Select Page

The following article by attorney Bill Butler is longish, and not always and easy read, but well worth the time. It deals with an issue I’ve been involved in more closely than I’d have liked for a number of years now, and there’s really no end in sight.

As to whether the U.S. government is capable of such a colossal swindle, to think they are not one would have to believe that one little lie cannot lead to another bigger one, and another, and another. Governments are not only capable of this kind of mendacity, they thrive on it.

The author’s conclusions are shocking, but from my years of research, they are completely true. And so you won’t have to wonder where we are going, I’ll lead off with his conclusion:

“The Internal Revenue Code is a scam enforced by coercive and unjust
violence perpetrated on innocent, generous and trusting people for
nearly 100 years.  Because we are blinded by fear and the threat of
harsh and unjust punishment, to date no one has fully and
dispassionately untangled the IRS’s knot.  I hope this piece provides
at least a solid start.”

Ezra Pound said, “A slave is one who waits for someone to come and free him.” The truth is appalling, and acting on the truth is dangerous. To know the truth and fail to act, however, is to acquiesce to cowardice and accept a comfortable slavery, slavery light so to speak, where you can hardly feel the chains — unless you try to take them off.

TAKE THE RED PILL

UNDERSTANDING THE IRS MATRIX

by Bill Butler, LibertasLex.com

 

I.        BASIC PHILOSOPHICAL DIFFERENCES:  A PRIORI NATURAL LAW VERSUS A POSTERIORI POSITIVISM

Parts of this analysis will be a mind-bending philosophical exercise for some.  This is because the conflict between “us” and “them” on at least one level represents a fundamental and perhaps irresolvable conflict between a priori thinkers and a posteriori thinkers.  Those with an a priori worldview believe in God and immutable, natural laws that “come first.” We can be Christian, Jewish, Muslim, Hindi or even Zoroastrian marijuana worshipers.  We understand that as rational, free-will beings we “discover” these eternal laws and our unique individual paths from reason applied to circumstance.  We are the Rule of Law remnant who believes in God-given unalienable rights, jury trials and the power of common men to nullify unjust laws through jury nullification and other civil means.  A priori thinkers believe that an unjust law is not a law.  Most of us accept that every individual’s subjective economic choices are immeasurably valuable and cannot be planned by others without causing real and serious damage.  To a priori’s, socialism, a system that by definition promotes the taking of money and property from A and giving it to B, is an irreconcilable moral evil.

A posteriori thinkers
are the judges and growing legions of authoritarian legal positivists
who believe that morality and things like the Ten Commandments and the
Golden Rule are nothing more than sociological customs that can be
interpreted and changed according to the whims of the ruling caste.
The notion of a law that defies God’s law—stealing from A and giving to
B—is absurd to the a posteriori positivist.  The a posteriori’s fit
comfortably in either Republican or Democrat jerseys and worship at the
altar of the state.  These people include the elites, the
neoconservatives, the Progressivists, and most of modern academia.
Collectively, these people are the modern-day Pharisees.  To these
people, only fallible men have the power to “create” law, men do not
discover law.  They seek to deny and limit the right to a jury in
income tax disputes.  To them, all man-made laws are legitimate and all
rules must be obeyed or changed by a process over which they have
exclusive control.  The a posteriori credos are might makes right and ends justify the means.  To a posteriori’s, truth is a malleable concept.

The United States were birthed by the greatest non-sectarian statement of a priori principles
in the history of mankind—The Declaration of Independence.  In that
great document the 57 signatories acknowledged that “all men” are
created equal and endowed with unalienable rights.  Although the US
Constitution is also an excellent document, it really represents a
compromise between the a priori thinkers (enumerated powers, Bill of Rights, 10th amendment, due process, jury trials) and a posteriori thinkers.  The a posteriori influence on the Constitution is evidenced by the fact that slaves were counted as 3/5ths of a person and the original exclusion of the Bill of Rights.

 

II.      BACKGROUND: THE DIFFERENCE BETWEEN “DIRECT” AND INDIRECT  “EXCISE” TAXES

 

Federal
income tax apologists argue that it applies to all U.S. citizens doing
anything that earns money.  The problem is that the Code does not say
this anywhere.  It doesn’t even come close.  Indeed, the Code is in
fact very careful to avoid stepping beyond the very limited scope of
its clear federal jurisdiction—over federal officers and employees and
those of U.S. territories.  Through a series of very artful tricks,
traps and bullying obfuscations, the federal government has asserted
jurisdiction over millions of innocent people who “voluntarily” but
unwittingly submit to federal authority.

In order to understand how all this can be true, it is important to understand taxes generally and a little bit of history.

Courts
and scholars have divided taxes into “direct” taxes and indirect
taxes.  Excise taxes are a type of indirect tax.  The current federal
income tax is an indirect, excise tax.

A.    Direct Taxes Tax People or Things and Don’t Require a Taxable Event

Direct
taxes tax discrete individuals and identifiable private property.
Property taxes on your home are direct taxes.  When direct taxes are
aimed at people, they are sometimes called “capitation” or “poll”
taxes.  In the history of civilization, capitation taxes on individuals—being
taxed for merely being alive and perhaps producing income—have always
been viewed as a somewhat morally abhorrent form of slavery.  The poll
tax was a source of Jewish rebellion in Christ’s time.
Our own Supreme Court has held that states that require payment of a
state poll tax as a condition to voting violate the US Constitution.
Unlike excise taxes, direct taxes do not generally require a “taxable
event”; that is, the person or property is subject to the direct tax
for simply existing.   The property tax bill on your house may go up or
down depending on tax rates and value and you do not have to sell your
house to trigger the obligation.  The tax is direct and not dependant
on your house doing (e.g. being sold, leased, etc.)
anything.  If the federal income tax was a direct tax on all people, it
would apply to people without regard to their activity.  It doesn’t and
so it isn’t.

          B.       Apportionment Means Fairness (and Power)

Article I, Section 8 of the Constitution requires that all direct taxes be “apportioned.”   Apportionment means pro rata
fairness.  If the federal government today were to establish a direct
tax on individuals or property and the tax was apportioned, that would
mean that the federal government would identify the amount it needed
and then apportion (divide) that amount among the states according to
the people or property in the states.  The original intent of the
Founders regarding direct taxes was that, if the federal government were to levy a direct tax, then the federal government would send the states a tax bill representing their apportioned (fair pro rata share) of the tax and the states would collect it.   An interesting description of how this worked prior to 1913 is found in Pollock v. Farmer’s Loan & Trust Co., 157 U.S. 428 (1895) (“Pollock I”).  Pollock is a great a priori victory
in which the Supreme Court held that a federal direct income tax on all
“United States citizens” violated the Constitution and further
castigated the federal officials who had perpetrated the fraud on the
innocent people of the United States.   Is there any judge today who
would be brave enough to write this:

The
injustice and harm which must always result from overthrowing a long
and settled practice sanctioned by the decisions of this court could
not be better illustrated than by the example which this case affords.
Under the income-tax laws which prevailed in the past for many years,
and which covered every conceivable source of income…vast sums were collected from the people of the United States.  The decision here rendered announces that those sums were wrongfully taken, and thereby, it seems to me, creates a claim, in equity and good conscience, against the government for an enormous amount of money…  I say, creating a claim, because, if the government be in good conscience bound to refund that which has been taken from the citizen in violation of the constitution,
although the technical right may have disappeared by lapse of time, or
because the decisions of this court have misled the citizen to his
grievous injury, the equity endures, and will present itself to the conscience of the government..

 

157 U.S. at 637-38.   Pollock provides hope for a priori’s.  

Apportionment can be either by population, property or land.  Apportionment requires that each state contribute pro rata
in relation to the subject of the direct tax.  If the federal income
tax today was a direct tax that was apportioned based on population,
the total federal contribution of the citizens of Montana would be
approximately 1/53rd of what the citizens of California pay
(California has 53 representatives, Montana 1).  This concept, together
with state sovereignty, has been slowly eroding ever since 1776, with
significant erosions occurring in 1791 (Constitution), 1862 (Civil
War), 1913 (income tax and Federal Reserve), and the final nail in the
coffin—the establishment of withholding in 1942.

Pro rata fairness is really what the Civil War was all about.  Throughout the 19th
century more populous states battled to compel subsidies from less
populous states.  A necessary consequence of a representative
government with growing populations in some states means that some
states can exert legislative power and thus, economic control, over
others.  Aiding this leverage is the fact that the Constitution counted
black slaves as only 3/5ths of a person for purposes of
representation.  By 1850, the result was that Southern states paid a
disproportionate share of the federal budget and thus subsidized the
North.  Protectionist tariffs on southern commodity exports
artificially increased operating costs in the South and subsidized the
North.

If
you believe that the Civil War was “about” slavery you have been
misled.  If you believe Abraham Lincoln was a good guy who really
wanted to “free” all of the slaves you are mistaken.  Take the Red
Pill, review the Emancipation Proclamation and ask yourself why it did not free the thousands of slaves in the Northern slave states.  That’s right, Northern slave states.
There were at least five of them:  Delaware, Kentucky, Maryland,
Missouri and West Virginia.  This doesn’t include New Jersey, which did
not outlaw slavery until after the war. You won’t find this mentioned
in any modern government school textbook.  Did you know that Abraham
Lincoln opined on the inferiority of the black race and thought that
freed slaves should be shipped to Haiti and the U.S-created African Republic of Liberia?  Liberia, liberate, freed slaves, get it?   By Lincoln’s own admission, the Emancipation Proclamation was a war measure, cruelly intended to cause fear and uncertainty only among southern slaves and southern slave holders.

The
unplugged-from-the-Matrix reality is that the Civil War was a violent,
bloody and murderous tax collection action and the North, including its
slave states and many reluctant foreign mercenaries, was the federal
government’s tax collector.  Slavery without a doubt was a factor in
the war as the cost of production in the South was subsidized by slave
labor and the federal tariff was a coercive attempt to equalize the
South’s costs of production.  But it is a fact that the Southern states
no longer wanted to pay a disproportionate share of federal tariffs
and it is also a fact that Lincoln’s troops invaded the heavily taxed
non-paying slave states, not the subsidized Northern slave states.
Need more proof?  When news of secession reached him, Lincoln asked:  “what, then, will become of my tariff?

A final bit of direct-indirect-apportionment background.  The solitary impact of the 16th
Amendment, if any, according to the Supreme Court, is to remove any
question that the current federal income tax is subject to
apportionment—it is not.  The current federal income tax is an excise
tax, not a direct tax.  In several decisions the United States Supreme
Court has reaffirmed the principle, embodied in Article I, Section 8,
that any direct tax must still be apportioned.  For this reason and
others articulated below, although the Supreme Court had not stated it
clearly, the current federal income tax is an excise tax effectively applied as though it were a direct tax.

C.       Excise Taxes Must Have a Subject (Person or Thing) and a Verb (Subject Doing a Taxable Thing)

Excise
taxes differ from direct taxes in that they must have both a subject (a
person or thing taxed) and a verb (a “taxable event” or transaction
that triggers the tax).  Excise taxes thus tax a particular thing upon
the occurrence of a taxable event.  They are “indirect” taxes because
they don’t tax a person or thing directly, but rather tax the person or
thing only when it “does” something.  The federal gas tax of 18.4 cents
per gallon is an example.  The gas tax is derived from and limited to a
thing—gas.  The taxable event that triggers the tax is the sale
of gas.   2000 gallons of gas sitting in a tank underground, no matter
how valuable, does not generate any excise tax until someone sells it.
The subject of the tax—gas—must be doing something
taxable in order to trigger the tax.   If A owns the 2000 gallons and
sells 10 gallons to B, A charges B the tax and sends it to G, the
government.  If A gives gas to B, there is no sale and therefore no
taxable event.  G gets nothing.  In some respect, therefore, excise
taxes are “voluntary.”  B can choose not to buy gas.  B can also choose
to ride a bike instead of driving a car and therefore avoid paying the
tax.  For excise taxes, voluntary avoidance of excise taxes is possible
and the excise tax is generally proportionate to the activity—the more
gas B burns, the more gas he buys and the more tax he pays.

The
proponents of the income tax most broadly claim that it is an excise
tax that applies to “people” who “earn income.”   It does not, for
example, tax “cows” that “eat grass.”  As a matter of logic and
statutory interpretation, therefore, it is very important to understand
that excise taxes must have both a subject and a verb and that both are
clearly identified.

III.     MORE BACKGROUND:  A ROTHBARDIAN UNDERSTANDING OF MONEY AND INCOME—THERE IS NO SPOON

 

It
was some time ago now that I read Murray Rothbard’s simple and elegant
explanation of money received from the fruits of one’s labor.  To
paraphrase the great Mr. Rothbard, money received in free market exchanges is nothing more than a receipt for
services performed.  There is never any “profit,” “gain” or “income” in
a true free market exchange.  While one person may receive more for
similar work, absent fraud or breach of contract, the amount received
always represents the value that he or she brings to the transaction.
The best way to understand this is to take money out of the equation.
If I sell my legal services to a printer and the printer pays me with
1000 brochures advertising my practice, neither he nor I have any gain
in the transaction.  After negotiation, the agreed-upon value of my
legal services to both me and the printer equals 1000 brochures.
Although we both employ our time, labor and capital to trade for
something we desire, neither of us has any real gain or profit in the
transaction.  If I spend time marketing myself to another printer and
sell the identical service for 2000 brochures, there is still no profit
or gain to me.  I have spent my most valuable resource—my productive
time—finding someone who places a higher value on my services and am
rewarded for that time and energy.  Although some would say the second
printer was overcharged, he did not think so and I can as easily claim
that the first printer was undercharged because other buyers of my
legal services are willing to pay more.

Inserting
money into the equation we see that money is just a substitute for this
zero-sum exchange.  In a free market exchange between individuals with
reason and free will, money received can never represent income or
gain.  It is always what the market is willing to pay for the value of
the seller’s time, labor and capital.  So when the Code attempts to
capture tax dollars received in zero-sum exchanges where dollars are
simply a substitute for goods and services, the Code’s words can do
nothing but fail.  In free-market transactions, there is no “gain,” no
gratuitous “income” and no unearned “profit.”

There is no spoon.

When great men like Irwin Schiff go into a federal court making this Rothbardian income observation, they end up in jail.  A posteriori,
positivist judges either mischaracterize the arguments or call the
argument frivolous and absurd.  The funny thing is that, from a
positivist judge’s frame of reference, a Rothbardian understanding of
money is absurd.  This is because a substantial share of the money a judge receives as a tax-funded government agent actually is gain, profit and income.
Although there is a free market for many public
functions—police/private security, civil judge/arbitrator—there is no
private market for incarcerating people who, for example, sell
marijuana to consenting adults or refuse to pay a federal tax that they
sincerely believe they are not obligated to pay or because they believe
the tax supports a corrupt and immoral empire.  In short, there is no
market for and no one would voluntarily pay someone else to incarcerate
innocent people who have harmed no one and simply want to live their
lives in peace and free from federal government coercion.  If you get
paid for something that the free market would never support, what you
receive for that is certainly gain.

Several
months ago, a Minnesota federal judge incarcerated a man accused of
running a Ponzi scheme and also incarcerated a local businessman who
had failed to withhold social security taxes from his poor Hispanic
immigrant employees. Before putting the businessman behind bars, the
judge publicly reprimanded the businessman for irresponsibly
threatening the system.  This poor judge apparently did not have the
self-awareness to see to log in his own eye when pointing out the mote
in the businessman’s.  This judge does not understand that the Social
Security system is not a trust fund, that it is functionally bankrupt
by virtue of the demographics of an aging population and that the
judge’s own actions, imprisoning a man who wanted to put money in his
employees’ pockets rather than send that money to Washington D.C., was
merely to serve as the muscle in a much bigger, much more dangerous
federal Ponzi scheme.  That is “the system” this a posteriori judge seeks to protect.

Ironic.

IV.     THE FIRST REAL STEP:  THE CODE AS A LOGIC GAME

Although
the Code was enacted well before, it did not really get going until
1942, with the advent of the current form of withholding in the midst
of World War II.  As indicated in this piece,
today we enter the Code through the back door, Subtitle C’s
withholding.  We do this with our first job when we fill out a W-4 and
authorize withholding that does not apply to most of us.  As detailed
below, the clear terms and definitions in Subchapter C fail to include
any private actor working in the 50 States within its scope.   Yet
bullied employers require employees to complete W-4’s, take part of
their employees’ pay and tender it to the IRS because of (clearly
intentional) ambiguities in the Code and because the sanctions for
non-compliance are severe.  Once in the Matrix, with the federal
government unlawfully holding our money, we look for a way out.  We
find that we are behind the bars of Subchapters A and B, where
everything earned is income and all gain, tangible or intangible, is
taxable.   Although many have died on the wall of jurisdiction, the
Code as applied is in part a lesson in the application of federal
personal and subject matter jurisdiction.  Our pay is withheld and we
do not object in the first instance and thus unwittingly submit to the
IRS’s personal jurisdiction trap.  We enter the Matrix and a world
where up is down, down is up, money-as-receipts-for-services is not
recognized and the Bill of Rights does not exist or has been
transformed into a Soviet bureaucratic administrative process.
Although neither the federal government nor the IRS has any “subject
matter” jurisdiction over our free-market earnings, our “income” is
caught in the trap and therefore so are we.

          A.       Where Is the Gas? 

Because
many tax educator arguments tend to involve technical, precise and
sometimes confusing parsing of words and definitions, it is important
to put the Code in context.  The bureaucrats who drafted and administer
the Internal Revenue Code are the same as those who drafted and
administer the federal government’s other big money-making tax, the
federal gas tax.  As pointed out here,
it is therefore useful to compare and contrast the language, words and
logic in both of these tax structures to put the income tax Code’s
ambiguities, omissions, inconsistencies and fallacies in context.
Comparing the language in the gas tax structure shows very clearly that
this analysis is not lawyerly nitpicking and pettifoggery, but that the
Fabian Socialist drafters of the Code have purposefully created a web
of fallacies and ambiguities that result in the fraudulent transfer of
billions of dollars from productive people to their relatively
non-productive rulers.

The subject of the federal gas tax is “taxable fuels”:

(a) Taxable fuel

For purposes of this Subchapter—

(1) In general

The term “taxable fuel” means—

(A) gasoline,

(B) diesel fuel, and

(C) kerosene.

26 U.S.C. § 4083.

The
gas tax money-maker is section 4081, where the Code drafters link the
subject (taxable fuel) with verbs, the taxable events (removal, entry
or sale) that trigger the federal gas tax:

(a) Tax imposed

(1) Tax on removal, entry, or sale

(A) In general

There is hereby imposed a tax at the rate [18.4 cents per gallon] specified in paragraph (2) on—

(i) the removal of a taxable fuel from any refinery,

(ii) the removal of a taxable fuel from any terminal,

(iii) the entry into the United States of any taxable fuel for consumption, use, or warehousing, and

(iv) the sale of a taxable fuel
to any person who is not registered under section 4101 unless there was
a prior taxable removal or entry of such fuel under clause (i), (ii),
or (iii).

In case there is any doubt about whether something mixed with gasoline is gasoline, the gas tax provides clarification:

The term “gasoline”—

(A) includes any gasoline blend,
other than qualified methanol or ethanol fuel (as defined in section
4041 (b)(2)(B)), partially exempt methanol or ethanol fuel (as defined
in section 4041 (m)(2)), or a denatured alcohol, and

(B) includes, to the extent prescribed in regulations—

(i) any gasoline blend stock, and

(ii) any product commonly used as an additive in gasoline (other than alcohol).

For purposes of subparagraph (B)(i), the term “gasoline blend stock” means any petroleum product component of gasoline.

Here
is a Venn Diagram showing how section 4081 links taxable subjects with
taxable activities and how easy it is when the subject and activities
are clearly defined.  The middle of the diagram below shows that gas
that is subject to the tax—taxable fuel that is sold.

No
gas station in America is confused about either the subject (gas) or
the verb (a sale) of the federal gas tax.  The taxing authorities have
been able to clearly define what “taxable fuel” means so that gas
stations do not apply to tax to sales of thing like bread, bubble gum
or soda pop.  No gas station owner applies the 18.4 cent per gallon tax
to the sale of products “derived from” taxable fuel, things like
petroleum jelly, tires or even motor oil.

The
foregoing shows how important words are in drafting positive law
statutes and particularly in defining the subjects of a positive law
excise tax.  Ethanol is a combustible liquid and we can use it to run
our cars, but it is not “gasoline” according to section 4083.  Section
4083 could say that gas means “all brown teddy bears.”  If it did, then
all brown teddy bears would be gas for purposes of section 4083 and
black teddy bears would not.  More importantly, however, is section
4083’s use of the term “any” after “includes.”  Any means “all.”
Section 4083 fairly clearly indicates that section 4083 gasoline means all gasoline blends
“other than” specifically excluded methanol, etc.   The Venn Diagram
above shows that the Code’s drafters know how to encompass many tax
subjects and how to exclude others.

          B.       Subchapters A and B—Inside the Matrix Looking Out

 

Although
the ultimate key to understanding the Code lies in the withholding tax,
the Rubik’s Cube bureaucrats have reorganized the Code and placed the
withholding tax—the rabbit hole through which we enter the Matrix—and
hidden it in the middle of the Code, in Subtitle C.  For the moment,
therefore, we will forget about the white rabbit—withholding—and go
right into the Matrix through the front door.

                    i.        Subtitle A—Taxing a Question

Subtitle
A governs the “income tax” part of the Code.  If we want to identify
what income is taxable, etc., we must drill down to Subchapters A and B
of Subtitle A.  Subchapters A and B respectively indicate that they
provide authority for how one should “determine” and “compute” income
tax liability.  Subchapter contains sections 1-3 and purports to
identify “who” is subject to the income tax.  It does not.

Here is an example in section 1:

 (a) Married individuals filing joint returns and surviving spouses

There is hereby imposed on the taxable income of

(1) every married individual (as defined in section 7703) who makes a single return jointly with his spouse under section 6013, and

(2) every surviving spouse (as defined in section 2 (a)),

a tax determined in accordance with the following table:

All of the sections in Subchapter A
begin with the statement that the Code imposes a tax on the “taxable
income” of every person and entity that one could possibly list.  The
term “taxable income,” like “taxable fuel,” is a compound noun.  The
adjective “taxable” limits the term “income”—a term that the Code never
separately or specifically defines.  The limitation is jurisdictional
because the term “taxable” begs the questions “by whom?” and “to whom?”
As much as it may bother the IRS, the “gross income” of a married
Australian Aborigine is not “taxable income” under the Code.  The
Aborigine’s income, whatever that may be, is not taxable by the US
government.  Subchapter A thus begs two questions.  The first is, which
“married individuals” is subchapter A talking about?  Because the
income tax is an excise tax just like the gas tax, it also begs the
question:  “what must those married individuals be doing in order to
have “taxable income”?

All of Subchapter A reads the same.  This is what Section 1 looks like in a Venn Diagram:

 

Section
1, standing alone, does not answer any tax liability questions.  All it
says is that married individuals with taxable income must pay income
tax.  By linking an undefined noun to an undefined noun, it does not
identify who those married individuals are.  The
inclusion of the term “every” before the term “married individual” does
not change this analysis.  It is only married people with taxable
income who are at the intersection of these two categories and
therefore included within the scope of section 1.   For example, if you
are a married Aborigine living in Australia, it seems more likely than
not that you will not have taxable income under the Code.  Indeed, as
you will see from the Code’s definitions below, it is true that every married individual Australian Aborigine is not liable for the US income tax.

The
term “taxable income” is therefore more of a jurisdictional question
than it is an identifiable tax subject.  If I am a married individual
and have income as otherwise defined by the Code, I can only determine
if I am responsible for paying income tax by determining if the express
terms of the Code include both me and my income as “taxable” within the
scope of its express jurisdiction.  If you are a married individual
citizen of one of the 50 States concluding your first year of
free-market employment and the federal government has withheld a
portion of your pay, you of course assume that you are
included in the middle of the diagram above.  You assume this because
you are inside the Matrix looking out.  Your employer demanded that you
fill out your W-4 and you complied, your employer sent a portion of
your earnings to Washington D.C. and you did not object, and you
perhaps naively think that no one would be so dishonest as to take the
hard-earned fruits of your labor without clear legal and moral authority.  And then you wake up.

This
is not playing word games.  The Code could, like the gas tax above,
clearly identify the subject of the excise tax—the gas—and clearly
identify the activity that triggers the tax (a sale) and from that we
could identify our tax liability.

From
outside the Matrix, we clearly see that Subchapter A says only that an
unidentified “some” people have taxable income.  Comparing Subchapter A
to section 4081 of the federal excise tax above, Subchapter A joins two
nouns instead of a noun and a verb.  When it does this it fails to help
us identify the people in the ambiguous middle, the married people with
jurisdictionally taxable income.  The middle of the Venn Diagram is
unidentifiable and nothing in Subchapter A helps us find it.  The
analysis is the same for every category listed in Subchapter A because
having “taxable income” functionally operates as a qualifier or
condition precedent to each and every category in Subchapter A.

The only logical conclusion we can draw from section 1 above is:

          Some married people have taxable income.

We
cannot deduce from this argument that all married people have taxable
income, because we do not know who, according to the Code, is within
its jurisdictional scope.

 

ii.       Subchapter B—Computing Taxable Income Does Not Answer Subchapter A’s Question

Subchapter B
is entitled “Computation of Taxable Income” and so at least implies
that this is where to look if we want to determine a particular
individual’s taxable income.  Although not particularly relevant to
this analysis, Subchapter B is the Fabian Socialists’ attempt to define
up as down, down as up, left as right, and right and wrong.  Subchapter
B abrogates all classical liberal notions of income and has therefore
been the legitimate target of many righteous Rothbardian tax educators,
including Irwin Schiff.  If it were a gas tax, Subchapter B would be
thousands of words used to describe and capture every form of every
kind of gas, including all fumes “derived from” the gas, etc.  Section
61 of Subchapter B defines gross income as “all income from whatever
source derived” and includes not only dollars received for goods and
services, but intangible “gain” from exchanges.  If Subtchapter B were
a gas tax, the homeless glue-sniffer getting high on fumes would have a
taxable gain.

Section 61
further attempts to define a tax subject that was not a tax subject at
the time the Constitution was written.  The tax subject in Subchapter B
is:  “taxable income.”  Recall above that the Founders contemplated
direct taxes (on people or property) or indirect excise taxes (on
people or things doing specific activities).   Subchapters A and B
combine to identify and define the tax subject not as people or
property, but as the unanswered question from Subchapter A:  “taxable
income.”  Conspicuously absent from all of Subchapter B is the
identification of any specific individual human being who has “taxable income” and is therefore obligated to pay the tax.  

Here’s how section 61 looks in a Venn Diagram:

 

Like Subchapter A, Subchapter B completely fails to identify the people
in the very large middle.  The only reason that the two circles aren’t
completely overlapping is because Subchapter B exempts some income from
taxation and also makes some income non-taxable when it is spent on
“allowable deductions,” like mortgage interest.  The only conclusion
one can reasonably draw from Subchapter B is that there are some
unidentified people for whom almost every activity is a taxable
activity.  We know from Subchapter A that this includes “some” married
people, but other than that Subchapter B provides no clear, material
guidance.  The individual married Australian Aborigine doing section 61
stuff may or may not have taxable income depending on the express
jurisdictional scope of the Code.  All we can deduce from section 61 is
that, whoever the people in the middle of the Venn Diagram are,
virtually everything they do is a taxable activity.  Sad for them.

Here is what Subchapter A and B look together on a Venn Diagram:

 

The
people in the middle of this diagram—the “some” married individuals
doing the things identified in section 61 and having money (or any ethereal gain)
left over from their labors and therefore taxable income according to
Subchapter B—are impossible to identify until we understand the express
jurisdictional scope of the Code.  Stated another way, applying the
Code’s positive law definitions we need to determine who is in the
middle.  It could be federal workers, individual married Australian
Aborigines, brown teddy bears or married individuals living in
Minnesota serving the free market.  We don’t know until we look at the
Code’s definitions.

          C.       Following the White Rabbit into the Rabbit Hole in Search of the Gas

 

Identifying
the real “gas”—people getting paid for doing things that make them
subject to federal income tax jurisdiction—in the income tax requires a
little history.  The first time an employee in the United States was
subject to a withholding tax was during the Civil War.  The Revenue Act
of 1862 allowed the federal government to withhold, from all federal
employees—the federal tariff collectors—three percent of their wages.
The 1862 Act also enacted the first, largely ineffective, income tax on
individuals.  The tax was ineffective because it had no meaningful
reporting mechanism and taxed primarily capital gain income, not
wages.   The only people who were hurt were those who “voluntarily”
ensnared themselves in the system by self-reporting or by responding to
federal demands to report their income.  The sad case of Springer v. U.S., 102 U.S. 586 (1881) is an example of the dangers of responding to the federal Javerts
without objecting.  The income tax from 1865 to 1942 didn’t raise
substantial revenues because, for the most part, it required
self-reporting and people do not voluntarily contribute to causes they
oppose or do not understand.

                    i.        The White Rabbit

Everything changed in 1942, in the midst of the patriotic fervor of World War II.

The
1942 Revenue Act established “withholding,” whereby “employers” who
paid “wages” ostensibly became obligated to withhold a portion of those
employees’ wages and send them to the federal government.  On August 21
and 22 1942, at a congressional finance subcommittee meeting at which
Milton Friedman, Sen. John A. Danaher, Sen. Bennet Clark and Charles O.
Hardy of the Brookings Institution were present, Mr. Hardy admitted
that the tax would be withheld from both taxpayers and non-taxpayers
but, according to Friedman, non-taxpayers (including individuals and
corporations) would be entitled to a refund upon filing their returns.
The withholding from non-government employees would essentially operate
as an interest-free loan to support the war.  The spigot was never
turned off and our current system is the result of this immoral, a posteriori, ends-justify-the-means thinking.

                    ii.       The Rabbit Hole

Here
is how the Code operates to get everyone believing they have a legal
obligation to pay income tax.  It begins with very clever use of
inexact language in a context that demands precision.  Subtitle C, the
withholding part of the Code, threatens employers with fines and
imprisonment if they do not report their employees income and do not
withhold a federal tithe from their employees’ wages.

Subtitle
C is entitled “Employment Taxes.”  The most material provisions of
Subtitle C are found in Chapter 21 (Federal Insurance, e.g. FICA and
FUTA) and Chapter 24 (entitled “Collection of Income at Source,” i.e.
Shearing of Sheep at the Feeding Trough).

Section
3402 of Chapter 24 is very broad and requires “every employer making
payment of wages” to withhold from those wages a tax as determined by
the administrators of the Code.   Section 3401 is somewhat tricky
because the definition of employer is defined as a “person” for whom
“an individual” performs services as, here’s the money language, “an
employee.”  To determine if one is an employer that must withhold taxes
on our employees, we must therefore determine if the employer has any
Code-defined “employees.”  Here is the Code’s definition of employee, found at section 3401(c):

(c) Employee

For purposes of this chapter, the term “employee” includes
an officer, employee, or elected official of the United States, a
State, or any political subdivision thereof, or the District of
Columbia, or any agency or instrumentality of any one or more of the
foregoing. The term “employee” also includes an officer of a
corporation.

That’s it, that’s the gas.  Section 3401 includes only
people whose income derives from getting paid for doing things for the
federal government—federal officers, employees and elected officials
and States (very narrowly defined in sections 7701 and 3121)
and officers of [federal or federally controlled] corporations.
Section 3402’s definition of “wages” references money paid to
“employees” and so circles back to the dead-end definition above.
From the plain, express language of section 3401, Subchapter C does not
“include” within its scope any free market employee working in the 50
States.

Again,
you may think that this is picking nits.  It’s not.  Remember,
non-government, free-market earnings were not coercively dumped into
the federal withholding system until 1942.  So anyone who does not fall
within the definition of section 3401 and has had money withheld from
their paycheck since 1942 has been a victim of government-coerced
theft.  Don’t believe that is possible?  Read the excerpt above from
Pollack gain.  The Supreme Court in Pollack lambasted the feds, led by
the young politician and former New York Federal Reserve employee
Woodrow Wilson and his fellow-traveling Progressives, for their
robbery.  Mr. Wilson of course did not end up hanging from a light pole
for the attempted heist, but rather was elected President of the United
States where he could again exercise his good judgment to waste
thousands of American lives in World War I.

There
are certainly very broad definitions of “employee” and “employer” in
the Code, most notably in Subtitle C, chapter 21, particularly section
3121.  Subtitle C relates to “employment tax” and chapter 21 relates to
“federal insurance,” e.g. FICA and FUTA.  These are 1930’s New Deal
social programs developed by that other famous employee of the New York
Federal Reserve, Franklin Delano Roosevelt.   So a broad and
self-limiting definition (almost all Code definitions limit themselves
to “this chapter”) of employee within section 3121 will not apply to
other sections of the Code, and more importantly, the meaning of
“wages” that measure the tax imposed on workers in that chapter hinges
on the term “employment”, not “employee”; and not everyone who
qualifies as an “employee” as defined in that chapter is in “employment
as THAT term in defined in that chapter…

Anyway,
the drafters of the Code were at least honest in the scope of their
authority and jurisdiction.  For example, even though the Federal
Insurance provisions of section 3121 contain some very broad
definitions, section 3121’s definition of United States is oddly
self-limiting.  The definition of United States does not include, or
even mention, any of the 50 sovereign states:

(e) State, United States, and citizen

For purposes of this chapter—

(1) State

The
term “State” includes the District of Columbia, the Commonwealth of
Puerto Rico, the Virgin Islands, Guam, and American Samoa.

(2) United States

The
term “United States” when used in a geographical sense includes the
Commonwealth of Puerto Rico, the Virgin Islands, Guam, and American
Samoa.

An
individual who is a citizen of the Commonwealth of Puerto Rico (but not
otherwise a citizen of the United States) shall be considered, for
purposes of this section, as a citizen of the United States.

Weird,
huh?   But if you wanted to write a Constitutional law that did not
infringe on the rights of individuals residing within the 50 sovereign
states isn’t that how you would write it?  The definition of “state”
includes only federal territories because the Constitution and,
particularly, the 10th Amendment, bars the federal government from invading the sovereign states.

A
detailed discussion of the word “includes” is found below, but it is
clear from the plain reading of section 3121 (Employment Tax general
definitions) and section 3104 (Federal Insurance definitions) that at
the point of entry into the federal Matrix, wage withholding and FICA
and FUTA payments, the Code’s definitions don’t apply to most folks.   For
now, the individual married Australian Aborigine is safe.  The IRS has
no subject matter jurisdiction over any “taxable income” in Australia.
Not true for the individual married native Samoan in “employment”, he’s
screwed.  

 

Again,
this is not a silly semantic game.  Words in positive law statutes have
meanings and those words have real world consequences.  The power to
invent a new form of socialist taxation was never delegated to Congress
by the 50 States or the people.  The Code, by accident or design,
recognizes that fact.  If a State, under the Code, means
a territory that the United States has acquired as part of the growth
of its empire and the geographic areas listed in the definition are
places where the residents pay taxes but do not have representatives in
the U.S. Congress, then Iraq and Afghanistan better fit the Code’s
definition of “State” than do Minnesota or Montana. 

 

          D.      The Unidentified Middle—No Gas in Subchapters A and B

If
any reader can identify where and how the 3 million word Code applies
to someone in the intersection of the Venn Diagram below—a
non-governmental person doing an identifiable taxable activity—I will
be happy to make any necessary corrections or retractions to this
article.

 

V.       “INCLUDES,” LOGIC AND STATUTORY CONSTRUCTION

The fallacies of composition and hasty generalization
prohibit extrapolating something that applies to “some” to “all” or
even to “some not of the type listed.”  These logical principles are
embedded in the legal principles that honest judges must employ in
interpreting positive law statutes.  Although ignored by many, all
judges are bound to interpret statutes according to the principle of ejusdem generis, which
obligates them to construe statutory categories and lists narrowly so
that they do not overstep or usurp the legislature.

Black’s Law Dictionary defines this principle as follows:

Of
the same, kind, class or nature.  In the construction of laws, wills
and other instruments, the “ejusdem generis rule” is, that where
general words follow and enumeration of persons or things, by words of
a particular and specific meaning, such general words are not to be
construed in their widest extent, but are to be held as applying only to persons or things of the same general kind or class as those specifically mentioned.

As a rule, when we lawyers draft something we follow the logical-grammatical ejusdem generis
principle.  If we want our words to include a broad spectrum of things
that we may not be able to completely articulate, we start
theoretically big, list examples and leave open other options.  If I
was waterboarded and forced to draft a tax statute intended to include
all public and private employees in the 50 States I would say:

For
purposes of this chapter, employee means any person residing or working
in the 50 States who receives compensation for their services.  This
includes, but is not limited to, all people who perform services for
private and public (tax funded) employers.

I
would have to separately define some of the terms, but you get the
idea. The drafters of the Code clearly know how to do this.  Section 61
of the Code (Subtitle A Income Tax) is  a textbook example of how to
use “includes, but not limited to” and how to start with big conceptual
lists and then list non-exclusive examples.  Also, recall that the
federal gas tax, in defining “taxable fuel,” said that taxable fuel
“means” three specific types of fuel.  Subtitle A, Subchapter B (Income
Tax) never says that taxable income “means” anything, it just tells us
how to calculate it for those who are subject to it without telling us
who those people are.  In contrast, the gas tax clearly closes any
loopholes in the subjects of the tax by defining gasoline to “include
any” gasoline blend.

The Code itself acknowledges that it is bound by logic and the principle of ejusdem generis.   Although section 7701(c)
states it in a rather backward way, it states that the term “includes”
does not and cannot include things outside of the same meaning as the
things listed:

(c) Includes and including

The terms “includes” and “including” when used in a definition contained in this title shall not be deemed to exclude other things otherwise within the meaning of the term defined.

This definition is simply a restatement of the ejusdem generis rule.  It says that “includes” means only things of the same type.

As
harsh as it may sound, government workers do not “pay” taxes.  Any
taxes they pay are simply giving back a portion of what has been taken
out of the free market to support them.  While one can debate the
necessity of police officer versus a kindergarten hangnail grief
counselor, the categorical distinction between a tax consumer and tax
producer is unassailable.  The government school teacher and the police
officer receive their income not from a voluntary, free-market
exchange, but from tax revenues.  When section 3401 defines employees
to “include” a government employee, it cannot therefore be construed to
mean a free-market employee.  They are polar opposites.  Similarly,
when section 3121 defines “state” to mean Samoa, it cannot be construed
to mean Connecticut.  The former is a militarily conquered vassal of
the empire, the latter a free state that voluntarily joined the Union
in 1791.

VI.     THE IRS’S BEST ARGUMENTS (A/K/A THE EMPEROR HAS NO CLOTHES)

In the spirit of Ludwig von Mises’ command: “Tu
ne cede malis, sed contra audentior ito” (do not give in to evil, but
proceed ever more boldly against it), as part of looking into the Code
I decided to look at the IRS’s best analysis of and arguments in
support of the Code. 
In February of 2009 the IRS published “The Truth About Frivolous Tax Arguments.”  You can find it here.
Not surprisingly, this document is a lesson in obfuscation and
deception.  Analogizing again to the movie The Matrix, the arguments in
this piece are really a restatement of the fundamental arguments of the
agents and architects of the Matrix, i.e.:

The programs in the Matrix always apply to the same things and always lead to the same results.

Of
course this is true.  If I invent a game and in that game I make a rule
which provides that, for purposes of the game, 2 + 2 = 5, then for
purposes of the game, 2 + 2 = 5.  If I am in the game, then 2 + 2 = 5.
If I am not, then reality of course says that 2 + 2 = 4.  Nowhere does
this IRS publication answer the fundamental questions:  (1) To whom
does the game legally apply?; and (2) Who in the game is legally
obligated to pay?  It is not enough to say, “see X, he believed what
you believe and X is in jail.”  That someone is in jail because of
neo-Soviet show trial is not much of an argument.

The
real core difference between the view in this analysis and the IRS’s
view is found at pages 11 to 25, in the Section entitled:  “The Meaning
of Income: Taxable Income and Gross Income.”  If you have gotten this
far, you understand that the deception starts with the section title.
To be charitable to the IRS, the title should read:  “Income as Defined by
the Code:  Taxable Income and Gross Income.”  Changing this title would
reflect the truth:  that the Code’s indirect descriptions of “income”
are not what income really is, but rather what the social planners and
wordsmiths want it to mean for purposes of a positive law statute.
I will draw out just a few examples here, but you should be able to
understand and dissect all the arguments (some of which have merit)
yourself if you compare them to this analysis and the Code’s express
language.

                    i.        Tax educators v. IRS:  Wages are Income

In
the real, ordinary world most people would agree that wages are
income.  In the real, ordinary world most people would agree that they
their wages reflect the fair value of their services to the market.
Very few would say that they are overpaid; indeed, most would probably
say that they are underpaid.  On thorough examination, most ordinary
people therefore have a Rothbardian understanding of income—that it is
at best a zero sum exchange, money in exchange for time, sweat, and
risk of capital.

The
Code, of course, rejects this view.  Although the Code never defines
“income,” section 61 does define “gross income” as any and all income
from whatever source derived and defines “taxable income” and gross
income less allowable deductions.  OK, so 2 + 2 + 5.  But am I in this
game?

Here is what the IRS says in response at page 12 of its “Truth” publication:

The Law:
For federal income tax purposes, “gross income” means all income from
whatever source derived and includes compensation for services.  I.R.C.
§ 61.  Any income, from whatever source, is presumed to be income under
section 61, unless the taxpayer can establish that is it specifically
exempted or excluded.  In Reese v. United States, 24 F.3d 228,
231 (Fed. Cir. 1994), the court stated, “an abiding principle of
federal tax law is that, absent an enumerated exception, gross income
means all income from whatever source derived.  The IRS issued Revenue
Ruling 2007-19, 2007-14 IRB 843, advising taxpayers that wages and
other compensation received in exchange for personal services are
taxable income and warning of the consequences of making frivolous
arguments to the contrary.

Powerful stuff.  At least it is if you have not read this analysis, the Reese case
and the Revenue Ruling cited.  Understanding how the Code works, when I
read that passage I make several notes and ask several questions.
First, in the Reese case I note that it was decided in 1994 by the Federal Circuit.
If the IRS is the 800-pound gorilla and federal courts generally are
the jungle, then the Federal Circuit, located in Washington D.C., is
the gorilla’s home in the middle of the jungle.  It decides appeals of
claims made in the D.C. federal district court
which decides claims against the federal government and has exclusive
jurisdiction over the Guantanamo and Anthrax cases.  At the district
court level, if there is a jury it is comprised of federal bureaucrats
and the decision-maker is, by definition, a dyed-in-the-wool statist.
I then wonder:  (1) who is Reese?; (2) where does Reese live?; (3) what
does Reese do for a living? and (4) is Reese employed by the federal
government or one of its “instrumentalities”?

OK, I’m not making this up.  If you read the Reese
case you will not find where Reese lived (significant if it is D.C, a
“State” under the Code), but you will find that Reese’s “income” was
not the result of free market exchange within the 50 States.  The issue
in the case was whether money Reese received as punitive damages in a
sexual harassment lawsuit brought in Washington D.C. federal district
court asserting claims under the District of Columbia Human Rights Act,
a federal law, was taxable income.  Another twist in many
cases interpreting the Code is that courts have fairly uniformly held
that the federal government has the unqualified right to tax income
deriving from federal licenses and privileges—if you pull bananas out
the jungle the 800-pound gorilla always gets a piece of the action.  It
is enough for me, therefore, that Reese’s income was not money received
for free market services performed within the 50 States but was the
result of the adjudication of a federally-created positive law right.
Because this is the IRS’s best argument, however, I was still curious
about who Ms. Reese’s employer was and where she lived.  I searched
online databases, earlier reported cases, I accessed and searched the
District of Columbia District Court’s PACER database, and even
attempted to contact Ms. Reese’s attorneys.  The Court’s PACER database
oddly shows no documents in the case.  Because Ms. Reese sued the case
out in the D.C. district court (the gorilla’s home turf) based on D.C.
law, the evidence powerfully suggests that Reese was a federal
employee, perhaps a member of the Maryland National Guard, and may have
lived in D.C., but I have not been able to confirm that.  But it is
clear that Reese’s income was not earned in a free-market exchange in
one of the 50 sovereign states; it was the result of the adjudication
of a federal law.  Moreover, the award was not compensatory; that is,
it did not represent lost income.  It was a punitive damages award.
In sum, Reese would never have gotten this money but for the
adjudication of the federal law that gave her a positive law right to
receive it.  So, if the Reese case is the IRS’s best argument,
the case the IRS relies on to tell the “truth” about frivolous tax
arguments, then Irwin Schiff and the rest of us should be free very
soon.

The
quote above also references I.R.S. Revenue Ruling 2007-19, 2007-14
I.R.B. 843.   Now a little about Revenue Rulings.  These are the
decisions and analyses of federal bureaucrats responsible for
administering the Code.  Trusting and innocent people petition the IRS
for decisions on the taxability of income or transactions.  To perhaps
abuse and mix more metaphors, decisions and analyses from these people
would be like Neo appealing to agent Smith to please let him out of the
Matrix.  Revenue Rulings either repeat all of the errors above or
attempt to administratively make the statutes above say and mean things
they do not.  Revenue Rulings come straight from the belly of the
beast.  What you will find in all of these Revenue Rulings and in the Truth About Frivolous Tax Arguments is the following deceptive argument.

          All wages are taxable income.

          Tax educators who assert otherwise make frivolous arguments.

This
is a very clever misrepresentation of the tax educator argument and
leads to the source of the evil—withholding.  You see, tax educators
correctly respond to the above statement by pointing out that the
statement “all wages are taxable income” is true for some people—federal workers and Samoans in “employment”—and not for others—free
market workers in the 50 States and Australian Aborigines.   The source
of the IRS’s fallacy is section 3402 of the Code which states that all
“employers” must withhold tax from the “wages” of their employees.
Section 3121 also contributes to the misperception.  But, as noted
above, when we drill down on the definitions of “employee”, “employer”
and “employment” and identify the express jurisdictional scope of the
Code we see that it applies only to federal workers and people working
in specialized circumstances in the federal territories.

Another case that the IRS cites in support of the proposition is Murphy v. IRS, 460
F.3d 79 (D.C. Cir. 2006).  From the citation, you will notice again
that this decision comes from the gorilla’s home in middle of the
jungle, the D.C. Circuit Court, the most federal of federal circuit
courts.  Here is a quotation from that decision, right out of Alice in Wonderland:

[a]lthough the ‘Congress cannot make a thing income which is not so in fact,’ [ . . . ] it can label a thing income and tax it,
so long as it acts within its constitutional authority, which includes
not only the Sixteenth Amendment but also Article I, Sections 8 and 9.”
The court ruled that Ms. Murphy was not entitled to the tax refund she
claimed, and that the personal injury award she received was “within
the reach of the congressional power to tax under Article I, Section 8
of the Constitution” — even if the award was “not income within the
meaning of the Sixteenth Amendment”. See also the Penn Mutual case cited above.

The
Court is saying that even though Congress does not have the power to
define income, it does have to power to define taxable income provided that it does so within its Constitutional authority.
So, if Congress says that brown teddy bears are income for purposes of
the Code, they are income.  What is undefined and unstated in Murphy is the Constitutional jurisdictional scope of Congress’s power.  For that, we need to draw out the facts of the case.

We
already know that Murphy’s income, like Reese’s above, was the result
of the settlement of a lawsuit.  If you read the case, however, you
will find that Ms. Murphy’s “income” was not a personal injury lawsuit,
as the passage above implies.  Ms. Murphy was a member of the New York Air National Guard who asserted federal law whistleblower claims and pursued those claims through a federal Department of Labor administrative proceeding.  Not only was Ms. Murphy’s income the result of the operation of federal law, she was a federal employee who obtained her income through adjudication of federal, positive law as a result of a federal administrative proceeding.  She was nowhere near being a free market employee operating within one of the 50 sovereign States.  .

These are the IRS’s best arguments.  I repeat, set Irwin Schiff free.

ii.       IRS Use of Passive Voice Keeps the Mystery Alive

At the bottom of page 12 of the Truth About Frivolous Tax Arguments document, the IRS perpetuates the subterfuge by speaking in the passive voice:

          All compensation for personal services, no matter what the form of payment, must be included in gross income.

If
my seventh grader wrote this sentence for a paper and asked me to
review it, I would tell him to rewrite it and clearly identify the
subject of the sentence; that is, remove “must be included” and tell me
WHO must include all compensation from services in their gross
income.  If he did go back and rewrite it, he would say that all of the
following are the proper subjects of this sentence:

 

officers,
employees, or elected officials of the United States, a State, or any
political subdivision thereof, or the District of Columbia,

 

He
would rewrite the sentence to say that all of the above people must
include all their compensation for personal services in calculating
their gross income.  If he searched the Code to find any other
identifiable subjects of the sentence, he wouldn’t find any.

                    iii.      More BS

What
follows are some citations from an IRS publication allegedly supporting
its position.  As a former law review editor and student of the law and
legal writing I can tell you that whenever anyone uses the terms “see” or “see, e.g.” the
citation is very often baloney.  The IRS says these cases stand for the
proposition that Courts have rejected the notion that every dollar
received is taxable income according to the Code:

See Casper v. Commissioner, 805 F.2d at 905; Funk v. Commissioner, 687 F.2d at 265.  Courts recognize a distinction between selling labor and selling or exchanging property.   See Reading v. Commissioner, 70 T.C. 730, 733-34 (1978), aff’d,
614 F.2d 159 (8th Cir. 1980). Further, the courts have concluded that a
taxpayer has no tax basis in one’s labor and, therefore, the full
amount of the wages or other compensation received represents gain
which may be taxed as income. See, e.g., Casper, 805 F.2d at 905; Abrams, 82 T.C. at 407; Reading, 70 T.C. at 733-34.

Every
time I read a case the IRS cites it either supports my analysis or
doesn’t stand for the proposition stated (i.e, is “frivolous”).  With
every layer, the truth becomes more and more obvious.  I confess that I
have not thoroughly analyzed the foregoing cases, but I would not be
surprised at all if three federal judges sitting on a Federal Court of
Appeals put someone in jail without ever reading the underlying
statute.  I was once before a federal judge who cut and pasted sections
of a memorandum from an earlier case (wrong names, wrong parties) and
decided my client’s very serious and life-altering case based on the
cut and paste.  These people are fallible humans just like the rest of
us, often moreso.  The analysis in this piece is based on history, the
Constitution and the actual words in the Code. 

 

 

VII.    THE END OF REPRESENTATIVE GOVERMENT AND THE 10TH AMENDMENT

In
October of 2008, the most organized crime syndicate in the history of
the world—the U.S. Congress (so well organized it operates according to
Roberts Rules of Order, publishes its activity in the Federal Register
and broadcasts on CSPAN)—refused to listen to the 98 percent pitchfork
majority of its constituents and voted to give 750 billion newly
printed dollars to Wall Street and international banks.  Since then, it
has continued to inflate and increase the money supply by funneling new
dollars into myriad financial institutions and the moribund U.S. auto
industry.  This and separate Federal Reserve inflationary actions will
inevitably cause a sharp and perhaps uncontrollable increase in wages,
prices and commodities—the most pernicious and socially destabilizing
form of taxation.  Through these actions, Congress has shown that it no
longer represents “the people,” but rather represents exclusively those
who feed at the federal trough.

While federal courts have done their best to eviscerate it and make it a dead letter, the 10th
Amendment provides a Constitutional means for the free people of the 50
States to non-violently and civilly roll back the federal government.
The 10th Amendment expressly reserves all undelegated powers to the States or “to the people”:

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.

The 10th
Amendment thus provides the people living within the 50 sovereign
states with the Constitutional power to peacefully and civilly unwind
the national socialist system that has held the country in its amoral
grip for nearly 100 years.  As explained below, no person alive today
ever expressly, or even tacitly, delegated to Congress the power or
legal right to seize his earnings either directly through a federal
income tax or indirectly through inflation.   With no representative
government, the only power the common man has left is the power to
control or influence the flow of fiat dollars.  Just as depositors
continue to flock to banks that have refused to accept TARP funds, the
citizens of the 50 states can still seek to understand the Code,
evaluate the IRS’s best arguments and civilly and peacefully vote with
the only meaningful vote they have left—tax dollars.

 

 

VIII.    THE PATH TO FREEDOM, FEDERAL AGENTS AND  INSTRUMENTALITIES ARE NOT IMMUNE FROM STATE LAW  ACTIONS

 

So
what do we do?  As the father of four children, I wish I had a silver
bullet answer to that question.  I recommend disseminating the truth
and keep in mind that several cases from America’s last Great
Depression held federal government agents personally responsible for
acts that exceeded their legal authority and harmed others. 
After
the truth is out, we will need brave state lawmakers, brave state court
judges and perhaps even brave members of state “National” guards who
take a primary oath to obey the Constitution to step up and defend the
Constitution, with truth.  The income tax, as it is written, is
Constitutional.  As applied, it is federally-perpetrated theft. 

 

Below are some how-to examples. 

 

In Keifer & Keifer v. R.F.C., 306 U.S. 381, 388 (1939),
the Supreme Court held that a federal corporation, the New Deal’s
“Reconstruction Finance Corporation,” could be sued for negligence
arising out of its failure to honor its agreement to feed and care for
livestock even though Congress did not expressly authorize it.  This
case also serves as an Austrian free-market economics lesson to the
planners in the current administration.  The government’s agents made a
promise they had no incentive (profit motive) to honor, breached the
agreement and caused damage to innocent people and ultimately attempted
to avoid liability from suit by invoking “sovereign immunity.”     

 

The Kiefer case
also favorably references a Minnesota State Court case in which the
plaintiffs successfully sued another Socialist New Deal entity for
negligence.  Casper v. Regional Agricultural Credit Corp., 278 N.W. 896 (1939) is another sad case of the federal government run amok causing people damage.  In the Casper case
the feds extended a “barn loan” (New Deal equivalent of an SBA loan) to
a farmer, unilaterally determined itself “insecure,” foreclosed and
wrongfully sold the farmer’s property.  The farmer heroically recovered
a $6,000 judgment against the federales for conversion.

 

Kiefer and Casper provide powerful precedent for state courts willing to hold federal agents accountable for their actions. 

 

Several
courts have also held that prejudgment interest awards are available
against agents of the federal government when those agents venture into
(and thus interfere with) the private economy.  Standard Oil Co. v. United States, 267 U.S. 76 (1925).  National Home for Disabled Volunteer Soldiers v. Parrish, 229
U. S. 494 (1913).   

 

         

IX.     STATE INCOME TAX

It
is not surprising that virtually all state income tax systems borrow
directly from the federal system; that is, they apply a tax rate after
accepting a federally-defined “taxable income” pulled directly from
their citizens’ federal returns.  This isn’t surprising because of the
extreme difficulty involved in developing and implementing a workable
income tax scheme.  Rather than reinvent the wheel, states have simply
accepted the premise that the federal scheme is legal, moral and
legitimate and glommed on.  As will all arguments and positions, if a
premise is destroyed, so is the argument.

X.       CONCLUSION

The
Internal Revenue Code is a scam enforced by coercive and unjust
violence perpetrated on innocent, generous and trusting people for
nearly 100 years.  Because we are blinded by fear and the threat of
harsh and unjust punishment, to date no one has fully and
dispassionately untangled the IRS’s knot.  I hope this piece provides
at least a solid start.

©       Bill Butler, permission to reprint granted without special request.

APPENDIX

 Below
is a summary of the most important U.S. Supreme Court decisions
interpreting the income tax.   Language contained in these cases is
often cited to support propositions broader than the case’s holdings.
As any lawyer knows, any and every case can be limited to its facts and
it is vitally important to know the facts in order to determine how
broad the court’s holding is and who it affects.  This is particularly
true where the scope of a tax is at issue.

Pollock v. Farmer’s Loan & Trust Co., 157 U.S. 428 (1895) (“Pollock I”).  The first of two cases that provide hope for a priori’s.  At issue was the Constitutionality of the 1894 “Wilson Tariff Act,” imposing a tax of two percent
on the “gains, profits and income of every citizen of the United
States.”  The plaintiff in the case was Charles Pollock, a shareholder
in the company, Farmer’s Loan & Trust.  Mr. Pollock successfully
enjoined Farmer’s from paying the federal tax because the Supreme Court
held that the tax on the corporation’s profits was an unconstitutional
direct tax that required apportionment.  Is there any judge today who
would be brave enough to write this:

The
injustice and harm which must always result from overthrowing a long
and settled practice sanctioned by the decisions of this court could
not be better illustrated than by the example which this case affords.
Under the income-tax laws which prevailed in the past for many years,
and which covered every conceivable source of income…vast sums were collected from the people of the United States.  The decision here rendered announces that those sums were wrongfully taken, and thereby, it seems to me, creates a claim, in equity and good conscience, against the government for an enormous amount of money…  I say, creating a claim, because, if the government be in good conscience bound to refund that which has been taken from the citizen in violation of the constitution,
although the technical right may have disappeared by lapse of time, or
because the decisions of this court have misled the citizen to his
grievous injury, the equity endures, and will present itself to the conscience of the government..

157
U.S. at 637-38.   Wow.  This case also provides an excellent history of
the Constitutional debates on federal taxation and shows that all of
the Founders  respected State sovereignty and never contemplated or
agreed to a Fabian Socialist income tax.

Pollack v. Farmer’s Loan & Trust Co., 158 U.S. 601 (1895) (“Pollock II”).  Same case, same result as above, but this time the dissenting a posteriori judges provided long arguments in support of their baseless positions.

Brushaber v. Union Pacific RR Co., 240
U.S. 1 (1916).  First major case under the 1913 Code.  In this case a
shareholder of the federally supported and subsidized Union Pacific
Railroad sought to enjoin the railroad from paying income taxes.  The
funny thing about many important tax cases is that the taxpayer—here
the federally supported railroad—actually wants to pay taxes and makes
no objection to federal subject matter jurisdiction.  It is the
corporation’s shareholder, Brushaber, who tried prevent the railroad
from paying federal taxes.

Although
the Court denied the shareholder’s request and held that the income tax
was constitutional as applied to the federally-subsidized railroad that
wanted to pay taxes, the court did make several significant
statements.  First, it acknowledged that the 16th Amendment did not authorize “a hitherto unknown power of taxation,” and that the 16th
Amendment did not invalidate or affect Article I, section 9’s
requirement that direct taxes be apportioned.  In a backhanded way, the
Court held that the income tax is an indirect, excise tax.

Bowers v. Kerbaugh-Empire Co.,
271 U.S. 170 (1926).   This uneventful case held that a loss on a loan,
even though the loss would have been much greater if the loan had been
paid off in relatively worthless Weimar Republic fiat notes rather than
gold-backed dollars, was not income under the Code.  The opinion,
written by St. Paul’s Justice Pierce Butler does, however, provide a
prescient and timely example of the perils of an unbacked, fiat
currency.

Commissioner v. Glenshaw Glass,
348 U.S. 426 (1955).   This just continues the pattern of cases that
the U.S. Supreme Court agrees to hear.  In this case, the Glenshaw
Glass company, like Murphy and Reese above, recovered money in a
lawsuit based on positive, federal law.  Glenshaw recovered $800,000 in
a federal anti-trust case.  As part of the decision the Court also
decided another case involving Goldman Theatres.  The issue there?
Whether Goldman’s income from a federal anti-trust case was income.
Not surprisingly, the Supremes held that companies that take bananas
out of the jungle must give some to the gorilla.

Penn Mutual Indemnity Co. v. Commissioner of Revenue,
277 F.2d 16 (1960)   Tricky case.  The petitioner was the liquidating
agent (akin to a bankruptcy trustee) of an insurance company.  Company
had a loss but IRS rules required that they declare premiums received
as income and pay tax anyway.  The petitioner sought relief from the
Tax Court and not surprisingly received a harsh result.  You may be
saying, well an insurance company isn’t a federal instrumentality, so
this blows the theory, right?  It would if the Code’s definition of corporation didn’t expressly include insurance companies.

© Bill Butler, permission to reprint granted without special request. You can find Bill Butler’s website at Libertas Lex.

Runaway Slave

Runaway Slave

Runaway Slave has been in conversation with the IRS for over 10 years. His spare time is spent reading tax code, all 4,000,000 words.

The idea of living in a constitutional republic with his wife and kids, enjoying our natural rights, keeps the inner wood stove burning.
Runaway Slave

Latest posts by Runaway Slave (see all)