Appendix H
Analysis of U.S. v. Hicks
Reader's Notes:
MEMO
TO: Interested
Colleagues
FROM: Paul
Andrew Mitchell, Founder
Account
for Better Citizenship
DATE: October
25, 1991
SUBJECT: 9th
Circuit Wrongly Decides
U.S.
v. Hicks and U.S. v. 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. v. Hicks
The case of U.S.
v. 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 duty.
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 added]
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:
SEC. 61. GROSS INCOME DEFINED
(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 v. 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. v. Bentson
Having
established its precedents in U.S. v. 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.
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Reader’s Notes: