"Redeeming Lawful Money"

[Famspear]

Blowhard Pete has also gone back and redacted some nonsense from at least one prior post (Sept. 18, 2013) by Nationwide-Harvester-John Travis Harvester-johnthetaxist-Mr. Paranoia "everyone is Jay"-"everyone is Famspear":

http://www.losthorizons.com/phpBB/viewt ... 460#p29460

Thank goodness Pete allows the rest of the nonsense in his forum to stay.

[wserra]

I should just ignore this stuff. But the idea that one can lawfully avoid income taxes by scribbling a few words of hocus-pocus on paychecks is so monumentally dumb that I check Van Pelt's board every couple of weeks for amusement value.

So anyway, as we have discussed before, David's latest "argument" is that he must be right, because the IRS hasn't called "redeeming lawful money" a frivolous position. Of course, it also hasn't called the "drop trou" method - y'know, moon the RA - frivolous, but a foolish consistency is the hobgoblin of little minds.

So anyway, here we have one Jason David Hartnagle. Hartnagle decided that he was going to file his 2012 federal income taxes with a hefty deduction for having "redeemed lawful money". The IRS warns him and his wife that they were intending to assess each with a $5K frivpen. He then files suit (13-cv-512, DCT) in federal court in CT to prevent that from happening. He was kind enough to attach copies of their return to the complaint, thus verifying that they made the dumbass "lawful money" claim. Judge Shea in New Haven dismissed the case sua sponte a month after Hartnagle filed it. A couple of weeks ago, Hartnagle files a "refusal for cause" of the resulting frivpens, which the IRS assessed Hartnagle and his wife last month. Now, that has to work, right? After all, the Master says it isn't frivolous.

BTW, Hartnagle is an FAA-licensed aircraft mechanic, now working for Sikorsky and making good money. Since that employment obviously is exercising federal privilege, he can't use Hendrickson's scam to evade taxes, so he turns to Van Pelt's. The only principle that matters is that he doesn't have to pay. What is it anyway about the airline/aircraft industry that attracts tax nitwits? And would you want Hartnagle to work on an aircraft your family was flying in?

[fortinbras]

from my compilation:

The argument that FRNs are not income or taxable is so thoroughly discredited that the court would not allow defendant to present supposed “monetary realist” to testify to that effect. US v. Tissi (8th Cir 1979) 601 F2d 372; ditto (use of Congressionally designated legal tender by the state govt in its transactions is not a state action contrary to the Constitution) Epperly v. State (Alaska 1982) 648 P2d 609; ditto Wikle v. City of Rapid City (SDak 1984) 347 NW2d 584; ditto Opinion of the Louisiana Atty-Gen, nr. 84-370 (1984); ditto 1984 Op. of the Ariz Atty-Gen 72 (1984, nr. I84-79, R84-83); ditto Opinion of the Texas Atty-Gen, nr GA-469 (2006); ditto D.K. Ferguson v. State Bd of Tax Comm’rs (Indiana Tax Ct 11/10/98); ditto (“Congress has exercised this power by ... the definition of FRNs as legal tender, 31 USC sec. 5103. ... There can therefore be no challenge to the legality of federal reserve notes. And we take judicial notice of the fact that FRNs are valued in dollars.”) US v. L.G. Anderson (10th Cir 1978) 584 F2d 369; ditto Gajewski v. CIR 1976) 67 Tax Ct 181 affd 578 F2d 1383; ditto Rush v. Casco Bank & Trust Co. (Maine 1975) 348 A2d 237; ditto Stephens v. State (1977) 239 Ga 446, 238 SE2d 29; ditto Rothacker v. Rockwall County Central Appraisal District (Tex.App 1985) 703 SW2d 235; ditto Maxwell v. IRS (MD Tenn 6/24/09) 104 AFTR2d 5064; ditto (perp questioned whether FRNs are “lawful money”) Noah v. CIR (10th Cir 7/16/98) 153 F3d 727(t), 82 AFTR2d 5291, 98 USTC 50567; ditto Humpal v. Ocwen Loan Servicing LLC (WD Mich 1/31/12); ditto (“His assertion is frivolous in the face of countless federal and state decisions holding that FRNs are legal tender and lawful money of the United States.”) State ex rel Goodwin v. Valentine (Ida.App 1985) 107 Ida 1033, 695 P2d 418; ditto Travis v. Gable (D.Ore 8/28/07); ditto Humpal v. Ocwen Loan Servicing LLC (WD Mich 1/31/12); ditto Poe v. CIR, TC Memo 1983-12 (“It is well established that Federal Reserve Notes are lawful money even though not backed by gold or silver.”); ditto US v. Weninger (10th Cir ) 624 F2d 163 cert.den 449 US 1012; ditto (“It would appear impossible for a taxpayer to reasonably believe that Federal Reserve Notes are worthless and therefore that income received in that form does not have to be reported.”) US v. D.N. Moore (7th Cir. 1980) 627 F2d 830 at 833, 60 ALR-Fed 148 cert.den 450 US 916; ditto Humpal v. Ocwen Loan Servicing LLC (WD Mich 1/31/12); ditto (Perp tried to evade liability for employer’s contribution to employees’ industrial insurance by re-calculating the employees’ salaries into “statutory dollars”, based on current London gold prices; “Arguments substantially similar ... have been uniformly rejected in both federal and state courts in recent years. Some courts describe the argument as specious and others as frivolous. [citing cases] .... It remains only for us to state that the US Congress is the only entity empowered to declare what shall be deemed legal tender. Congress has so declared. 31 USC sec 5103 provides that FRNs shall be legal tender for all debts and taxes. This unique and broad power of Congress to declare what shall be money and to regulate its value for all purposes has been constitutionally recognized.”) Trohimovich v. Director of Wash. Dept of Labor & Industries (1978) 21 Wash.App 243, 584 P2d 467 rev. denied (Wash.Supm. 1979) 91 Wash.2d 1013.

Plaintiff went to a Federal Reserve bank with a $50 FRN and demanded “lawful money” in exchange, per 12 USC sec 411, which he thought meant gold or silver, and was given change in other FRNs. Held, “While we agree that golden eagles, double eagles, and silver dollars were lovely to look at and delightful to hold, we must at the same time recognize that time marches on, and that even the time honored silver dollar is no longer available. .... Appellant is entitled to redeem his note, but not in precious metal. Simply stated, we find his contentions frivolous.” Milam v. US (9th Cir 1974) 524 F2d 629; 12 USC sec 411 was intended “to make clear that the [Federal Reserve] Notes are authorized currency of the United States.” Provenza v. Comptroller of the Treasury (1985) 64 Md.App 563, 497 A2d 831. It is a fact that 12 USC sec 411, which has been unchanged since the Federal Reserve Act was enacted in 1913, does say that FRNs can be exchanged for “lawful money”, which some cranks now interpret to mean that FRNs are not lawful money themselves. The Federal Reserve Board of Governors has frequently received letters asking about this and uses a standard reply (such as its reply to such a letter, March 15, 1999, preserved on Lexis as 1999 Fed.Res.Interp.Ltr. LEXIS 80) that says that it interprets “lawful money” to be synonymous with “legal tender”, that in 1913 when this provision was enacted FRNs were not considered legal tender - a category then restricted to only some of the forms of US currency in use - but it was intended that FRNs be treated as though legal tender and therefore the provision guaranteed that FRNs were exchangeable for legal tender; however, legislation in 1933 and 1934 elevated FRNs to the category of legal tender so that provision now has little significance. When the Federal Reserve Act was being considered by Congress, the lawyers working in the Treasury Department worked up a memorandum (dated Aug. 22, 1913), which was printed in the Report of the Senate Banking Committee (63rd Congress, 1st session, Nov. 22, 1913, Senate Rept. 133 part 2, at page 107) that said “The terms ‘lawful money’ and ‘legal tender’ are different names for the same thing. The term ‘lawful money’ originated in the Act of February 25, 1862, authorizing the issue of United States Notes. It was probably used in subsequent acts, because the term was comprehensive and, notwithstanding the fact that gold and silver coins were not then [in 1862] in circulation, it would necessarily embrace them, as well as legal tender notes..... ‘Legal tender’ is a quality given a circulating medium by Congress, and possessing this quality is become ‘lawful money’.”

FRNs are legal tender, FRNs are the measure of value in our monetary system and are taxed at face value. Birkenstock v. CIR (7th Cir 1981) 646 F2d 1185; ditto Harrell v. CIR, TC Memo 1998-207 affd 191 F3d 456(t), 84 AFTR2d 5752, 99 USTC 50810 (The Tax Court said “Petitioner’s most clearly stated explanation is that he was paid in FRNs, which are not lawful money and which are worthless. Yet, petitioner used the supposedly worthless FRNs to pay his expenses. We do not believe petitioner really thought that the FRNs were worthless.” and the Court of Appeals added, “he incants the standard tax protester mantra that ... the receipt of Federal Reserve Notes is not a taxable event. ... Harrell’s protestations that FRNs are exempt from taxation merits no discussion, other than to note that it, along with his ‘constitutional’ argument, warrants the imposition of sanctions” for frivolous pleadings [$2000 fine].); ditto US v. K. Darcy (WD Wis 12/23/08) (“The argument is one that has been made over and over again in federal and state courts without success. Its flaws are obvious and numerous. Presumably the defendant used her ‘worthless securities’ [i.e., FRNs] to pay tuition, to buy textbooks and cover her living expenses. ... She never address that point or explains why, if FRNs are truly worthless, she would have any objection to turning over $48,489 in such notes to the govt, which is all that the govt is requesting.”); ditto State ex rel Goodwin v. Valentine (Ida.App 1985) 107 Ida 1033, 695 P2d 418; ditto US v. R.F. Kennedy (D No.Dak 11/3/05) 233 FRD 530, 97 AFTR2d 311; ditto (argument that FRNs “cannot be lawful money” has already “been addressed and rejected by numerous courts.”) L.Boyce [Fisher] v. County of Williamson (Tex.App 1/17/02); ditto Noah v. CIR (10th Cir 7/16/98) 153 F3d 727(t), 82 AFTR2d 5291, 98 USTC 50567; ditto US v. K. Darcy (W.D.Wis 12/23/08); ditto Humpal v. Ocwen Loan Servicing LLC (WD Mich 1/31/12); ditto Poe v. CIR, TC Memo 1983-12 (“It is well established that Federal Reserve Notes are lawful money even though not backed by gold or silver.”); ditto (tax dodger argued that since “98% of FRNs are bogus” he did not have to report or pay taxes on them) US v. Davenport (7th Cir 1987) 824 F2d 1511; “There can therefore be no challenge to the legality of FRNs. And we take judicial notice of the fact that FRNs are valued in dollars.” In re W.J. Walton (Bankr., ND Ohio 1987) 77 B.R 617; “The argument that the only ‘lawful money’ of the United States consists of gold or silver coins and not Federal Reserve Notes has been rejected by the federal courts.” Love v. Baldwin United Mortgage Co. (1983) 168 Ga.App 361, 308 SE2d 857; ditto Hightower v. Capital One Auto Finance (WD Tenn 6/10/13); for example, minor (non-precious) coins such as nickels have been recognized as lawful money. Black v. State (1904) 46 Tex.Crim 107, 79 SW 311; ditto Barddell v. State (1906) 144 Alab. 54, 39 So. 974; in an old case not only FRNs but national bank notes (at a time when neither was identified in statutes as legal tender) were categorized as lawful money, nor, having identified the denominations of the paper currency, was any further evidence required to establish its value. State v. Elliott (1921) 110 Kan 40, 202 Pac 847. “A majority of the courts, when asked to determine whether Federal Reserve Notes constitute legal tender for the payment of debts and taxes, have concluded that Federal Reserve Notes are legal tender and lawful money of the United States. ... Consistent with the majority of the courts presented with this question, and in view of the tacit approval evidenced by the United States Supreme Court by refusing certiorari of those rulings when review has been requested, we hold that Federal Reserve Notes are lawful money.” Herald v. State (1984) 107 Ida 640, 691 P2d 1255 at 1257 (citing numerous cases).

[notorial dissent]

Merrill actually, sorta, kinda got one almost right, but close only counts in horse shoes and hand grenades, and nuclear war, or so I'm told, since I don't play at any of them. Originally FRN’s weren’t “lawful money” for some reason, I don’t think I’ve ever actually seen an explanation of that, but there you are, they weren’t, and particularly not the large denomination bills, 100's, 10,000's, and 100,000 dollar bills that were used as non-circulating, internal transfer funds. It was a lot easier to shore up a bank with one or two bills/notes as they actually are than sending a carload of smaller ones just to have them sit in the bank’s vault, and when they had the funds they returned the bills to the FED and paid off the loan. Not real complicated. The redeeming lawful money bit was so that if one of the banks had to actually cash one of those non-circs, they could go to their local FED and get small bills to stand against say a run on the bank, or a short term need for a large cash volume. OK, all past history, very past history. In 1933, Congress undid all that by passing 31 USC sec 5103 making them once and for all “lawful money” by making them LEGAL TENDER. These days FED does all its transfers by wire and book keeping entry these days so the redeeming bit really is superfluous. The only time they send out actual currency these days is when a bank buys extra or needs replacement bills, and it is a one for one swap when they do. So Merrill has the delusion that you can redeem “lawful money”(FRN’s) with “lawful money”(FRN’s), silly, but harmless other than defacing countless bills that then get sent back to the FED for destruction since they have been defaced. I suppose he could be charged with defacing currency if someone were feeling pissy about it. The thing I don’t understand, and that he has never actually explained, is why/how claiming he has redeemed “lawful money” somehow makes it tax free. There is the full on cra cra!!!!, and it’s just gullible and stupid on the part of his followers, and even more so, I really don’t understand how scrawling all over your paycheck, red crayon or otherwise, does anything to it either, since it only represents an effectively electronic bookkeeping payment to your account. But then, if it actually had anything behind it, it wouldn’t be a tax avoidance scam, now would it.

So far as I know, all of Merrill’s suitors have met the same end in tax court and court in general, ABJECT and ABSOLUTE FAILURE. Wes, are you still keeping score on their efforts?

[Famspear]

....Originally FRN’s [Federal Reserve notes] weren’t “lawful money” for some reason, I don’t think I’ve ever actually seen an explanation of that....

Regarding the term "lawful money" (or "lawful currency"), here's the excerpt from the Slindee letter that is quoted in various places:

.....the term "lawful money" has not been defined in federal legislation. It first came into use prior to 1933 when some United States currency was not legal tender but could be held by national banking associations as lawful money reserves. Since the act of May 12, 1933, as amended by the Joint Resolution of June 5, 1933, makes all coins and currency of the United States legal tender and the Joint Resolution of August 27, 1935, provides for the exchange of United States coin or currency for other types of such coin or currency, the term "lawful currency" no longer has such special significance.

---Michael E. Slindee, Acting Treasurer of the United States, in a letter to Mr. A. F. Davis of Cleveland, Ohio dated Dec. 29, 1947, published in "A Dollar Is a Dollar Is a Dollar," American Affairs, Vol. 10, p. 88 (April 1948), as re-printed in Money and Banking: Theory, Analysis, and Policy, p. 5, ed. by S. Mittra (Random House, New York 1970); also cited in Paul M. Horvitz, Monetary Policy and the Financial System, p. 28, footnote 3, Prentice-Hall, 3rd ed. (1974).

[fortinbras]

Back in 1862, when the United States Notes (a genuinely fiat currency) was issued, the statute authorizing it declared the US Notes to be both legal tender and lawful money. It turned out that there had been two proposals for the USNs working through the chambers, one used one term and the other used the other term, and evidently in conference someone rather casually decided to use both terms together. Many years later the Dept of Treasury legal office issued an official opinion that the two terms were simply two names for the very same thing; which, I might add, is not everyone's opinion. In 1913, in the Federal Reserve Act, FRNs were intended to serve as a sort of scrip circulating among the banks and exchangeable for "lawful money" - which, to me and the courts, meant that FRNs were either money or as good as money or usable as money. In 1934, an Act of Congress made ALL the coins and currency issued by the federal govt at any time as "legal tender" (and expressly included FRNs in this law).

Legal tender is the "highest" sort of money; one cannot insist on being paid a superior sort of currency if payment is offered in legal tender. Until 1934, silver coins were legal tender but silver certificates, which promised to be exchangeable for silver coins, were not. However, silver certificates were perfectly acceptable in ordinary business and nearly everybody was satisfied to be paid with silver certificates, which made the silver certificates "lawful money" if not also legal tender; the silver coins were both. Legally, until 1934, a contract could insist on payment in silver coins and the creditor could refuse to accept silver certificates as a substitute, notwithstanding any bank would make the exchange effortlessly.

About the only federally issued currency which was not made legal tender was the China trade dollar, a rather odd (and now extremely rare) silver coin issued circa 1880, intended exclusively for transactions in China. It was an odd weight, different from any of the US silver dollars.

Besides court decisions that FRNs are now both legal tender and (under the Federal Reserve Act) lawful money, the fact that $1 FRN can be readily exchanged for 100 US Mint pennies, or ten dimes, etc. shoud be proof that it is lawful money.

[notorial dissent]

That is all pretty much what I said, except for "In 1913, in the Federal Reserve Act, FRNs were intended to serve as a sort of scrip circulating among the banks and exchangeable for "lawful money", the "notes" referred to here were actually high denomination notes used internally as opposed to the Federal Reserve Bank Notes which were in general circulation. My understanding is that there were two classes of issue at that point, one public and one internal. There would hardly have been any point of a bank taking a $20 FRN to a Federal Reserve bank to convert it in to "lawful money". There would have for a large denomination Federal Reserve Note, $1,000, 10,000, $100,000 if they needed ready cash.

[fortinbras]

Thank you for the clarification.

[LPC]

The thing I don’t understand, and that he has never actually explained, is why/how claiming he has redeemed “lawful money” somehow makes it tax free.

And if you read the Hartnagle documents, you still won't understand, because it's never explained.

[LPC]

Hartnagle decided that he was going to file his 2012 federal income taxes with a hefty deduction for having "redeemed lawful money". The IRS warns him and his wife that they were intending to assess each with a $5K frivpen. He then files suit (13-cv-512, DCT) in federal court in CT to prevent that from happening. He was kind enough to attach copies of their return to the complaint, thus verifying that they made the dumbass "lawful money" claim. Judge Shea in New Haven dismissed the case sua sponte a month after Hartnagle filed it.

I was looking at the complaint, hoping that the dismissal might have some substantive meaning, when I ran across this chestnut:

"At this stage the complaint is simply a marker and an evidence repository."

Yep, dismissed on jurisdictional grounds, because of a lack of a "case or controversy."

[LPC]

Hartnagle decided that he was going to file his 2012 federal income taxes with a hefty deduction for having "redeemed lawful money". The IRS warns him and his wife that they were intending to assess each with a $5K frivpen. He then files suit (13-cv-512, DCT) in federal court in CT to prevent that from happening. He was kind enough to attach copies of their return to the complaint, thus verifying that they made the dumbass "lawful money" claim. Judge Shea in New Haven dismissed the case sua sponte a month after Hartnagle filed it.

So, about the substance, here's what the complaint says:

Since making the demand for lawful money pursuant to Title 12 USC §411 Jason David considers his pay to be tendered to him in US notes, that is not in reserve currency but in the physical form of Federal Reserve notes.

And why is that not taxable income?

This complaint is forthcoming because it has come to Jason Hartnagle's attention that when people have redeemed lawful money by demand for part or all of the tax year and file for the appropriate refund amount that IRS agents have been sending a letter threatening a $5K frivolous filing penalty.

Okay, and why is the "appropriate refund" frivolous?

There is another section in that cite [to Notice 2010-33] that resembles Redemption of Lawful Money:

(12) Federal Reserve Notes are not taxable income when paid to a taxpayer because they are not gold or silver and may not be redeemed for gold or silver.

Petitioner acknowledges that there was a gold seizure in 1933 and that the law was amended to read, "They shall be redeemed in lawful money on demand ... " in 1934. It would be great if Federal Reserve notes could be redeemed in gold and silver but hoping for that is unrealistic.

It is clear however that by Title 31 USC §5115 and US v Ware; 608 F.2d 400, United States notes are lawful money and they are not a reserve currency.

Title 31 § 5115(b) The amount of United States currency notes outstanding and in
circulation--

(1) may not be more than $300,000,000; and
(2) may not be held or used for a reserve.

United States notes shall be lawful money, and a legal tender in payment of all debts, public and private, within the United States, except for duties on imports ...

So neither of the IRS agent instructions applies to redeeming lawful money by demand in this
situation. Jason David has been making his demands as evidenced according to law. Therefore he is not endorsing private credit from the Federal Reserve nor does he support building the national debt. Jason David does not encourage fractional lending or the Fed's reserve currency but has been effectively using US notes in the form of Federal Reserve notes by necessity.

So, now we know that:

1. Hartnagle is aware that, when people have "redeemed lawful money" and filed "for the appropriate refund amount" that a frivolous filing penalty had been threatened by the IRS;
2. Hartnagle is aware of the definitions of "frivolous" in Notice 2010-33;
2. One of those definitions include the claim that "Federal Reserve Notes are not taxable income";
3. United States notes are lawful money and they are not a "reserve currency"; and
4. Hartnagle has been "using US notes in the form of Federal Reserve notes by necessity."

So, why do "Federal Reserve notes [used] by necessity" generate an "appropriate refund amount"?

Clearly, the answer is so obvious that it's not worth explaining.

[grixit]

It's transubstantiation. The true substance of the objects in question have been changed to US notes, under the accident of federal reserve notes. Currenciologians have argued over the proper wording, such as "real presence" vs "mystical presence", but all agree that miracle has indeed taken place.

[The Observer]

It's transubstantiation.

But wouldn't they have to eat the gold and silver specie in order to trigger transubstantiation?

[Kestrel]

It's transubstantiation.

But wouldn't they have to eat the gold and silver specie in order to trigger transubstantiation?

No, no. You eat the gold and silver during self-effected consubstantiation. It's just the back-up method when you don't have a properly ordained cleric chanting the appropriate mystical rites for transubstantiation.

[wserra]

I know Van Pelt is old news. After all, no one has posted to this thread in nearly two years. However, the belief that you can intone some mumbo-jumbo over money and magically render it exempt from income tax is so monumentally dumb that I expect anyone who gives it any credence to tie his shoes together every morning. It always surprises me when I find a true believer who appears to have an IQ above room temperature.

Last year, one Troy Lee Downs (these guys don't use last names, so he signs the complaint just "Troy Lee") files suit against the Treasury Secretary in Galveston. 15cv286 (TXSD). The complaint is classic Van Pelt, authentic frontier gibberish beginning to end. His 1040 deducts 95% of his income as "redeemed lawful money". He seeks a refund of the very small amount withheld, about 6% of his income. Judge Hanks dismisses sua sponte a few months after Downs files the stupid thing. After the dismissal, Downs files an "order" directing the treasury to give him his refund, which Downs considerately signs himself. Nice work if you can get it.

So far, strictly dog bites man. However, this guy has income of almost $200K - not chump change. He is kind enough to attach a scan of a couple of pay stubs. Siemon? The multinational cabling/electronics giant? Yep, Downs is regional sales manager for the Houston area.

Maybe he ties his cables together every morning.

[Judge Roy Bean]

You just never know who can be fooled:

https://www.linkedin.com/in/troy-downs-b36a935

[wserra]

Linked to it in my post, JRB. It's the "regional sales manager", made into a pdf for those who aren't on Linkedin.

[The Observer]

Never underestimate the power of greed to cause you to do or believe in stupid things. I also note that Troy is an engineer, so it may not be a big assumption that he believes that he can apply the same kind of mathematical logic to law that he applied to his circuits.

[Pottapaug1938]

I visit Van Pelt's site less and less these days. What isn't a rehash of the same old boring Van Peltian fantasy is turgid religious discourse which has me leaping for the "Back" button before I get very far.

[KickahaOta]

This is sadly not uncommon. People who are extremely smart in one area of thinking -- engineers, doctors, lawyers, etc. -- can easily come to believe that they are extremely smart in all areas of thinking, and so they can go crashing headlong into the Dunning-Kruger effect in other mental areas. Furthermore, they're used to being smarter than everyone around them; so they can be susceptible to scams that play to their superiority ('Most people are wrong about this -- you have to be really clever to look past conventional wisdom and see the truth'), and once they've been taken in they can be very hard to convince that they've been duped.