At first I thought this issue was amusing. Then, the more I researched it, the more compelling it became, and today, I’m here to tell you that the subject of this column is arguably, the most important issue of our lifetime. I’m speaking of fraud on a scale so massive and so enduring it could only be perpetrated by the federal government. That is to say, a federal government operating way outside of the limits mandated by the Constitution.
Everyone knows you must pay federal income taxes. There are people in jail right now for income tax evasion. The vast majority of those persons, if not ALL of them, have voluntarily (you can’t be forced to swear an oath) signed a return under penalty of perjury, swearing that they were subject to the income tax, and that all or most of their income was taxable according to the IRS code, (federal law Title 26). Then, they lied about how much income they earned giving the government everything they need to prosecute them successfully. The tax return becomes a signed confession of guilt.
Most Americans have never seen the law that requires them to file a return, and most have never researched the IRS code to determine how much, if any, of their income is taxable under the law as it is actually written. But everyone knows there is such a law, and everyone knows that all of their income is taxable.
What if everyone was wrong? It has happened before. Once upon a time, everyone thought the earth was flat. Today, almost everyone believes they owe federal income taxes. However, when the actual words, written in the IRS tax code are examined, an ugly truth begins to emerge. And the truth is, that most Americans have been systematically and intentionally defrauded into paying a tax they do not owe.
Did you ever wonder about the “voluntary” nature of federal income taxes? If the law requires one to pay, why does the IRS call for “voluntary compliance?” If one is charged with violating the law is his or her appearance in court voluntary? Does one serve time in a federal prison voluntarily or is there some sort of mandatory attendance associated with a prison sentence?
The reason for voluntary compliance is simple. The federal government is barred by the Constitution from taxing the income of most Americans. To tax each and every endeavor within the states is to regulate ALL activity, and where is the limited nature in that? The federal government is allowed by the Constitution to regulate international and foreign commerce, so they imposed an income tax applicable to income from international and foreign commerce. However, they still would like some of YOUR money, so they wrote the law in a very convoluted and easily misunderstood way.
But, as complex and torturous as it may be, the law must still be printed in English and in black letters on white paper. To determine one’s taxable income under the law as it is written, one must find section 861 of the tax code and read what it says. The best way to start understanding this subject is watch Theft by Deception a fine documentary video produced and available from Larken Rose.
But don’t take anyone’s word for it. In order for you to refute the IRS’s false claim on your money, you must know the law for yourself. Armed with that knowledge, you can stop voluntarily complying with a law that does not exist. To be more correct, stop complying with a misapplication of a law that does exist.
My research shows that at least 300 persons have requested clarification from the IRS on this subject in general and section 861 in particular. To date, the IRS has refused to address these questions and they have resorted to bullying, blustering and threatening. But ALWAYS they have refused to address specific questions about section 861. Also, to my knowledge, not ONE person has been prosecuted for relying on the written law as expressed in section 861 of the tax code, and has paid the least amount or taxes owed ZERO!
And legally paying zero federal income taxes is the most patriotic thing an American can do. Because most Americans are ignorant of the law, they have been unwittingly forging their own chains. It is the American taxpayer, more than anyone else, who is responsible for rampant federalism. The taxpayer is responsible for federal meddling into areas they have no business in, such as education and commerce, not to mention foreign aid and foreign entanglements.
In a Ponzi scheme the fraud eventually collapses from a lack of new investors. In the federal income tax fraud, there is no dearth of gullible prospects, because as P.T Barnum once noted, there is a sucker born every minute.
NOTHING SCARES THE IRS LIKE
QUESTIONS ABOUT SECTION 861
By William A. Shields
When I last reported on the Section 861 income tax issue, I stated that the IRS and the Justice Department had ignored over 300 requests from various citizens to answer some valid questions concerning federal income taxes and their proper application to many citizens.
Since that time a new flurry of letters were mailed to the Treasury Department and the IRS – over one thousand at the latest count, sent via certified mail. I know, because I participated in the effort and mailed two letters myself.
Once again, some concerned citizens have asked their government to answer a few simple questions regarding the law of the land. And again, those persons have not received anything in return except a notice from the post office that the correspondence was received and signed for.
Comes now, Ken Evans, and an interesting lawsuit vs. the IRS / United States of America, filed in Federal District court, and decided by Federal judge Charles Weiner on Friday, October 3, 2003. Although the Judge ruled against tax honesty advocate, and plaintiff Ken Evans, some eye opening events occurred that seem to place this court squarely in the pouch wearing, outback hopping, marsupial category.
Evans suit was based almost entirely on the proper application of Section 861 of the Internal Revenue Code. The complaint, which can be read online at Evans’ web site, stated that he did not engage in any of the specific sources or activities that generate taxable income, which are detailed in federal statutes, and are found listed in the regulations under Section 861. Mr. Evans sued to recover monies unlawfully withheld for years 2001 and 2002.
So the case was specifically centered on Section 861 and its proper application. (See Section 861: The Law They Hope You Never Read .)
From Mr. Evan’s press release:
“The law, though confusing is specific,” states Evans, “The federal income tax is imposed under Section 1 on ‘taxable income.’ Other sections of the law generally define the terms ‘gross income’ and ‘taxable income.’ But, these definitions can easily be misread as if they apply to all money earned by everyone in the world. Which we all know isn’t true. Section 861 and its related regulations, along with what the law calls other ‘operative sections,’ spell out exactly when income is taxable. The federal regulations state repeatedly that these are the sections of law to use to determine when income earned within the United States is taxed. Anyone can look them up on the internet.”
So the argument before the court was: “Is Section 861 applicable in determining whether or not Evans received taxable income?”
Again from the press release:
The Department of Justice, representing the government, chose not to file any response to Evans’ memorandum. This is odd because normal procedure in most lawsuits is to provide the court with reasoning as to why they believe the argument is either wrong or inapplicable to that situation. In fact, during a pre-trial conference ordered by the judge, an attorney for the government stated that a response would be filed, however none ever was.
But, the oddities don’t stop there.
Evans also filed Interrogatories with the government. Interrogatories are specific questions related to the suit that one party asks of the other in order to clarify the case. The very first question Evans asked of the government was: “Are 26 USC § 861 and the related regulations beginning at 26 CFR § 1.861-8, applicable in determining Plaintiff’s taxable income from sources within the United States in the instant case?”
The judge ordered a hearing for oral arguments on the parties cross motions for summary judgment. The hearing was held on August 22, 2003 and a transcript of the hearing is also available on Evans’ web site. From the transcript it is apparent that Evans was arguing that federal law, specifically section 861, once properly applied, does not show that he has any liability for income tax.
“The hearing was very interesting,” said Evans, “it seemed to me that the judge wasn’t very familiar with the specifics of the case. Every time I brought up the issue of the proper application of Section 861 and Subchapter N (which contains Section 861), the judge would change the subject by asking me what appeared to be argumentative questions. It was if the judge was more of my opponent than was the Department of Justice. Plus, there were two law clerks observing the hearing. They were giggling like school children, not paying much attention while the statements were being given. It wouldn’t surprise me if the opinion was actually written by the law clerks, as is sometimes the case.”
“One good thing did come out of the hearing, or so I thought,” said Evans, “The judge instructed the Department of Justice to provide me with answers to my interrogatories. It’s in the record. So, I thought to myself, ‘Great! I can finally get something in writing from the government about the proper application of Section 861.’ I even filed a motion to compel an answer to the interrogatories. The court accepted my written motion, which I also provided to the DOJ, but for some unknown reason, it mysteriously never showed up on the docket.”
So, directed by the court to answer Evans’ Interrogatories, the DOJ has failed to do so. And since the court didn’t wait for or force an answer from the DOJ, then ruled in the government’s favor, it is not likely that any answer will be forthcoming.
To add further insult to injury, the court totally disregarded the specific argument brought by Evans. That is, the proper application of Section 861. The three-page opinion, filed this past Friday does not mention the application of Section 861 even once.
It seems that the government has set the stage, manufactured the props and costumes, distributed the sheet music, brought up the curtain, started the music and kicked the plaintiff out on stage. What’s more the critical revue was pre-written by the judge and the defendant who work for the same employer. They assigned Mr. Evans an argument he did not make, and then sanctioned him $1000.00 for bringing that same “frivolous” argument to the court.
Despite what many non-believers will tell you about this issue, including socialists like David Cay Johnston of the New York Times, if the arguments of folks like Ken Evans and Larken Rose are so frivolous, they can easily be dispelled by the IRS or the Treasury Department or the Department of Justice. They could simply answer the questions and show me the law. Yet they cannot and will not. Not when they receive one hundred letters and not when they receive one thousand. Not even when ordered to do so by a federal judge.
A rational person, (even one who is not familiar with the 861 issue) can draw only one conclusion about this behavior by our government. They have something to hide. But like a teenaged unwed mother, that belly is getting bigger – and people are starting to talk.
People consider Federal Reserve notes, U.S. dollars, to be real money. This includes their digital equivalent in bank and credit card statements and Treasury-issued base metal coins. As a unit of account, all goods and services, and land and labor are priced in U.S. dollars. Declared legal tender, Federal Reserve notes are the country’s medium of exchange.
This year marks the 100th anniversary of the Federal Reserve System. It is the third central bank in the country’s history. The first two were short-lived compared to the Fed. The First National Bank, chartered in 1791, lasted 20 years, as did the second one, from 1816 to 1836.
When the Fed opened its doors for business in 1914 and for a while thereafter, until 1933, gold was money. People used gold coins to make purchases and pay debts—Double Eagles ($20 Liberties, minted 1850-1907; and $20 St. Gaudens, 1907-1933), Eagles ($10 Liberty Head, minted 1838-1907; and $10 Indian Head, 1907-1933), and $5 Half Eagles (1795-1929). Paper dollars were redeemable in gold, like the $20 Treasury-issued gold certificate shown here:
These dollar bills were redeemable “IN GOLD COIN, PAYABLE TO THE BEARER ON DEMAND,” with gold then valued at $20.67 per troy ounce. Americans over age 90 (0.6% of the population) can remember gold coins being used as a medium of exchange. Few Americans today have ever handled a gold coin.
When the Fed began issuing Federal-Reserve-note paper dollars they were also “Redeemable in Gold on Demand at the U.S. Treasury or in Gold or Lawful Money in any Federal Reserve Bank.” That changed in 1933 when the President signed an Executive Order making it illegal for U.S. citizens to own gold (gold jewelry and numismatic gold coins excepted). Then they became “Redeemable in Lawful Money,” eliminating any hard asset backing. Since 1963 the declaration on U.S. dollars simply states that, “This Note is Legal Tender for All Debts, Public and Private.”
(Federal Reserve notes initially circulated along with two other kinds of U.S. dollars: 1) National Bank notes issued by the U.S. Treasury and redeemable in U.S. bonds in its possession, beginning in 1862 to finance the Civil War and up until 1966, when they stopped being printed; and 2) silver certificates, first printed in 1878 and redeemable in silver coins or bullion. The Treasury stopped printing them in 1967, and in June 24, 1968 reneged on redeeming the ones in silver still in circulation.)
The U.S. dollar has lost more than 95% of its value since the Fed began printing them. And now it can create them just with keystrokes entering numbers on a computer. As Richard Maybury, in his Early Warning Report, puts it, “At one time the biggest problem was paper money. Now it’s vapor money. The government can create trillions of dollars just by pushing a few computer keys.” The government concedes that the dollar has lost 95% of its value over the last 100 years. Goods and services that cost $10 in 1914 now cost $200. Respected economic analyst (and fellow Dartmouth alumnus) John Williams, however, employing methods the government formerly used to gauge price inflation, calculates that the U.S. dollar has lost 99% of its value since the Fed opened its doors. Goods and services that cost $10 in 1914 now really cost $1,000 .
Americans do not comprehend this fact and generally view the Federal Reserve in a positive light, like my friend Ted, a prominent Seattle attorney my age (73). Like many educated people with a progressive bent who countenance government intervention in our lives, he argues that the Fed has an important job to do: “to keep inflation under 2 percent, or some other amount reflective of actual productivity increases.” The economy needs an elastic currency to accommodate increases in GDP and productivity, and a central bank to print money when needed, especially “to help folks out” affected by disastrous events like 9-11 and Katrina, and large institutions threatened by the current global financial crisis. Limited to having a fixed amount of gold as the nation’s currency won’t do. From this Keynesian perspective, gold is a relic—and as Maynard Keynes would have it, a barbarous one at that. Freed from gold, my friend writes, “The ‘money supply’ needs to grow to accommodate increases in GDP from increased productivity.”
The U.S. government severed the dollar’s last link with gold in 1971. While people could no longer redeem the dollar for gold coins, its international convertibility was maintained. Foreign countries and their central banks could redeem dollars for gold bullion—(400 oz.) gold bars, priced at $35/oz. After World War II, with the money supply (M2) at $147 Billion, the U.S. had 21,770 tonnes (699,905,500 ounces) of gold, which backed 17% of the money supply. By 1964 the money supply had grown to $400 Billion, and U.S. gold reserves dropped to 13,885 tonnes, covering 4% of the official quantity of money. By 1971 the amount of gold backing the dollar had shrunk to 1%, rendering default inevitable.
Freed from any gold restraint the dollar now became a purely fiat currency. (Fiat comes from the Latin word fiere, which means “let it be done.” A fiat currency is “money” that is not convertible into coin or specie of equivalent value, where government edict arbitrarily fixes its value.) Accompanying the dollar’s loss of a gold backing were the 5 cent cup of coffee, candy bar, beer, movie, cigar, and average $25,000 cost of a house, which also disappeared.
Since 1971 the St. Louis Fed’s Adjusted Monetary Base (circulating currency and bank reserves), has risen from $70 Billion to $3,885 Billion today, a 55-fold (5,500%) increase. With the government no longer able to hold its price at $35/oz., gold now functions as a barometer of fiat currency expansion. Its rise in price to $1,895/oz. on September 5, 2011 is a54-fold increase! At gold’s current depressed level around $1,300, it still is a 37-fold increase. The Dow Jones Industrial Average has tracked U.S. dollar growth less well. Its rise from 890 in 1971 to 16,400 today is an 18-fold increase, half that of gold at its current price.
The U.S. dollar has lost value at an increasing rate since 1971. What cost $100 in 1971 costs $2,428 now, a 96% decline. The dollar lost 75% of its value from 1914 to 1971 and 96% from 1971 to 2014, adding up to a 99% decline over the 100-year period from 1914 to 2014. (I used the Inflation Calculator on shadowstats.com to obtain these numbers.)
Such a precipitous decline in the U.S. dollar’s purchasing power disqualifies it as real money. A critical attribute of money is that it be a store of value. The American dollar was money in its truest sense only when it was backed by gold, and to some degree by silver. Not only did it function as a unit of account and medium of exchange, it also served as a store of value. The dollar maintained its purchasing power from the Colonial period in the 1600s up until 1914, when the Fed was formed and World War I began. It lost value twice during this time, in the American Revolutionary War when Continental dollars printed to finance it became worthless, and with National Bank notes, printed to pay for the Civil War. But during periods of economic growth accompanied by price deflation, 1820-1855 and 1873-1910, the purchasing power of the U.S. dollar increased 50%.[4,5]
As originally defined, inflation means an increase in an economy’s quantity of money. Now, however, the state and its Keynesian economists define inflation as a rise in selected consumer prices, diverting attention from increases in the quantity of money, the true cause of climbing consumer prices. From a Keynesian perspective, if selected prices don’t climb then there is no inflation—irrespective of how much money banks create or how much inflation of the money supply bloats equity and real estate prices. Bill Buckler, in his financial newsletter The Privateer, puts it this way: “For more than three generations, governments and central banks have inflated the quantity of money in circulation while at the same time engaging in futile efforts to counter the economic effects of their own inflation. They have used price controls, rationing, more regulations, higher taxes and even subsidies to bring some high prices down. When all that failed, they resorted to ‘cooking the books’ by ignoring any inconvenient price rises.” Seen in this light, the Fed’s goal of keeping inflation under 2% is not credible.
The decades-long monetary inflation of the U.S. dollar is now producing a spike in consumer prices. Food prices in the U.S. are up 19% in the first 3 months of 2014, a 76% annualized price inflation rate, raising concerns that hyperinflation looms.
John Williams has published a two-part, 108-page Special Commentary titled Hyperinflation 2014: The End Game Begins, First Installment (revised and updated, April 2); and Great Economic Tumble, Second Installment (April 8, 2014). He predicts that this is what will happen to the U.S. dollar. With hyperinflation, prices increase so rapidly that the involved currency soon becomes worthless. In its final stage, prices rise considerably by the day and even by the hour, to the point that the currency’s largest pre-hyperinflation note (U.S. $100) becomes worth more as kindling for a fire than as currency. Williams writes, “A direct result of Fed and U.S. government efforts to delay systemic collapse, as long as possible, the hyperinflation will have been born beyond the reach of official containment, the child of last-ditch efforts to salvage a system that had been methodically pushed into long-range insolvency by decades of political and policy malfeasance by the federal government and Federal Reserve.” He predicts that the 99% loss of the U.S. dollar’s purchasing power that occurred over the last 100 years could be repeated in the span of less than 12 months starting in 2014.
This has been the recorded fate of 389 fiat currencies in 170 countries, each one becoming worthless. This outcome has been the fate of all state-controlled fiat money throughout human history. The United States has already made this list with its Continental dollar (from whence comes the phrase, “Not worth a Continental”). Two notable examples are the Weimar German mark and the Zimbabwean dollar. Early in 1922 a loaf of bread cost 1 mark. Then it suddenly increased to 700 marks. In July it cost 100,000 marks for a loaf of bread and in September, 2,000,000 marks. Hyperinflation in Zimbabwe from 2006 to 2009 was worse. Towards the end authorities issued Zimbabwean dollars in 100-trillion-dollar (with 26 zeros) denominations that had a value equivalent to that of a single original Zimbabwe two-dollar bill. Signs were posted cautioning against their use in toilets, like this one here:
Paper dollars are made of cloth (not paper)—20-25% linen and 75-80% cotton interspersed with colored synthetic fibers. They clog toilets.
If the U.S. dollar succumbs to hyperinflation, the turmoil that Americans will experience will be even worse than what people endured in Zimbabwe because they had a well-functioning black market in U.S. dollars as a backup. (Paid Zimbabwean dollars, people would go to the black market and convert them to U.S. dollars quickly.) Most commerce in the U.S. today is done electronically with credit and debit cards, PayPal, wire transfers, and soon increasingly with smart phones programed with NFC (near field communication) technology.
The United States does not have a backup black market system to soften hyperinflation’s devastating impact. The federal government needs to make physical gold and silver legal tender and freely exchangeable with Federal Reserve notes (without tax consequences). As a congressman, Ron Paul introduced legislation to do this, known as the “Free Competition in Currency Act,” without success. Should hyperinflation occur and destroy the dollar and gold stay barred from functioning as a medium of exchange, the U.S. economy would be relegated to functioning on a barter system, until a new form of money could be established.
In a barter economy, goods and services (and land and labor) are directly exchanged for other goods and services without money facilitating the exchange. In a hyperinflationary collapse, barterable items would include, among other things, household items like toilet paper and toothpaste, manufactured goods, freeze-dried food, family heirlooms, and airplane-sized bottles of liquor. In Colonial America, the North Carolina legislature, in 1715, assigned values to various commodities in relation to each other—for tobacco leaves, corn, wheat, chees, deerskins, tallow, beaver and otter furs, butter, beef and pork, and whale oil. South Carolina, in 1719, issued legal tender notes redeemable in rice, known as “rice bills.” Without money available to facilitate exchange one can picture what people wanting to purchase theater tickets might use to barter for them.
Real money is a commodity, one that customers and sellers mutually and voluntarily agree to use. It thus, as a commodity, has intrinsic value. And, to function as money, it must have properties that make it a convenient, durable, and divisible medium of exchange. Throughout recorded history, beginning 5,000 years ago with Sumerian silver rings used for money continuing up to the last quarter of the 20th century, humanity has chosen precious metals, gold and silver, as the best form of money.
Gold has intrinsic value as jewelry and for industrial uses—it can be hammered into a sheet 5-millionth’s of an inch wide; an ounce of gold can be drawn into a wire 50 miles long; it does not tarnish; it is chemically inert and can withstand acid and indefinite immersion in sea water; and, after silver, it conducts heat and electricity better than any other metal. Gold never wears out (a U.S. $1 bill has an 18-22 month lifespan). It doesn’t rust, mildew, crumble, break, or rot. Plus, gold is divisible (unlike diamonds); consistent, having only one grade, 24 carats (pure gold); and in the amounts needed as money, it is easy to carry.
Austrian economists and students of the school, like Ron Paul, have shown that the amount of gold so far mined in the world, 174,000 tonnes, is enough to satify society’s requirements for it to serve as a medium of exchange. As the economy expands the amount of gold needed for commerce does not need to increase. Instead, the purchasing power of a finite stock of gold-backed money will increase, as it did in the past during the Industrial Revolution and other periods of economic growth and prosperity. But with the U.S. dollar now a fiat currency masquerading as money this, as Bill Buckler puts it, is what has happened: “Welcome to the twenty-first century. Why bother producing economic goods when you can produce ‘money,’ in any quantity, out of the thinnest of air? Why bother any more with the old wives tale that money is ‘a medium of exchange,’ an economic mechanism which makes the trading of GOODS for GOODS much easier. Why bother with economic GOODS at all, just add ‘money’ and stir. Presto, instant economic ‘growth.’ If it was not so tragic, it would be screamingly funny.”
Fiat money funds war. Ron Paul points this out, writing, “It is no coincidence that the century of total war coincided with the century of central banking.” The state has barred gold from its historic role as money to our detriment. Its medium of exchange has become a medium of control. Austrian economist Hans Sennholz saw this clearly. Writing in 1985, he concludes: “The lesson from seventy years of Federal Reserve manipulation can be no other than this: the Federal Reserve System not only is a vital tool of political control over our lives, but also an implacable foe of the enterprise system and an influential avant-garde of the command system.”
Gold-backed money curbs political power. Hans Sennholz notes, “To return to sound money is to return to free money, free from any infringements by politicians and bureaucrats. Monetary freedom, like all other economic freedoms, clears the way for energy, intellect and virtue… Political control weakens individual self-reliance and energy, causes want and poverty and, in the end, breeds tyranny and oppression.” The godfather of Austrian Economics, Ludwig von Mises, puts it this way: “It is impossible to grasp the meaning of the idea of – sound money – if one does not realize that it was devised as an instrument for the protection of civil liberties against despotic inroads on the part of governments. Ideologically it belongs in the class with political constitutions and bills of rights.”
My attorney friend bought gold in 1980 when it was $800/oz. and soured on it when gold fell to less than $400 and stayed there. Now, however, 34 years later, the best investment one can make during these uncertain times may well be, along with having physical gold in one’s possession, to buy $1,000 bags of “junk” silver coins—in dimes, quarters, half-dollars, or dollar denominations. With silver currently at $20/oz., a $1,000 bag contains $14,200 worth of silver (710 troy ounces). The U.S. treasury stopped minting silver coins in the 1960s, switching to base-metal ones, with its quarters now feeling more like subway tokens.
China has stopped buying U.S. Treasuries and instead is purchasing large quantities of gold, and people in Japan are lining up to buy gold. Perhaps Americans should too. It is worthy of note that the Chinese and Japanese characters for money and gold are the same.
- Ralph Foster, Fiat Paper Money, The History and Evolution of Our Currency, 2012
- Richard Maybury, Early Warning Report on www.chaostan.com.
- John Williams, Shadow Government Statistics, Analysis Behind and Beyond Government Economic Reporting, on www.shadowstats.com.
- Chris Casey, “Deflating the Deflation Myth,” on www.mises.org, April 2, 2014;
- and Guido Hülsmann, “Deflation and Liberty,” on www.mises.org, March 27, 2014.
- John McCusker, “How Much is that in Real Money?: A Historical Price Index for use as a Deflator of Money Values in the Economy of the United States” Proceedings of the American Antiquarian Society, Volume 101, Part 2, pg. 297-373,October 1991.
- William Buckler, The Privateer: The Private Market Letter For The Individual Capitalist. Early January Issue, 2008; Number 594. (Bill Buckler, Captain of The Privateer, retired in 2013 and shut down the Privateer’s website.)
- Ludwig von Mises, Theory of Money and Credit, 1912, and Human Action: A Treatise on Economics, 1949; Hans Sennholz, Money and Freedom, 1985; Murray Rothbard, What Has Government Done to Our Money? And the Case For a 100 Percent Gold Dollar, 1980; Richard Salsman, Gold and Liberty, 1995; and Ron Paul, End the Fed, 2008,
- William Buckler, The Privateer, in a 2007 issue.