December 1997: A Defense Against Arbitrary
Before World War I, in the United States,
government at all levels combined was satisfied with less than
nine percent of the national income. Today it is fifty percent.
If taxation reached one hundred percent, would we still be free?
Is there any relationship between taxation and freedom?
The American Revolution
was supposedly fought against "taxation without representation."
Does that mean that once elected, our representatives can tax
without limit? Is there any legal limit to taxes? If you do the
unthinkable--stop filing federal income tax returns--will the
law come to your aid?
Otto Skinner, author
of The Biggest "Tax Loophole" of All, invites
you to let the United States government take you to court. His
theme is more high-minded than the title suggests; for a "loophole"
suggests an oversight, whereas Skinner's persuasive argument is
that not only the letter but also the spirit of the law are on
The long and the short
of his argument is that there simply is no statute in the U.S.
Tax Code that imposes a tax on the income-producing activities
of the ordinary American! How can that be? Does the Code not say
something like, "There shall be assessed, levied, collected,
and paid annually upon the gains, profits, and income received
in the preceding calendar year by every citizen of the United
States . . . from any profession, trade, employment, or vocation
carried on in the United States or elsewhere, or from any other
source whatsoever, a tax" (Revenue Act of 1894, quoted in
Pollock v. Farmers' Loan and Trust, 157 U.S. 434-35 )? In
fact, it doesn't.
What it does do is define
a taxpayer as "any person subject to a tax under the applicable
revenue law" (26 U.S.C. 1313b). So where is the applicable
revenue law? Section 1 reads, "There is hereby imposed on
the taxable income of [every individual] a tax." But taxable
income is defined in terms of "adjusted gross income"
(sec. 63), and adjusted gross income is defined in terms of a
"taxpayer" (sec. 62a), and we are back where we started.
Let's try again. Section 6012a reads, "Returns with respect
to income taxes under subtitle A shall by made by . . . every
individual having for the taxable year gross income," etc.
But taxable year is likewise defined in terms of a "taxpayer"
(sec. 441b). In short, in place of a declaration of a tax, the
lawyer-crafted Code gives us circular definitions.
Skinner proposes a defense
so simple it is profound: simply make the government prove its
case. To do so, it must say what law you violated.
At first glance, this
may indeed look like a "loophole." One might imagine
that if many people succeeded in slipping through it, Congress
would close it up by drafting a sentence like that we have quoted
from the Revenue Act of 1894. But Skinner believes that what lies
behind this "loophole" is really the law protecting
you. And in fact, the income tax of 1894 was declared unconstitutional
in a famous court case (Pollock v. Farmers' Loan and Trust).
There are only two kinds
of tax: a direct, apportioned tax on persons or property and an
indirect, uniform tax on an activity (impost, duty, or excise).
Apportioned means each state is assessed so much for its share.
Uniform means the tax is applied the same everywhere (Skinner,
The Pollock court declared
that a tax on income from property, though in form an excise tax
(i.e., a tax on manufacture, sales, consumption, licenses, or
privileges), was in substance a tax on property, making it subject
to the constitutional rule of apportionment. As the 1894 tax was
not so apportioned, it was declared unconstitutional (Brushaber
v. Union Pacific Railroad, 240 U.S. 17 ); Flint v. Stone
Tracy, 220 U.S. 151 ).
Since the tax on "any
profession, trade, employment, or vocation carried on" was
voided as part of the whole 1894 income tax, it never received
a constitutional test. Skinner plainly believes that such a declaration
of a general income tax would not be found constitutional. "The
individual, unlike the corporation, cannot be taxed for the mere
privilege of existing. . . . The individual's rights to live and
own property are natural rights for the enjoyment of which an
excise cannot be imposed." Likewise, "realizing and
receiving income on earnings is not a privilege that can be taxed.
. . . Since the right to receive income or earnings is a right
belonging to every person, this right cannot be taxed as a privilege"
(Redfield v. Fisher, 292 P 819 [Oreg. 1930]; Cole v. MacFarland,
337 S.W. 2d 456 [Tenn. 1960]). Here we begin to see the letter
and spirit of the law influencing the way the Code is written.
So what sort of activity
can the government tax? The use of a privilege. For example, the
government can tax a corporation for the privilege of existing,
because the corporation is "an artificial entity which owes
its existence and charter powers to the state." It can declare
an excise on "the particular privilege of doing business
in a corporate capacity." It can tax "special rights,
belonging to the individual or class, and not to the mass, . .
. an exemption from some general burden, obligation or duty"
(Redfield, 819; Flint, 151; Cole, 456).
The objection to a general income tax is that it is general.
Income is "a gain,
a profit, something of exchangeable value . . . received and drawn
by the recipient for his separate use, benefit and disposal,"
in other words, a kind of property. And in the case of an income
tax, the tax is "laid upon the happening of an event [the
use of a privilege], as distinguished from its tangible fruits
[the income]." In such a case, "the tax is imposed upon
the doing of business of the character described, and the measure
of the tax is to be the income" (Eisner v. Macomber, 252
U.S. 206-7 ; Tyler v. United States, 281; Flint, 146).
An income tax is not
a tax "on" income in the same sense in which a property
tax is a tax "on" property. With a property tax, property
is actually the thing got at by the tax (what Skinner calls its
subject); whereas with an income tax, income is just the proximate
object or measure by which something else is got at, namely, the
use of a privilege.
The Pollock court had
declared that a tax on income derived from property was in substance
a tax on property, making it subject to the rule of apportionment.
The Sixteenth Amendment to the Constitution then (1913) declared
that a tax on income "from whatever source derived"
need not be apportioned.
Frank Brushaber's contention
that the Sixteenth Amendment authorized a "hitherto unknown
power of taxation" in the form of a direct, unapportioned
tax, if accepted, "would cause one provision of the Constitution
to destroy another" and create an unchecked power of taxation
"The Amendment was
drawn for the purpose of doing away for the future with the principle
on which the Pollock Case was decided, that is, of determining
whether a tax on income was direct . . . by taking into view the
burden which resulted on the property from which the income was
derived. . . . The result intended [was] the prevention of the
resort to the sources from which a taxed income was derived in
order to cause a direct tax on the income to be a direct tax on
the source itself and thereby to take an income tax out of the
class of excises, duties and imposts and place it in the class
of direct taxes" (ibid., 18-19).
In other words, the Pollock
court took a tax that fell directly merely on the income ["direct
tax on the income"] and, by resorting to the source (property),
removed it from one class (indirect) and placed it in another
(direct). But the Sixteenth Amendment says that henceforth an
income tax will always be construed as an indirect tax, that is,
a tax on the use of a privilege. "The distinction lies between
the attempt to tax the property as such and to measure a legitimate
tax upon privileges involved in the use of such property"
And so it appears that
the letter of the law and the spirit of the law have conspired
to prevent Congress from writing a general income tax. If the
Code is nevertheless being promulgated and enforced as a general
income tax, it is being promulgated falsely and enforced illegally.
So what is the federal income tax? It is not apportioned, so it
must be an indirect tax. If it not a just a collection of meaningless
words, it must be a tax on a privileged activity.
How To Win
If you know an income tax is an indirect
tax, you now also know the first element the government has to
prove in its case against you. It has to show a statute taxing
some activity in which you are engaged, some privilege whose use
Skinner not only shows
you that the law is on your side, he tells you how to make it
count in court. Wayne Litchford of California, arguing along these
lines, was found not guilty in 1992 on five felony counts of willfully
attempting to evade the state income tax.
Of course, the best case,
from the point of view of the defendant, is the one that never
goes to trial. In his 1989 book, If You Are the Defendant, Skinner
chronicles the 1981 case of Gail Sanocki of California. She was
charged with willfully attempting to evade income taxes and willfully
failing to file tax returns. As the indictment alleged no revenue-taxable
activity in which she had been engaged, she went before the grand
jury with a motion to dismiss, contending that the indictment
failed to state facts charging an offense. The grand jury dismissed
her case on December 29, 1981.
Finally, Skinner mentions
that he himself discontinued filing tax returns in 1981. Although
he has certainly "thrown down the gauntlet" by publishing
three books on the subject (as well as a newsletter following
current cases), he is still in business and has apparently been
The most important key
to your defense is resolutely to keep the burden of the proof
where it belongs. Skinner chronicles the sad failures of people
who went to court eager to prove something (usually the wrong
thing). And keeping the burden of the proof where it belongs begins
right now, with a letter to the Secretary of the Treasury revoking
your signature from income tax returns and employees' withholding
allowance certificates (W-4s) that you have signed in the past.
These provide prima facie ("first showing") evidence
that you have voluntarily placed yourself within the purview of
the tax code. "Our system of taxation is based upon voluntary
assessment and payment, not upon distraint" (Flora v. United
States, 362 U.S. 176 ). You were falsely led to believe
that you were required by law to sign these documents.
Any time a representative
of the I.R.S. contacts you with a letter or summons, you must
respond promptly and vigorously in writing, politely insisting
that he say on what ground he has determined that you are subject
to the tax in question and to furnish you with proof of his authority
to make such determination. All this establishes a record of your
good faith belief--vital evidence the jury will consider in the
event of a trial.
If charged, you will
most likely be charged with willfully attempting to evade a tax
or willfully failing to file a return, or both. Case law establishes
three specific elements of the offense for each charge. For willful
evasion, the government must prove (1) a tax deficiency, (2) an
affirmative act of evasion, and (3) willfulness. For willful failure
to file, the government must prove (1) a requirement to file,
(2) failure to file, and (3) willfulness. In addition, the application
to you of each and every term in the statutes relied on by the
government (e.g., taxpayer, taxable income, adjusted gross income,
taxable year) becomes an essential element of the offense (Skinner,
pp. 81, 86, 92-93).
If you keep the burden
of the proof where it belongs, the government will not be able
to prove you "deficient" in a tax that no law makes
you subject to; nor, of course, can it prove you affirmatively
"evaded" a tax you are not required to pay. It will
not be able to prove you were required to file, because there
is no such law; and it cannot prove you "failed" to
file if you were not required to in the first place.
Your resolutely keeping
the burden of the proof on the government in respect to the first
two elements of the charge will stand you in good stead when the
jury comes to consider the third element, your good faith belief.
The judge will instruct the jury what the law is. It is the jury's
job to decide whether you had a deficiency and whether you were
required to file. You are not allowed to argue law with the judge,
but you are allowed to object if the judge allows the jury to
assume your obligation to file and pay, thereby relieving the
prosecution of proving every element of the charge. You are allowed
to cross-examine government witnesses to expose their lack of
authority to determine that you in particular are subject to federal
income tax and the lack of foundation of the charges.
You are also allowed
to present evidence of what you believed (and believe) the law
to be. And the more reasonable the jury finds your belief, the
more likely they are to be persuaded of it themselves and to find
that the government has failed to meet its burden of proof of
the first two elements--and also, the more likely they are to
believe that you believed it and to acquit you on the element
In order to establish
your good faith belief with the jury, Skinner urges you, in the
strongest possible terms, to demand the assistance of court-appointed
counsel (your right under the law) but to undertake your own defense.
"The right to defend is given directly to the accused; for
it is he who suffers the consequences if the defense fails. The
counsel provision [of the Sixth Amendment] supplements this design.
It speaks of the 'assistance' of counsel, and an assistant, however
expert, is still an assistant" (Faretta v. California, 422
U.S. 819-20 ). You need the assistance of counsel to guide
you through court procedure as you conduct your defense. Your
request for court-appointed counsel is independent of your financial
status, about which you should refuse to give information without
the benefit of counsel.
Skinner's stoutly bound,
large-format, inch-thick paperback book covers such other topics
as social security tax (susceptible to the same defense), state
income tax (ditto), how to claim your whole paycheck from your
employer, how to refuse an I.R.S. hearing and demand due process
in a federal district court, how to answer a summons for books
and records, how to challenge an indictment, some bad arguments
and why they fail, getting good jury instructions, and sample
letters and motions.
Although Skinner's expertise
is with U.S. law, we suspect that his reasoning will be found
to apply to a kindred legal systems, such as those of Australia,
Canada, and the United Kingdom.
Our colleague in Alberta,
Mr. Gostick, recently published an article quoting the British
North America Act (the constitution of Canada) as limiting "direct
taxation" to the provincial governments. Income tax being
"the most common method of direct taxation," the author
concludes federal income tax law to be of no force and effect
(Murray Gauvreau, "Our Constitution," Canadian Intelligence
Service 47 : 116). What if, instead of the more radical
conclusion, he were to accept the law as an indirect tax and demand
to know what privileged activity it taxes?
Skinner's plan of action
just may be the most effective sanction citizens could exercise
against arbitrary power. Of course, Christian men and women will
not suppose that victory is to be won without sacrifices.
The Biggest "Tax Loophole"
of All is available from Otto Skinner, P.O. Box 6609, San
Pedro, CA 90734, for $44.95 shipped. It is well worth the price.