levy"—A Total Fraud

Section 334.2 of the Legal Reference Guide for Revenue Officers (see page 248) states that if a Notice of Levy and a Final Demand are not responded to, a suit (court order) will be "required to reach the property!' In addition, the law itself (Section 6331) provides that such Notices of Levy can only apply to the accrued salaries of Federal employees yet the government uses these notices to extort billions of dollars from private citizens. 9 Lawyers for banks, insurance companies and businesses in general routinely turn over money to the IRS that belongs to private citizens solely on the basis of these "notices" and "demands!" Any business that turns over a taxpayer's money to the IRS without a court order (on the basis of these "notices" and/or "demands") should be sued and disbarment proceedings would be instituted against their attorneys.

Confusing The Public

The Legal Reference Guide. . . also tells revenue "officers" to seek the help of "local or other law enforcement authorities." They are told to do this because when an IRS revenue "officer" shows up with a local policeman the taxpayer (and the media) are conned into thinking that their actions are legal. In reality, it is the law enforcement officer's authority, presence, and power that intimidates and he is the one who does the seizing, not the revenue "officer" who has no legal power or authority to forcibly seize property on his own.

The local police do not realize they are being used to protect the criminal acts of the IRS revenue "officer" since taxpayers would be perfectly within their rights to use whatever force necessary to prevent IRS revenue "officers" from taking their property (in payment of "income" taxes) by force as is verified by the Legal Reference Guide. . . of the IRS itself.

All three paragraphs admit that if taxpayers or third parties disregard and/or resist IRS seizure attempts the IRS has to go to court. The Olivers resisted but the IRS did not take them to court (which is where the Olivers wanted to go) — because the IRS never takes anyone

9A detailed account of how the government specifically uses this section to illegally sieze property (including bank accounts) and how you can protect yourself is contained in The Schiff Report, Volume 2, Numbers 4 and 6.

to court to enforce the collection of income taxes since they know they would lose even in our corrupt courts if they ever initiated such legal procedures (see pages 303, 304).

When that agent "dragged Mona Oliver out of her car and across a sidewalk littered with broken glass," she would have been within her rights if she had scratched out the agent's eyes or kicked him in the groin. Her husband would have been within his rights to do anything he would have done to any common thug whom he saw dragging his wife out of their car and across a sidewalk.

Dr. Brasseur would also have been within his rights if he used whatever force necessary to throw IRS trespassers out of his office. In addition, when they padlocked his door he should have cut the chaiin, removed the padlock and gone back in. Any "warning" signs that IRS agents put up should have been torn down.

Intimidating and Misleading The Public The Parade article began by stating:

The Tax Man. He doesn't wear a uniform, but the has more authority than a policeman. He would never be addressed as "Your Honor," but he can exercise more control over your life than a judge. In pursuit of his goals, he can pester you, your family, your friends and business associates, pry into your private affairs and harass you in a dozen different ways—all of them legal.10

It further stated:

He can empty your bank account, tow away your car, seize your home and some of the things in it, sell them and keep the money.

He can take all the equipment, furniture, machinery, tools and stock from your place of business. He can scoop the last cent from your cash register, padlock your doors and throw your employees onto the street.

Under his Orwellian system, you are presumed guilty until you can prove your innocence. He can lien, levy, summons and seize your money, property and assets — all without the due process of law guaranteed even to common criminals under the U.S. Constitution.

While Parade Magazine was trying to provide a public service by accurately and dramatically depicting the Gestapo-like actions of the IRS (as opposed to many publications that fear IRS retribution and shy away from such exposes), it actually played right into the IRS's hands.

wThis is not true at all. All of the mentioned actions are, by law, illegal.

Though the IRS has no real power when it comes to enforcing the payment of income taxes, the article helped create the illusion that it has. Parade readers could not be expected to know that all of the reported behavior was illegal and should have resulted in the arrest of the IRS agents. Even the article's title, "Fear the IRS," is one more weapon in the IRS's arsenal that helps enforce "voluntary compliance!'

The reason the reporter believed that the IRS could legally do everything he described is because Federal judges allow the IRS to break the law and the reporter assumed that if these actions were sanctioned by the courts, they had to be legal. Unfortunately, the public gets precisely the same impression. This is what enables the courts and the IRS to intimidate and terrorize the country into believing that our voluntary system is mandatoryl Readers of that article could never realize that anyone who catches an IRS agent forcibly seizing his property (in connection with income taxes) could legally tie the culprit to a tree and call the police to have him arrested for attempted theft and trespassing; or that the public can legally throw all IRS requests, letters, summonses, and notices of levy into the nearest trash can.

The Internal Revenue Code — A Masterpiece Of Deception

Before turning to specific Code sections that reveal why (under the law) all the acts described in the Parade article were illegal, let us look at the Code itself. Those who wrote it knew that any Code provision that mandated (with respect to income taxes) filing, paying, producing records, confiscating property without court orders, etc. would render the Code unconstitutional. Therefore, the Code was cleverly written so it would not contain any compulsory provisions regarding income taxes and the "law" could not be held unconstitutional on these grounds. The Code was slyly and deliberately written to make it appear that those sections that applied to income taxes were mandatory when in fact they were not.

One technique used by the government was the use of "shall" to imply "required." Legally speaking, the word "required" is mandatory while the word "shall" can also mean "may!' So when the Code says something (in connection with income taxes) "shall be" done, legally it means "may be done" but the public does not understand this. n

In How A nyone Can Stop Paying Income Tbxes I wrote the following about this aspect of the Code:

"For an in-depth analysis of this legal principle (including Code sections and excerpts from court opinions), see How Anyone Can Stop Paying Income Tbxes, Chapter 3: "The Internal Revenue Code — A Masterpiece of Deception."

The Internal Revenue Code is a thorough fraud. It was deliberately written to mislead the American public concerning federal income taxes. To do this, hundreds of sections had to be written and pieced together in such a way that, while no section technically misstates the law, the sections do, individually and collectively, convey a meaning that is not actually contained in the law itself.

To repeat:

1. No "liability" for income tax nor any requirement that such taxes be paid appears anywhere in the Code.

2. No authority is contained in the Code that allows the government to assess income taxes against those who refuse to do so on their own.

3. No civil or criminal penalties are provided in the Code for not filing or paying income taxes.

The Internal Revenue Code itself provides proof that the payment of income taxes is voluntary and that all IRS enforcement procedures are illegal because it does not contain any provision for a "liability" with respect to "income" taxes nor does it provide that such a tax is "required" to be paid or "shall" be paid.12

Where Tax Liabilities Occur

Three sections of the Code that refer to a Federal tax "liability" are 5703,5005, and 4401 (see Exhibit 6) which deal with tobacco products, distilled spirits, and wagering respectively. Section 4401, for example, states that a tax is "imposed on any wager," while Section 4401(c) contains the statement (in connection with such wagering taxes) that

Each person who is engaged in the business of accepting wagers shall be liable for and shall pay the tax under this subchapter. . .

The Code, however, contains no comparable entry dealing with a liability for "income" taxes, i.e., "Individuals or corporations having income shall be liable for the taxes imposed by Section 1."

True, Section 1 of the Internal Revenue Code "imposes" a tax on "taxable income" 13 but it does not make anyone "liable" for the tax so "imposed!' In the sections cited previously certain persons are made "liable" for the taxes "imposed." So even though taxes on income are "im-

12The Code does, however, use such language in connection with a variety of other Federal taxes!

"But the Code does not define "taxable income" so how can it "impose" a tax on it?


Sec. 4401. Imposition of tax.

(a) Wagers.

(c) Persons liable for tax.

Each person who is engaged in the business of accepting wagers shall be liable for and shall pay the tax under this subchapter on all wagers placed with him. Each person who conducts any wagering pool or lottery shall be liable for and shall pay the tax under this subchapter on all wagers placed in such pool or lottery. Any person required to register under section 4412 who receives wagers for or on behalf of another person without having registered under section 4412 the name and place of residence of such other person shall be liable for and shall pay the tax under this subchapter on all such wagers received by him.

Sec. 5005. Persons liable for tax.

(a) General.

The distiller or importer of distilled spirits shall be liable for the taxes imposed thereon by section 5001(a)(l).

Sec. 5703. Liability for tax and method of payment.

(a) Liability for tax.

(1) Original liability. The manufacturer or importer of tobacco products and cigarette papers and tubes shall be liable for the taxes imposed thereon by 'section 5701.

(2) Transfer of liability. When tobacco products and cigarette papers and tubes are transferred, without payment of tax, pursuant to section 5704, the liability for tax shall be transferred in accordance with the provisions of this paragraph. When tobacco products and cigarette papers and tubes are transferred between the bonded premises of manufacturers and export warehouse proprietors, the transferee shall become liable for the tax upon receipt by him of such articles, and the transferor shall thereupon be relieved of his liability for such tax. When tobacco products and cigarette papers and tubes are released in bond from customs custody for transfer to the bonded premises of a manufacturer of tobacco products or cigarette papers and tubes, the transferee shall become liable for the tax on such articles upon release from customs custody, and the importer shall thereupon be relieved of his liability for such tax. All provisions of this chapter applicable to tobacco products and cigarette papers and tubes in bond shall be applicable to such articles returned to bond upon withdrawal from the market or returned to bond after previous removal for a tax-exempt purpose.

posed" they cannot apply to any individual since no one is "made liable" for the tax nor does it state that anyone is "required" (or "shall") pay them.

The fact that the Code does not contain any provision establishing an income tax liability is proof that everything the IRS does to compel the payment of income taxes is illegal.

Though All Federal Taxes Must Be Assessed, The IRS Cannot Assess Income Taxes.

All Federal taxes must be assessed before they can be owed and the current Internal Revenue Code does provide for such assessments 14 except that the Federal government was given no independent authority to assess "income" taxes. The Code sections that deal with the assessment and payment of Federal taxes are Sections 6201, 6203, and 6303 (Exhibit 7). Code Section 6201 gives the Secretary of the Treasury the authority to assess "all taxes. . which have not been duly paid by stamp at the time and in the manner provided by law!' On his own the Secretary can assess taxes such as alcohol, tobacco, and other taxes that are paid by stamp. Subparagraph (1), however, places limitations on his assessment authority and provides that in cases other than taxes paid by stamp, the Secretary is only authorized to assess taxes "as to which returns or lists are made under this title." So if a "return" (a 1040 form) is not filed or if a "list" of "income" and expenses is not voluntarily supplied pursuant to Section 6014, the Secretary has no authority to assess the tax! 15

This is what "self-assessment" is all about. The reason for self-assessment is obvious: since an "income" tax does not fall into either of the two classes of taxes provided for in the Constitution the government cannot legally assess such an illegal tax; therefore, individuals have to be conned into assessing themselves because the government has no constitutional authority to do so. And suppose an individual or corporation refuses to assess itself? In that case the government has no statutory authority to assess any "income" tax and, by law, no "income" tax can possibly be due.16

14"Once the [income] tax is assessed the taxpayer will owe the sovereign the

amount. . . "Bull us U.S. 295 US 247 (see Exhibit 10). 15Section 6014 provides that taxpayers can send in a list of their income and expenses

and ask the Secretary to determine the tax due.

"Legally it would not be "due" even if one did assess himself, but that involves other legal considerations.


Sec. 6201. Assessment authority.

(a) Authority of Secretary.

The Secretary is authorized and required to make the inquiries, determinations, and assessments of all taxes (including interest, additional amounts, additions to the tax, and assessable penalties) imposed by this title, or accruing under any former internal revenue law, which have not been duly paid by stamp at the time and in the manner provided by law. Such authority shall extend to and include the following:

(1) Taxes shown on return. The Secretary shall assess all taxes determined by the taxpayer or by the Secretary as to which returns or lists are made under this title.it_hoax-6.jpg

(2) Unpaid taxes payable by stamp.

(A) Omitted stamps. Whenever any article upon which a tax is required to be paid by means of a stamp is sold or removed for sale or use by the manufacturer thereof or whenever any transaction or act upon which a tax is required to be paid by means of a stamp occurs without the use 'of the proper stamp, it shall be the duty of the Secretary, upon such information as he can obtain, to estimate the amount of tax which has been omitted to be paid and to make assessment therefor upon the person or persons the Secretary determines to be liable for such tax.

Sec. 6203. Method of assessment

The assessment shall be made by recording the liability of the taxpayer in the office of the Secretary Fn accordance with rules or regulations prescribed by the Secretary. Upon request of the taxpayer, the Secretary shall furnish" the taxpayer a copy of the record of the assessment.

Sec. 6303. Notice and demand for tax.

(a) General rule.

Where it is not otherwise provided by this title, the Secretary shall, as soon as practicable, and within 60 days, after the making of an assessment of a tax pursuant to section 6203, give notice to each person liable for the unpaid tax, stating the amount and demanding payment thereof. Such notice shall be left at the dwelling or usual place of business of such person, or shall be sent by mail to such person's last known address.


Further corroboration can be found in Section 6201(a)(2) (Exhibit 7) wherein the Secretary is specifically authorized to "estimate the amount of [any] tax which has been omitted to be paid." This only applies to taxes "required to be paid by means of a stamp," however. Since income taxes are not paid by stamp, the Secretary is not permitted to "estimate" such taxes and nowhere in Chapter 63 of the Code (the Chapter dealing with assessments) is the Secretary or the IRS authorized to "estimate" any "income" taxes when a return or list is not submitted.

The law does make provisions for taxpayers who submit returns or lists on their own (and swear they owe the tax or had "income"). The Secretary is then authorized to assess the taxes "determined by the taxpayer" (as shown on his return) or "determined" by the Secretary on the basis of the "list" the taxpayer voluntarily provides. The whole purpose of the IRS is to deceive the public into providing it with sworn statements (i.e., tax returns or lists) or the government is barred by law from assessing income taxes!

Government Barred By Law From Assessing "Income" Taxes

Only after a tax is assessed can the "liability" of the taxpayer be established. This is accomplished by recording the "liability of the taxpayer in the office of the Secretary" pursuant to Section 6203. Once that has been done the Secretary (pursuant to Section 6303) has to "give notice to each person liable for the unpaid tax, stating the amount and demanding payment thereof!' Therefore, not only are Americans tricked into assessing themselves for a tax they cannot possibly be liable for, they also get conned into paying the tax either by authorizing withholding from their wages or paying an estimated tax — all without being made "liable" for the tax or billed for it pursuant to Sections 6201, 6203, and 6303.

Proof That The IRS Has No Legal Authority To Seize Property In Payment Of Income Taxes

Section 7401 states:

No civil action for the collection or recovery of taxes, or of any fine, penalty, or forfeiture, shall be commenced unless the Secretary authorizes or sanctions the proceedings and the Attorney General or his delegate directs that the action be commenced.

This means that the IRS can only recommend that the U.S. Attorney bring an action in court to collect, by court order, any taxes allegedly owed. Section 7402 (e) states:

The United States district courts shall have jurisdiction of any action brought by the United States to quiet title to property if the title claimed by the United States to such property was derived from enforcement of a lien under this title.

In other words, the Federal government (under the Code) is supposed to take an individual to court (per the 5th Amendment) before forcibly taking his property in payment of income taxes.

Two other sections of the Code shed additional light on this aspect of the limited legal authority of the IRS: Section 6651 (Exhibit 8) — "Failure to file tax return or to pay tax" — and Section 7203 (Exhibit 9) — "Willful failure to file return, supply information, or pay tax!' Section 6651 provides civil penalties for failure to pay a variety of taxes such as those on distilled spirits, wines, beer, cigarettes, cigars, etc., but there are no penalties listed for failure to file income tax returns or pay income taxes. While Section 6651 covers civil fines, Section 7203 is the section used to prosecute so-called "tax protesters." Unlike Section 6651, no specific taxes are mentioned in Section 7203, nor does it say exactly who is "required" to pay the taxes or "make a return" under that section. In essence, Code section 7203 is fallacious because it does not establish exactly who is "required" to do anything, nor does it refer to any other Code section where such requirements are to be found. In legal language, Section 7203 does not allege an offense and gives no Federal judge subject matter jurisdiction to prosecute anyone for any of the "crimes" allegedly contained in it.

EXHIBIT 8 Sec. 6651. Failure to file tax return or to pay tax.

(a) Addition to the tax.

In case of failure—

(1) to file any return required under authority of subchapter A of chapter 61 (other than part III thereof), subchapter A of chapter 51 (relating to distilled spirits, wines, and beer), or of subchapter A of chapter 52 (relating to tobacco, cigars, cigarettes, and cigarette papers and tubes), or of subchapter A of chapter 53 (relating to machine guns and certain other firearms), on the date prescribed therefor' (determined with regard to any extension of time for filing), unless it is shown that such failure is due to reasonable cause and not due to willful neglect, there shall be added to the amount required to be shown as tax on such return 5 percent of the amount of such tax if the failure is for not more than 1 month, with an additional 5 percent for each additional month or fraction thereof during which such failure continues, not exceeding 25 percent of the aggregate;


Sec. 7203. Willful failure to file return, supply information, or pay tax.

Any person required under this title to pay any estimated tax or tax, or required by this title or by regulations made under authority thereof to make a return, keep any records, or supply any information, who willfully fails to pay such estimated tax or tax, make such return, keep such records, or supply such information, at the time or times required by law or regulations, shall, in addition to other penalties provided by law, be guilty of a misdemeanor and, upon conviction thereof, shall be fined not morelhan $25,000 ($100,000 in the case of a corporation) or imprisoned not more than 1 year, or both, together with the costs of prosecution. In the case of any person with respect to whom there is a failure to pay any estimated tax, this section shall not apply to such person with respect to such failure if there is no addition to tax under section 6654 or 6655 with respect to such failure.

*Note: Where does it say anything about an income tax return? The "returns" referred to are obviously the same returns referred to in Section 6651, Exhibit 8.

Jurisdiction of Federal Courts Section 7401(f) states:

For general jurisdiction of the district courts of the United States in civil actions involving internal revenue, see section 1340 of title 28 of the United States Code. (Emphasis added)

Clearly, Federal courts only have civil, not criminal, jurisdiction in tax matters. There is no section in the Internal Revenue Code that gives Federal courts criminal jurisdiction in tax matters, nor are there any provisions in the U.S. Criminal Code that establish any income tax "crimes." 17 Only civil fines and forfeitures can apply in Federal tax matters, proving again that all criminal trials in connection with Federal income taxes have been illegal.

As explained earlier, the Code is cleverly but diabolically written so that it does not contain any provision that could render it unconstitu-

l7This is exactly like the first direct taxing statutes that contained only civil penalties for not filing "lists" or for filing ones. See page 62.

tional, and if it contained any criminal penalties with respect to Federal incomt tax it would be.l8

Eight now there are probably fifty p§opl§ in jail who alltgtdly violated Section 7203. They am all political priionen. Many more art probably incarcerated for income tax evasion (they filed tax returns), though they could have been prosecuted (somewhat less illegally) under Section 1001 of the U.S. Criminal Code which makes giving false information to the government a crime. But no one can be lawfully prosecuted for income tax evasion because no such crime is listed in Title 18 of the U.S. Criminal Code. This means that all prosecutions for income tax evasion (felonies) as well as criminal trials for failing to file income tax returns or for submitting allegedly false withholding statements (both misde-meaners) have all been illegal. The only reason that such prosecutions can and do take place is because of the "judges" and lawyers who make a living from these illegal litigations, both criminal and civil, All law* yers, lawyer-judges, and lawyer-prosecutors have a huge financial stake in keeping the American public ignorant of the real meaning of "voluntary compliance!'

In conclusion, the enforced collection of federal income taxes ii carried out illegally, contrary to both the Internal Revenue Code and the Constitution. Let us, therefore, examine in greater detail just how those black-robed criminals who masquerade as Federal judges operate.

"Since the only lederal crimes listed in the Constitution are counterfeiting, treason, piracy, and felonies committed on the high seas, it requires a constitutional amendment to make anything else a^kfereJ Grim, True, a number of other erimei (i,e,, kidnapping and mail fraud) have been made federal "crimes" but thii is only one more example of how the Hideral government usurps jurisdiction,

"I always thought that Section 1001 of the U.S. Criminal Code was both ironic and illegal since if it can be a crime for private citizens to give false information to the government, it should also be a crime for government officials (in matters other than of national security) to give false information to the public. If that were a crime, of course, no information whatsoever would ever come out of Washington,


BuW v* l/,S, 295 US 247

[4] A tax is an inaction by tht sovtrelgn, and necessarily tht sovereign has an inforae-able claim against every ont within tht tax* gbli elms for the amount lawfully du§ from him, The statute preserlbts tht i-ult ef tai* atlon. Some maehlntry must bt provided £or applying tht rait to ths faets in taeh tai« payir's east, in order to aseertain tht amount dut. Tht ehostn instrumtntalUy for tht pur-post is an admlnlitratlvt agtney whost ae-tlon is ealltd an ass§8sm@nt. Tht asssssmtnt may be a yaluatioa of preparty subjtet to taxation, whleh yaluatlon is to be fflultipHtd by tht statutory rats to aseertala thi amount of tax, Or it may ineludt the ealeulation and fls tht amount of fax payabls, and asstss-ffitnte of fedsral estatt and Income taste art ef this tyss. Ones the tai is asssssad. tht taxpaygp will ow§ thi sovertlgn tha amount whin tht date flsed by law for paymtnt a7 rives.

*Nete: Apart from evirything glie, no "ineome" tax ean be "due" until the eorreet amount ii "aliened,"



The Federal "Judiciary"

In its enforcement of the income tax the Federal judiciary has managed to throw out the entire Constitution. That the Federal judiciary was able to accomplish this feat is no small tribute to the massive incompetence (or culpability) of America's legal community and the ignorance of the media.

The Federal courts have deceived the public about Federal taxation. Proof of this can be drawn directly from the controversy that surrounded the inclusion of direct taxes in the Constitution. What happened to one of the two "great classes" of taxes established in the Constitution, and why were our Founding Fathers so concerned with giving the Federal government a direct taxing power? Apparently the government can function quite well without such a power, even in time of war. Since the Federal government does not apportion any taxes, it presumably levies no direct taxes at all. Is this assumption realistic? Has our government really been able to fight our numerous wars and today collect in excess of $900 billion per year in taxes without utilizing the power of direct taxation? Of course not. The Federal government has obviously been collecting direct taxes (income, estate, and gift taxes) all along under the guise of collecting indirect taxes. The Federal courts have simply deceived the public regarding the legal nature of those taxes —just as the Federal judiciary has deceived the public concerning the legal nature of U.S. coin and currency,l the Federal government's lawful monetary and regulatory powers, and the protection (from the government) afforded the people by the Fourth and Fifth Amendments. In short, the Federal judiciary has effectively dismantled just about every safeguard the Founding Fathers built into the Constitution to protect the American public from the stupidity, greed, and/or tyranny of government.

When the Federal judiciary wants to disregard the Constitution and increase Federal power, it does so by simply proclaiming that it is "interpreting" the Constitution "broadly!' The Supreme Court created the fallacious notion that there is a legitimate distinction between

^ee Appendix E.

"strict" and "loose" constitutional "construction," and the public docilely accepted this absurdity. The Constitution is the "supreme law of the land" but we never hear about "strict" or "loose" construction of other laws that affect the public such as motor vehicle laws and the laws covering murder, rape, or extortion. Isn't it strange that the only laws subject to "loose" or "strict" construction are those that affect government power?

The public is fooled into thinking that the judiciary is seriously concerned about enforcing the Constitution and upholding constitutional rights because the courts make such a fuss when they uphold the constitutional "rights" of criminals.2 In all cases where Federal courts really protect constitutional rights, the interest of the Federal government is never threatened. For example, if a murderer goes free because the police did not afford him his full constitutional rights, he only represents a threat to other Americans and not a threat to the government itself. In these instances Federal courts will be very protective and generous with constitutional rights, but let these same rights clash with the illegal exercise of Federal power (or with the legal profession's monopoly of our courts) and constitutional rights go out the window without so much as a by-your-leave.

Open Admission That The Courts Disregard The Nature Of Income When Allegedly Taxing It

In discussing the legal definition of "income" (for tax purposes), Mertin's (see page 181) was forced to use the Eisner definition:

in the early case of Eisner v. Macomber the Supreme Court defined income as the "gain derived from capital, from [the] labor [of others], or from both combined, provided it be understood to include profit gained through sale or conversion of capital assets" (paragraph 5.02, Chapter 5, page 3).

In the next paragraph (entitled "'Income' as a Changing Concept"), however, Mertin's states that while in Eisner the Supreme Court

attempted a definition of income — shortly thereafter, however, it was pro-phesized that the scope of the Sixteenth Amendment would not forever be limited by this judicial definition and that taxable income would be judicially found, although outside the precise scope of the Supreme Court's def-

The "courts" also make a big display of protecting the constitutional rights of women and other "minorities" (generally in their relationship to others), but when it comes to the enforced collection of Federal income taxes these same women and minorities have no constitutional rights at all.

inition. The fulfillment of that prophesy is shown by the many departures from the Macomber case and by the gradual growth of the income tax law.

Thus this definitive work on income taxes admits that the government openly breaks the law by "looking. . . outside the Supreme Court's definition" of income when taxing it. Mertin's does not even attempt to supply any legal definition of "income" other than the Eisner definition which it admits the courts do not now follow. In enforcing the income tax "outside" of the law, Federal judges have become outlaws as the above reference makes clear and as is further confirmed by the following examples.

Standing The Law on Its Head

On February 27,1980 the Court of Appeals for the Eighth Circuit affirmed the conviction of Harold L. Francisco on three counts of failure to file income tax returns (pursuant to Code Section 7203) for the years 1972,1973, and 1974. Francisco had been indicted in March of 1979, had waived a jury trial, was tried and convicted before District Judge Donald E. O'Brien on all three counts, and was sentenced to a one year confinement on each count (to be served concurrently).

In upholding Francisco's conviction, the Appelate court stated:

Francisco's challenge is premised upon two theories: (1) the income tax is an indirect tax; and (2) income received in exchange for labor or services is not income within the meaning of the Sixteenth Amendment.3

The court further clarified Francisco's reasons for not reporting his wages on the tax returns he filed and for not paying any income taxes as follows:

1. the income tax was, by law, an indirect tax and since it was not levied as one he could not legally be subject to it; and

2. payment for his labor was "not income within the meaning of the Sixteenth Amendment."

In other words, Harold L. Francisco knew exactly what he was talking about and demonstrated that he was 100 percent right on the law. This august panel of Circuit court judges thought otherwise and said:

(8) the cases cited by Francisco clearly establish that the income tax is a direct tax, thus refuting the argument based upon his first theory. See

3U.S. vs Francisco 614 E2d 617 (1980), page 619.

Brushaberv. Union Pacific Railroad Co., 240 U.S. 1,19,36. . . (1916) (the purpose of the Sixteenth Amendment was to take the income tax "out of the class of excises, duties and imposts and place it in the class of direct taxes").4

The panel of "judges" in this case included Floyd R. Gibson, the Chief Judge of the Eighth Circuit, and Judges McMillan and Lay who wrote the opinion. All three of them believed that the income tax was held to be a direct tax and that "the purpose of the 16th Amendment" was to take the income tax "out of the class of excises, duties and imposts and place it in the class of direct taxes!' It would be impossible for any panel of judges chosen to hear a case to be more wrong on the law. Clearly, this "court" turned the law and the Brushaber decision on their heads (see pages 194 and 202).

The mere fact that the "court" believed it had to rule that the income tax was not an excise tax is proof that it knew no one is subject to this tax. Obviously the "court" believed it had to rule this way or else Francisco would be innocent and not subject to the tax. But the "court" had to know that the income tax is an excise tax and its convoluted position on this issue is, in itself, proof that it knew no one is subject to it.

Court Admits Francisco Filed

Francisco elected a trial before a judge because he believed no judge would convict him. He felt a jury could be misled by a prosecutor and-might find him guilty simply because it resented the fact that he did not pay taxes (which should not be an issue in this type of "crime" though trial judges and prosecutors usually inject it to prejudice juries by inferring that since members of the jury pay taxes should not let someone off who does not.5

In his opinion Lay wrote:

Because his returns contain 'some information,' Francisco urges that filing requirements were satisfied. However, his returns contain no information from which tax liability can be calculated. Hence, they do not satisfy filing requirements.6


5At my sentencing Judge Clarie said, "Is this fair, that everyone else pays taxes?"

I replied, "Pardon?"

Clarie said, "Is it fair. . . that you shouldn't pay income taxes, but is it all right if

everyone else does?"

I answered, "The issue is not whether I pay taxes at all"

And Clarie replied, "I understand, but I'm asking the question." 6U.S. vs Francisco, supra, page 618.

The appellate panel specifically stated that Francisco's "returns contain no income information from which tax liability can be calculated!' The court, therefore, admitted that Francisco filed returns but that "his returns" contained no "income information." The court said he filed returns, though he was indicted and prosecuted for not filing returns? Section 7203 also says (theoretically) that it is a "crime" not to "supply any information." Why then was Francisco not charged with that crime instead of the "crime" of not filing (when the "court" admitted that he did)? In addition to being innocent of the "crime" alleged, he was also charged with the wrong "crime."

Francisco filed a return as defined in Internal Revenue Code Section 6103, which specifically distinguishes between a "return" and "return information." If Francisco did, in fact, do anything wrong, it was that he did not supply any information, not that he did not file a return. He was not charged with that "crime" because the Mamelukes, for some reason, never make that charge. The court stated that he did not supply information from which his "tax liability can be calculated," but there is no section of the Code that provides for any such "liability!' They also refer to "filing requirements" when there are no "filing requirements" with respect to income taxes in the Code.

In Garner vs U.S. 424 US 648, the Supreme Court ruled that:

The information revealed in the preparation and filing of an income tax return is, for Fifth Amendment analysis, the testimony of a "witness" as that term is used herein.

If the testimony on a 1040 (which the preparer swears is true) is "the testimony of a witness," how can anybody be "required" to give it? Such a "requirement" would render the law unconstitutional — which is why no such requirement appears in the Code and why income tax returns are not even mentioned in either Section 6651 or Section 7203 (see pages 259,260).

Court Rules Francisco's Views Are Beyond Rational Belief

In order to illegally prosecute and convict Francisco (and others), the government has to prove that any alleged failure to file is also "will-full, " in that he did not file and also believed he had a legal duty to file something other than what he filed, and that, without cause, he refused to do so. According to the two most definitive Supreme Court cases on this subject, to act "willfully" means that one acts

. . . with a bad purpose [citations omitted]; without justifiable excuse [citations omitted]; stubbornly, obstinately, perversely [citations omitted]. The word is also employed to characterize a thing done without ground for

believing it is lawful [citations omitted], or conduct marked by careless disregard whether or not one has the right so to act [citations omitted].7

In addition, in U.S. vs Bishop (while referring to Murdoch) the Supreme Court stated:

The requirement of an offense committed "willfully" is not met, therefore, if a taxpayer has relied in good faith on a prior decision of this court [citations omitted]. . . 8

Since the trial Judge found Francisco guilty of "willfulness" (and the Appellate judges upheld the conviction), he had to believe (beyond a reasonable doubt) that 1) Francisco was wrong on the law, and 2) Francisco could not possibly have believed that the income tax was indirect and wages were not income. In other words, the court had to be convinced that Francisco's legal beliefs were so weird that they were actually beyond rational belief. And, at the same time, the "judges" had to believe (even if Francisco's interpretation was wrong) that Francisco could not, in good faith, have relied on such "prior decisions" of the Supreme Court as Pollock, Eisner, Smietanka, Flint vs Stone Tracy, and others which he explained had formed the basis of his beliefs. If ever there was an innocent man it was Harold Francisco; and if ever there were judicial rogues and charlatans it was the "judges" who tried and affirmed his conviction.9 It is also important to note that this case not only completely reversed the law but has and is being used by the "courts" as legal precedent with which to find others guilty.

Justice in Alaska

On April 20, 1983 Mr. and Mrs. John Hett appeared before James M. Fitzgerald, a District Court Judge in Anchorage, Alaska to explain why they had not given any tax information to the IRS pursuant to a Section 7602 summons that had been served upon them. Since compliance with income tax laws is voluntary, the IRS does not have any legal

'E7.S. vs Murdoch 290 US 389, pages 394, 395.

8U.S. vs Bishop 412 US 346, page 361. In the opinion that found Francisco guilty, Judge Lay cited both of these cases so he cannot claim he was unfamiliar with them. He either did not understand them or simply chose to ignore them along with everything else he did not understand or chose to ignore.

"They are actually worse than "rogues and charlatans" since they are all guilty (along with the U.S. Attorney who prosecuted Francisco) of violating Sections 241 and 242 of the U.S. Criminal Code. Their guilt could easily be established by any objective Federal grand jury looking into Francisco's illegal prosecution and conviction.

authority to compel any testimony or the production of any material in connection with such summonses. With the help of the legal establishment and the Federal judiciary the IRS has, however, succeeded in deceiving the public with these fraudulent summonses for years.

First, Section 7602 states that summonses issued under it can only apply to persons "liable for a tax or required to perform [some] act" or to third parties in possession of records of persons so liable or so required. Such summonses cannot, therefore, apply to income taxes since no person can be liable for income taxes nor be required to perform any act with respect to such taxes.10

Mr. Hett was sworn in and on the witness stand when "Judge" Fitzgerald asked him why he had not complied with the summons. Hett responded as follows:

Well, your Honor, we feel we have complied with the summons by actually appearing at the place indicated and we have answered questions in this regard. We have imposed our Fifth Amendment privilege as to the fact that our answers might tend to incriminate us."

Hett's answer should have been enough to terminate the hearing. What followed, however, was a total perversion of the entire American legal system and of the protection of the Fifth Amendment.

Instead of terminating the hearing, Fitzgerald told Mr. Hett that he could not impose a blanket Fifth Amendment claim "as to the documents or parts of them. . . you may state what the basis of your claim is." Fitzgerald further informed Hett that he [Fitzgerald]". . . was required to make an examination, and you may testify under oath relating to the basis of your examination. I am required to make the determination as to whether or not your claim is, in fact, valid. You have to relate it to some specific offense which you believe disclosure of doc-

10For complete details on how to handle and defeat these phony 7602 summonses, see The Schiff Report, Volume 1, Numbers 3,4, 5, and 6.

"Recorded on page 5 of the hearing transcript. Actually, Hett was in error. He should not have raised the issue of self-incrimination, but the more fundamental issue of not wanting to be a witness against oneself and the judge knew that this was Hett's intent. Hett was under no legal obligation to testify regardless of whether the information sought from him was incriminating or not, nor did he have to make any such determination. For a fuller explanation of how Federal courts knowingly confuse and pervert this distinction in tax cases, see How Anyone Can Stop Paying Income Thxes, pages 15-22. In all other cases, including those of espionage and subversion, the courts have repeatedly ruled that a plea of self-incrimination cannot be challenged nor can the grounds for belief that testimony might be incriminatory be questioned by the court. To compel a witness to explain the basis for his belief would nullify the Fifth Amendment protection. The witness can only be compelled to explain why testimony would be self-incriminatory if he is granted immunity. To compel such testimony without the grant of immunity is reversible error.

uments will expose to [sic] or will tend to incriminate you in connection with, but I may not accept a blanket claim of Fifth Amendment privilege." 12

Fitzgerald, however, kept raising the same theme each time Hett expressed bewilderment at the court's insistance that he testify against himself. For example:

. . . the burden is on you to establish that you do have a valid Fifth Amendment claim [Hett had no such burden]. . . I may not accept a claim to produce those documents violates a Fifth Amendment right. You have to establish in what way the Fifth Amendment right — that you will be exposed to a criminal prosecution. The purpose of allowing you to testify [the judge now infers that by "allowing" Hett to testify he is actually doing him a favor] is to establish that so that a determination can be made by me as to whether or not your claims are frivolous or your claims are real.13

Based upon Fitzgerald's insistance that he [Hett] testify about matters he believed could be used against him, Hett asked, "Can you grant us any kind of immunity that will clear us from any kind of prosecution?"14

And Judge Fitzgerald replied, "I have no authority to grant immunity. That may be done only under the statute which places the responsibility for granting immunity with the Attorney General of the United States."15

It is perfectly obvious why Hett's testimony could incriminate him and why the U.S. Attorney wanted it: the government was pressing for information about his bank accounts. If Hett had filed no tax returns for the years in question, deposits to such accounts could furnish the Justice Department with a basis for building a case that Hett had a legal duty to file,16 or if he had filed without reporting bank interest, he could be prosecuted for tax evasion and /or giving false information to the government. According to Judge Fitzgerald, however, the only way Hett could keep from testifying against himself was to testify against himself and explain why he believed his testimony might incriminate him! Fitzgerald was attempting to extract a confession from Hett in

"Fitzgerald had to know that such a pronouncement was in total error. Once Hett invoked his constitutional right not to supply information that he believed could be used against him, that should have, legally, ended the matter. "Judge" Fitzgerald had no further judicial duties to perform in this case (as is clearly pointed out in the IRS's own handbook). See How Anyone Can Stop Paying Income Taxes, page 81-90.

"From the hearing transcript, page 7,8. "Ibid., page 18. 16Ibid.

16At both my trials the government used a bank employee as a witness to introduce my cancelled checks as evidence in my illegal prosecution.

open court. He wanted Hett to admit that he either did not file a return (regarded as a crime by the government) or that he had filed but supplied false information on his return and, therefore, was either guilty of tax evasion and/or of supplying false information to the government.

In the absence of immunity, Hett's testimony could expose him to criminal prosecution in at least three areas, but Fitzgerald kept pressing for his testimony (in open court and before the U.S. Attorney). Immunity, however, should have been a moot point because Fitzgerald was constitutionally barred from demanding such testimony from Hett in the first place. And while the judge was technically correct (in that he could not grant him immunity), he could have asked the U.S. Attorney if the government was prepared to give the witness (now ordered to testify against himself) immunity in exchange for his testimony. If the government said no, Hett should have been excused on this basis. But the government would not give Hett immunity because it specifically wanted his testimony to use against him — either to press criminal charges or to determine civil fines or penalites.

A Mafia informant would have received immunity immediately because nothing could compel him to reveal any information, nor would he have been required to prove to the "court" why he believed his testimony would incriminate him. Common criminals, of course, have their constitutional rights scrupulously protected but Hett — an ordinary working American who was trying to protect his person and property from illegal prosecution and confiscation by the government — apparently had no rights at all in Fitzgeralds's courtroom.17

Hett also informed the "court" that he had heard former IRS Assistant Regional Counsel, John Lynch, say that "innocent people are as likely to be prosecuted as the guilty!' Because of this comment Hett testified that he did not "know what to say!' Since Hett believed that the Fifth Amendment is supposed to protect the innocent as well as the guilty (and that the government prosecutes innocent people), he did not want to give the government any information that could give it any basis on which to prosecute him.

Hett next asked, "Well, if I answer this question, can it ever be used against me?"18

Fitzgerald answered, "I can't say it wouldn't because I don't know what you are concerned about, ^bu have to establish what it is. Ifou assert the Fifth Amendment claim, and you have to set out the basis for it. This is what I must determine as either sound or unsound."19

"Perhaps Federal judges zealously protect the rights of criminals as a professional


18From the hearing transcript, page 19. 19Ibid.,pagesl9,20.

Again Hett asked, "Can you explain to me how I can answer that question without the possiblity of incriminating myself?"20

Earlier in the hearing Hett had asked Fitzgerald if he was not being asked to testify "against myself and the Judge answered, "Well, you are not testifying against yourself [who then would he be testifying against?]. You are testifying to establish your claim. . . if you refuse to testify to establish your claim, then I must find that the claim was without merit and order the documents to be turned over!'21

Toward the end of this inquisition Hett asked, "Aren't you asking me to be a witness against myself?"

Completely avoiding Hett's question, the court responded, "I will tell you again, to answer the question."

And Hett said, "I don't understand how I can forfeit my Fifth Amendment rights."

"All right, I am telling you to answer it," Fitzgerald said. "If you shall not answer it, I will order that you be held in custody until you purge yourself of civil contempt. . . "22

According to the transcript Fitzgerald turned Hett over to the U.S. Marshalls at 10:30 a.m. who hauled him away and threw him in a cell23 —just because he did not want to testify against himself.

Then, at 4:45,24 Hett was brought back before the Judge, apparently prepared to answer the court's questions and the hearing continued. The transcript records the following:

John Hett having been previously sworn on oath testified as follows:

Continued direct examination by Mr. Ridner:

Q. Mr. Hett, since 1975 do you or have you any bank accounts either savings or checking? A. Yes.

Q. Where are those accounts? Which banks do you have those accounts in? A. Well, I feel at this time that the First National Bank is the only place. Q.First National Bank of where, what branch? A. Oh, Palmer.

Q. You said at this time you feel. Since 1976, have there been other bank accounts. . .t25

The point is, both Fitzgerald and Ridner illegally contrived to de-

""Ibid., page 19. 21Ibid., pages 6, 7. 22Ibid., pages 21,22.

23Ibid., page 24.


^Ibid., page 27.

prive Hett of his constitutional rights and illegally deprived him of his liberty. Their guilt is open and shut and already recorded by a court reporter so a trial is not even necessary. The question remains — what will the people in Alaska do about such blatant law breakers?

Hetfs Way Out

In The Schiff Report, Volume 1, Number 3,1 first reported this "hearing" and reproduced about 7Vz pages of the hearing transcipt. In that Report I suggested that Mr. Hett should have responded as follows when first asked about his bank accounts:

The answer I am about to give is not being given voluntarily but is being forced from my lips under threat of imprisonment in flagrant violation of my 5th Amendment right not to be compelled to be a witness against myself: NO, I DO NOT NOW HAVE, NOR HAVE I EVER HAD, CHECKING OR SAVINGS ACCOUNTS!"

Even if the above answer is false, how can Mr. Hett be convicted of perjury? How can they use the statement against him?. , .

Federal Railroad Stations — How They Operate

In December, 1981, John Babtist Kotmire, Jr. (a 47 year old, 6'3" builder from Westminster, Maryland) was indicted for failing to file income tax returns for the years 1975 and 1976. Like Francisco, Kotmire had filed tax returns for those years, but had filed "Fifth Amendment" returns in accordance with the instructions laid down by Oliver Wendell Holmes in the Sullivan decision.26

In that case, Holmes (recognizing that all information on a tax return can be used against a filer) ruled that individuals could invoke their Fifth Amendment right with respect to any question on a return, so Kotmire did. A deeply religious, moral and proud man, Kotmire quit the Baltimore police force after eight years because he could not stand the corruption he witnessed. As a student of American history and the Constitution, he had spent many hours studying our income tax laws and the court cases bearing on them and was deeply committed to the free-enterprise system he, like numerous other Americans, felt was being undermined (along with the Constitution) by Federal income taxes. He was very active in the effort to expose the illegality of the income tax's enforcement and provided strong and knowledgeable leadership in the tax resistance movement in the Baltimore area.

^This decision has been misstated and misrepresented by every Federal Court (including the Supreme Court in Garner vs U.S. 424 US 648) since it was rendered in 1927. A full account of it is provided in How Anyone Can Stop Paying Income Taxes, pages 144-150.

Because of this the Mamelukes decided to get him and illegally indicted him for violating Section 7203 of the Internal Revenue Code. At this point Kotmire contacted me to ask if I would represent him as his attorney or "counsel" (as provided for in the Sixth Amendment) at his arraignment. I agreed, telling him I could present arguments to the court that had never been raised before and which, I believed, would enable us to abort the arraignment and intended illegal prosecution. Only months before I had discovered that Federal courts had no criminal jurisdiction to prosecute anyone for not filing income tax returns, and if anybody could be prosecuted for such a "crime" it could only be the Secretary of the Treasury since he is charged under Section 6020 of the Code with the responsibility of filing returns for those who do not voluntarily do so on their own.27

We did some further checking and found Fourth Circuit rules of procedure and case law that affirmed and supported his right to have me act as both attorney and counsel for him. After many hours of research regarding the legal aspects of the arraignment, I went to Baltimore the day before it was scheduled in order to go over everything we planned to do. We agreed that, under no circumstances, would he plead "not guilty" thus giving subject-matter jurisdiction to a court which had none at all.

With Kotmire's power-of-attorney in my pocket I took my seat at the counsel table in the courtroom of District Court Judge James Miller just before 2:00 p.m. on January 5,1981. Kotmire and his wife, Nancy, seated themselves in the gallery amidst some seventy or eighty of his supporters. While waiting for the judge to appear, I filled out a form giving my name and stating that I was appearing as the defendant's attorney.

The Assistant U.S. Attorney did not recognize me as being a local and asked where I "practiced." I told him that "I do not practice, I do this for real, but not in any particular location." When he realized that I was not a licensed lawyer he hurredly left the counsel table and the courtroom, apparently to report this to the court. I suspect this was the reason Judge Miller was fifteen minutes late making his appearance. After Miller finally arrived and court was convened, the U.S. Attorney moved to amend the indictment which he claimed contained a clerical error. I immediately objected on the grounds that the whole indictment was in error because it indicted the wrong man. At this point Judge Miller asked me if I was an attorney. "\es, " I replied. "I have Mr. Kot-

27This section specifically states that if an individual does not "consent" to file a return, "the Secretary shall make such return from his own knowledge. . . " So, if the government did not receive John Kotmire's return, it was because the Secretary of the Treasury had obviously "failed to file" one (not Kotmire) and he should have been prosecuted instead.

mire's power-of-attorney right here," holding it up so he could see it.

"But you are not a member of any bar?" Miller questioned.

"No, your honor," I replied. "I am only an attorney-in-fact not an attorney-at-law and I am here merely to explain to the court why it has no subject matter jurisdiction over Mr. Kotmire in this matter and that if indeed a crime has been committed the government has indicted the wrong man."

Judge Miller explained that only members of the bar could represent individuals in his court. I told him that I had rules of procedure and case law from his own Circuit (which I offered to show him) that clearly established Kotmire's right to have me represent him, but Judge Miller refused even to look at, much less discuss, that evidence and insisted that I immediately remove myself from the counsel table. I pointed out that it was Kotmire's intention to challenge the jurisdiction of the court and it would be pointless for him to have an officer of that court (which is what all bar lawyers are) defend his contention that the court had no jurisdiction in the case. Such representation, I added, could not be effective. I further pointed out that it would only take me ten minutes to prove that the court was without subject-matter jurisdiction over Mr. Kotmire. Without responding to, or commenting on, anything I said, Miller again ordered me to leave the counsel table.

"But your honor," I persisted, "how will justice not be served by your allowing me to show you why you don't have jurisdiction in this matter?" Judge Miller was unmoved and again insisted that I leave the counsel table.

Nevertheless, I continued, "But your honor, I spent six hours just getting here by train to present these arguments to you, how will justice not be served by your hearing them?"

Judge Miller would have none of it and finally warned me that if I said another word he would hold me in contempt. I saw the marshalls moving in my direction and, believing I could do no more, gathered up my material and squeezed into the gallery.

Kotmire had appeared before Judge Miller numerous times and when he spotted him seated among the spectators he said, "Mr. Kotmire would you please come up here."

Kotmire, however, said that his attorney was in court to challenge the jurisdiction of the court and since he was not persuaded that the court had any jurisdiction over him he would decline Miller's request to come forward.

Miller asked him again to come forward and again Kotmire declined, whereupon Miller turned to the marshalls and said, "Arrest that man," as a gasp of disbelief arose from the spectators in the gallery.

Two marshalls forcibly proceeded to take Kotmire to the bench as he shouted, "Let the record show that the defendant is being dragged before the bar!'

And Miller interjected, ""Xbu're not being dragged, you're being escorted."

Because of the audience's reaction to the arrest Miller ordered the courtroom cleared, allowing only five people (including Kotmire's wife) to stay leaving twelve marshalls and five spectators in the courtroom.

At this point, Miller asked Kotmire (who usually represented himself in court) if he wished to represent himself. Kotmire replied that he had his attorney there to represent him and that he wished to be represented by me. Miller explained that according to the rules of the court I could not represent him. Kotmire stated that this was not true and that his attorney was prepared to present evidence to the contrary. He further pointed out that under the Constitution he had a right to have counsel of his own choice.

Miller kept pressing Kotmire to agree to represent himself and to make a plea but Kotmire would not relent, insisting that he did not understand the charges and was being denied counsel of his choice by the court. Miller finally realized he could not proceed because court rules provide that a defendant has the right to counsel at each stage of his prosecution. The court had denied Kotmire that counsel and Kotmire claimed he did not understand the charges or what Miller was saying so, legally, the judge could not continue.

Neither Kotmire nor I thought that Miller would totally deny my ability to act as John's counsel, a right clearly provided for in the Sixth Amendment. While we realized that the court might illegally and arbitrarily deny my right to speak for him as his attorney, we assumed that I would at least be allowed to confer with and counsel him. But Miller would not allow me to confer with Kotmire or allow me to pass him written notes. Such a blatant denial of a constitutional right was outrageous. In any case, Miller realized what he had stepped into and ordered the clerk to get the Public Defender to act as Kotmire's counsel. Because Miller realized it would be reversible error to conduct an arraignment while denying a defendant counsel, he decided to force ineffective counsel on Kotmire — not for Kotmire's protection, but for his own. We waited some twenty minutes for the public defender to arrive and when he entered the courtroom Kotmire turned to the Judge and said, "That man can't represent me, he's already told me that I'm going to jail." Kotmire knew the public defender who had already assured him that he would be convicted and sent to jail. He believed Kotmire to be guilty of the offense charged and did not have the slightest understanding of the legal issues involved in the case. As far as he was concerned,

Kotmire should have pleaded guilty right then and there, so Kotmire strongly objected to being represented by him on any basis.28 Making it appear as if he had complied with the law, Miller proceeded with the arraignment. He persisted in trying to get Kotmire to plead not guilty, but Kotmire refused, insisting on his right to consult with me. Miller continued to deny this request. I even tried passing John a note suggesting that he offer to plead "guilty, " saving himself and the state the expense of a trial, if the court could prove that it had jurisdiction. The court, however, would not allow me to pass him any messages. Finally, Miller said he would enter a plea of not guilty for Kotmire if he refused to enter a plea himself.

A Doctored Transcript

The transcript records Kotmire stating the following:

I am entering a plea of not guilty. I am challenging the jurisdiction of this court. I am here under duress and I am here without counsel.

Kotmire said no such thing. He never would have pleaded not guilty to the charge while saying that he was challenging the jurisdiction of the court because by pleading "not guilty" he would be acceding to the court's jurisdiction which would have defeated everything we had planned. Kotmire has affidavits from at least five people attesting to the fact that he said no such thing. His transcript was doctored.

Kotmire testified at great length in his four-week trial concerning the cases he relied on (Brushaber, Sullivan, Eisner, etc.), so he could not have acted "willfully!' He was convicted only because both the judge and the U.S. Attorney deceived the grand and petit juries regarding applicable law.

Kotmire was subsequently convicted and given the maximum sentence of two years by Judge Miller. He served the full time (less time off for good behavior) of 17 months and 5 days at the Federal Prison Camp at Maxwell Air Force Base, Montgomery, Alabama.29

^For the court to appoint a "counsel" who had not spent five minutes on the issues of a case — while denying the defendant the counsel of someone who had spent hundreds of hours on those issues — was a farce and a fraud perpetrated by the court, designed merely to protect the court and not the defendant. The rule that an American is entitled to counsel means effective counsel, not just any yo-yo with a bar license who happens to pass by. Under these circumstances, how could Miller assume that the public defender could supply John Kotmire with more effective counsel than I?

29John Kotmire now runs S.A P. ("Save A Patriot"), PO. Box 91, Westminster, Maryland 21157. By a pooling of risks, members of S.A.R seek to provide protection for themselves against the illegal confiscation of their property as well as offer financial help to the family of an individual if he, is illegally convicted of failure to file income taxes.

In any case, this incident explodes the myth that our "courts" have set up bar requirements to ensure that individuals get the best legal representation possible. Such a policy merely forces the public to accept incompetent and frequently overpriced lawyers when far more competent and cheaper "counsel" might be available. This is done to maintain the illegal court monopoly lawyers and judges (lawyers themselves) have established.

If it were the court's intention to help an accused get the best possible counsel, Miller would have tried to determine what I really knew. I was well-dressed, courteous, and had a number of documents laid out in front of me on the counsel table, including the Internal Revenue Code. Why did he not question me to determine my competence or lack thereof? If he discovered I was incompetent, he could have told Kotmire that he would be better advised to get a licensed lawyer rather than be represented by someone who did not know what he was talking about. That would have made sense and would have demonstrated that the court was really concerned about protecting the accused's interests. The court, however, made no attempt to establish my competence but, instead, took the position that a licensed lawyer—who already had told the accused he would go to jail, who may never have looked into the Internal Revenue Code in his life30, and who was certainly not prepared to challenge the court's jurisdiction — would provide him with more effective counsel than someone who was familiar with the Code and all the important Supreme Court cases bearing on it and who could conduct a competent and informed defense.

The most hypocritical aspect of this case was that though Judge Miller sentenced Kotmire to two years in jail for an offense he could not possibly have been guilty of (either on the basis of law or fact), only a few months before he had dismissed indictments against Thomas J. Whohlemuth Jr. Whohlemuth was an attorney (serving as the counsel for the Anne Arundel County School Board and the Community college of Anne Arundel County) who was indicted for failure to file income tax returns for the years 1975 and 1976 on earnings in excess of $68,000 per year. On the basis of testimony from one psychologist and two psychiatrists who stated that Wohlemuth was "incapable of understanding the criminality of not filing tax returns," Judge Miller dismissed the indictments against him. Because Kotmire so fervently believed in the lawfullness of his position he could not possibly have seen the "crimin-alty of not filing tax returns" either, but he was imprisoned for seventeen months while Wohlemuth (who pleaded "no contest" to the charges) went scott free.

"•"Most lawyers who are not tax lawyers are usually not familiar with the Code.

The United States vs Schiff

I was also prosecuted for failure to file tax returns, for the years 1974 and 1975, even though I had (like Kotmire) filed Fifth Amendment returns for those years. My illegal prosecution began when the then U.S. Attorney, Richard Blumenthal, filed a false "Information" against me on April 17, 1978 — five days after my second appearance in one month on NBC's nationally televised "Tomorrow" show with Tom Sny-der. A trial and conviction followed, though this conviction (my first) was subsequently reversed by the Second Circuit Court of Appeals on the grounds that the trial Judge, T.E Gilroy Daly, erred in allowing an hour-long tape of one of those broadcasts to be introduced at trial.31 In reversing that conviction, though, the Appellate court still said The defense did not seriously contend that the conglomeration of papers filed along with the almost blank 1040 form constituted the tax return required by law.

There are three bold-faced lies in that one short statement. First, I did "seriously contend" at my trial that what I had filed was, as I read the statute, a lawful return. Second, my return was far from blank. On the face of it (besides "taking the Fifth") I included, among other things:

1. citings from the Sullivan case;

2. excerpts from the Miranda decision in which the Court ruled that the Fifth Amendment is available "outside of court proceedings and serves to protect persons in all settings in which their freedom of action is curtailed" and that an individual is "guaranteed the right to remain silent unless he chooses to speak in unfettered exercise of his own will" (emphasis added); and

3. a request for immunity in exchange for the information presumably "required" on the tax return.

Because the government's chief witness had testified that my return was "blank," the Second Circuit sought to give judicial credence, legitimacy, and support to what was (in view of all of the above) an obviously false contention. Third, there is no income tax return "required by law,"32 which at the time I filed my Fifth Amendment returns I did not even realize.

31U.S. vs Schiff 612 F2d 73. For a more detailed account of these illegal prosecutions and convictions, see How Anyone Can Stop Paying Income Taxes, pages 121-126 and 133-169.

32While I do not wish to analyze all the misleading material in this decision, it is important to note that the Second Circuit Court of Appeals held that individuals are required to file returns that at least show "the amount, if not the source, of their income!'

In order to prove "willfulness" at both my trials, the government introduced (and used against me) my last traditionally filed return (1973). It is also of great importance to note that even in reversing my conviction the Second Circuit ruled:

The [trial] court specifically stated, "The law applicable to this case is that a taxpayer can comply with tax laws and exercise his Fifth Amendment rights by listing the amount, not the source, of his income from illegal sources. . . " That charge was correct.33 (Emphasis added)

The tremendous importance of this holding by the court — and how it can be devastatingly used against the government will be fully explained in Chapter 18, but a comment on the strange doctrine suggested there (that I could exercise my Fifth Amendment right only as it related to the "sources" not the "amount" of my income) is in order.

Apart from the doctrine constituting an open admission that the government is indeed illegally taxing "sources" of "income" as "income" itself, it was propounded because the government also contends that even illegally acquired income is "required" to be reported on a 1040. To get around the obvious repugnancy to the Fifth Amendment of any such "requirement," lower courts concocted the absured doctrine that as long as the amount but not the source of the income is revealed, the filer is not supplying incriminating information. The total absurdity of such a doctrine is made clear by the following example. Assume that Joe Smith, a bank teller, embezzled $100,000 from the bank where he is employed. Further assume that he only receives $15,000 per year in salary but to be within the tax "law" he reports the entire $115,000 as "income" on his 1040 and omits identifying the "sources" of his "income." Would anyone with an ounce of intelligence suggest (as our Federal "courts" now do) that because he did not identify the "sources" of his "income" (listing only the "amount") that he had not incriminated himself? My 1973 tax return (a perfectly benign return) was used against me at my trial, demonstrating that non-incriminatory information can also be used against a taxpayer. Obviously, then, the "source" argument is one more legal absurdity that Federal "judges" have concocted to help rationalize how tax returns can be "required!'

In reversing my conviction the Second Circuit also stated, "But the Fifth Amendment privilege does not immunize all witnesses from testifying." 34 It certainly does if they are asked to testify against themselves as the Second Circuit "judges" had to know. In addition, I had

3SU.S. vs Schiff, supra, page 83. 34Ibid.,page83.

raised (on appeal) the fact that I never had an "evidentiary hearing" with respect to my claim of Fifth Amendment protection and the Appellate Court ruled that the trial court was nof in error for refusing me an evidentiary hearing "on the question of Schiff s assertion of his Fifth Amendment privilege." In its decision the court continually referred to my "Fifth Amendment privilege" while only once referring to my Fifth Amendment right. In denying me that hearing the court relied on U.S. vs Jordan 508 F.2d 750, a non-binding lower court opinion and completely ignored a binding Supreme Court opinion which clearly called for such a hearing.

Garner vs U.S.

The Supreme Court's decision in the Garner case35 represents one of the most contrived snake-in-the-grass opinions ever concocted by that Court. Fraud and deceipt Utterly ooze from every line.

In this case Garner was convicted of violating Federal gambling laws. The Justice Department used information taken from his own tax return to assist in that conviction. Garner, therefore, appealed his conviction to the Ninth Circuit on the grounds that this violated his Fifth Amendment right against self-incrimination. The Ninth Circuit agreed with Garner36 and reversed the conviction in a two-to-one opinion. The government then requested a rehearing "en bane" (before all the judges in the Circuit). This time an "en bane" court (in a seven-to-five decision) affirmed Garner's conviction.37 The dissent in this case was so intense and formidable (the five judge minority literally chastizing the seven judge majority in language that was virtually vituperative) that Garner adopted the dissent and used it as his own appeal to the Supreme Court.

It is perfectly obvious that the Supreme Court (in affirming Garner's conviction) wanted to reach the decision it did regardless of either law or fact. It worked backward, twisting and misstating both fact and law as it went along, and then topped it all off with one of the most preposterous assumptions ever made by any American court. Had the Court reversed Garner's conviction, it would have signalled the income tax's death warrant.38 Instead it chose to slay law and reason to keep the income tax alive. If the Court ruled that the government could not legally use information from Garner's tax return to convict him of violating Federal gambling laws, it would have to follow that the govern-

™Garner vs U.S. 424 US 648.

^Garner vs U.S. 501 E2d. 228.

37Garner vs U.S. 501 E2d. 236.

""Which, from a purely constitutional sense, was its only valid, legal choice.

ment also could not use such information to convict citizens of violating Federal tax laws, thus barring tax evasion trials. And if citizens could not be prosecuted for tax evasion (supplying allegedly false information on a return), they would not be fearful of filing totally fraudulent returns and the government's ability to collect income taxes would fly right out the window.39 So the Court's problem was how to justify Garner's conviction (with information taken from his own tax return) while still maintaining the legal fiction that citizens were still "required" by law, to furnish such information. Let us see how the court attempted to reconcile such a legal impossibility.

First, the Supreme Court affirmed his conviction on the grounds that Garner supplied the incriminating information on his tax return "voluntarily" since he could have withheld the information by claiming the Fifth. Against the contention that had Garner done so he could have been prosecuted (as I and others have been), the Court argued that his constitutional rights were not impaired since a "valid claim of privilege [the Fifth] cannot be the basis for a Sec. 7203 conviction"; while even a "good faith erroneous claim of privilege entitles a taxpayer to acquittal under Sec. 7203." How could either the Supreme Court or Garner have known that if he had claimed the Fifth he could have been certain of acquittal on either basis as suggested by the Court? Indeed, how could the Supreme Court under this new doctrine be certain that all future judges and juries would refuse to convict defendants based on these two Pollyanna principles. Certainly both Mr. Kotmire (see page 273) and I were "entitled" to "acquittal" based on this doctrine, so why were we not acquited? Can we sue the Supreme Court justices that misled us into believing we would get such "acquittals"?

Note that the Court specifically said that even "erroneous [though] good faith" beliefs entitle those who take the Fifth to "acquittals." What does someone do if he is confronted by a judge like Clarie (and an Appeals Court like the Second Circuit) who instructs juries that "good faith" beliefs are not a defense against Section 7203 prosecutions?

The colossal hypocrisy, however, is how the Court could even suggest that a valid claim of the Fifth could subject an American to prosecution! At the very least the Court should have said that a valid claim of the Fifth is a bar to prosecution, not a bar to conviction. Stating that American citizens who make valid assertions of their Fifth Amendment rights can be prosecuted because of it is to say that Americans who val-idly assert constitutional rights can be punished for doing so. Since

39It is going there anyway — see Chapter 18.

^In this instance, however, New York state law was correct and did not interfere with a citizen's basic Fifth Amendment protection.

when do constitutional rights have these kinds of strings attached to them?

In effect, the Court said that even though it might cost a citizen $5,000 to claim his Fifth Amendment right (as a defense) the right itself has not been diminished. This makes no legal sense whatsoever! The Supreme Court, of course, is normally quick to strike down any state law that casts even a tiny shadow over the Fifth Amendment — as when the Court struck down the New York state law that allowed it to discharge, but not otherwise punish, state employees who took the Fifth before grand juries investigating the operation of state government. "Such a law," the Supreme Court thundered, "punishes the individual for claiming the Fifth, so that New York law must go." And it did.40 State employment, however, is not a matter of right and taxpayers (represented by elected officials) can set standards for public employees. If these employees do not like the standards they can work elsewhere, but to suggest that a state has to continue employing a policeman who takes the Fifth before a grand jury investigating police corruption, for example, is totally unreasonable and a distortion of the purpose behind the Fifth Amendment. By maintaining that this New York state law diminished Fifth Amendment protection but Federal law (allowing citizens to be prosecuted, albeit not convicted for validly asserting this same right) did not diminish the right, has to set a new standard for judicial hypocrisy.

In any case, the following claim of the Garner Court presupposes an evidentiary hearing before a judge prior to any trials for the "crime" of asserting the Fifth Amendment on a tax return can take place.41

. . . a valid claim of privilege cannot be the basis for a Sec. 7203 conviction. . . 42 [and that] "Only because a good faith erroneous claim of privilege entitles a taxpayer to acquittal under Sec. 7203 can I conclude that petitioner's disclosures are admissible against him!'43 (Emphasis added in both quotes.)

"Validity" a Matter of Law

What constitutes a "valid" or "erroneous" claim of one's Fifth Amendment right is a question of law that obviously must be decided (based on Garner) by a judge before an accused can ever find himself before a jury can attempt to judge his "good faith." At such an eviden-

4lTo simply see through the absurdity of the Garner doctrine, ask yourself, "Since when did Congress make it a crime to claim the Fifth Amendment on a tax return in any easel"

"Garner vs U.S., supra, page 663.

43Ibid., page 668 from Justice Marshall's concurring opinion, Justice Brennan joining.

tiary hearing, if a judge decides that the right was validly claimed, the accused must be set free. If, on the other hand, the judge concludes that the claim was "erroneous," the accused can still be found not guilty by a jury that believed he acted in "good faith."44 Once the case is before the jury the jury must assume that the defendant's Fifth Amendment claim was both legally invalid and erroneous or why would he be on trial?

Neither I nor others ever got the evidentiary hearings that the Garner doctrine calls for. Such hearings are never held because no judge (even the Mamelukes we are forced to deal with) could rule that Fifth Amendment claims on tax returns are "invalid" or "erroneous" when all the information on them (even that which could be considered benign) can be used against those who give it to determine either civil or criminal liability.

In addition, how could the Garner Court even question the validity of a Fifth Amendment claim when it also stated (in the very same decision):

The information revealed in the preparation and filing of an income tax return, is for the purpose of Fifth Amendment analysis, the testimony of a "witness" as that term is used herein.46

Obviously if the filer of a tax return is being involuntarily made to be a witness against himself, he has a constitutional right to claim the Fifth with respect to any question he is being compelled to answer whether it is incriminatory on its face or not.46 In every case all such claims to Fifth Amendment protection would have to be judged legally "valid" and, even under Garner, no one could theoretically be prosecuted (let alone convicted) for claiming the Fifth on a tax return. For this reason the Garner doctrine was not meant to be implemented (which is also why it is totally ignored by tower "courts") but was merely advanced as a specious devke to extract the Court from the dilemma presented by the Garner case.

"This, of course, presupposes that one also gets a fair trial before a fair and honest "judge" which rarely happens. Even against such odds, however, some Fifth Amendment filers have been found not guilty: Charles Riley of Mesa, Arizona (1979) and Vfai-ren Eilertson of Ft. Washington, Maryland (1983). Even though these and other Fifth Amendment filers were found not guilty, a better approach is to file no tax returns at all. Ray Garland of Sycamore, Illinois (1983) and Jack Pierce of Ilion, New York (1983), as well as others, have been found not guilty on this basis.

46Garner vs U.S. 424 US 648, page 656.

"'This had already been established by the Supreme Court in the 1927 decision in U.S.

vs Sullivan 274 US 259,264, but this case was cleverly distorted by the Garner Court

so it could arrive at its own absurd decision.

My Second "Trial"

At my second trial (where I represented myself because "Judge" Clarie denied me the assistance of counsel) I objected to the use of my 1973 return on the grounds that when I filed it I believed it was required and, therefore, the government could not use such "compelled" testimony against me. In what has to be one of the most obviously illegal rulings ever recorded in the annals of American jurisprudence, Judge Clarie overruled my objection saying that since I filed my 1973 return "voluntarily" it could be used against me to prove that I understood I was "required" to file tax returns for the years 1974 and 1975! And this brilliant ruling came, not from any run-of-the-mill Federal judge, but from a Chief Judge.

Clarie's ruling on this one issue should give you some idea of what his charge to the jury was like. That forty-five minute piece of legal gibberish was full of lies, half-truths, and misleading inferences. Among the many lies Clarie told the jury were these:

1. persons are required to file income tax returns;

2. the government is not required to assess individuals in connection with income taxes; and

3. my good faith belief that the income tax was not being constitutionally enforced was not a defense to the charge.

Judge Clarie instructed the jury that I was wrong — as a matter of law — and that my good faith beliefs did not constitute a defense, leaving the jury with absolutely no basis whatsoever to find me innocent.47 The Appeal's Court affirmed my conviction orally since there was no other way the Second Circuit48 could affirm this legal abortion in writing without compromising itself. The court further ruled that its oral decision "shall not be reported, cited. . . or used in unrelated cases before this or any other court!' It was then ordered that I be incarcerated immediately — on a first offense misdemeanor — even though I had far from exhausted my appeal remedies. Word that the Supreme Court had declined to hear my appeal came five months after I had completed my jail sentence. Convicted felons are routinely allowed to remain free on bond for years until they have exhausted their appeal remedies because their crimes do not involve the government or income taxes.

470n July 11,1984, the Fifth Circuit Court reversed a conviction (U.S. vs T. Burton [5th Cir, No. 83-2579,1984]) when a lower court gave this very same instruction to the jury. In my case, however, the "judges" on the Second Circuit thought it an entirely acceptable one so they sent me to jail immediately!

^Judges Ellsworth A. VanGraafeiland, J. Edward Lombard, and Amalya L. Kearse heard the appeal and rendered the oral decision.

During my second trial I presented more law to the jury than, I suspect, any jury ever saw in the history of American jurisprudence. I now recognize that this was a mistake but the government did not attempt to cross-examine me on one word of it and Clarie later ruled that the bulk of my testimony was "not a defense." If this was true, why did he allow me to testify at all on these issues and submit more case law than is even covered in this book? I also introduced the Internal Revenue code, which the Assistant U.S. Attorney, Michael Hartmere, objected to. In one of the few times the government was overruled, the court allowed it to be introduced into evidence; but this has to be the only time in the history of American criminal justice that a defendant introduced the law over the government's objection,*9

All these cases give you some idea of the lawlessness and treachery with which the Federal judiciary operates (to say nothing of the Justice Department itself). They only represent the tip of the iceburg. This lawlessness now involves practically every sitting Federal judge, every Appellate Court and the Supreme Court itself. By comparison, it makes Watergate look like a cub scout outing. Before leaving this subject, however, I would like to briefly touch on a few other cases, some of which I was personally involved in.

Americans For Constitutional Taxation

On a Saturday morning early in 1979 I did a three-hour call-in phone interview with radio station WXYZ in Detroit. Two auto workers, Dean Hazel and Jim Lott (known in the Detroit area as "No Tax Jim") heard the show and contacted me. From this humble beginning and much hard work, dedication, and the dynamic leadership of Hazel and others, came A.C.T. — Americans For Constitutional Taxation. Within three years thousands of Michigan auto workers were dropping out of the tax system by claiming "exempt" on their employee withholding forms and were no longer filing tax returns. This received so much national publicity in February, March, and April of 1981 that the government felt it had to do something or risk being overwhelmed by tax drop-outs throughout the auto industry and (because of all the publicity) eventually being owerwhelmed by tax drop-outs throughout the

49In addition to detailing the cases mentioned in this book I had submitted (at both trials) motions to dismiss the charges, supported by the brief in Appendix D. It was denied by both judges (though the government did not even attempt to answer it with a written response) and neither judge allowed me the oral argument I requested. As a matter of fact, neither judge allowed me oral argument on any of the issues of law I raised.

country. Therefore, the government indicted Lott and Hazel for filing false and fraudulent withholding certificates (W-4s).

Hazel worked in a plant in Pontiac and after absorbing all of the material in my "Freedom Kit" he immersed himself in further study of the income tax and related subjects. He studied constitutional law and familiarized himself with all the cases covered in this book. He practically memorized the writings of Washington, Jefferson, and Hamilton and would, matter-of-factly, interject excerpts of what they said in conversation. He truly became a student of the "Constitutional Era." He knew that the income tax was an excise that could not apply to his wages. He also knew that he was legally exempt from withholding until he was officially "assessed" and, therefore, could claim "exempt" (pursuant to Code Section 3402(n) on his W-4.50

At his trial Hazel proved to be an excellent witness. He explained in detail why his wages (based upon the definition of income as developed by the Supreme Court) could not constitute income and why he could, therefore, lawfully claim exempt on his W-4. Based upon his testimony (even if it were wrong) no legitimate judge could possibly have concluded that he was "willful" or that his actions were tainted, to any degree, by criminal intent.

Part of his testimony dealt with the fact that I had advised him to claim exempt. When I took the stand I confirmed this. So if Hazel was guilty of any "crime," I had to be (at the very least) an accessory, guilty of violating Code Section 6701 which says that "Any person — who aids or assists. . . or advises [any person in] the preparation of any document. . . arising under the internal revenue laws. . . in an understatement of the liability for tax. . . shall pay a penalty with respect to each such document. . ."

In his charge to the jury, Presiding "Judge" Churchill made it a point to emphasize and mislead it into believing that wages were "income!' He said that Hazel must have known this since he had attended my trial (where I was convicted) and should have realized that not only were my views wrong, but that I was a law-breaker to boot. In the final analysis, my testimony actually hurt Hazel, who otherwise might have been found not guilty. Though I did not attend Lett's trial (he was also found guilty), I must say that I never met a man more inbued with the spirit of the Federalist Papers than he. And these are the kind of citizens the Federal government jails as "illegal tax protesters?"

"The media carried the erroneous account (fed to them by the government) that those auto workers were "inflating" their allowances" which made it sound as if they were lying. However, the vast majority of them — and certainly those associated with A.C.T. — were not increasing the number of their allowances but were merely claiming "exempt" from withholding pursuant to Code Section 3402(n). They were legally exempt from withholding for all the reasons covered in this book.

The Carlson Case

Though all the cases mentioned illustrate the criminal nature of our "courts," this court actually admitted (then sought to justify) its criminal behavior in U.S. vs Carlson 617 E2d 518.

Carlson, a factory worker, claimed 99 withholding allowances in 1974 and 1975. While he had filed and paid taxes in previous years, he filed Fifth Amendment returns for 1974 and 1975. At his trial he stated that had he filed "traditional" returns (for 1974 and 1975) he would have exposed himself to criminal prosecution for allegedly filing false W-4s (claiming 99 exemptions which the Appellate court admitted was absolutely true). As the Appellate panel admitted, had Carlson filed a tax return (even if he only showed the amount, and not the source, of his income) it would have exposed him to criminal prosecution; and under the Constitution he was legally protected from having to do so. But the Ninth Circuit Court of Appeals upheld his conviction.51 In his opinion Judge Wallace acknowledged that

An examination of the facts of the case reveals that Carlson did assert the privilege. . . while facing a real and appreciable hazard of prosecution for having previously filed false withholding forms. In addition, there is little doubt that a truthfully completed tax return, stating his gross income, the lack of federal income taxes actually withheld and the true number of available deductions would have provided "a lead or clue to evidence having a tendency to incriminate ..." The government concedes that Carlson could have been prosecuted under 26 U.S.C., Sec. 7205 for filing a false withholding form. . . [and that the] privilege is asserted to avoid incrimination for past tax crimes.52

Overlooking the sanctimonious and self-serving case law cited by the court (including the Garner case under which Carlson was absolutely barred from conviction), its decision boiled down to this:

If Carlson's assertion of the privilege were valid, it would license a form of conduct that would undermine the entire system of personal income tax collection. . . We are thus confronted with the collusion of two critical interests: the privilege against self-incrimination, and the need for public revenue collection by a process necessarily reliant on self-

61He was prosecuted in the U.S. District Court for the Northern District of California before Samuel J. Conti. His conviction was affirmed by Appellate Court Judges Wallace and Kennedy with Earl R. Larson, a District Court judge from Minnesota "sitting by designation." Wallace wrote the opinion.

62U.S. vs Carlson, supra, page 520.

reporting63. . . [and that] the character and urgency of the public interest in raising revenue through self-reporting weighs heavily against affording the privilege to Carlson64. . . [and that since the government's power] to raise revenue is its life blood. . . [if other taxpayers were] permitted to employ Carlson's scheme. . . [this would] seriously impair the government's ability to determine tax liability. . . [and the government's ability to collect income taxes would be] inordinately burdensome if not impossible. . . [and that since] The record clearly discloses that Carlson was a tax protestor. . . Carlson failed to assert the privilege in good faith.55 (Emphasis added)

It is obvious, therefore, that this court (along with other Federal courts) thought nothing of re-writing the Constitution. The court openly admitted that if Carlson filed a traditional return he could have been criminally prosecuted for doing so, but that he still, nevertheless, was legally required to file! The Fifth Amendment clearly states that "No person. . . shall be compelled. . . to be a witness against himself!' So how could the Appellate court conclude that the Fifth Amendment was not available to Carlson because he was a tax protester? Does the Fifth Amendment say that "No person. . . shall be compelled. . . to be a witness against himself except in tax cases?"

The Fifth Amendment is law that the government must obey — in all circumstances, even those dealing with taxes. If the government's ability to collect a tax collides with a constitutional right, then the method of collecting the tax must yield, not the constitutional right. The public has a right to expect that the Constitution and the Bill of Rights will be enforced as written, especially in situations "burdensome" to the government because that is precisely why these rights were written into the Constitution in the first place. Our Founding Fathers were smart enough to know that — sooner or later — all governments come to regard individual rights and individual liberties as "burdensome!*

In effect, the Carlson court ruled that while individuals may be required to obey the law, the government is not. It proves that the Mamelukes believe that they are free to openly admit they can disregard the Constitution whenever it serves their purposes.

B3Wrong. The collusion was between his constitutional right of not being compelled to be a witness against himself and the government's insatiable appetite for more money to waste.

"Note here how the judiciary converted the Bill of Rights into the Bill of Privileges.

KU.S. vs Carlson, supra, pages 520-524.

Signs That The Mamelukes Are Panicky

In case you think the Mamelukes are only content with doing away with the Fifth Amendment, on November 2,1984 in Kansas City, Missouri, they did away with the First Amendment, too. On that date U.S. District Court of the Western District of Missouri issued a gag order prohibiting John Oaks (of Denver, Colorado) from "promoting the theory that income from wages and salaries is not taxable." On that same date the Justice Department filed suit in U.S. District Court of the Western District of Oklahoma seeking to get a similar gag order against James Turner of Oklahoma City. Sensing that the end is in sight, the Mamelukes are trying desperately to silence the truth with gag orders. In addition to gag orders, the Mamelukes also seek to suppress the truth with arbitrary and punitive court rulings. Recently the Second Circuit Court of Appeals doubled the fine and added a $500 penalty because Joseph W Hennessey, Jr. (an accountant from Troy, New \fork) appealed his three-year sentence for failing to file on the grounds that his wages were not income.

Charles Keller

In early October, 1984 Charles Keller (a 37-year old bread salesman from Salem, Oregon) was prosecuted in Portland, Oregon before U.S. District Court "Judge" James M. Burns. Keller was indicted on a two count felony charge for tax fraud (pursuant to Code Section 7206) in connection with a Subchapter "S" return he filed in 1977; and three misdemeanor counts for allegedly failing to file personal income tax returns for 1978,1979, and 1980 (pursuant to Code Section 7203). What sets his prosecution apart is that it demonstrates the totally arbitrary and capricious manner with which the government can enforce and criminally prosecute anyone under our present income tax "laws!"

His alleged criminal tax fraud stemmed from contested business deductions of $3,967.05 and the alleged miscalculation of the capital gains tax on the sale of a $7,000 delivery truck (which Special Agent Philip Hopkins admitted would only have netted the government an additional $168 if calculated their way). Overlooking entirely the fact that these items were vigorously defended by Keller at trial, and overlooking completely the court's conduct (which at times found "Judge" Burns objecting for the government and admonishing the government's attorney for not doing so on his own), to charge a citizen with criminal fraud over such amounts is a measure of legal vindictiveness.

Countless Americans have business and personal deductions disallowed that amount to hundreds of times the amounts dealt with in

Keller's case and they receive no more than a civil penalty. Even Vice President Bush (in a highly publicized story during the last election) reduced his taxes by an erroneous capital gains calculation many times greater than Keller's, but he was not charged with criminal tax fraud because of it. Criminal fraud charges are traditionally reserved for those who fail to report substantial amounts of alleged income to the government. To brand a citizen a felon and send an otherwise productive and law-abiding American to prison because of disallowed buisness deductions (that would not have netted the government $1,000) is another example of the government's ruthless, corrupt, and arbitrary exercise of its taxing powers and demonstrates why such powers must be stripped from them.

The reason Keller was prosecuted in this way is because the IRS regards him as a tax protestor — someone exercising his First Amendment right of free speech to educate and arouse a sleeping public concerning the government's illegal enforcement of the income tax. Because of the government's arbitrary and ruthless criminal prosecution of Keller (for something generally given only a civil penalty) the government has made a sham and a mockery of the American principle of equal justice under the law. But what is one more mockery to a Federal judiciary that constantly mocks the entire Constitution?

On November 19, 1984, Charles Keller received a three year sentence (with two years suspended) and five years probation on the criminal fraud charges, and a suspended sentence with probation on the failure to file charge. He was immediately ordered incarcerated at his sentencing.56 In this case, for example, where the defendant is no more guilty of the "crimes" for which he was convicted than Mother Hubbard57, and where court error (in order to get the conviction) would have to be a mile high and a mile wide, Burns held that Keller had no legitimate basis for an appeal and immediately ordered him locked up!

How does this differ from the legal procedures manual of the Soviet Union? Yet these are the kinds of "trials" that now take place in America. They reveal the danger of filing — the risk of exposing oneself to felony charges even over minor disputed deductions! In essence, Keller

"Under a new law that went into effect on October 12,1984 judges (even if informed of a defendant's intent to appeal) can nevertheless order them immediately imprisoned if they believe that an appeal is groundless and/or instituted merely for delay, which only demonstrates the inherent danger of giving additional arbitrary powers to Federal "judges."

"'The real law-breakers in this affair are the "judge" who sentenced him and Arthur Davis, the Justice Department torpedo who flew in from Washington, D.C. to prosecute him.

was prosecuted and jailed because he openly espoused and promoted the perfectly correct legal belief that filing and paying income taxes are voluntary. So he, like many other Americans, was locked up as a political prisoner: Yes, we do have them in America, too!

"Lee" Mele

On February 10, 1982 Armond "Lee" Mele, a retired newspaper publisher from Franklin Lakes, New Jersey, was invited to testify before a grand jury that was to consider indicting him for failure to file income tax returns pursuant to Section 7203. A Section 7203 violation is a misdemeanor, not a felony, so the government normally initiates prosecutions (as it did in my case) by way of an "information," a document filed by a U.S. Attorney stating that he has information that the accused committed the alleged "crime" without any probable cause having to be otherwise established.58 In Mele's case, however, the government (for some strange reason) decided to proceed legally and seek an indictment. Most criminal lawyers advise targets of grand jury investigations not to testify since, in such circumstances, they are not permitted assistance of counsel and the government's attorney can spring any kind of question on them and confront them with all sorts of documents. In addition, everything they say can be used against them at a regular trial if the investigation results in an indictment. Despite all of this Mele wanted to testify anyway.

Fortunately for him, my book, How Anyone Can Stop Paying Income Thxes, had just been published and a copy was immediately dispatched to him right from the printer. In a letter to me on February 12,1982, he said:

The information I derived from your latest book "How Anyone Can Stop Paying Income Taxes" was responsible for the Grand Jury to return a verdict in my favor. The thirteen hours I spent reading and absorbing all the pertinent information in your book enabled me to overcome anything the U.S. Attorneys presented to the jury.

This was confirmed in a letter Mele received from W Hunt Dumont, U.S. Attorney for the District of New Jersey, in which he stated:

The purpose of this letter is to advise you that the Tax Division of the Department of Justice has declined prosecution in connection with your non-filing of federal income tax returns for the years 1977 and 1978.

^Omitting an analysis of why such "Informations" (even in these cases) are illegal, it is easy to see how "Informations" can be used by the government to prosecute as "criminals" those who are merely attempting to expose its illegal, taxing activities while hoodwinking the public into thinking that traditional American concepts of justice are being observed.

So even though he admittedly filed no income tax returns for the years in question, the U.S. Attorney informed him that the grand jury refused to indict him. (Both of these letters were reproduced in The Schiff Report, Volume 2, Number 6.)

Had the government elected to prosecute Mele by way of an "Information, " he could have found himself (as I did) prosecuted and imprisoned for a "crime" for which a grand jury (given the same facts) would have refused to indict. How do we account for this strange situation? When Mele was before the grand jury he did not have to contend with a Federal "judge" running and controlling the proceedings. Free from such overbearing, judicial tyranny, Mele was easily able to beat two seasoned government lawyers who were sent to "get" him — proof that the government has been getting Section 7203 convictions not because of the ability of its prosecutors, but because of the assistance of its prosecuting "judges."

Mele's experience proves that all Section 7203 prosecutions (as well as all "tax protest" prosecutions) initiated either by way of an "Information" or an indictment had to have been illegal and fraudulently obtained. If individuals can be legally prosecuted and convicted for such "crimes, " why could not two U.S. Attorneys get a simple indictment against Mele? The difference is that Mele showed the grand jury the law (proving he could legally do what he had done) and he also pointed out the government's responsibility under that law — and two U.S. Attorneys could not refute his testimony because they did not have a Federal "judge" to help them confuse the jury! "Lee" Mele, apprehensive private citizen — who had never been in such a setting — was able to successfully rout two U.S. Attorneys, armed only with my book!

Why Federal "Judges" Believe They Can Break The Law

Immediately after leaving the Federal Correctional Institute in Lexington, Kentucky in July, 1981,1 wrote letters to the three Federal Grand Juries sitting in New Haven, Connecticut. I informed them that I had evidence that would establish the criminal culpability of the Federal judges and U.S. Attorneys who had taken part in my two trials and that their actions violated Sections 241 and 242 of the U.S. Criminal Code (see Exhibit 11). I was never called to testify despite the fact that I had reached the foreman of one of the juries by phone.59

When I did not hear from the grand jury for more than five months, I went to the New Haven office of District Court Judge, Ellen Burns to

MI have since written to other grand juries with the same results. At one point I notified the U.S. Attorney's office that I wished to appear but I still have not been called to testify, but I have evidence that the U.S. Attorney's office actually influenced the grand jury not to call me!

complain.601 was not able to speak to Judge Burns but her law clerk consented to see me. I explained my problem to him (my belief that I had sufficient evidence to get Judge Clarie and others involved in my illegal prosecutions indicted) and said I wanted to present this evidence to a grand jury but none of them would call me to testify. He then bluntly asked, "Suppose you did get the indictments, who would you get to prosecute?"

I answered, "Just let me get the indictments, I'm not concerned with their prosecution."

His implication, however, was clear and explains why Federal *judges"feel free to break the law: They are positive they will never be indicted or prosecuted for ciminally breaking laws in favor of the government. This we are determined to change!


§ 241. Conspiracy against rights of citizens

If two or more persons conspire to injure, oppress, threaten, or intimidate any citizen in the free exercise or enjoyment of any right or privilege secured to him by the Constitution or laws of the United States, or because of his having so exercised the same; or

If two or more persons go in disguise on the highway, or on the premises of another, with intent to prevent or hinder his free exercise or enjoyment of any right or privilege so secured—

They shall be fined not more than $10,000 or imprisoned not more than ten years, or both: and if death results, they shall be subject to imprisonment for any term of years or for life.

§ 242. Deprivation of rights under color of law

Whoever, under color of any law, statute, ordinance, regulation, or custom, willfully subjects any inhabitant of any State, Territory, or District to the deprivation of any rights, privileges, or immunities secured or protected by the Constitution or laws of the United States, or to different punishments, pains, or penalties, on account of such inhabitant being an alien, or by reason of his color, or race, than are prescribed for the punishment of citizens, shall be fined not more than $1,000 or imprisoned not more than one year, or both; and if death results shall be subject to imprisonment for any term of years or for life.

""Since grand juries fall within the judicial branch of government and are specifically charged with investigating crimes brought to their attention, I assumed it was a responsibility of the district judge who empanelled them to remind them of that duty.


Tax "Court" and Other Tax-Related Scams

The income tax scam involves hoaxes within hoaxes, the greatest being "Tax Court." First, such "courts" are not constitutional. Federal courts are provided for in Article III of the Constitution which begins "The judicial power of the United States shall be vested. . . " Tax Court, on the other hand, is established under Article I which deals with the powers of Congress (hence the term "Article I courts"). "Article I courts" were first established by Congress in the territories before they achieved statehood. Not being a formal part of the Union, these territories could not have a legal system that was integrated with the nation's regular system, so to keep law and order Congress established (under its own authority) these "courts." Congress, however, is not granted any power in Article I to establish courts of any kind in the United States. "Tax Court," therefore, is really a "territorial court" and that is precisely how it is run. In fact, most tax "court" decisions sound as if they were written by "judges" who just spent half their day carousing in a frontier saloon.

Tax court "judges" are, by definition, not even judges though the Federal government deceives the public into believing otherwise. Legitimate Federal judges are established under Article I, Section I of the Constitution which states, that "judges, both of the Supreme and inferior courts, shall hold their offices during good behavior. . . " In other words, they are appointed for life. Tax court "judges," on the other hand, are appointed for a fifteen year period and, therefore (by definition), cannot be lawful Federal judges in America. Tax "Courts," moreover, violate the "separation of powers" principle since they are creatures of the Executive branch of government and not of an independent and co-equal judiciary. Yet the rulings of these "courts," which have no more judicial standing than the opinion of a bureaucrat are treated by the Federal judiciary as if they had the color of law.

Tax "Court" differs in other ways from regular courts. Taxpayers have to petition Tax "Court" to hear their cases or the "court" cannot

get jurisdiction. For example, the IRS makes a determination that a taxpayer owes a "deficiency" on his taxes and the taxpayer then has to take the government (IRS) to Tax "Court" to prove that he aloes not owe it. This is the exact opposite of the usual condition which places the burden of proof on the party claiming the money. Individuals are conned into petitioning Tax "Court" because they receive a "Notice of Deficiency" (commonly called a 90 Day Letter, see Appendix F) from the IRS which they believe is a demand for payment. They are further tricked into believing that if they do not petition Tax "Court" and challenge the phony demand, the government can lawfully collect the amount allegedly owed by force and, therefore, they petition Tax "Court" for a "hearing."

An important element that enables Tax "Court" to perpetuate the income tax scam (and to protect itself) is its refusal to allow petitioners to have as counsel anyone who the "court" has not approved beforehand. Naturally the "court" will only approve individuals who basically accept the "court's" perversion of the entire income tax "law" (that individuals are required to file and to pay income taxes; that sources of income are taxable; and all the other standard garbage that lawyers, accountants, and the IRS have been feeding the American public for years). On September 14, 1984, for example, Chief Tax "Court" Judge Howard Dawson suspended Denver Attorney Cecil A. Hartman from practicing before that "court" because, Dawson said, Hartman was arguing "that wages are not income, and such arguments can only be characterized as frivolous." This makes it a waste of time to go before a Tax "Court" — and anyone who is "approved" to practice in that "court" either does not know the law or, if he does, is barred from applying it.

To show just how fearful Tax "Court" is of someone with any legal skill who raises this issue, Hartman never even argued this issue before that "court!" His suspension involved four cases (he initiated the petitions in only two of them) that he never was allowed to argue. Hartman is currently appealing the suspension — but that is how Tax "Court" operates. Nobody who appears in Tax "Court" can possibly get effective counsel so he must either represent himself (a difficult task at best) or use the "court's" own lackey. In short, Tax "Court" is nothing more than a drumhead court martial.

Irwin Schiff In Tax "Court"

In February, 1982 I received a 90 Day Letter (dated January 29, 1982) under the typed name of Roscoe Egger, Commissioner of Internal Revenue. It alleged that I had been assessed a tax "deficiency" of $19,632 for the years 1974 and 1975 and listed interest penalties in the

amount of $664.00 plus $9,800 in fraud penalties. Before explaining the total illegality of this "notice, " I must recount another incident that has a bearing on the fraudulent nature of the "notice" and also establishes the blatant illegality of all IRS seizure activities.

On July 16, 1981 (immediately upon my release from Federal detention) I filed a complaint in Federal District Court against the United States government, U.S. Attorney Richard Blumenthal, and Assistant U.S. Attorney Michael Hartmere. I was seeking declaratory relief (a restraining order) to enjoin the defendants from prosecuting me for not filing income tax returns for the years 1976 through 1980 on the grounds that since I had been illegally prosecuted once I faced the danger of being illegally prosecuted again for the years for which I openly admitted not filing.1

On September 16 the government filed a motion (and brief) asking for dismissal of my suit and $468.75 to cover the cost of responding to it. Despite refuting the government's arguments in my reply brief, and besting them in oral argument, the District Court nevertheless granted the government's motion to dismiss and, parroting its claim of "contumacy indicative of bad faith," awarded the government attorney's fees of$468.75.2

When "Judge" Ellen Burns ordered me to pay this amount, I filed a motion "to correct an ambiguous and therefore illegal fine" in which I explained that since the government no longer provided lawful dollars and since the only kind of ersatz money I had was Federal Reserve Notes (no longer redeemable for lawful dollars) and tokens (coined to look like lawful dollars), I could not legally pay the fine ordered by the "court." On December 8,1981 "Judge" Burns (relying solely on an immaterial lower court case — United States vs Daly 481 E2d 28 [8th Circuit]) held my claim "wholly without merit" and ordered me to pay "FOUR HUNDRED SIXTY-EIGHT DOLLARS AND SEVENTY-FIVE CENTS (468.75), payable in legal tender, namely, federal reserve notes." On December 24,19811 moved for relief of that judgement pursuant to Rule 60(b) on the following grounds:

1. that since a note is a promise to pay, and currently issued Fed-

'This was tantamount to someone who was convicted of robbing one bank, walking into court admitting to robbing other banks but now asking the court's protection from additional prosecution. In my case, however, my motion proved I was illegally prosecuted and why I had a right to the restraining order. But if not filing income tax returns is really a "crime," why did the government not immediately prosecute me for all the years I openly admitted to not filing?

2See Appendix E for the full text of my answer to the government's Motion to Dismiss my suit.

eral reserve "notes" contained no such promise, I could not pay the fine in "notes" as ordered by the "court";

2. that the Daly decision had to do with the taxability of such "notes" and was not relevant to the issues I raised; and

3. that pursuant to a number of Supreme Court cases the "court" had no authority to order me to pay a fine in the bogus notes of a private banking syndicate and "unless the Plaintiff can secure bonafide Federal Reserve notes that are redeemable in lawful dollars, the judgement of this court as contained in its order of December 8,1981 is clearly void and contrary to law!'

On December 28, 1981 Judge Burns denied my motion without comment. I was preparing to appeal her unlawful order to the Second Circuit Court of Appeals, but before I could, something happened that sheds a tremendous amount of light on the illegal seizure activities of the IRS.

In early May, 1982 a United States marshall served my bank with a court order for the $468.75 fine. My bank informed me of this immediately and said that the amount would be frozen pending a final disposition of the matter since I had the right to complete an affidavit certifying I did not owe the amount claimed, which I did. Connecticut banking regulations apparently provide that if a bank depositor certifies he does not owe the amount claimed by a judgement creditor, the judgement creditor has thirty days to go back into court to resolve the matter. The following month (much to my surprise) I received a copy of a motion in which the government asked the District Court to set aside this regulation because it had allowed the thirty days to elapse and, therefore, the bank removed the lien and cleared my funds. I responded by pointing out to the "court" that it had no authority to set aside Connecticut banking regulations. The "court" agreed and denied the motion on June 24,1982. So, even with a court order and a U.S. marshall, the Federal government was unable to get my funds out of my bank.3 Next I filed an appeal of Judge Burns' unlawful order with the Second Circuit Court of Appeals.4

Getting back to the "Notice of Deficiency" I had received (alleging more than $19,000 in taxes due plus interest and fraud penalties), the government had already sent me to jail for not filing tax returns for the

"Contrast this with how easily an IRS agent was able to remove my funds from the same bank without a court order of any kind and without the bank even notifying me that my funds were leaving the bank! (See page 366.)

4Both of my appeal briefs and the government's brief (together with the "decision" of the Appeals Court on this issue) are shown in Appendix E.

years they now claimed I owed a tax. Under the law (Section 6201) the IRS had absolutely no authority to even estimate a tax (let alone assess one) since I had neither sent in a "return" nor a "list" for either year. To understand the full extent of the corruption, lawlessness, and tyranny with which the entire Federal income tax is run, one has to understand how this totally unauthorized "estimate" of my "tax deficiency" and penalties were arrived at.

In 1974 I was living in Ft. Lauderdale, Florida working full-time writing my first book, The Biggest Con: How The Government is Fleecing You. 1 drew a $300.00 a week salary from my Connecticut corporation and supplemented it by occasionally selling precious metals. Using illegally subpoenaed bank records to "estimate" my 1974 "income, " the IRS listed as "income" the following items:

1. my $15,000 salary (which they termed "compensation" to illegally place it within the provisions of Section 61);

2. a $1,000 initial royalty advance from my book;

3. some $4,000 in other "commissions and dividends"; and

4. a lone $38,000 bank deposit which reflected funds given to me in my capacity as a broker for the purchase of some silver and gold coin.

The IRS was not only seeking to tax sources of "income" as "income" itself, but in seeking to tax a lone $38,000 bank deposit as "income" (without making any attempt to determine its source), it was arbitrarily and outrageously seeking to tax pure conjecture as "income!' It must be clearly understood that there is absolutely nothing in the law that even comes close to allowing this.

In addition, the $9,800 "fraud" penalty was imposed allegedly pursuant to Section 6653(b). But this section only provides that

If any part of any underpayment (as defined in subsection (c)) of tax required to be shown on a return is due to fraud, there shall be added to the tax an amount equal to 50 percent of the underpayment. (Emphasis added)

Subsection (c) defines underpayment as "the tax shown on a return." This section can, therefore, only apply to

1. someone who files a return; and/or

2. someone who makes fraudulent statements; and/or payments (under penalty of perjury) in connection with returns that are "required" to be filed.

Fraud penalties under Section 6653(b), therefore, could not apply to me on any basis because:

1. I made no payment of any tax for either year so it was impossible that "any part of any underpayment" could be due to fraud for the simple reason that there was no "part" to which "fraud" could apply — because no "part" of any payment was ever made so there was no "part" for the government to consider; and

2. there was no "tax shown on a return" for either year so this also ruled out any possibility that Code Section 6653(b) could apply tome.

Any semi-literate Federal bureaucrat should have been able to figure out that no fraud penalties (pursuant to Section 6653(b) could have applied to me. The IRS's total disregard of the obvious provisions of that section of the Code, is so indisputably clear that it permits almost instant evaluation of the entire Federal income tax operation.

1. If the IRS can impose substantial "fraud" penalties under a Code provision that clearly does not apply;

2. if such obviously illegal penalties can be staunchly defended and affirmed by both Tax "Court" and a Federal Appellate court; and

3. if such an obvious and total disregard of Code provisions can still provide the basis for IRS seizures of property without a court order

then it must be obvious that when you deal with the Federal government you are dealing with the real crime syndicate in America.

Apart from all of the above there is another reason why Section 6653(b) could not apply to me — or to anyone else for that matter — even if false statements were made on a tax return. Recognizing and understanding this subtrefuge helps explain how the government is able to forcibly collect income taxes and related penalties even though no such forced exactions are authorized anywhere in the Code.

Note that Section 6653(b) does not merely state that penalties under that section apply to "any underpayment of tax shown on a return," but only to underpayments "required to be shown on a return." Therefore, the section cannot apply to income taxes5 because "income" taxes are not one of the Federal taxes "required to be shown on a return," so all the billions of dollars in "fraud" penalties (with respect to income

6Note there is no mention of "income" taxes anywhere in Section 6653(b).

taxes) extracted from the public under this statute were never owed or even provided for by it! So, in collecting these fictitious "fraud" penalties, the Federal government itself has been engaged in massive criminal fraud involving major governmental institutions — the Department of the Treasury, the Justice Department, and the entire Federal judiciary.

Interest Penalties

In addition to the fraud penalties assessed, the IRS added $664.00 in interest penalties pursuant to Section 6654. This section provides that "In the case of any underpayment of estimated tax by an individual. . .[that]. . . the amount of the installment which would be re' quired to be paid if the estimated tax were equal to 80 percent. . . " This section also could not apply to me — nor to anyone else with respect to income taxes — for all the same reasons discussed in connection with Code Section 6653(b) and specifically because I made no "underpayment of [an] estimated tax."

On top of all this, a few months after receiving my "Notice of Deficiency" I wrote to the Secretary of the Treasury asking (pursuant to Section 6203) for a copy of the record of my assessment. In a letter received from the IRS Service Center in Andover, Massachusetts dated June 23, 1982 (see Exhibit 12), I was informed that as of that date "there is no record of a tax assessment for [you] for the years 1974 and 1975 at the present time!' Five months after I was notified by the Commissioner of Internal Revenue that I owed the government some $31,000 in back taxes and penalties his department informed me that I did not owe the government a dime! And since I had not been assessed any taxes as of June 23,1982, how could I have possibly been assessed as of January 22,1982 — the date of the "Notice of Deficiency — or owe any interest on taxes that were never assessed (and thus were not "due") or committed "fraud" with respect to taxes never assessed?

The Fraudulent "Notice Of Deficiency"

One of the most blatantly illegal ploys used by the government in its income tax operations6 is its use of the "Notice Of Deficiency" which

The government collects income taxes on the basis that it makes no difference how many Code sections it violates. Thus, given the public's total unfamiliarity with the law (and the duplicity of lawyers) as well as its naive belief in the honesty of the Federal judiciary, it can get away with anything. And it does!

Internal Revenue Service

Hepartment of the Treasury

P. 0. box 1500 Andover, MA 01610


JUN 2 3 1982

In reply refer to:


Person to Contact: Richard J. DeLotto

Telephone Number: 617-681-9793

Irwin A. Schiff

Freedom books

P. 0. Box 5303

Hamden, Connecticut 06516

Tear Mr. Schiff:

This is in response to your inquiry to Kr. Ltonald T. Hegan, Secretary of the Treasury, which has been forwarded to us for response.

In accordance with Internal Revenue Code Section 620j, there is no record of a tax assessment for the tax years 1974 and 1975 at the present time.

If you have any further question regarding this msttar you may call Mr. DeLotto of my staff at the telephone number shown above. Since this is not a toll-free number, you may preftr to write to him tit the addresa in the heading of this letter.

Sincerely yours.



deceives the public into conferring jurisdiction over non-existent tax liabilities to "courts" that have no interest whatsoever in their legitimacy. When taxpayers petition Tax "Court," the rules of the "court" (which the public never understands) say that in so petitioning, petitioners have accepted the basic legality of both the deficiency and the penalties, and are only requesting a "redetermination" of the amount(s) due. Petitioners never discover this diabolical trap (if they ever do) until after they go to Tax "Court" which, by then, is too late.

Individuals who receive these "notices" are misled into believing that they represent final demands for payment of the amount(s) shown and that they basically have four choices:7

1. petition Tax "Court" within ninety days for a "redetermina-tion"of the amount(s) shown:

2. pay the amount(s) shown and then (if they wish) sue for a refund in District court, thereby conferring jurisdiction to a Federal "court";

3. negotiate a settlement; or

4. do nothing and see all their assets systematically and illegally confiscated by the government (without court orders of any kind).8

The government has very cleverly arranged this process so that no matter what option an individual chooses it is the citizen who must initiate the court action — either as the petitioner in Tax "Court" or as the plaintiff in District court. The government did this because there is nothing in the law that says anyone has to pay income taxes so the government could never get into court on its own. It would be a simple matter (not even requiring the help of a high-priced or even tax-knowledgeable lawyer) for any citizen to get such government-inititated lawsuits dismissed (even from its own crooked courts) on any one of a number of grounds, one of which is that no liability for such a tax is found anywhere in the law. The government could not refute a defense

7Until now these were realistically the only choices available to the public, but Chapter 18 of this book presents a fifth choice.

"In many instances "deficiency assessments" and penalties are set so arbitrarily high that they can bankrupt individuals or leave them without the necessary funds to effectively fight the government in District courts. This is also a part of the government's well-thought-out scam to prevent the illegality of its acts from being successfully challenged. Another problem facing taxpayers is the impossibility of finding knowledgeable and effective legal counsel. Most lawyers simply to not know the law and those few who do and might press it will be intimidated, fined, and otherwise disciplined by the "courts" (See page 296.)

as simple as this if it were made in a defendant's motion to dismiss so any such government lawsuit would have to be thrown out even by a partisan judiciary? By forcing citizens to initiate court action, the government avoids having to establish the legal legitimacy of its tax claim! In addition, this shifts the burden of proof to the public under conditions that render it impossible for them to carry their burden. The Mamelukes have not overlooked a thing!

What "Deficiencies" Are and How They Are Illegally Created

Section 6211 of the Internal Revenue Code defines a "deficiency assessment" as

the amount by which the [deficiency]. . . exceeds the excess of-(1) The sum of

(A) the amount shown as the tax by the taxpayer upon his return, if a return was made by the taxpayer and an amount was shown as the tax by the taxpayer thereon, plus

(B) the amounts previously assessed (or collected without assessment as a deficiency. . . ) (Emphasis added)

It is obvious from the above that no "deficiency assessment" can exist unless the taxpayer files a return and shows a tax due. Since income taxes are based on "self-assessment" the government has no statutory authority to assess income taxes on its own. It, therefore, uses the following ploy: once an individual foolishly files a return and swears on it (under "penalty of perjury") that he has "income" and owes an "income" tax, the government takes him at his word. Once this is done, the government is authorized to assess the taxes shown on the return and then has a statutory basis for increasing this assessment by a "deficiency" based upon all the false assumptions made by the taxpayer on his return (i.e., that he had gross and taxable "income"). If the individual did not voluntarily agree to assess himself by sending in either a "return or a list, " the government has no statutory authority to make either an assessment or a "'deficiency assessment'.' Even the latter term admits there must have been an initial assessment before there can logically be a subsequent "deficiency!' This is confirmed by the following court cases. In Lydon & Company vs U.S. 158 E Supp. 951, the court stated:

When one files a return showing a tax due, he has presumably assessed himself and is content to become liable for the tax and to pay it either when it is due according to the statute or when he can get the money together.

9I assume that there are limits beyond which even Federal "judges" can contrive decisions.

In Uncasville Mfg. Company vs Commissioner of IRS 55 E2d. 893, the court held:

A deficiency is an amount by which the tax exceeds [the] sum of [the] amount shown by [a] return and [the] amount previously assessed as [a] deficiency "held to mean deficiency conceded by [the] taxpayer!'

Therefore, if the taxpayer has conceded no amount due (by not filing a tax return) there can be no "deficiency assessment."

In Lisner vs McCanless 356 F. Supp. 398, the court clarified the above positions by stating:

Ordinarily, the procedure for collection of income tax would be for the taxpayer to file an annual return and to pay the amount due. At this point an "ordinary assessment" is made by entering on the rolls the tax reported and crediting the amount paid (Flora vs U.S. [see page 242], other citings omitted]. Thus section 6201(a) does provide assessment authority; that authority is limited on its face however.7 As a general iriatter, taxes beyond those admitted by the taxpayer cannot be assessed except as a deficiency.

In a lengthy footnote (7 in above quote) the court stated in relevant part:

Whether or not certain procedural rights attach therefore depends on the underlying nature of the assessment; "ordinary," deficiency, or jeopardy. The cases do not always maintain this important semantic distinction. "Stated simply, a 'deficiency' is the excess of the amount of the tax (determined due the IRS) over the amount of tax reported by the taxpayer. . . "

As is obvious from these court explanations, there can be no "deficiency assessment" unless a taxpayer 1) first concedes that he owes a tax on a return, and 2) that there is a difference between an "ordinary" assessment and a "deficiency assessment" which the government conveniently overlooks so it can swindle the public.

Since I never conceded a tax on a return or had an "ordinary" assessment, by law I could not possibly have had a "deficiency!' In other words, the entire "Notice of Deficiency" I received (including the fraud and interest penalties) was illegal and Roscoe Egger and all the other government officials who had a hand in preparing and sending it are candidates (under various Federal statutes — including mail fraud) for incarceration.

Prior to receiving the 90 Day Letter I received a 30 Day Letter suggesting that I owed these same amounts. It asked for my signature indicating my acceptance of these determinations. I acknowledged the letter and in rejecting the government's claims as absurd, I reminded the government that the income tax is based on self-assessment and voluntary compliance, and since it falls into none of the taxing clauses of the Constitution, I could not possibly "owe" what the government contended. I also explained that under the Pollock, Brushaber, and Smie-tanka decisions I had no taxable income. The IRS did not respond to the issues raised in my letter and simply disregarded it as if it had been sent to the KGB.10

I was not really familiar with Tax "Court" and wanted to find out how it operated so I submitted my petition. Since I was travelling at this time (promoting my book and conducting seminars) and knew nothing about Tax "Court" procedures, I relied on a paralegal who presumably did know. Unfortunately, this paralegal dropped the ball completely and filed nothing in a timely manner. As a result, I was forced to fly in from Portland, Oregon on Sunday March 27, 1983 for a Tax "Court" hearing in Hartford, Connecticut the next day.

Among other things, I submitted the following documents to the "Court":

1. Copies of letters sent to the government (pursuant to Section 6203) asking for the record of my assessment for the years in question (which I had done no less than four times).

2. The IRS's letter of June 23,1982 stating that as of that date no income tax assessments had been made against me — proving that my "deficiency assessment" of December 29,1982 (and all related penalties) were contrary to law and nothing but legal fabrications.

3. Numerous government documents attesting to the voluntary and self-assessment natures of the income tax including the Controller General's Report (see page 244) and excerpts from the Congressional Record (see page 242).

4. Excerpts from the following Supreme Court cases that corroborated my testimony: Flora vs U.S., Brushaber vs Union Pacific Railroad, Eisner vs Macomber, Merchants' Loan vs Smietanha, Garner vs U.S., U.S. vs Ballard, and the Zaretsky report (see page 201). All this material specifically attested to the fact that the income tax was an excise tax and, therefore, had to be levied

10In this respect the government has also done away with an individual's First Amendment Right of Petition which has also gone the way of the dodo bird.

as one in order for it to be legally mandatory and that payment of income taxes was voluntary and, therefore, I could not be liable for any of the taxes and penalties claimed.

In addition, I testified under oath regarding the following:

1. that I had no "income" for the years 1974 and 1975 but, rather, had only miscellaneous non-taxable receipts and that none of the penalty provisions (for all of the reasons stated) could apply tome;

2. that since tax returns under Section 6103 of the code are "open to inspection" by the Justice Department and can be used against taxpayers in all types of "civil or criminal" procedures, any mandatory "requirement" for providing such information would render the law unconstitutional on its very face. (I specifically testified that the income tax — so as not to be unconstitutional — contained no mandatory provisions and that for a variety of reasons the law would be unconstitutional if it were otherwise, and all penalties levied against me for not filing were, therefore, violative of the law.);

3. that Judge Clarie specifically ruled at my trial that tax returns are filed voluntarily;

4. that if the government's attorney, Robert Percy, Esq., could produce any official government document stating that income taxes were based on "compulsory compliance" (contrary to the evidence I had presented attesting that compliance was voluntary), I would immediately pay all alleged taxes due as well as all fines and penalties;

5. that the Supreme Court had clearly ruled that the government could not tax sources of income without apportioning the tax, and that the government (by simply listing alleged sources of my income — the bank deposit not even being a source) sought to tax such sources directly, in flagrant violation of both the Brushaber and Pollock decisions:

6. that I would pay Mr. Percy $100,000 if he would point out any Section of the Internal Revenue Code that "required the filing of tax returns";

7. that though my "deficiency assessment" specifically referred several times to "your [my] tax liability," no code section establishing such a "liability" was ever cited in the notice;

8. that my main reason for not filing tax returns was based on the fact that the law did not require it; but, if anything, the issue involved was one of not wanting to be a witness against myself

and had nothing to do with the issue of self-incrimination; 9. and, finally, I asked the government (or the court) to clarify if the tax it sought to extract from me was an indirect tax and into which taxing clause of the Constitution the tax fell.

The government did not attempt to refute (either by cross-examination or through its own witnesses) anything I testified to, nor did Mr. Percy make any attempt to claim the $100,000 by producing the Code section that "required" the filing of income tax returns. He also did not cite the Code section that established the "liability" referred to in the contested notice.

Since the government was also claiming "fraud" penalites, it had the burden of proving fraud. But the hearing transcript will show that the government did not produce any evidence or cross-examine me with respect to any document allegedly reflecting a false or fraudulent statement. Neither did the government call any witnesses who would testify regarding the fraudulent character of any document. The government's entire "fraud" case was based on its naked assertion — believe it or not — that (based on my college grades that Mr. Percy introduced a transcript of) / must have known I was acting fraudulently! Similarly, Mr. Percy introduced my books, The Biggest Con. . . and How Any* one. . . , which also had nothing to do with any "fraud" I might have committed with respect to income taxes.

A sampling of Mr. Percy's questions follows:

PERCY: You received a Bachelor of Science degree from the School of Business Administration?

SCHIFF: That's irrelevant. I will stipulate to the fact that I was educated. THE COURT: Well, you know — SCHIFF: What has that got to do with whether or not I had income?

My objection was overruled and my college grades were entered into the trial and used against me by the "court." Next, the government introduced my book, The Biggest Con. . . , and the questioning continued:

PERCY: Chapter seven is entitled, U.S. Taxes: How They Have Converted

the American Worker Into a Serf. SCHIFF: No question about it. The average person, you Honor, now pays

40 percent of his productivity in taxes.11 THE COURT: Just answer the question. PERCY: Chapter eight says taxes are the arsenic in our system.

HThis was before I saw the Federal Reserve report shown in Appendix A.

SCHIFF: That is correct.

PERCY: And, the subtitle under that is Let's have a tax revolt?

SCHIFF: That's correct.

PERCY: And these were your beliefs at the time?

Here the government (which has the burden of proving "fraud" on a return) was trying to prove tax fraud based upon books and documents having absolutely nothing to do with any tax return or with Section 6653(b) upon which fraud penalties are based. The point is, the government had no basis for tax fraud whatsoever and was simply trying to build a case on the basis of a book I wrote that received over eighty excellent reviews, sold over 90,000 copies, and has been used as a college and high school text. How more blatantly illegal can the government's case have been?

Next, the government introduced my book, How Anyone Can Stop Paying Income Taxes, and questioned me as follows:

PERCY: In your book on page 85 you advocate telephoning the IRS agent on the day before the scheduled audit, preferably late in the afternoon, and simply break the appointment?

SCHIFF: Thats is correct.

PERCY: You also advocate -

SCHIFF: Your Honor, this has nothing to do with whether I had taxable income in '74 and '75.

THE COURT: He is getting to the issue.

SCHIFF: If that is illegal why doesn't the government arrest me for advocating breaking appointments with the IRS? Your Honor, all this is irrelevant. My testimony dealt with —

THE COURT: We understand what your — you made an objection to the relevancy of this.

SCHIFF: That is irrelevant.

THE COURT: All right, sir. We will take that under consideration.

PERCY: You also advocate that the IRS agents should be asked to put everything in writing.

SCHIFF: No question about it. It is my experience with IRS agents that they don't understand the law. So, therefore, get it in writing.

So, while the government's attorney sought here to establish "fraud" on the basis of my book, How Anyone. . . , the government itself never attempted to refute one word of it!12

12When media people contact IRS public relations offices to get background material on me they get lengthy dissertations about my convictions, the confiscation of my money, and a general misstatement of my views. But, despite the fact that this book has been in circulation for three years — certainly a thorn in the government's side — to this day neither the IRS nor anyone else has attempted to specifically refute one line of it.

Mr. Percy next went over the items shown on my "Notice of Deficiency!' I pointed out that none of these items constituted income but were merely "sources" of "income." As far as Percy was concerned, though, I might have been talking to the wall.

The Governments Case

The government's sole witness was a Mr. Richard Hammond, identified as an IRS agent with five years of service. He testified that he "was detailed to district counsel two weeks ago to assist in the preparation of the trial." His testimony took up 5 1/2 pages of the hearing transcript and in cross-examination he disclosed that his sole duty and knowlege of the taxes and penalties shown on my deficiency notice was that he "verified the calculations." The judge would not allow me to cross-examine him regarding any matter of substance in connection with the taxes or penalties shown on the notice so I said the following to the court:

SCHIFF: I am frustrated. Let me tell you why. I testified under oath that I am willing to be cross-examined on my belief that I don't owe a tax, that income tax is voluntary. I expect the government to put on the stand an expert witness to dispute my testimony. It is not fair that Mr. Hammond testify on matters of which he has no knowledge. . .

It is part of the government's tax strategy never to put on the witness stand a qualified government expert (such as an IRS attorney) since they could be cross-examined on the law. At all "trials" and "hearings" the government makes sure that only non-lawyers testify (for the government) so that "judges" can step in to prevent any in-depth legal cross-examination of witnesses on the grounds that because such witnesses are not lawyers they are not "experts in the law?' Tax Court "judges, " therefore, sustain all government objections to questions asked of government witnesses that involve issues of law. In cross-examining Mr. Hammond I said:

SCHIFF: Does the code provide for an income tax on these items [wages,

commissions, and bank deposits]? PERCY: I object. SCHIFF: I'm going to give you [Hammond] Section 61 and you show me

where in Section 61 — PERCY: I object. THE COURT: Sustained. SCHIFF: Your Honor, Section 61 did not lay a tax on these specific items.

THE COURT: Well, if that is your position — the court understands that.

It is his position that it does and it is also the position of the

IRS that it does.

SCHIFF: Is it the court's position? THE COURT: [in an attempt to evade the issue] You people are at issue on

that. SCHIFF: Is it the court's position that Section 61 provides a direct tax on

these items? THE COURT: I am not going to answer that here, because you know that

it is.

SCHIFF: It is? THE COURT: Certainly it is.

SCHIFF: Is it the court's position that Section 61 provides a tax on interest, rents and royalties? THE COURT: Yes, sir.

Here Hamblen openly admitted that the government was not taxing "income" but was directly taxing property without apportionment — in open and flagrant violation of the apportionment provisions of the Constitution, the 16th Amendment, the Brushaber decision and the Internal Revenue Code itself! How much more evidence is needed to prove that the government's entire income tax operation is based upon fraud and coercion — and these Mamelukes know it.

I continued to question Mr. Hammond as follows:

SCHIFF: Are you going to testify under oath, sir, that I committed fraud with respect to my '74 and '75 returns, is that your testimony?

PERCY: I object, your Honor. I would say, he is not.

SCHIFF: Oh, he is not. Well, then who is?

THE COURT: Would you again relate to Mr. Schiff what your purpose is in connection with the exhibit that you testified about.

HAMMOND: Yes, sir. I looked at the copy of the Statutory Notice of Deficiency, made through the calculations, looked over the case file and verified the calculations apart from the typographical error which was mentioned previously in the recapitulation of items. And that is what I did.

Because the government put no one on the stand who would swear to the accuracy of lawfullness of any of the items on the deficiency notice, I could not cross-examine anyone who actually had a hand in determining (or who was qualified to discuss) my alleged taxes or the penalties assessed. While I (under oath) testified (swore) that all such items were false and contrary to law and the government made no attempt to refute my sworn testimony. Any legitimate court would have accepted my sworn testimony as true since the government made no effort

to challenge it either by cross-examining me or through the direct testimony of any qualified witnesses of its own. How, then, could any legitimate court find me quilty of anything?

At the end of Mr. Percy's brief cross-examination of me I addressed the "court" as follows:

SCHIFF: Let me point out your Honor, that the government did not cross-examine me with respect to my claim that income taxes are indeed voluntary. The government did not cross-examine me with respect to my contention that the income tax is based upon self-assessment. The government did not deny any of this — the government merely cross-examined with respect to my college grades, with respect to my Freedom Kit, with the fact that I wrote some books, and, all of the government's questioning had nothing to do with whether I had a tax liability. Again all of this is immaterial as to whether I owed any taxes or whether or not I committed fraud in connection with any document I submitted to the government. . . Nor did the government produce any document or Code Section that said filing was mandatory [though I produced government documents that said it was not] nor did Percy attempt to claim his $100,000 reward. Though the issue of fraud has to be proved by the government it did not offer one document on which it was alleged that a false or fraudulent statement had been made.13 (Emphasis added)

"Judge" Hamblen's Decision

A reading of "Judge" Lapsley W. Hamblen Jr.'s Tax "Court" decision14 reveals why tax court "judges" are indeed judges in name only. It is apparent that Hamblen did not have the slightest interest in either the facts or the law in this case. In arguments made before the "court" and in briefs filed with the "court" I basically presented all the material and arguments contained in this book — but it made no difference to that "court" or to "Judge" Hamblen. I could not have fared any worse if a Soviet judge had been flown in from Moscow to sit in for Hamblen.

From the following excerpt from "Judge" Hamblen's decision one would assume that he never even attended my "hearing":

Petitioner argues that the Fifth Amendment privilege against self-in-

crimination relieves him of the obligation to file returns and pay taxes.15

I3ln essence, the government found me quilty of tax fraud because it took exception to some books I wrote. So, apart from violating all tax law, the "court" also violated my First Amendment right of free speech (i.e., my right to write and publish).

"IrwinA. Schiffvs Commissioner T.C. Memo 1984-223.

15Ibid., page 1707.

The transcript proves I "argued" no such thing. I even denied raising this very issue:

SCHIFF: Section 6020 [Exhibit 13] says that if I consent to give information to the government they will prepare my tax return. And, if I don't consent they will prepare those returns on their own. And, there is no penalty in Section 6020 for not electing to voluntarily self-assess yourself. . . 16

I am swearing under penalty of perjury that there is no section of the code requiring anybody to file a tax return. And, if the government's attorney would point to any such section while he is under oath, in addition to paying all the taxes that he alleges, I will give him a hundred thousand dollars. . . 17

. , , the Fifth Amendment says nothing about self-incrimina-tion. I am saying that the issue of self-incrimination has gotten into the tax issue because the original person who raised the issue, Sullivan, raised the lesser issue of self-incrimination when he should have raised the issue of not wanting to be a witness against himself. . . 1S

The Constitution says that I cannot be compelled to be a witness against myself. Now if the government is going to maintain that the Internal Revenue Code can compel me to be a witness [against myself] under threat of prosecution, then the Internal Revenue Code would be unconstitutional. . . 19

Does that sound as if I "argued" that it was the issue of "self-incrimination" that relieved me of my "obligation" to file tax returns as "Judge" Hamblen fraudulently contended? He simply fabricated my alleged "argument" just as he fabricated the rest of his decision. He further wrote:

At trial, petitioner did not refute the correctness of respondents determination of tax liability. Instead petitioner offered various constitutional and other arguments as to his obligations to file returns and pay taxes.20

But look at what the trial transcript records as my sworn testimony:

"Trial transcript, pages 21, 22

17Ibid., page 22.


19Ibid., pages 28, 29.

^Schiffvs Commissioner, supra, page 1707.


Sec. 6020. Returns prepared for or executed by Secretary.

(a) Preparation of return by Secretary.

If any person shall fail to make a return required by this title or by regulations prescribed thereunder, but shall consent to disclose all information necessary for the preparation thereof, then, and in that case, the Secretary may prepare such return, which, being signed by such person, may be received by the Secretary as the return of such person.

Ob) Execution of return by Secretary.

(1) Authority of Secretary to execute return. If any

person fails to make any return required by an internal revenue law or regulation made thereunder at the time prescribed therefor, or makes, willfully or otherwise, a false or fraudulent return, the Secretary shall make such return from his own knowledge and from such information as he can obtain through "testimony or otherwise.

SCHIFF: Your Honor, you have my word. The minute the government sends me an assessment under Section 6308, making me liable for the tax, I will send them a check. And, if they make me liable under Section 6303 and if I do send them a check, I would never have filed a return.21 The reason I haven't paid any income tax is that I haven't been made liable for any tax. So for the government to contend that I am liable for a tax that has never been assessed, is fraud. . . Section 6020 of the code, imposes no obligation on anyone to file a tax return. . . There is no such liability. So, I haven't refused to file returns. The law imposes no such liability on me. . . 22

I offered Code Section 6020 to the "court" as proof that I had no "obligation" to file so Hamblen's suggestion that I only offered "constitutional arguments" to relieve me of my "obligations to file returns and

"This explains why returns are not legally necessary even if payment of income taxes were compulsory. See pages 32—34 How Anyone Can Stop Paying Income Taxes, by Ir-win Schiff.

22Trial transcript, pages 72,73.

pay taxes" was a boldfaced lie! In addition, not only did I refute the "correctness" of the tax "liability, " I offered evidence proving that, under the law — and not by way of any constitutional argument — that no such "liability" could exist. My testimony on this was not even disputed or challenged by the government as the following shows:

SCHIFF:. . . The general term income is not defined in the Internal Revenue Code [submitting an excerpt from U.S. us Ballard, supra, as legal substantiation for this claim] and if the government is going to claim that I had income, it is going to have to define it. And, tell me where they got its definition. [Needless to say, they did not define it.]. . . Sources of income are cash receipts, bank deposits are capital and are not subject to a tax on income. . . 23

[citing Merchants Loan & Trust Co. vs Smietanka, supra, I stated that this decision supplied the] clearest definition of income [and that it had never] been reversed or overturned. [Reading directly from the decision] The word income must be given the same meaning in all of the income tax acts of Congress that was given to it in the Corporation Excise Tax Act of 1909. And that meaning has now become a definite decision of this court. . . 24

Now, I have before me the Corporation Excise Tax Act of 1909. And, there is nothing in the Act that says bank deposits are taxable. There is nothing in that Act even using the word wages, your Honor. The government now seeks to tax my wages, but the word wages or salaries does not even appear in Section 61 as even being a component of income. Wages, therefore, cannot even be a source of income, let alone income itself— and, the reason why wages is not included in Section 61 is that the word wages does not appear in the Corporation Excise Tax Act of 1909. . . 26

Does that sound as if I did not refute the correctness of the government's determination of a "tax liability" or that I merely attempted to refute it on "various constitutional grounds"? I refuted it on the basis of what is contained in the law itself— the definition of income as decided by the Supreme Court — and the government did not challenge it.

Quoting further from both the Brushaber and Eisner cases I testified:

23Ibid., page 35. 24Ibid., page 36. 2slbid., pages 36,37.

SCHIFF: . . . The Sixteenth Amendment must be construed in connection with the taxing clauses of the original Constitution. And the effects attributed to them before the Amendment was adopted: "The Sixteenth Amendment gave the government no new taxing power!'. . . [quoting from Eisner] "The Sixteenth Amendment shall not be extended by loose construction so as to repeal or modify, except as applied to income, those provisions of the Constitution that require an apportionment according to population for taxes upon property real and personal."26

. . . So, the Supreme Court said that taxes on property real and personal must be apportioned. Now, a tax on my labor [wages] is a tax on my property and the government cannot tax my property without apportioning it. The government said that my dividends are to be taxed. Dividends are property, sir. Also, the government seeks to tax undisclosed bank deposits. Now, bank deposits, of course, are property and a tax on property has to be apportioned. . . If the government wants to tax my income, it has to do so as an excise tax with income severed from the sources that produced it.27

... It is very clear that in Eisner vs Macomber [supra], the court stated that the Sixteenth Amendment does not allow the Federal government to tax property real and personal as income. Dividends are my property. My labor is my property. And, the government is not going to get away with attempting to con me into believing that property is taxable under the Sixteenth Amendment.28

Does any of this sound as if I did not "refute the correctness of the respondent's determination of tax liability?" I proved that no such "liability" even existed and the government (at trial) and Hamblen (in his opinion) simply ignored the law as written and accused me of raising "constitutional" arguments. Hamblen apparently felt that as a "tax court judge" he had a license to lie about everything. The sum and substance of his opinion can be gleaned from the following excerpt:

With regard to petitioner's argument that the Federal Income tax laws are unconstitutional as an indirect tax, the courts have found on numerous occasions that since the ratification of the 16th Amendment it is immaterial

^Ibid., pages 38, 39. 27Ibid., pages 39,40. 26Ibid., page 41.

whether the tax is a direct or indirect tax. Brushaber v. Union Pacific RR 240 US 1 (1916); Hayward v. Day 619 E2d 716 (8th Cir. 1980).29

That statement capsulized both the spuriousness and speciousness of Hamblen's entire opinion. First, I never claimed (as he incorrectly stated) that the income tax laws themselves were unconstitutional. I carefully explained that since the tax was voluntary, the "law" itself was not unconstitutional. If, however, it were enforced the way "Judge" Ham-blen sought to enforce it, then its enforcement was certainly unconstitutional. And he still did not answer my question by identifying into what taxing clause the income tax (as it is currently extracted) falls!

His further reference to Brushaber both misstates and makes a mockery of that citing.30 Though he cites Brushaber, he totally disregards the substance of that decision, which was that in taxing income the government must separate income from its source(s) — precisely what I testified that the government was not doing in my case. He even allowed the government to tax a "bank deposit" as income. So Hamblen admitted doing precisely what the Brushaber Court said he could not do.

Hamblen also incredibly stated that it is "immaterial" whether the government levies an income tax as a "direct or indirect tax." Such a consideration is material or there never would have been a 16th Amendment. I purposely went into this at great length and even quoted the Eisner Court as specifically stating, "The Sixteenth Amendment must be construed in connection with the taxing clauses of the original Constitution." So if the government levied a tax on the source(s) of my income (as Hamblen admitted the government had done in my case), the law (according to the Supreme Court) states that such a tax must be apportioned in order for it to be binding. How, then, could Hamblen say that the way the tax is levied is "immaterial?" On the basis of such an admittedly fallacious statement by a "Tax Court judge" (on whose decision other decisions will be based), who could dare claim that Federal taxes are collected according to law? And on the basis of the "court's" admitted ignorance, "Judge" Hamblen determined that I owed the government some $30,000 in taxes — including $10,000 in fraud penalties.

Hamblen further stated:

Petitioner's "taxation on source" argument is spurious; the tax is imposed on the money petitioner receives for his services, not on the performance of

^Schiffvs Commissioner, supra, page 1708.

'"His additional reference to an 8th Circuit Appellate opinion is characteristic of what Federal "courts" do — especially in tax cases. They attempt to give legal weight to their opinions by citing other lower court decisions which are just as lawless as their own.

those services. Section 61 (a) specifically includes "wages" in its definition of gross income.31

Can you believe the fraud and deceipt Hamblen managed to pack into just two lines?32 His claim that "Section 61 (a) specifically includes 'wages'" is an outright lie which can be verified by looking at the section itself (Exhibit 2, page 190). Look also at how he twisted my explanation of the government's attempt to tax sources of "income" as 'income" itself. He pretended (again for the benefit of other "judges" who may also want to disregard the "source" issue and cite his decision) that I claimed that the government was taxing my "performance" as opposed to taxing my "money!' His absurd perversion of the entire source issue establishes that either he was guilty of outright judicial perjury or is simply someone who cannot understand simple English when he hears it. A review of the transcript shows that I did not even remotely suggest any such thing, as this brief excerpt from my lengthy explanation of the "source" issue clearly demonstrates:

SCHIFF: So, when the government said that I had sources of income, I don't deny that I had sources. But sources of income are not taxable. Only income is taxable. And the government has yet to tell me what income is.33

Does that sound as if I raised the "source" issue as a matter related to job "performance" as Hamblen contended? Continuing with Hamblen's decision:

Petitioner placed great emphasis upon various statements culled from cases [here he means court cases such as the Supreme Court case of Flora vs U.S., supra, which he did not even try to refute], Treasury Department publications, and other writings to the effect that the income tax is based upon "voluntary compliance," and he announces that he does not volunteer to comply. As we have previously noted, this argument "is nothing but arrogant sophistry!' Implicit in the statements relied upon by the petitioner is the fact that the effectiveness of the tax system depends upon the taxpayer's voluntary obedience to the law.34

3lSchiffvs Commissioner, supra, page 1708.

32It is important to understand that Hamblen was writing to provide quotes and legal prescedents so that other "judges" (in both tax and regular "courts") could cite from his opinion. The government has already widely circulated this decision and is using Hamblen's garbage as "case law" against others.

33Trial transcript, page 58.

3iSchiffvs Commissioner, supra page 1708. Note Hamblen's attempt to distort the meaning of "voluntary compliance" as described on page 243.

Overlooking my testimony on the Flora case (page 23 of the trial transcript) as well as the fact that Judge Clarie had ruled at my trial that I filed my 1973 return "voluntarily" (so that it could be used against me, see page 285), Hamblen suggested that those who wrote "voluntary" into all the government documents I submitted really meant to write "compulsory!' In addition, the thrust of my testimony was that since it was voluntary I did not choose to "volunteer," not that I did not "volunteer to comply!' He attempted to twist my testimony so that it appeared I simply "announced" an arbitrary refusal "to comply" — overlooking entirely that what I really said was that I did not choose to "volunteer," and compliance had nothing to do with it at all. And he had the nerve to accuse me of "arrogant sophistry"!

Hamblen's Finding Of "Fraud"

Hamblen's finding of "fraud" was widely reported in the press. It was the headline story in the May 3, 1984 issue of the Staten Island Advance (see The Schiff Report, Volume 2, Number 2) and appeared in newspapers across the country even making the front page of the London Daily Mail. The story originated as an IRS press release which sought to brand both me and my book as "frauds!" Apart from getting my books mixed up, the story revealed how the Federal government manipulates a gullible press in order to keep the public buffaloed. The issues in my "trial" and what occurred were completely distorted in the story, but because a conviction for fraud can be so personally damaging, I believe the public should be aware of how our government actually goes about stigmatizing people in this manner when it has absolutely no basis for the charge, while exacting substantial monetary penalties in the process.

The following is a detailed breakdown of Hamblen's opinion and the elements upon which he based his fraud finding. It provides a clearer understanding of those who work as "judges" in Tax "Court." First, he stated:

In this case there is no question that petitioner's purpose in failing to file returns was to avoid payment of taxes that he claims he was not obligated to pay. As indicated above his claim that he did not receive income is frivolous.35

This statement entirely overlooks my testimony (not challenged or disputed at trial) that

36Ibid., pages 1709,1710.

1. there is no Code section that requires anyone to file and that without an assessment I owed no tax;

2. even if these beliefs were legally wrong, my reliance on them did not constitute fraud;

3. nowhere does the "court" attempt to cite any Code section which "obligates [me] to pay" the taxes the "court" claimed I sought to avoid; and

4. how could the introduction of numerous Supreme Court cases showing that a) income cannot be taxed (except by apportionment) if not separated from its sources, and b) that "income" has been defined by the courts as a corporate profit, be termed "frivolous?"36

Next Hamblen stated:

Although petitioner complains that respondent did not cooperate with him by attempting to deal with all of the attacks petitioner made on the income tax system, petitioner admits he never provided any financial information to respondent's agents. His refusal to cooperate in the attempt to determine his correct liability is, in the context of this record, further indicia of fraud.37

The "attacks" I allegedly made on the "income tax system" that the "respondent did not cooperate with" involved my numerous letters to IRS officials asking them to explain to me how I could fill out a tax return without waiving any of my constitutional rights. They refused to tell me and advised me to seek such information from private attorneys (see Appendix E). But when I checked with private attorneys they all told me that they knew of no way I could fill out a tax return without waiving constitutional rights. How could such inquiries be considered an "attack" on the "income tax system?" And if neither the government nor any private attorney could tell me how to file a tax return without waiving constitutional rights, am I required to file one anyway just to accommodate the government?

As far as my "refusal to cooperate" in an attempt "to determine [my] correct [tax] liability" is concerned, Hamblen referred to my refusal to turn over books and records to the IRS for audit purposes. However, the IRS's own audit manuals state that citizens who do so waive

"""Frivolous" is a term Federal "judges" use whenever they are confronted with issues of law they cannot refute. As can be imagined, they use the term repeatedly in so-called "tax protester" cases.

37Schiffvs Commissioner, supra, page 1710.

their Fourth and Fifth Amendment rights and that individuals are free to raise these rights when refusing to do so. Is it an "indicia of fraud" to refuse to turn over books and records in accordance with the IRS's own manuals? The IRS agent who was sent to audit me specifically told me that if I gave him any information it could be used against me and, as a consequence, I was not legally required to give him such information.38

More importantly, Section 6020 of the Internal Revenue Code (Exhibit 13) states that if I do not "consent to disclose" the information "necessary for the preparation" of my tax return, the government is required to "make such returns from [its] own knowledge. . , " In addition, if one declines to give such information to the government, there are no fraud penalties indicated in that, or any other, Code section. At my "hearing" I testified at great length regarding this section and pointed out that there is nothing in it, or in any other section, that states I am required to help the government determine my "correct [income tax] liability!' When did Congress establish fraud penalties for citizens who refuse to "cooperate" with the IRS? How can there be "fraud" if citizens simply refuse to supply the government with information that can be used against them? Where is the statute that requires individuals to assist the IRS in its determination of their "correct liability?" How can it be "fraud" if one simply tells the IRS, "Figure out my tax liability and tell me what I owe," when that is precisely what the Code, the Constitution and the 16th Amendment say the government has to do?39 Where is the "fraud" in any of these actions?

The real fraud was committed by Hamblen in his use of the word "liability" in connection with income taxes. There is no Code section that establishes any such "liability" and Hamblen had to know it. This makes him guilty of judicial perjury and a candidate for criminal prosecution under Sections 1001 and 1018 of the U.S. Criminal Code which deals with the making of false and fraudulent statements.40

Continuing with Hamblen's finding of "fraud":

Petitioner omitted all items of "income" from his purported 1974 and 1975

^his "audit" interview was witnessed by some six people in the media and a newspaper account of it was reproduced on page 78 of'How Anyone Can Stop Pay ing Income Taxes by Irwin Schiff.

38The 16th Amendment states that "The Congress shall have power to lay and collect taxes. . . " Therefore, it must "lay" the tax before it can collect the tax. Nowhere does the Amendment — or the Code — say that citizens are "required" to help the government "lay" the tax.

•""As soon as I complete this book I will swear out a criminal Complaint against Hamblen and others pursuant to Rule 3 of the U.S. Criminal Code (see page 385) charging him with these and other offenses.

returns. He attempted to obtain refunds of his taxes paid in earlier years. Petitioner took these actions despite his knowledge of required reporting procedures, as evidenced by his earlier proper returns and his concurrent proper filing of correct returns for his business. While arguing the wages received by him from his corporation were not taxable to him, petitioner directed his corporation to deduct this compensation from its income. We see these actions to be a further indicia of fraud.41

In addition, Hamblen mentioned my "1974 and 1975 returns," but the government jailed me for not filing those returns. How then could Hamblen even raise the issue of those returns — "purported" or otherwise?42 In addition, I explained at my criminal trial that 1) I had no income to report and 2) if I had reported it without a grant of immunity (which I had asked for on the return), the information could be used against me. And the fact that I applied for refunds for taxes paid in earlier years does not constitute fraud for 1974 and 1975.43 Indeed, when I discovered I had been fraudulently induced to pay taxes for a number of years prior to 1974 (when I never really owed them) I filed a claim for a refund for those years. If anything, this does not constitute fraud but exactly the reverse — it shows' a consistency in my honest belief that I could never have "owed" the government any income taxes at all.

Note also that the "court" attempts to establish "fraud" on the basis that I filed returns during the years when I was ignorant of our income tax "laws." Hamblen thus laid down an interesting legal doctrine with respect to income taxes: Citizens are not permitted to rise above their former tax ignorance. In addition, the fact that I had filed corporate returns for 1974 and 1975 had nothing to do with whether I committed "fraud" with respect to my personal taxes for those years. I voluntarily filed corporate returns because others beside myself were involved in the corporation and I did not want to involve them in the course I was prepared to take. More importantly, this demonstrates once again how even benign tax returns can be used against you (the benign corporate returns I filed were being used against me to estab-

4lSchiffvs Commissioner, supra, page 1710.

42Had the government prosecuted me for not "supplying any information" on my 1974 and 1975 returns pursuant to Section 7203 or for filing false information pursuant to Section 7206, Hamblen might have used those returns as a basis for his opinion. But since the government chose to jail me for allegedly not filing any returns at all for 1974 and 1975 ("purported" or otherwise), how could any legitmate court raise the issue of my "1974 and 1975 returns" on any basis?

43If this claim for tax refunds constituted "fraud, " why did the government not charge me with making fraudulent claims against the government pursuant to Code Section 7206?

lish "fraud" in connection with personal returns). Continuing on the same vein, Hamblen stated:

We note that petitioner's education and obvious intelligence are relevant to our determination of fraud. We are convinced that petitioner was familiar with relevant law and was aware of his obligation to file proper returns and to pay taxes. Petitioner did extensive research in an attempt to legitimize his position [none of which the government or the "court" could refute]. During the years in issue, petitioner wrote a book [The Biggest Con: How The Government Is Fleecing You] advocating tax revolt [is that "fraud?"], clearly indicating that at that time petitioner was well aware of his obligations to file returns and pay taxes [the reverse is true since the book — based upon extensive research — clearly showed why Americans, both economically and legally, should immediately stop paying income taxes]. By his own admission, petitioner believed taxes to be "compulsory!" We are convinced that he knew that the tactics he employed were not legitimate tax avoidance.44

Here Hamblen sought to establish "fraud" on the basis of my "education. . . intelligence. . . [because I was] familiar with relevant law. . . extensive research. . . [and the fact that I] wrote a book"45 while leaving out the most significant element of all — the document on which the alleged "fraud" was based!

In addition, Hamblen actually sought to use against me a lone statement I made regarding a false impression I once had (from 1974 to 1977) as if that statement, in and of itself, were factually correct while he totally disregarded numerous other statements I made which corrected it! True, in 19741 believed filing was compulsory which is why I filed returns. At the same time I also believed that the payment of income taxes was "compulsory" if the tax was first "laid" upon you by the government, since the 16th Amendment said the government shall "lay and collect taxes on incomes. . . " So though I once thought that income

"Schiffvs Commissioner, supra, page 1710.

46If there was "fraud" in this book the critics certainly did not think so as evidenced by the following remarks: "An important well researched compendium. . . logical and virtually irrefutable!' [Allen C. Brownfeld, author and Washington columnist]; "A blockbuster. . . brilliant. . . hilarious!' [John Chamberlain, author and syndicated columnist]; "A superb job of exposing the evils of paper money [Elgin Groseclose, Ph.D., Institute for Monetary Research in Washington, D.C.I; "The single most important book on the status of this nation I have ever read." [Howard Ruff, author and editor of The Ruff Times}; "His analysis is hard to refute." [The Wall Street Journal]; "Forceful indeed. . ." [Publisher's Weekly]; "A stirring treatise. . . " [Parade of Books]; "Your blood pressure rises and the body juices boil. . . an indictment of all forms of collectivism. . . " [The New Guard]; and "Should be required reading." [The Jewish Press].

taxes might be "compulsory," I also believed that it was not incumbent upon me to pay them before they were "laid" on me.

It was not until much later that I discovered I was right and that the Code indeed provided that taxes had to be first assessed by the government before they were due and that citizens were not required to file income tax returns at all — which is why I stopped filing Fifth Amendment returns altogether. Even later I discovered that (for all the reasons stated in this book) I was not even under any obligation to pay income taxes on any basis — either under the Code or the Constitution. But Hamblen attempted to base his decision on an "admission" of mine regarding an earlier misconception I had as if I still held that same false belief. But my earlier behavior (based upon my misconception) was not "fraudulent" either since I filed Fifth Amendment returns when I thought I had to file and stopped filing completely when I discovered the truth. Hamblen asserted (as if it were proven fact) that my admission of a false earlier belief (now thoroughly refuted by me in all of my unchallenged written and oral testimony) must be my current belief and it was "fraud" for me to suggest otherwise!46

The Appeal Process

I appealed Hamblen's decision to the Second Circuit Court of Appeals in what I believed would probably be a useless expenditure of both time and money but I wished to exhaust all legal remedies. Since I was devoting all my time to writing this book and could not take the time to handle the details of it myself, I engaged an attorney and, with the exception of the material on fraud, I explained all the legal arugments I wanted to raise. Though his fifteen page brief was a bit skimpier than what I would have preferred, all the major points of law were there.

1, Based upon Pollock, Eisner, Brushaber, Smietanka and several other Supreme Court cases, I demonstrated that under the law I had no "income" that was subject to the income tax.

2, Under the specific provisions of Code Section 6201 (since I submitted no "return or list" as provided for), the Federal government was without any statutory authority to estimate, let alone assess, any income taxes against me; and based upon that section and Section 6219(a), no "deficiency" was possible. And,

3, under every legal test for tax fraud no such fraud could possibly exist.

^Naturally, Hamblen attempted to buttress his totally contrived decision with references to other decisions while disregarding the statutes completely. To the extent that any of the cited decisions actually supported his decision, this simply meant that those decisions were no more legally valid than Hamblen's own fraudulent one.

In the appeal I showed that there was no "underpayment" or falsification of any tax return(s) and, therefore, there could not be any tax "fraud!' Cited were numerous cases that clearly establish that for tax fraud to exist three elements have to be present:

1. a conscious falsification of a return;

2. an intent to evade; and

3. some part of an "underpayment" for each year was due to fraud.

For example,

The language of Section 6653(b). . . presupposes the existence of an un-> derpayment. Absent an underpayment, there is nothing to which the fraud addition may attach.47 (Emphasis added)

That fraud envisioned under Section 6653(b) involved:

. . . knowing falsification of a material item in the return. . . which can be related to the intent to evade [if that is proved]. . . **

Based upon these cases alone it is obvious that there could have been no "fraud" in my case.

In addition, Exhibit 10 is an excerpt from the Supreme Court case of Bull vs U.S. 295 US 247 in which the Court clearly ruled that no income tax is "owed" until an assessment is made. And since I was officially informed by the government that as of the date of my "Notice of Deficiency" no assessment had as yet been made against me, by law no deficiency, interest, or fraud could possibly have existed. Coupled with the fact that the government presented no evidence of tax "fraud" at my trial, the Second Circuit Court of Appeals could not legitimately sustain a finding of "fraud" (or anything else for that matter) on any basis.

The appeal was argued in New "Vbrk City on November 27,1984 before Appellate Court "Judges" Timbers, Van Graafeiland, and Pierce, while my written appeal was submitted some sixty days beforehand. "Judge" Timbers revealed the mentality of the "court" when he asked my attorney, "How could a New Haven lawyer put his name on such an appeal?"49 Based upon this remark, it was apparent that these judicial

"Hebrank vs Commissioner 81 T.C. 640 (1983); Ellison vs Phillips 47 T.C.M. 1289 (1984).

"Considine vs U.S. 683 E2d 1285,1286 (1982).

49Actually, I wanted to argue my own case before the Appeals Court since I knew the law and the facts in the case better than the attorney who prepared the written appeal. But based upon his claim that since he initiated and signed the appeal as my attorney he would find himself in trouble with the "court" if I did that, I agreed to let him argue it against my better judgement. However, based on "Judge" Timber's remark, this was obviously a mistake. But once again this demonstrates how "court" rules and procedures force private citizens to use licensed lawyers even when they are not necessary.

Mamelukes were not prepared to take any notice of the law at all. Unfortunately, my attorney felt obliged to respond to this attempted intimidation and explained why I was entitled to legal representation which consumed about two minutes of the little time he had to argue the appeal, which was only ten minutes to begin with!

On January 3, 1985 (while writing this chapter) I received word that the Second Circuit Court of Appeals sustained the Tax "Court" on all counts and added $2,400 in additional penalties.50 The decision was handed down by "Judges" William H. Timbers, Ellsworth A. Van Graa-feiland, and Lawrence W. Pierce, which indicates that these "judges" have about as much interest in Federal tax law and in upholding the Constitution as does the Ayatollah Khomeini.

How The Government Steals Property On A Massive Scale

The Federal government now routinely steals billions of dollars in private property each year on a scale I doubt is even attempted in countries dominated by Soviet- or Nazi-like regimes. Yet the overwhelming majority of Americans are totally unaware of this despite the fact that in order to do it, the government had to dispose of the entire Bill of Rights.

For example, in early December, 19821 received another "Notice Of Deficiency" (Exhibit 14) dated December 2,1982 over the typed and ersatz written signature of Roscoe L. Egger, Jr., the Commissioner of Internal Revenue, and James E. Quinn, the Connecticut District Director. This time the government claimed I owed it, as of that date, $91,000 in tax deficiencies, $45,500 in fraud penalties, and $3,078 in interest penalties, for a grand total of $139,775 for the years 1976,1977, and 1978.51

In response to this "Notice of Deficiency" I sent a letter (Exhibit 15) to Secretary of the Treasury, Donald T. Regan (since as Egger's boss he is the one ultimately responsible for the notices sent out by the IRS). Regan never answered it.

This time I did not bother wasting my time petitioning Tax "Court" but, instead, wrote the government for a copy of my tax assessments for those years pursuant to Section 6201 (Exhibit 7, page 257). In a letter dated January 25, 1983 (Exhibit 16) I was informed by Henry F.

•"See Appendix F for the complete text of this opinion.

"The government got the information for its contrived "assessment" by subpoenaing my books and records — without notifying me as required by law—from the Connecticut State Tax Department which had illegally stolen them from me in 1979. My lawsuit against the State of Connecticut for its illegal actions is currently pending in Federal District Court and hopefully will come to trial in the spring of 1985.

it_hoax-10.jpg it_hoax-11.jpg


Jfrecbom poofctf

P.O. BOX 5303 HAMDEN, CONNECTICUT 06518 PHONE (203) 281-6791

// a naluyn values anything mnrp than [reedr/m, it u'ill lose its jretdom; and the

irony oj it w that i] it is confort or money that it values more, U will lose that too.—Somerset Maugttarrt

December 7, 1982

Donald T. Regan, Secretary of the Treasury

Department of the Treasury

Main Treasury Building

15th Street & Pennsylvania Avenue, NW

Washington, D.C. 20220

Dear Mr. Secretaryi

I received the attached notice from Roscoe L. Egger, Jr., Commissioner of the Internal Revenue Service, who acts under your authority.

I am writing directly to you to determine whether you are aware that your agents - Commissioner Egger and Connecticut District Director, James E. Quinn - are assessing taxes and fraud and interest penalties contrary to law and whether they are violating these laws with your knowledge and approval.

I would, therefore, like your answers to the following questions with respect to the attached "Notice of Deficiency."

1. Is the assessment of taxes shown on this document levied pursuant to Section 6303 of the Internal Revenue Code?

2. Has the liability of $91,131.00 shown as a "deficiency" been recorded in your office pursuant to Section 6203 of the Internal Revenue Code?

3. Has there been any tax liability recorded in your office with respect to any taxes due from me for the years 1976, 1977, and 1978?

4. If not taxes have been assessed against me and recorded in your office, can I have a "deficiency assessment?"

5. Am I to understand that this 90 Day Letter makes me liable for $91,131.00 in taxes?

6. Are you authorized, by law, to determine a tax deficiency before you have even determined a tax liability, as provided for in Section 6201?

7. What section of the Internal Revenue Code authorizes you, as Secretary, to determine a tax deficiency before you even determine a tax, record the liability, and notify the taxpayer as provided for in Sections 6201, 6203, and 6303?

8. Am I to assume that you have authorized Mr. Egger to

assess fraud and interest penalties against individuals

(continued next page)

EXHIBIT 15 (Continued)

who refuse to voluntarily disclose tax information to the government in accordance with Section 6020(a) of the Internal Revenue Code?

9. Was my tax liability as calculated by Mr. Egger determined in accordance with Section 6020(b) of the Internal Revenue Code?

10. Does Section 6020(b) provide that fraud and interest penalties apply if "the Secretary makes a return from his own knowledge?"

11. I note that Section 6020(a) states that a taxpayer can "consent to disclose information necessary for the preparation of [the return]," but nowhere in Section 6020 does it state that there are penalties if a taxpayer does not consent to disclose information. Have you, therefore, authorized the Commissioner to assess fraud and interest penalties against those who elect to follow the law as contained in Section 6020(a) of the Internal Revenue Code?

12. Has Section 6020(a) of the Internal Revenue Code been revoked? Is there a new section that provides for fraud and interest penalties if a taxpayer does not consent to disclose information necessary for the preparation of his return?

13. Can you provide me with any section of the law that says that there are interest and fraud penalties if a taxpayer does not consent to give the Internal Revenue Service information from which a tax can be computed?

14. Is compliance with IRS rules and regulations voluntary or mandatory? If it is your view that compliance is compulsory please provide me with any published IRS material that confirms this.

15. Were you, as Secretary of the Treasury, given any authority by Congress other than to encourage voluntary compliance with Internal Revenue laws and regulations?

I would further like to remind you that Section 6214(a)(l) & (2) makes it a crime for you to knowingly demand of me a sum which is greater than authorized by law. The question is, does the Internal Revenue Code authorize you to demand of me - through your agents, Mr. Egger and Mr. Quinn - $91,131.00 as a tax deficiency; $45,566.00 in fraud penalties; and $3,078.00 in interest penalties as a result of my not having filed tax returns for tbr years 1976, 1977, and 1978 as provided for in Section 6020(a) of the Internal Revenue Code?


Camacho, IRS Disclosure Officer for the Northeast Region, that "a search was made of the Individual Master File and our records show that as of this date, January 25th, there is no record of assessments for these periods (1976,1977 & 1978)." But Egger and Quinn had notified me that as of December 2,19821 "owed" the government some $91,000 in taxes and $3,000 in interest penalties (forgetting completely about the $45,500 in fraud penalties) for the same years. Camacho told me that as of some 54 days later I had never even been assessed for the years in question! By law, therefore, I could not have possibly "owed" the


Internal Revenue Service Department of the Treasury

Internal Revenue North-Atlantic Region 310 Lowell St.. Andover, Mass. 01812

Service Center

Mr. Irwin A. Schiff Person to Contact:

P. O. Box 5303 Disclosure Office

Hamden, CT 06518 Telephone Number:

617-681-5618 Refer Reply to:

83D009 Date:

January 25, 1983

Dear Mr. Schiffi

In response to your request dated 12/21/82 for a record of assessment of your individual income taxes for 1976, 1977 and 1978, a search was made of the Individual Master File and our records show that as of this date, January 25th, there is no record of assessments for these periods (1976, 1977 s 1978).

This information is furnished to you in accordance with Internal Revenue Code Section 6203.


government any taxes or interest penalties as of December 2,1982 (as shown in Code Sections 6203 and 6303, Exhibit 7, page 257) and according to the Supreme Court itself as stated in the Bull decision (see Exhibit 10, page 262) — even if we overlook every other legal consideration!52 It is clear then that the "Notice of Deficiency" from Egger and Quinn was out and out fraud, constituting nothing more than a government tax shakedown. It is important to note that the IRS always claims that so-called "tax protesters" (like myself) always raise

82Few Americans would know when receiving similar "Notices of Deficiency" that they were fraudulent and not based on any assessments as required by law, because they would never write the government to ask for a copy of their assessment as provided by Section 6201.

"constitutional arguments" when attacking the enforcement of the income tax and the public and the press generally buy it. In this instance, however, "constitutional arguments" had absolutely nothing to do with this illegal attempt to extort $139,775 from me. The executive branch of the government (as represented by the Treasury Department — which includes the IRS) simply disregarded the actual tax laws as passed by Congress and as they appear in the Internal Revenue Code itself. The facts speak for themselves:

1. The IRS was attempting to collect taxes that had never been legally assessed pursuant to law (further confirmed on April 7, 1983 when I received three separate "Tax Due" notices (Exhibit 17) now "billing" me for the taxes and penalties shown in the "Notice of Deficiency" of December 2,1982).

2. The "assessment date" shown on these notices is "04-01-83" which means that these taxes could only have been "assessed" four days prior to their preparation and only days before being sent to me. And if the taxes for the three years in question were admittedly not "assessed" until April 1,1983, how could Eggar and Quinn have claimed that I "owed" them (plus interest and fraud penalties) as early as December 2, 1982 — some four months before they were actually "assessed?"

3. Note further that these new notices contained another item not shown in the original "Notice of Deficiency" — some $52,069 in additional interest charges, bringing the amount I allegedly "owed" the Federal government to $181,844! This meant that for taxes admittedly only assessed on April 1,1983 I had incurred $52,069 in interest penalties on a "bill" that was only four days old!

4. Technically, this was the first notice I ever received from the government that even remotely conformed with the law as contained in Section 6303 (Exhibit 7, page 257) which requires the government to notify persons "liable" for the tax "after the making of an assessment."

5. The government's claim to $52,069 in interest — covering a period of time prior to its having made the assessment required by law — is out and out fraud and a clear violation of the tax statutes themselves.

Apart from all of the above, the "notices" are fraught with fraud for a variety of other reasons. First, the documents are not signed. No Federal employee takes responsibility for the lawfulness and/or the accuracy of the items shown. These documents seem to tell me that I owe


fe[i)arta@ii)l) ooff to Fireasoaiiu

Internal Revenue Service oir«wr 3,0 LnWELL ST>

ANOOVER, HA 01812 Dale0jnRS»l 06010000 onn |ou.-,.,,,-i^p': »C OH.OU83 SRC! 00°

062SUG7I-13201* JO 76 \ 2 570 IWiU^Wffoir ?oc&feereler > 0«*7-16-2»»91

r ~i APR-5 m


60 COKNGLLY PARKWAY HAMDEN CT 06518 Tax Period Ended: 12-31-76

. Assessment

L —I Date: 04*01-33 ^

Statement of Tax Due On Federal Tax Return

This is a notice of tax due on your return identified above. The amount shown as Balance Due should be paid within 10 days from the date of this notice. Please make your check or money order payable to Internal Revenue Service and send it with this notice to the address shown above.

Reference Assessment Credit Balance Due

GU.OU33 TAX 19,006,00-.- whatkind? 0^-01-Cl PR ^EM 9,503.00

ot»-ai-?3EST PEN 7^9.00

CU»-OU83 INT 12.6H.35

Penally - Failure to Pay ,00 $M|ft37»35

(continued next page)

EXHIBIT 17 (continued)

... JDRSSl 06010000 rt__ i___._%?&» 23C CW3U33SRC' °°°

OLN - For IRS Use Only 670 I WllW«

06251-091-13205 30 77 12 570 W»WSS'y Ws'iufereler > 047-16-2*91

F "I ftPR-51983

IRWIH A SCHIFF Form Number: 10*»0 W


HAMOEM CT 0651 f! Tax Period Ended: 12«31-77

Assessment [_ _J Dale: OU-01-B3 ^

Statement of Tax Due On Federal Tax Return

This is a notice of tax due on your return identified above. The amount shown as Balance Due should oe paid within 10 days from the date of this notice Please make your check or money order payable to Internal Revenue Service and send rt with this notice to the address shown above

R«forenee A»*e*sm«nt Credit Balance Due

OU-OU33 TAX n,€7«?.00^- whatkind? OU.O»-33 FR PEN 9,33-1.00

oi»-cur?3EST PEN (.63.eo

0^-01-33 INT 11,080.99

Penalty - FXIuf* to fay ,00 $39,760.9}

(continued next page)

EXHIBIT 17 (continued)

Dale0lDRS*« 0601 GOOD onp ,_Thi.Nouc,: 23C CU-Ol-nsSRli °°°

DLN — For IRS Use Only 670 **!•»*•

06251-091.13206 30 73 12 s7o 'Sg$ffi&^

;o this numbei I)**/•• > &*• <*+91

r ~] APR-~1?f;

IRWIN A SCHIFF Form Number: JQUO " "


HAtlDEN CT 0651(3 Tax Period Ended. | 3.31.73 , Assessment ^

L J Date Ofc-01-83 •<

Statement of Tax Due On Federal Tax Return

This is a notice of tax due on your return identified above. The amount shown as Balance Due should be paid within 10 days from the date of this notice. Please make your check or money order payable to Internal Revenue Service and send it with this notice to the address shown above.

Reference Assessment Credit Balance Due

GU.Q1.33 TAX 53,UU7.00-«- whatkind? OU.ttl.83 FR PCM 26,7?'*.^0

OU-OI-S3EST PEN 1,706.00

OU-01.93 INT 23,370.39

Pen.lly - F.llur. lo Pay .00 S110,2U7.89

$91,131 in "income" taxes, $48,644 in fraud and other penalties, and $52,071.23 in interest penalties. But the documents make no actual demand for payment of the items listed. The fact that each document states that the amounts shown "should be paid within 10 days" is not a demand for payment. The word "should" is not a "demand" for payment. Most people would also not notice that the documents themselves make no reference to any specific Code section that authorizes the tax and penalties. This is not an accidental omission. The reason that there are

no Code sections listed is because there are no Code sections that mandate the payment of such taxes and penalties!

In addition, the form simply refers to a "tax" and a "notice of tax due," but makes no specific mention of an "income" tax due. Since the government collects a variety of taxes, one would asume that the specific type of tax due would be clearly identified on the "bill." The subterfuge being attempted here is obvious—the IRS relies on the fact that individuals automatically assume (since they do not owe taxes on alcohol, cigarettes, gasoline, etc.) that the tax they presumably "owe" — and the one the bill indicates "should be paid" — is a tax on "income." But the documents themselves say nothing about owing a tax on "income" because no one can "owe" or be "liable" for a tax on "income"

The Federal government gets away with succh subterfuge because a thoroughly intimidated and uninformed public blindly accepts as fact that amounts shown on such government documents are legitimate, if not always accurate. Because of its total lack of understanding of the Internal Revenue Code and relevant Supreme Court decisions, and because of its faith in the integrity of Federal "courts," the public automatically assumes that the billions of dollars collected by the IRS on the basis of such documents must be legitimate. And, based upon such a false assumption and misguided faith, billions of dollars in "income" taxes are routinely extracted from the American public every year.

Before proceeding with an explanation of how the government actually confiscated my money (with the help and cooperation of the Federal "courts"), it is important to understand the fraudulent and illegal character of the $181,844 claim against me.

1. The government's claim for interest penalties — prior to an assessment being made and a tax "liability" being established as required by law — is blatantly fraudulent for the reasons discussed on page 256.

2. These "notices" sought to "bill" me for $45,500 in fraud penalties though no court (not even tax "court") ever proved that I had committed tax fraud with respect to the years 1976,1977, and 1978.53

3. No basic "assessment" could have been made in the first place since I had never sent in either a "return or list" which, by law

B3In tax fraud claims the burden of proof is on the government, see page 365. There is no Federal tax statute that authorizes any employee of the United States Treasury Department to take it upon himself to determine that a citizen has committed civil "fraud" and then to arbitrarily "bill" him and demand payment of such "fraud penalties!'

(Section 6201(a)(l), Exhibit 7, page 257) the government must have before any income tax "assessment" can be made.54

Therefore, the unsigned "notices" I received from the government in the beginning of April, 1983 — claiming that I owed $181,844 in taxes, interest, and fraud penalties — were not supported by any tax statutes whatsoever but were merely based upon fraud themselves.

The next "notice" I received from the government was a "Final Notice" dated April 18,1983 (Exhibit 18) which was loaded with as much fraud as the other three notices I received only a few weeks before. This "notice" stated that "notices and demands" had been made upon me for the payment of "your Federal taxes." No such "demand" had ever been made upon me. The only "notices" that I received prior to this "Final Notice" were the "Notice Of Deficiency" and the three "Tax Due" notices, and none of them contained a "demand" for the payment of anything.

For example, the "Notice Of Deficiency" said that it was "sent to [me] as required by law!' This statement is a lie, designed to create a false air of legal compulsion.55 It then stated that "if [I] want to contest this deficiency in court before making any payment" I can and even told me how to go about doing it. Next it informed me that if I "decide not to file a petition" that the Commissioner "would appreciate it" if I would "sign and return the enclosed waiver forms" [and if I] "decide not to sign and return the statement" [that the] law required us to bill you after 90 days. . .56 The point is, this "notice" is cleverly designed to trick people.

The biggest deception in the "Final Notice" (which I am sure is never noticed by those who receive it) is that there is no mention anywhere in it of the specific Federal tax that the "notice" claims is owed or the Code Section that establishes the "liability" referred to in it. Was the $181,844 in taxes, interest, and fraud penalties being "demanded"

"Actually, these "notices" were designed to be used in connection with Code Section 6014 (Exhibit 19) which provides that when a taxpayer "elects" to have the government compute his tax he sends in a "list" of the items upon which such a calculation can be based. This section also provides that "the tax shall be computed by the Secretary [of the Treasury] who shall mail to the taxpayer a notice stating the amount determined to be payable." So, legally, these "notices" could not, under any circumstances, apply to