MEMORANDUM OF LAW

United States v. O’Dell, 160 F.2d 304. "A "levy" requires that property be brought into legal custody through legal seizure, actual or constructive, levy being an absolute appropriation in law of the property levied on, and mere notice is insufficient."

The Constitution for the united States of America identifies two classes of taxes, direct and indirect, and spells out the rules for each class. Article 1, sec. 2, clause 3, and article 1, sec. 9, clause 4 lay down the rule of apportionment for direct taxes. A tax upon ones head or property constitutes a direct tax. Indirect taxes are impost, duties, and excises laid upon an event, happening or privilege. An "income tax" levied on a private American Citizen who is only involved in an activity of common right would be a direct tax and fall under the rule of apportionment, according to the supreme court. However there was levied an excise tax on corporations, in 1909 and later, which was measured by the size of their income. The income ( property ) was not the subject of the tax. That tax cannot be levied on a private Citizen . "Direct taxes bear upon persons, upon possession and the enjoyment of rights; indirect taxes are levied upon the happening of an event." Knowlton v. Moore, 178 US 41, 47 .

"That the right to conduct a lawful business, and acquire pecuniary profits, is property, is indisputable." Truax v. Corrigan, 257 US 312, 348.

"The individual may stand upon his constitutional rights as a citizen. He is entitled to carry on his private business in his own way. His power to contract is unlimited. He owes no duty to the state or to his neighbors to divulge his business, or to open his doors to an investigation, so far as it may tend to incriminate him. He owes no such duty to the state, since he receives nothing therefrom, beyond the protection of his life and property. His rights are such as existed by the law of the land long antecedent to the organization of the state, and can only be taken from him by due process of law, and in accordance with the Constitution. Among his rights are a refusal to incriminate himself, and the immunity of himself and his property from arrest or seizure except under a warrant of the law. He owes nothing to the public so long as he does not trespass upon their rights." Hale v. Henkel, 201 US 43.

There are other principles, which must be considered, such as, a person does not have to do what a public servant tells him to do, he only has to do what the law tells him to do. The law is expressed by Constitution, court ruling, statute, and regulation. The lowest on the pecking order is regulation. In order for a regulation to have the force and effect of law, it must cite a statute on which it is based. "The result is that neither the statute nor the regulations are complete without the other, and only together do they have any force. In effect, therefore, the construction of one necessarily involves the construction of the other. The charges in the information are founded on 1304 and its accompanying regulations, and the inf ormation was dismissed solely because its allegations did not state an offense under 1304, as amplified by the regulations. When the statute and regulations are so inextricably intertwined, the dismissal must be held to involve the construction of the statute." UNITED STATES v. MERSKY, 361 U.S. 431 (1960).

A person’s possessions include the money and assets in his possession, and thus would include his labor, as being his property and as ruled by the U.S. supreme court. The court also ruled that a man’s labor is inviolable and is a guaranteed right. "The common business and callings of life, the ordinary trades and pursuits, which are innocuous in themselves, and have been followed in all communities from time immemorial, must therefore be free in this country to all alike upon the same conditions. The right to pursue them, without let or hindrance, except that which is applied to all persons of the same age, sex, and condition, is a distinguishing privilege of Citizens of the United States, and an essential element of that freedom which they claim as their birthright. It has been well said that ‘the property which every man has in his own labor, as it is the original foundation of all other property, so it is the most sacred and inviolable. The patrimony of the poor man lies in the strength and dexterity of his own hands, and to hinder his employing this strength and dexterity in what manner he thinks proper, without injury to his neighbor, is a plain violation of this most sacred property. It is a manifest encroachment upon the just liberty both of the workman and of those who might be disposed to employ him." Butcher’s Union Co. v. Crescent City Co., 111 US 746.

"That the right to conduct a lawful business, and thereby acquire pecuniary profits, is property, is indisputable." Truax v. Corrigan, 257 US 312, 348.

"A state may not impose a charge for the enjoyment of a right granted by the Federal Constitution." Murdock v. COMMONWEALTH OF PENNSYLVANIA, 319 US 105, 113.

Just what is an excise tax? "A tax laid upon the happening of an event, as distinguished from its tangible fruit, is an indirect tax which Congress undoubtedly may impose." [Tyler et. Al., Administrators v. United States, 281 US 497, 502 (1930)].

CONGRESSIONAL RECORD – HOUSE, March 27,1943, Pg 2580; "The income tax is, therefore, not a tax on income as such, it is an excise tax with respect to certain activities and privileges which is measured by reference to the income which they produce. The income is not the subject of the tax: it is the basis for determining the amount of tax."

"4. An "excise tax" is an indirect charge for the privilege of following an occupation or trade, or carrying on a business; while an "income tax" is a direct tax imposed upon income, and is as directly imposed as a tax on land." United States v. Philadelphia, B.& W. R. Co., 262 F. 188.

"A "privilege" is whatever business, pursuit, occupation, or vocation effecting the public, the legislature chooses to declare and tax as such." Corn v. Fort, 95 S.W. 2d, 620.

"…but legislature cannot name something to be a taxable privilege unless it is first a privilege." "Right to receive income or earnings is right belonging to every person, and realization and receipt of income is therefore not a "privilege" that can be taxed." Jack Cole Company v. MacFarland, 337 S.W. 2d 453.

"[9] 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 individuals’ rights to live and own property are natural rights for the enjoyment of which an excise cannot be imposed." Redfield v. Fisher. 292 P. 819.

"Right to earn a living is an inalienable right guaranteed by the Bill of Rights of the constitution." City of Louisville et al. v. Sebree, 214 S.W. 2d 248.

After the 16^th Amendment was passed in 1913, there were many cases that came before the US supreme court and various issues were decided concerning its legitimacy. The big question was whether the Amendment had overturned the limitations against a direct tax without apportionment, since the limitations on direct taxes remain in the Constitution. There was the Pollock case that had set precedent before the 16^th Amendment was passed. Pollock came before the court in 1895 and argued what an indirect and direct tax were. It overturned the 1894 income tax act because of lack of apportionment. So we can see the apportionment provision is very important.

"Nothing can be clearer than that what the constitution intended to guard against was the exercise by the general government of the power of directly taxing persons and property within any state through a majority made up from the other states." Pollock vs. Farmers’ Loan and Trust Co., 157 US 429, 582.

"Thus in the matter of taxation, the constitution recognizes the two great classes of direct and indirect taxes, and lays down two rules by which their imposition must be governed, namely, the rule of apportionment as to direct taxes, and the rule of uniformity as to duties, impost, and excises." Pollock, 157 US 429,556.

"From the foregoing it is apparent (1) that the distinction between direct and indirect taxation was well understood by the framers of the constitution and those who adopted it; (2) that, under the state system of taxation, all taxes on real estate or personal property or the rents or income thereof were regarded as direct taxes; (3) that the rules of apportionment and of uniformity were adopted in view of that distinction and those systems…." Pollock, 157 US 429, 573.

"The income tax law under consideration is marked by discriminating features which effect the whole law. It discriminates between those who receive an income of $4,000 and those who do not. It thus vitiates, in my judgment, by this arbitrary discrimination, the whole legislation." Pollock, 157 US 429,595.

In 1909, a corporate excise tax was passed and was ruled as meeting the requirement of uniformity for excise taxes. The court said that the apportionment requirement was not needed because it was an excise tax on the privilege of incorporating, and the size of the excise tax was measured by the size of the corporate profit. Therefore, it was ruled that it was not a tax upon the income of the corporation and was, in actuality, an indirect or excise tax. Note here that it was a privilege to incorporate and that privilege carried some advantages with it. Therefore the excise tax could be avoided by not incorporating. That allowed it to fall into the category of excise or luxury tax. Also note that the tax was only allowed on corporations and not on individuals. Corporate officers were obligated to ensure that the corporation paid the tax but the tax was not imposed on the indi vidual officers.

"Evidently Congress adopted the income tax as the measure of the tax to be imposed with respect to the doing of business in corporate form because it desired that the excise should be imposed, approximately at least, with regard to the amount of benefit presumably derived by such corporations from the current operations of the government. In Flint v. Stone Tracy Co. 220 U.S. 107, 165, 55 S.L. ed. 107, 419, 31 Sup. Ct. Rep. 342, Ann. Cas. 1912 B. 1312, it was held that Congress, in exercising the right to tax a legitimate subject of taxation as a franchise or privilege, was not debarred by the Constitution from measuring the taxation by the total income, although derived in part from property which, considered by itself, was not taxable." Stratton’s Independence, Ltd. V. Howbert, 231 U.S. 399, 417. So now it can be seen that property (a person’s labor or wages) , considered by itself, is not taxable.

The 16^th Amendment states, "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." If we are not aware of the definition of the word ‘income" given by the US supreme court, it will appear as though the 16^th Amendment cancelled out the two taxing clauses in the main body of the constitution.

In Brushaber, the court stated the several contentions being made in the case and ruled: "…the contentions under it (the 16^th Amendment), if acceded to, would cause one provision of the Constitution to destroy another; that is, they would result in bringing the provisions of the Amendment exempting a direct tax from apportionment into irreconcilable conflict with the general requirement that all direct taxes be apportioned. … this result, instead of simplifying the situation and making clear the limitations on the taxing power … would create radical and destructive changes in our constitutional system and multiply confusion." Brushaber v. Union Pacific R. Co., 240 US 1.

The high court was faced with coming up with a resolution between the apparent conflict between the two taxing clauses in the main body of the Constitution and the 16^th Amendment. It didn’t have the power to overturn those two taxing clauses but it did have the power to overturn the 16^th Amendment as being unconstitutional. It chose to limit the authority of the 16^th Amendment by placing limitations on the word "income" in the 16^th Amendment. We will see in the following cases where the court made this limitation as being an indirect tax (excise tax) placed on an activity or privilege of incorporation and consequent activities as a corporation, the size of such excise tax being measured by the size of the corporate profit. The word "income" was ruled as having no other meaning than as b eing an indirect (excise) tax, the same as was levied by the 1909 corporate tax act.

A number of other cases came up after the 16^th Amendment was allegedly passed in 1913, and they all remained consistent and only had to reconcile minor differences, such as mining as opposed to manufacturing. This is where the crux of the matter lies for us and the income tax. All these courts clearly ruled, especially Merchant’s Loan & Trust Co. v Smietanka, 255 US 509 (1921), that the word "income" had a specific legal meaning in the 16^th Amendment. They further pointed to Stratton’s Independence, Ltd. V Howbert, 231 US 399 (1913) as the ruling that defined the word "income" in the 16^th Amendment.

Here is what Stratton’s says: "As has been repeatedly remarked, the corporation tax act of 1909 was not intended to be and is not, in any proper sense, an income tax law. This court had decided in the Pollock Case that the income tax law of 1894 amounted in effect to a direct tax upon property, and was invalid because not apportioned according to populations, as prescribed by the constitution. The act of 1909 avoided this difficulty by imposing not an income tax, but an excise tax upon the conduct of business in a corporate capacity, measuring, however, the amount of tax by the income of the corporation."

The important key is "upon the conduct of business in a corporate capacity". So the court is saying that (1) income taxes are direct taxes because they tax the income of the individual, (2) corporate income taxes are not taxes upon the corporation’s income, but an excise tax measured by the size of the corporation’s income, and (3) any true federal income tax would be unconstitutional, if not apportioned.

The only way they could come close to levying a tax on corporations would be to levy an excise and not an income tax. Well….can they levy an excise tax, measured by the size of your earnings, upon your salary? Do you have the same choice, that is required to levy an excise tax, that a corporation has, that is, to work or not to work? No. You have to work to feed yourself and your family, etc. and, in no way, is the right to work convertible to a privilege. Remember that government officials and their official literature state that the "income tax" is voluntary. Further, the head of the ATF officially testified, under oath before Congress in 1954, that the income tax was 100% voluntary. He was never charged with perjury nor did any mem ber of Congress challenge his oath statement.

Getting back into the supreme court rulings and a discussion of direct vs. indirect taxes. These rulings are a part of our "common law".

Pollock, supra, made the following rulings: Quoting the Constitution - "No capitation, or other direct, tax shall be laid, unless in proportion to the census….". "if", ruled Chief Justice Marshall, "both the law and the constitution apply to a particular case, so that the court must either decide that case conformably to the law, disregarding the constitution, or conformably to the constitution, disregarding the law, the court must determine which of these conflicting rules governs the case." And the chief justice added that the doctrine "that courts must close their eyes on the constitution, and see only the law, would subvert the very foundation of all written constitutions." Thus, the constitution must govern the law.

Speaking of the 1894 tax, Pollock stated: "…that such tax is a direct tax, and void because imposed without regard to the rule of apportionment; and that by reason thereof the whole law is invalidated." second, "That the law is invalid, because imposing indirect taxes in violation of the constitutional requirement of uniformity, and therein also in violation of the implied limitation upon taxation that all tax laws must apply equally, impartially, and uniformly to all similarly situated."

As the court ruled, there are two great classes of taxation authorized under the constitution, direct - under the rule of apportionment and indirect - under the rule of uniformity. The corporate income tax is an indirect (excise) tax while the individual income tax is a direct tax, which must be apportioned. The two differ in nature, character, and application. Since the 1894 tax and the present individual income tax are both done without apportionment, they are unconstitutional if they are direct taxes and if they are mandatory.

Pollock further stated: "As to the states and their municipalities, this (contributions to expense of government) is reached largely through the imposition of direct taxes. As to the federal government, it is attained in part through excises and indirect taxes upon luxuries and consumption generally, to which direct taxation may be added to the extent the rule of apportionment allows." And "if, by calling a tax indirect when it is essentially direct, the rule of protection could be frittered away, one of the great landmarks defining the boundary between the nation and the states of which it is composed, would have disappeared, and with it one of the bulwarks of private rights and private property."

This ruling maintains the distinction between types of state and federal taxation as being important and necessary. Also notice the description of excise (indirect) taxes as taxes on "luxuries and consumption." These indirect taxes fall on the sales of luxuries and consumer goods, which can be avoided. Also the ability to avoid these indirect taxes by not purchasing taxed products or by not seeking a corporate privilege, is necessary to the conditions required by Pollock. Also privileges, such as incorporation, are taxable because they are avoidable and are therefore voluntary.

"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, 220 US 107.

"As repeatedly pointed out by this court, the corporation tax law of 1909-enacted, as it was, after Congress had proposed to the legislatures of the several states the adoption of the 16^th Amendment to the Constitution, but before the ratification of that Amendment-imposed an excise or privilege tax, and not in any sense a tax upon property or upon income merely as income. It was enacted in view of the decision of this court in Pollock v. Farmers’ Loan & T. Co. 157 U.S. 429, 39 L. ed. 759, 15 Sup. St. Rep. 673, 158 U.S. 601, 39 L. ed. 1108, 15 Sup. Ct. Rep. 912, which held the income tax provisions of a previous law (act of August 27, 1894, 28 Stat. At L.chap. 349, pp. 509, 553, 27 etc.. Comp. Stat. 1901, p. 2260) to be unconstitutional because amounting in effect to a direct tax upon property within the mean ing of the Constitution, and because not apportioned in the manner required by that instrument." US v. Whitridge, 231 U.S. 144, 147.

"The Corporation Excise Tax Act of August 5, 1909, was not an income tax law, but a definition of the word "income" was so necessary in its administration…" "it is obvious that these decisions in principle rule the case at bar if the word "income" has the same meaning in the Income Tax Act of 1913 that it had in the Corporation Excise Tax Act of 1909, and that it has the same scope of meaning was in effect decided in Southern Pacific v Lowe…, where it was assumed for the purpose of decision that there was no difference in its meaning as used in the act of 1909 and in the Income Tax Act of 1913. There can be no doubt that the word must be given the same meaning and content in the Income Tax Acts of 1916 and 1917 that it had in the act of 1913. When we add to this, Eisner v Macombe r… the definition of "income" which was applied was adopted from Stratton’s Independence v Howbert, supra, arising under the Corporation Excise Tax Act of 1909... There would seem to be no room to doubt that the word must be given the same meaning in all the Income Tax Acts of Congress that was given to it in the Corporation Excise Tax Act, and that what that meaning is has now become definitely settled by decisions of this Court." Merchants’ Loan & Trust Co. v Smietanka, 255 US 509, 519 (1921). So the word "income" has the same meaning after the 16^th Amendment was passed as it did prior to passage in 1913.

"As has been repeatedly remarked, the corporation tax act of 1909 was not intended to be and is not, in any proper sense, an income tax law. This court had decided in the Pollock case that the income tax law of 1894 amounted in effect to a direct tax upon property, and was invalid because not apportioned according to populations, as prescribed by the Constitution, The act of 1909 avoided this difficulty by imposing not an income tax, but an excise tax upon the conduct of business in a corporate capacity, measuring, however, the amount of tax by the income of the corporation, with certain qualifications prescribed by the act itself." "moreover, the section imposes ‘ a special excise tax with respect to the carrying on or doing business by such corporation.’ etc…" "Corporations engaged in such business share in the benefits of the federal government, and ought as reasonably to contribute to the support of that government as corporations that conduct other kinds of profitable business." "…the annual gains of such corporations are certainly to be taken as income for the purpose of measuring the amount of the tax." Stratton’s, supra.

"If the tax in respect to his compensation be prohibited, it can find no justification in the taxation of other income as to which there is no prohibition; for, of course, doing what the Constitution permits gives no license to do what it prohibits." Does the Sixteenth Amendment authorize and support this tax and the attendant diminution; that is to say, does it bring within the taxing powers subjects theretofore excepted? The court below answered in the negative; and counsel for the government say: ‘it is not, in view of recent decisions, contended that this amendment rendered anything taxable as income that was not so taxable before." Evans v Gore, 253 US 245.

"Not being within the authority of the 16^th Amendment, the tax is therefore, within the ruling of Pollock… a direct tax and void for want of apportionment." "…it manifestly disregards the fact that by the previous ruling it was settled that the provisions of the 16^th Amendment conferred no new power of taxation…" " it was settled in Stratton’s Independence… that such tax is not is not a tax on property…but a true excise levied on the result of the business.." Stanton v Baltic Mining Co., 240 US 103.

"…the confusion is not inherent, but rather arises from the conclusion that the 16^th Amendment provides for a hitherto unknown power of taxation; that is, a power to levy an income tax which, although direct, should not be subject to the regulation of apportionment applicable to all other direct taxes. And the far reaching effect of this erroneous assumption will be made clear by generalizing the many contentions advanced in argument to support it…" "…the whole purpose of the Amendment was to relieve all income taxes when imposed from apportionment from a consideration of the source…" "…on the contrary shows that it was drawn with the object of maintaining the limitations of the Constitution and harmonizing their operation."

The first quote states that it is erroneous to believe that a power to levy an income tax, without apportionment, was granted by the 16^th Amendment.

"An examination of these and other provisions of the Act (The 16^th Amendment) make it plain that the legislative purpose was not to tax property as such, or the mere conversion of property, but to tax the conduct of the business of corporations organized for profit upon the gainful returns from their business operations." Doyle v. Mitchell Bros., 247 U.S. 179, 183.

"The Treasury cannot by interpretive regulation make income of that which is not income within the meaning of the revenue acts of Congress, nor can Congress, without apportionment, tax that which is not income within the meaning of the 16^th Amendment." Helvering v. Edison Brothers’ Stores 8 Cir. 133 F2d 575 (1943).

Dwight E. Davis, head of the Alcohol, Tobacco, and Firearms Bureau of Internal Revenue testified under oath before Congress (2/3/53 - 2/13/53 ) "Let me point this out now. This is where the structure differs. Your income tax is a 100% voluntary tax and your liquor tax (A.T.F.) is a 100% enforced tax. Now the situation is as different as night and day. Consequently, your same rules simply will not apply."

"our system of taxation is based upon voluntary assessment and payment, not upon distrait." Flora v US, 362 US 145 (1960).

26 CFR, sec. 1.61-1 (a) "General definition. Gross income means all income from whatever source derived, unless excluded by law." (Constitution). 26 CFR , sec. 1.265-1 (ii) "Wholly exempt from the taxes imposed by Subtitle A under the provisions of any other law." (Constitution).

"(A) statute which either forbids or requires the doing of an act in terms so vague that men of common intelligence must necessarily guess at its meaning and differ as to its application, violates the first essential of due process of law." Connally v General Construction Co., 269 US 385, 391.

"Liability for taxation must clearly appear from statute imposing tax." Higley v. COMMISSIONER of INTERNAL REVENUE, 69 F. 2d 160.

"In order to place a lien against property, Internal Revenue Service (IRS) must make valid assessment of taxes, provide notice of deficiency to taxpayer, and provide notice and demand for payment of assessed tax." Brewer v. U.S., 764 F.Supp. 309,310.

"A levy for delinquent taxes, pursuant to statute, requires execution of warrant for distrait …" "…and mere notice of intent to levy is insufficient. United States v. O’Dell, 6 Cir., 1947, 160 F.2d 304, 307." Freeman v. Mayer, 152 F.Supp. 383.

"An order of an administrative agency without factual support is without due process." Garvey v. Freeman, 397 F.2d 600, 601.

"The revenue laws are a code or system in regulation of tax assessment and collection. They relate to taxpayers, and not to nontaxpayers. The latter are without their scope. No procedure is prescribed for nontaxpayers,…" Long v. Rasmussen, 231 F. 238.

""…, but persons who are not taxpayers are not within system and can obtain no benefits by following procedures prescribed for taxpayer such as filing of claims for refund." Economy Plumbing & Heating Co., Inc. v. United States, 470 F. 2d 586.

"There can be no offices of the United states, strictly speaking, except those which are created by the Constitution itself, or by an act of Congress, and when Congress does so establish an inferior office it may authorize the President alone, or the courts of law, or the heads of departments to appoint the incumbent, but no appointee named by the head of a department can be considered an officer of the United States, unless the official making the appointment is authorized by law so to do." Scully v. United States, 163 U.S. 187.

"decency, security and liberty alike demand that government officials shall be subjected to the rules of conduct that are commands to the citizen. In a government of laws, existence of the government will be imperiled if it fails to observe the law scrupulously. Our government is the potent, omnipresent teacher. For good or for ill, it teaches the whole people by its example. Crime is contagious. If the government becomes a lawbreaker, it breeds contempt for the law, it invites every man to come a law unto himself. It invites anarchy." United States v. Olmstead, 277 U.S. 438.

Alabama Constitution, Article 1, sec. 35. ‘Objective of government. That the sole object and only legitimate end of government is to protect the citizen in the enjoyment of life, liberty, and property, and when the government assumes other functions it is usurpation and oppression."

Respectfully submitted;

___________________

Robert H. Taylor