Appendix H: Analysis of U.S. vs Hicks

TO:       Interested Colleagues 
FROM:     Mitch Modeleski, Founder 
          Account for Better Citizenship 
DATE:     October 25, 1991 
SUBJECT:  9th Circuit Wrongly Decides 
          U.S. vs Hicks and U.S. vs Bentson 
The Ninth Circuit Court of Appeals has based its two recent income tax rulings on blatantly wrong premises. In upholding convictions for willful failure to file income tax returns, the Court rejected appeals by both defendants to the clear and unambiguous provisions of the Paperwork Reduction Act (PRA) and the Administrative Procedure Act (APA). A simple yet careful analysis of these rulings is sufficient to expose the faulty premises upon which both rulings are based. As the Holy Bible says, "Only the fool builds his house upon sand" (or words to that effect).

U.S. vs Hicks

The case of U.S. vs Hicks is the more important of the two because it was decided first, it contains more "analysis", and sets a precedent to which the second case refers. Beginning with the PRA, the Court admits that the IRS must comply with the PRA and "... in particular, must display OMB control numbers on its tax return forms and on its regulations." Nevertheless, despite a clear and unambiguous public protection clause, the Court ruled that the IRS failure to comply with the PRA does not prevent the defendant from being penalized and that the PRA constitutes no defense to prosecution under 26 U.S.C. 7203:

     "But even  assuming without  deciding that the IRS failed to 
     comply with the PRA here, its failure does not prevent Hicks 
     from being penalized." 
The Court's "analysis" justifies its ruling on the basis of a careful distinction it draws between agency regulations and Congressional statutes. Specifically, in the absence of an "express prior mandate" from Congress, a citizen may escape penalties for failing to comply with an agency information collection request that is issued via regulation, but without displaying an OMB control number. It is the existence of an "explicit statutory requirement" which makes all the difference, according to the 9th Circuit. The Court refers to its own precedents as follows:
     "The legislative  history of  the PRA and its structure as a 
     whole lead  us to  conclude that  it was aimed at reining in 
     agency activity. ... Where an agency fails to follow the PRA 
     in regard  to an  information collection  request  that  the 
     agency promulgates  via regulation,  at its  own discretion, 
     and without  express prior  mandate from Congress, a citizen 
     may indeed  escape penalties  for failing to comply with the 
     agency's request.  See e.g. United States v. Hatch, 919 F.2d 
     1394 (9th Cir. 1990);  United States v. Smith, 866 F.2d 1092 
     (9th Cir.  1989).  But where Congress sets forth an explicit 
     statutory requirement  that the citizen provide information, 
     and provides  statutory criminal  penalties for  failure  to 
     comply with  the request, that is another matter.  This is a 
     legislative command, not an administrative request.  The PRA 
     was not  meant to  provide  criminals  with  an  all-purpose 
     escape hatch.  [emphasis added] 
What exactly is this legislative command, this "explicit statutory requirement", this "express prior mandate" upon which the Court places so much emphasis? We search in vain amidst the Court's analysis of the PRA. Instead, we are told that the tax code predates the PRA by over 25 years and that Congress never intended the PRA to create a loophole in that tax code:
     Moreover, the  provision of  the tax  code under which Hicks 
     was convicted  predates the  PRA by  over 25  years.  If, in 
     enacting the  PRA, Congress had intended to repeal 26 U.S.C. 
     7203,  it  could  have  done  so  explicitly.    Repeals  by 
     implication are not favored. ... Congress enacted the PRA to 
     keep agencies,  including the  IRS, from deluging the public 
     with needless  paperwork.   It did  not do  so to  create  a 
     loophole in the tax code. 
     We hold  that the public protection provision of the PRA, 44 
     U.S.C. 3512,  constitutes no defense to prosecution under 26 
     U.S.C. 7203.   To  hold otherwise   --  to interpret the PRA 
     without reference  to Congress'  purpose   --   would be  to 
     elevate form over substance.  [emphasis added] 
Evidently, the Court is ready and willing to elevate legislative commands over administrative requests, "explicit statutory requirements" over agency regulations. However, it is not willing to be explicit itself about the exact statutory requirement that is so elevated, at least not in its analysis of the PRA. It is not until the Court analyzes the Administrative Procedure Act (APA) that we finally discover a pivotal reference to the exact statutory requirement which the Court considers so sacred. But this pivotal reference is a foundation of sand.

Administrative Procedure Act

Having made such an important distinction between statutes and regulations, the Court then proceeds to reiterate the same distinction in rejecting a defense based upon the APA. Even though the IRS has failed to publish Form 1040 in the Federal Register, and even though the IRS has failed to promulgate Form 1040 according to the APA notice and comment procedures, the Court maintains that the defendant still had a legal duty to file a tax return. According to the Court, it is entirely "meritless" to argue that the IRS's failure to publish its form eliminated any legal duty that might have required the defendant to file income tax returns:

     Hicks's  argument  is  meritless.    It  confuses  law  with 
     regulations with  respect to  such law.   It is the tax code 
     itself, without  reference to  regulations, that imposes the 
     duty to  file a tax return.  ... However, even if we suppose 
     that the  duty to  file tax  returns can  be understood only 
     with reference  to regulations, the IRS has duly promulgated 
     sufficient regulations,  e.g. 26  CFR 1.6011-1, 1.6012-1, to 
     make that  duty clear.   The  meaning of "willful failure to 
     make a  tax return"  is apparent  without reference  to  the 
     contents of  Form 1040  or its  instructions.   Hicks cannot 
     complain that  he did not know what was expected of him.  He 
     had a  duty to  make a  tax return, and chose to ignore that 
Notice, in particular, that the Court has still not mentioned the exact statutory requirement which it considers so decisive. Instead, we are told that the tax code imposes the duty to file a tax return, that the IRS has promulgated "sufficient regulations" to make that duty clear, and that Form 1040 and its instructions are not needed to know that duty. Evidently, the Court judges the statute to be crystal clear and the regulations to be duly promulgated and "sufficient", even if we suppose that the statute is not crystal clear. What exactly is the controlling statutory requirement, and is the "duty to file" as apparent in that statute as the Court would have us believe? In answer to the first question, the Court finally plays its hand:
     Hicks's reliance  on United  States v.  Reinis, 794 F.2d 506 
     (9th Cir.  1986) is  misplaced.  As the Fourth Circuit noted 
     in Bowers,  Reinis involved unpublished rules (specifically, 
     instructions for  a Currency  Transaction Report  Form) that 
     imposed "substantive obligations beyond those created by the 
     statute  itself."    ...  Only  by  publication  could  this 
     obligation become  known.   The 1040  form, by contrast, did 
     not add  to Hicks's  basic  substantive  obligation.    That 
     obligation is  to comply  with the  applicable provisions of 
     the Internal  Revenue Code.   The code requires that persons 
     such as  Hicks make  a return.   26  U.S.C. 6012.  [emphasis 
At long last, we finally discover the exact statutory requirement which the Court considers so decisive. But is the "duty to file" as "apparent", as obvious and as crystal clear in this exact citation as the Court would have us believe? Let us now quote the operant phrases from a subset of Title 26, Section 6012:
     (a) GENERAL  RULE:   Returns with  respect to  income  taxes 
     under subtitle A shall be made by the following: 
          (1)(A) Every  individual having  for the  taxable  year 
          gross income  which equals  or  exceeds  the  exemption 
          amount  ....   except  that   ...   nonresident   alien 
          individuals subject  to the  tax imposed by section 871 
          and foreign  corporations subject to the tax imposed by 
          section 881  may be  exempted from  the requirement  of 
          making returns under this section.  [emphasis added] 
Admittedly, Section 6012 contains a lot more verbiage which covers a lot more exceptions to the general rule, e.g., those not married, heads of households, surviving spouses, joint returns, estates, trusts, political organizations and homeowners associations, and so on ad nauseam. Likewise, the meaning of "nonresident alien individuals" and "foreign corporations" is an entirely separate and complex subject which will divert us too far from the path at hand. The important point here is that the general rule specifies a threshold, namely, the duty to file is imposed by law on every individual having "gross income which equals or exceeds the exemption amount". Is this law sufficiently clear, explicit, and unambiguous? Apparently the Ninth Circuit thinks so. But is it really? Let's be honest and objective about this, because the issues here are important and even crucial to the future of our country.

What is a Widget?

In order to answer these questions, let us first reason by analogy. Because you are now reading a law which I have enacted for you, you are hereby informed that you have a duty to send me a birthday card, and a pair of free tickets to the World Series, if and when I reach the age of 50 widgets. Your immediate response is obvious: what's a widget? You would be happy to comply with the duty if I would only define what a "widget" is, in terms you understand. Absent such a definition, you cannot comply because my law is vague, and hence void. Once you know what a widget is, you are confident you will be able to determine when my age passes the threshold number of widgets, at which point you will be happy to satisfy your "known legal duty". Without a doubt, my definition of "widget" is crucial and decisive for you to satisfy your duty.

This same logic applies directly to the statutory threshold established for "gross income". At the risk of repeating a mountain of published analysis on this very same issue, we are forced once again to quote the statutory definition of "gross income" as follows:

     (a)  GENERAL DEFINITION.   Except  as otherwise  provided in 
     this subtitle,  gross income  means all income from whatever 
     source derived, including (but not limited to) the following 
     items ... [list follows]. 
Even though the statute has defined "gross income", it still has not defined "income". What the statute does say is comparable to saying, "Gross widgets means all widgets from whatever source derived." (Or, as Godfrey Lehman says, "Gross gobbledygook is gobbledygook from whatever source derived.") But we still have not defined "widgets" (or gobbledygook) and the definition of "gross widgets" is necessarily vague for this reason and for this reason alone. The statutory definition of "gross income" is a tautology, because it uses a term it is defining in the definition of the term defined. From a purely grammatical point of view, the only thing accomplished by this statutory definition of "gross income" is to qualify the meaning of "gross"; it accomplishes nothing else.

Furthermore, close examination of Title 26, the Internal Revenue Code (IRC), reveals that the meaning of "income" is simply not defined, period! There is an important reason in law why this is the case. At a time when the Supreme Court did not enjoy the benefit of 17,000 State-certified documents which prove it was never ratified, that Court assumed that the 16th Amendment was the supreme law of the land. In what is arguably one of the most important rulings on the definition of "income", the Supreme Court of the United States has clearly instructed Congress that it is essential to distinguish between what is and what is not "income", and to apply that distinction according to truth and substance, without regard to form. In that instruction, the high Court has told Congress that it has absolutely no power to define "income" because that term was considered by the Court to be a part of the U.S. Constitution:

     Congress cannot  by any definition it may adopt conclude the 
     matter,  since   it  cannot   by   legislation   alter   the 
     Constitution, from  which alone  it  derives  its  power  to 
     legislate, and within whose limitations alone that power can 
     be lawfully  exercised.   [Eisner vs  Macomber, 252  US 189] 
     [emphasis added] 
Clearly, the Internal Revenue Code has not distinguished between what is and what is not income because to do so would be an exercise of power which Congress does not have. This is a Catch-22 from which the Congress cannot escape. It either defines income by statute and thereby exercises a power which it does not have, or it fails to define income, thereby rendering whole chunks of the Internal Revenue Code null and void for vagueness.

The well documented failure of the 16th Amendment to be ratified raises a host of other issues too complex to analyze here. One could argue, for example, that the term "income" is really not a part of the Constitution after all, because it is found only in the text of the failed amendment. Suffice it to say that Congress has never had the power to lien on the private property of sovereign Citizens of the 50 States, with or without the 16th Amendment, unless the lien results from a statute authorizing a direct tax which satisfies the apportionment rule in the Constitution (1:2:3 and 1:9:4).

Income is private property. Absent a direct tax, or some commercial agreement to the contrary, the federal government is not empowered to obtain a controlling interest in, or otherwise lien on private property so as to compel a private Citizen's performance to any third-party debt or obligation. Moreover, it is a well established principle in law that government cannot tax a sovereign Citizen for freely exercising a right guaranteed by the U.S. Constitution. The acquisition and exchange of private property is such a right.

Numerous other rulings of the Supreme Court have all defined "income" in the same exact terms, namely, income is a "profit" or a "gain". (See attached formal petition to Rep. Barbara Boxer for all relevant citations.) Remember, these are not the writings of some extremist or radical constitutional libertarian. We are relying here upon the words of the Supreme Court of the United States, in cases wherein the official definition of "income" was decisive. Try to find a principle that is better settled:

     Remember that  our source  is not  some "tax protest" group. 
     Just about everything we are telling you comes from the U.S. 
     Supreme  Court.     It   would  be  difficult,  and  perhaps 
     impossible, in  our  system  of  jurisprudence,  to  find  a 
     principle better settled than the one we have been citing. 
     [from Tax  Scam by  Alan Stang,  Mt. Sinai  Press, POB 1220, 
     Alta Loma, CA 91701, 1988] 
Whatever arguments one may choose to make from this point forward, those arguments would certainly benefit from a knowledge of the relevant case law in this area. I mean, if we're talking gasoline taxes, then we know the subject of the tax is gasoline; if we're talking tobacco taxes, then we know the subject is tobacco. Why should a tax on "income" be any different? Just because the Congressional Research Service chooses to differ with the Supreme Court? Just because the IRS uses police power to enforce a different definition? Just because the Federal Reserve needs a powerful agency to collect interest payments for its syndicated monopoly on private credit?

Is the Code Sufficient?

The Ninth Circuit tips its hand in another, albeit subtle way when it discusses so-called makeshift returns. Simply stated, you don't need a Form 1040 or its instructions to make and file a return; the statute and the regulations are enough:

     While it  is true  that the  regulations state that filing a 
     Form 1040  is the preferred manner of making a return, it is 
     by no  means the  only manner  of filing.  26 C.F.R. 1.6012- 
     1(a)(6).  Knowing the code and the regulations, and no more, 
     is enough  to enable  Hicks to  attempt to  comply with  the 
     obligation to  file a  return.  He did not need to consult a 
     1040 form  or its  instructions.  See also 26 C.F.R. 1.6011- 
     1(b) (taxpayer  is not  penalized  for  filing  a  makeshift 
     return pending  the filing  of a proper return).  It follows 
     that Form  1040 is  not a  "rule" subject to the complicated 
     publication, notice, and comment requirements of the APA. 
                                                 [emphasis added] 
Notice, in particular, that the Court has ruled that "knowing the code and the regulations, and no more, is enough ...." The Court has not ruled that "knowing the code is enough". This is an important, and telling admission on the part of the Ninth Circuit. By their own previous precedents in Hatch and Smith, this Court ruled that OMB control numbers and expiration dates are required to be displayed in the Code of Federal Regulations. We already know that the IRC does not define "income". If the regulations also fail to contain a satisfactory definition of "income", and if those same regulations fail to display currently valid OMB control numbers, the conscientious citizen is faced with a double whammy. The regulations are not only null and void for vagueness, they can also be ignored as "bootleg requests" because they do not display OMB approval. If the Code cannot be understood without those regulations, the Code is not sufficient. Last but not least, Congress' lack of power to legislate a statutory definition of "income" is also equally true of the regulations which promulgate statutes. Were the regulations which implement Section 6012 to contain a definition of "income", the very existence of that definition in a regulation (which has the force of law) would evidence the exercise of a power which Congress has been told, in clear and certain terms, it simply does not have.

U.S. vs Bentson

Having established its precedents in U.S. vs Hicks, the Ninth Circuit proceeds to make summary hay of similar issues raised by defendant Stephen W. Bentson. The Court observed that Bentson's PRA argument was essentially the same as the argument it rejected in Hicks, and they found no merit in it:

     Bentson points to dicta in United States v. Collins ... that 
     suggest that persons charged with criminal violations of the 
     Internal  Revenue   Code   might   in   some   circumstances 
     legitimately raise  a PRA  defense.   For reasons  given  in 
     Hicks, we  believe that  the PRA was not intended to provide 
     such a  defense, and  therefore we disagree with the Collins 
     court's dicta. 
The Court's disposal of the APA argument is even less enlightening:
     The district  court denied  Bentson's motion  for  dismissal 
     based on  the APA  as untimely.    Whether  or  not  it  was 
     untimely, the legal theory on which the motion was based has 
     no merit.  Hicks, supra. 
So much for the APA. Since the Bentson case contains no additional analysis and relies upon the precedent(s) set by the Hicks case, it would be fair to fault the Bentson ruling for the same reasons that the Hicks ruling is faulty.
[ Next Appendix | Table of Contents ]