[Editor’s note: I am not a tax protester. Until researching the issue that is subject to this blog post, I thought all of the arguments raised by the tax protester crowd were frivolous. On this issue, I am not so confident.]
Take a look at this gold coin. It's a Gold American Eagle. Look at the image on the right. Do you see what the coin says on the bottom half, underneath the nesting baby eagle?
It says $50, right?
Indeed, it is (as I will explain below) $50. It’s worth as much as an Ulysses S. Grant. Well, if you believe it’s really only worth $50, send all of your Gold Eagles to me. I will sell them on eBay for about $1,000 each.
And now you can see the problem of Robert Kahre. Mr. Kahre is facing federal prison because he claimed that Gold Eagles are worth what Congress has said that Gold Eagles are worth.
Is Mr. Kahre’s position frivolous? I don’t think so. Please indulge me.
A Gold Eagle is “Legal Tender.”
Under 31 U.S.C. § 5112:
"(a) The Secretary of the Treasury may mint and issue only the following coins:
(7) A fifty dollar gold coin that is 32.7 millimeters in diameter, weighs 33.931 grams, and contains one troy ounce of fine gold."
31 U.S.C. § 5112(h) provides:
(h) The coins issued under this title shall be legal tender as provided in section 5103 of this title.
Title 31 U.S.C. § 5103 defined “legal tender.” Section 5103 states:
“United States coins and currency (including Federal reserve notes and circulating notes of Federal reserve banks and national banks) are legal tender for all debts, public charges, taxes, and dues. Foreign gold or silver coins are not legal tender for debts.”
See Mathes v. Commissioner of Internal Revenue, 576 F.2d 70, 71
(5th Cir. 1978) (per curiam) (“Congress has delegated the power to establish this national currency which is lawful money to the Federal Reserve System.”); United States v. Wangrud, 533 F.2d 495, 495 (9th Cir. 1976) (per curiam) (“By statute it is established that federal reserve notes, on an equal basis with other coins and currencies of the United States, shall be legal tender for all debts, public and private, including taxes.”).
The Courts Have Said: “A Dollar Is A Dollar.”
In Thompson v. Butler, 95 U.S. 694, 696 (1877) (here), the United States Supreme Court stated: “A coin dollar is worth no more for the purposes of tender in payment of an ordinary debt than a note dollar. The law has not made the note a standard of value any more than coin. It is true that in the market, as an article of merchandise, one is of greater value than the other; but as money, that is to say, as a medium of exchange, the law knows no difference between them.”
In Crummey v. Klein Independent School District (here), the Fifth Circuit Court of Appeals heard a case where: "Brent E. Crummey brought this lawsuit complaining that ... two employees of the
KISD tax office, declined to accept Crummey’s fifty-dollar United States American Eagle gold coins for any more than the face value of the coins in Federal Reserve Note dollars as tender in payment for taxes Crummey owed."
The Fifth Circuit stated: "Regardless of any currency confusion that may have arisen in bygone eras, our present standard is clear: As legal tender, a dollar is a dollar." Further: "As legal tender, a dollar is a dollar, regardless of the physical embodiment of the currency."
OK. A dollar is a dollar.
Mr. Kahre owed his employees dollars. He paid them in dollars. Specifically, he paid them fifty dollars via a Gold Eagle. So what's the problem?
Cordner v. United States Does Not Apply.
In Cordner v. United States, 671 F.2d 367, 368- 69 (9th Cir. 1982), a taxpayer "received 275 $20 Double Eagle gold coins as a corporate dividend distribution." The taxpayer "reported the dividend at the face value of the coins, $5,500 []." The IRS disagreed, "charg[ing] appellants with a taxable dividend in an amount equal to the fair market value of the coins, which was $70,936."
A three-judge panel of the Ninth Circuit Court of Appeals agreed with the IRS: “We have no difficulty in holding that the gold coins here, though legal tender and hence ‘money’ for some purposes, are also ‘property’ to be taxed at fair market value because they have been withdrawn from circulation and have numismatic worth.”
Mr. Kahre has been paying his employees with coins that have not been withdrawn from circulation. Thefore, Cordner’s holding does not apply.
The panel did say, in dicta: “When legal tender, by reason of its value to collectors or the intrinsic worth of its contents, has a fair market value in excess of its face value or tender, then it should be deemed property other than money for purposes of section 301(b)(1)(A).” There are three problems with this dicta.
First, it is dicta. It is therefore not binding on any non-party. Dicta is, in essence, an unconstitutional advisory opinion – since it addresses issues not necessary to resolve, as Article III to the Constitution requires, to a “case or controversy.”
Second, the dicta was written in 1981. The law I discussed, above, was enacted in 1985. Thus, even if the dicta were binding; it would have been abrogated by federal statute.
Third, it is striking that this dicta does not address any of the statutory arguments I raised, above. It does not address the United States Supreme Court’s opinion in Thompson v. Butler, 95 U.S. 694, 696 (1877). It’s a flip and thoughtless (non) resolution of the complicated issue.
Whatever the case, that language was dicta, since it went beyond the issue presented in the case. It is old dicta, that appears invalid in light of subsequent federal legislation.
You Can’t Convict Unless You Show a Mistake of Law.
Perhaps it is the case that legal tender should be treated differently when you’re paying an employee wages. There are clearly cases stating otherwise. I spent three hours rather than three days on this post. I likely have missed something. That said, I have indeed found strong authority for Kahre's position.
Let’s assume that a legal god would determine that, here, a consistency would be foolish – and therefore the hobgoblin of little minds.
Federal law protects little minds.
Ignorance of the law is no excuse – except in tax cases. You cannot convict a taxpayer unless you show that the taxpayer willfully violated federal law. See Cheek v. United States, 498 U.S. 192, 202 (1991); United States v. Bishop, 291 F.3d 1100, 1106 (9th Cir. 2002); Richey v. United States, 9 F.3d 1407 (9th Cir. 1993) (subjective good faith is sufficient).
What is the law of Gold American Eagles?
I know what I’d do. I’d claim the fair market value of the Gold Eagles. I am risk averse. In a Platonic sense, I believe that Gold Eagles should be taxable based on their face value. In the real world, I know what courts will do.
I have no doubt that if the Ninth Circuit hears this issue, it will echo Cordner v. United States. The Ninth Circuit will either ignore the complexities I mentioned; or it will find a way (disingenuous or otherwise) to distinguish them away.
Still, I believe that a person could subjectively thing that he wasn’t required to pay taxes based on fair market value.
That I wouldn’t personally take that position does not change the fact that others might disagree with me. That I would not encourage others to take that position, again, do not change anything. A person could subjectively and reasonably believe that he was not required to pay taxed on the fair market value of the Gold American Eagles.
Mr. Kahre should be acquitted.
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