No Liability

Post 10 of 11

One important question remains: if the ideas presented in this blog are correct, then how is it possible that Congress did not include a liability statement? And what stops them from putting one in once they catch on?

Consider the 16th Amendment

U.S. Constitution Amendment 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.

Sounds O.K., but, what did they mean by “income” and “from whatever source derived”? First consider “income.” Generally it is understood to mean all money that comes into your possession, but that is not what was originally intended. What is now commonly referred to as “profit” is what they meant by “income.” Here are some relevant court decisions which shed light on what was really meant by the term “income” in the sixteenth amendment:

Referring to a 1913 income tax statute (the same year the 16th amendment was ratified):"It taxes only income “derived” from many different specified sources; one does not “derive income” by rendering services and charging for them."

Edwards v. Keith, Second Circuit Court of Appeals, 231 F. 110 (1916)

"I do not think that “income,” as used in the statute, should be given a meaning so as to include everything that comes in."

So. Pacific Co. v. Lowe, C.I.R., District Court, S.D. N.Y., 238 F. 847 (1917), reversed on other grounds, 247 US 330 (1917)

"Certainly the term 'income' has no broader meaning in the 1913 Act than in that of 1909, and for the present purpose we assume there is no difference in its meaning as used in the two acts. This being so, we are bound to consider accumulations that accrued to a corporation prior to January 1, 1913, as being capital, not income, for the purposes of the act."

So. Pacific Co. v. Lowe, C.I.R., U.S. Supreme Court, 247 US 330 (1917)

"...it becomes essential to distinguish between what is and what is not ‘income,’ as the term is there used [in the 16th Amendment]; and to apply the distinction, as cases arise, ... Congress cannot by any definition it may adopt [in the Internal Revenue Code, for instance] 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.

"After examining dictionaries in common use (...) we find little to add to the succinct definition adopted in two cases arising under the Corporate Tax Act of 1909 (...)- ‘Income may be defined as the gain derived from capital, from labor, o from both combined,” provided it be understood to include profit gained through a sale or conversion of capital assets."

Eisner v. Macomber, U.S. Supreme Court, 252 US 189 (1919)

(Notice that there is an inherent contradiction between the above statement that Congress cannot define the word “income,” the item on which the tax is imposed, and the principle of clear and unequivocal language established earlier in Step One: Understanding tax laws, in general. It would appear that the voluntary nature of the tax is probably a necessary subterfuge to avoid the true requirements of a mandatory and honestly enforced excise tax.)

"...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 Tax Act and that what that meaning is has now become definitely settled by decisions of this court."

Merchants L. & T. Co. v. Smietanka, U.S. Supreme Court, 255 US 509 (1920)

"The individual unlike the corporation, cannot be taxed for the mere privilege of existing. The corporation is an artificial entity, which owes its existence and charter powers to the state.

... but the individual’s rights to live and own property are natural rights for the enjoyment of which an excise cannot be imposed."

Redfield v. Fisher, Supreme Court of Oregon, 292 P. 813 (1930)

"Reasonable compensation for labor or services rendered is not profit."

Lauderdale Cemetery Association v. Matthews, Supreme Court of Pennsylvania, 47 A.2d. 277 (1946)

"There is a clear distinction between ‘profit’ and ‘wages’ or compensation for labor. ‘Compensation for labor’ can not be regarded as a profit within the meaning of the law. The word ‘profit,’ as ordinarily used, means the gain made upon any business or investment- a different thing altogether from the mere compensation for labor."

Oliver v. Halstead, Virginia Supreme Court, 86 SF 2d 858 (1955)

"Whatever may constitute income, therefore must have the essential feature of gain to the recipient. This was true when the sixteenth amendment became effective, it was true at the time of the decision in Eisner v. Macomber, supra, it was true under section 22(a) of the Internal Revenue Code of 1938, and it is likewise true under section 61(a) of the Internal Revenue Code of 1954. If there is not gain there is not income.

"Congress has taxed income and not compensation."

Conner v. U.S., U.S. District Court S.D. Texas, 303 F.Supp. 1187 (1969)

"The general term ‘income’ is not defined in the Internal Revenue Code."

United States v. Ballard, Eighth Circuit Court of Appeals, 535 F.2d. 400 (1976)

Remember what Harvard University Legal Scholar Roscoe Pound and Huck Finn had to say about the legal use of language.

In order to understand what Congress was trying to accomplish with the sixteenth amendment and the income tax, generally, first, refer back to the definition of an excise tax.

"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.’"

Flint v. Stone Tracy Co., U.S. Supreme Court, 220 US 107 (1910)

The first two quotes above, Edwards v. Keith and So. Pacific Co. v. Lowe, about the meaning of “income” give us a clue about what Congress may have been aiming for. It seems that income in the original conception does not refer to a corporate privilege since corporations are clearly not the only ones being taxed, however, I will discuss this possibility later. It is definitely not a license to pursue an occupation. So, therefore, it must in some way relate to the manufacture, sale, or consumption of commodities. The manufacture is out of the question since the government would not tax itself for printing money, unless the term manufacture is given a broader meaning which encompasses the generation of money from purely financial means, such as interest or dividends, (also known as usury.) It is easier to think about interest and dividends as the sale of money and I believe that is probably what the laws were aiming towards. Consider the context in which the sixteenth amendment arose:

"Enormous wealth had been accumulated by the Rockefellers, the Vanderbilts, the Astors, railroad tycoons, and “robber barons,” as the superrich were sometimes called. They were an extremely unpopular and despised minority whose great wealth gave them aristocratic status and power. It was believed that heavy taxes on this wealth were necessary for the health of the country.

For Good and Evil, The Impact of Taxes on the Course of Civilization, Charles Adams

It is the rich who routinely invest their money for which they receive “income” which is not connected to their labor or services. They have “derived income” by selling money for more money.

The phrase “derived from” is important here. Consider how this phrasing might apply to another excise tax, beer, for instance. If Congress were to use this phrasing in taxing beer they would say, “There is hereby imposed a tax on beer from whatever source derived.” That is not hard to figure out, right? When the brewer gathers together his hops, barley, and whatever else, then puts them together, out comes beer, a known and taxable item and the government is clearly making sure it can tax beer without reference to the ingredients/ sources from which the beer was derived. Now consider what would happen if the government wanted to tax beer in the same way that they are currently taxing income. They would say that since beer is derived from hops and barley, hops and barley are therefore beer and must be taxed accordingly. Thus you pay the beer tax on your hops and barley when you receive them and then they will collect the beer tax again after it is brewed into beer. That is how the current income tax system works under the modern understanding of income as every penny that comes into your possession. All the money you are given in compensation for you labor and services is “income.”

The logic was extended in this way when the Supreme Court abandoned what they called the “gain test” for income. The principle was abandoned because the government wanted the pickax known as “wages.” The system was growing in several important ways. First was the beginning of withholding from wages as part of the “Victory tax” in World War II, which was a truly voluntary withholding scheme to encourage people to support the war debt. In the economic boom after the war and the patriotic fervor that accompanied it, the government simply ignored the expiration of the “Victory Tax” and incorporated it into the income tax. Then as the country experienced the slowing of the economic boom and other negative economic pressures in the 1960’s lawmakers were motivated to better secure the success of taxation. Thus the gain test was abandoned in order to give the government better access to the corporate excesses which had replaced the “robber baron” excesses. They probably did not care as much about principle as Tom Sawyer, but they got what they wanted in any case.

Now, if Congress had originally intended to tax wages and all the money that is received they would have said that they had the power to “lay and collect taxes on all money received from whatever source.” They, in fact, were not intending to tax all money and were trying to distinguish money earned as the fruit of one’s labor from money received through purely non-labor means, loans, investments, and the like. The current application seems to be aimed at including consumption of money as though it were a consumable item. You pay taxes for having it pass though your possession. It is clear, in any case, that the current application of the income tax laws are far beyond the intentions of the authors of the sixteenth amendment.

Addressing Miscellaneous Concerns

Is the IRS definition of “gross income” sufficient to define “income,” as some may claim? The flawed logic is the same as that used in a Natalie Wood joke. (For those who do not remember or do not know Natalie Wood was a famous actress who drown.) The joke goes, “What kind of wood does not float? Natalie Wood” The defenders of the income tax have relied on the same logic by asking, “What kind of income do you pay taxes on? Gross income.” The flaw in the logic is evident when you consider how that kind of definition would lead to absurdity in a real context.

We are going to build a house together. I’m not very experienced at building and so I ask you what material we should use to frame the house and you answer, “Natalie Wood.” In actual practice I (and I believe most people) would assume you were answering the question with a sense of sick humor but really just meant “wood.” Unfortunately the tax game is a legal dialogue with significant financial repercussions. Therefore, assuming that the IRS is empowered to define income by their definition of gross income is equivalent to assuming that we are going to exhume Natalie Woods dead body to build a house. Remember that Congress cannot define income and the IRS as a minion of Congress cannot have more power to create law than Congress.

Now let’s consider the possibility that the income tax is intended to apply to corporate privileges. The idea has more relevance today than it did in the time of the sixteenth amendment because of the replacement of the “Robber Barons” with the Multinational Mega-Corporations. The government is not totally ignorant and has responded to the restructuring of the economic powers with adjustments in the laws it creates. Unfortunately this restructuring to keep up with the rich may have fried smaller fish. If the tax is a tax on corporate privilege, then how can individuals be liable for the tax?

The issue here is more a question of form rather than substance, what legal forms of verification do you have that you are an individual and not a corporation? Supposedly your birth certificate would establish your identity as an individual human being/ citizen. However if you remember what the relationship is between corporations and governments,

The individual unlike the corporation, cannot be taxed for the mere privilege of existing. The corporation is an artificial entity, which owes its existence and charter to the state.

Redfield v. Fisher, Supreme Court of Oregon, 292 P. 813 (1930)

Corporations are legally property of the state because they were created by the state. It is an age-old doctrine of law that the creator is supreme over its creation. Look carefully at your birth certificate and see if there is a box or line that asks for something referring to corporate limits or within the corporate city limits. The argument goes that there is a distinction between the geographic limits and the legal limits. A child born on the soil of a foreign nation but within the U.S. Embassy is within the legal limits of the U.S. even though it is within the geographic limits of another country. If you were born within the corporate city limits then you may be presumed to be born a subject of that corporate entity, and by extension subject to the entities that created that entity, i.e. the state and/or federal governments. Thus you are supposed to become a legal “person” or “individual.” This is the issue that has prompted many “patriots” to file legal papers to rescind their birth certificates and other government documents. They contend that the distinction between inside and outside corporate limits is crucial and that they must establish that they have were born, reside, domicile, live and marry in a particular legal context, in this case outside of the jurisdiction of any “corporate” entity. In particular they insist on the distinction between corporate government and non-corporate government entities. The distinction being that one type of government rules based on having slaves, referred to as “persons” or “individuals,” and the non-corporate republics rule based on having “Citizens.” These languaging arguments can be quite convincing because evidence is easily accumulated to show how consistently the current State and Federal governments use terms in ways that apparently support the distinctions drawn by the advocates of this interpretation of how the system works. But in practical terms they are responding to their own fantasies about evil government conspiracies.

Has the IRS altered the law to suit their mission?

Yes and no. Yes, in that they have been very successful at shaping public perceptions. Yes, in that they mostly get away with operating the way they want most of the time. However, since we have seen that the intentions of the original laws that created the income tax have been extended greatly, it begs the question of who really has the power to extend the law. The IRS would appear to have been given the power to extend their reach beyond the intention of the original law. However, this issue is addressed in the following Supreme Court decision and repeated in a subsequent Eighth Circuit Court decision.

"The power of an administrative officer or board to administer a federal statute and to prescribe rules and regulations to that end is not the power to make law... but the power to adopt regulations to carry into effect the will of Congress as expressed by the statute. A regulation which does not do this, but operates to create a rule out of harmony with the statute, is a mere nullity."

Manhattan General Equipment Co. v. Commissioner, U.S. Supreme Court, 297 US 129

"It is true that the power to adopt regulations is not the power to make law, but is the power to carry into effect the will of Congress as expressed by statute."

Prescott v. C.I.R., U.S. Eighth Circuit Court of Appeals, 561 F.2d. 1287 (1977)

While these court decisions indicate that the IRS is not supposed to stretch the laws, the practical reality is that they can and do within some broad limitations. Congress is ultimately responsible for having created the income tax system and they are responsible for those broad limitations. The next level of responsibility is with the creators of Congress, but that is another topic.

The truth is that the current state of the tax system is a by-product of the complex interactions of history, politics, economics, and legislative bureaucracy. To speculate, as some have, that the current system is a conspiracy of the upper class or the ruling elite is an over estimation of the control of small groups and an under estimation of the intelligence of the complex institutional and cultural systems which are actively shaping our world today. I do not doubt that the elite upper classes have some degree of control and influence. They undoubtedly act to exercise that influence and control, however, I am also sure that they are subject to a social equivalent of the scientific concept known as the “uncertainty principle.”

The uncertainty principle states that the degree of precision of measurement of the direction and velocity of a particle is inversely related to the degree of precision of measurement of the position of the particle. In other words, if you want to know where it is you cannot know how fast it’s going nor in what direction, and if you want to know how fast it’s going and in which direction it’s traveling you cannot know where it is. For the ruling elite, they may use their power and control to point us, the society, in a particular direction, but they will not know exactly where it started and therefore will not know the outcome, except in general terms of the direction. And conversely, if they find out where we are they lose track of what direction we’re going and how fast, and therefore will not know which direction is most pertinent to addressing the issues they are most concerned about. Of course they are also subject to the fact that we, as a society, are also an extremely dynamic bunch which immediately renders their latest information irrelevant because we will have immediately shifted ourselves unpredictably as we deal with our daily tragedies and triumphs.

The state of the system of tax laws in the United States is such a complex system that my belief is that Congress and the IRS would like to ignore the liability issue as long as possible and only address it when it becomes an unavoidable necessity. If that situation occurs they are most likely in my estimation to deflect the issue and simply pass a law that obscures the issue further. If the country is in a time of relative chaos this would probably work because the courts would simply perform the next set of linguistic and legal gymnastics to quell any threat to the government’s ability to extract money. If the country is not in a time of chaos then there is a possibility that the courts could resist Congress inevitable attempt to legislate around the problem, as they did for many years before the passage of the 16^th Amendment. Since our country is never more than a decade from another bout of relative chaos (which would inevitably ensue as the media emphasized the pernicious effects of the government’s inability to collect the income tax with impunity) Congress will eventually have it’s way. That is my vision of the scenario given that the whole system remains in the pattern it has revolved in for the last two hundred years.

Another possibility is that the system will go into the choatic period and not recover. That will mean that the society as a whole will reform itself, in a word, revolutionize. The “collapse” of the United Sates like the former Soviet Union is, in my mind, a possible scenario. My hope is that we will be able to achieve our revolution like the Czechoslovakian people did with the help of people like poet/president Vaclav Havel. The Czechoslovakian “Velvet Revolution” was characterized by a lack of violence. I believe it would be an accident of history if the lack of liability to income taxes set off a revolution. I am sure that a revolution will be inevitable if we each stand in our truth against each of the little white political lies, legal inconsistencies, and policy deceptions that we endure from our government and other institutions.

I fully advocate that we stand in the truth, without blame. It is unnecessary to criticize or complain, and more importantly counterproductive to creating communication and positive changes. When I chose this path originally, I did get angry and had the inclination to find fault, place blame, and seek to punish, however, I have continued to search for understanding and have been rewarded. As my anger and resentment subsided I came to gain clarity and insight. I have returned to the firm conviction that the most powerful position is humbly standing and acting from the center of my truth, in humility. That means practicing the utmost respect for others, especially the IRS, Congress, the “power elite” and any others who might appear to perpetuate the deceptions and untruths I perceive. I advocate that you take from this book first and foremost the attitude of respect for those who are going to challenge your choices and beliefs. Only by practicing respect will you have an opportunity to receive respect and possibly justice for the time, effort and expense you invest in finding and defending your truth.

• 1) Introduction


• 2) Evaluating Your Personal Attitude


• 3) Food for Thought


• 4) The IRS Agrees With Me! (On some issues)


• 5) Investigating Tax Laws


• 6) Understanding tax laws, in general.


• 7) Understanding the income tax laws.


• 8) IRS Propaganda


• 9) Choosing Your Strategy


• 10) How is this possible?


• 11) Corresponding With The IRS

Labels: income tax

# posted by No Liability @ 5:42 PM