Originally published on Forbes.com Dec 15th, 2013
I was surprised that the Ninth Circuit’s decision, last month, on Irwin Schiff’s appeal of his conviction and sentence did not attract more attention. Irwin Schiff could well be viewed as the grandfather of the contemporary tax protester movement. According to wikipedia:
A tax protester is someone who refuses to pay a tax on constitutional or legal grounds, typically because he or she claims to believe that the tax laws are unconstitutional or otherwise invalid.
Irwin Schiff was appealing his conviction and sentence of 151 months for conspiracy, aiding in the filing of false income tax returns and failing to pay income tax. His appeal was based on ineffective assistance of counsel at his first appeal (He represented himself at the original trial). The Ninth Circuit cut him no slack, so based on his current projected release date,the next birthday that Irwin Schiff can celebrate in freedom will be his ninetieth.
An Appeal From His Son
The light coverage of the appeal redounded to my advantage, because it motivated Peter Schiff, Irwin’s son, to contact me. As the founder of Euro Pacific Capital, Senate candidate and author, Peter Schiff is pretty well known in his own right. Peter Schiff thinks his dad is getting a really raw deal and is being treated worse than if he were an ax murderer. Peter Schiff has spent hundreds of thousands of dollars on legal fees for his father.
He is worried about his poor health care and the distance that he is kept from his family. Peter Schiff was very annoyed that the mental health defense that helped Irwin Schiff’s co-defendant was suppressed in his case. Irwin Schiff suffers from bi-polar disorder. Here is some video where Peter discusses his views on his father.
Peter Schiff believes that his father’s fight against the IRS is hopeless and unwise. He tried to convince his dad that there is a better way to fight the battle against, in his view, excessive government interference in our lives and the economy. Peter Schiff follows the tax law as most of us commonly understand it, even though he agrees with his father that the law is being incorrectly applied and that the income tax does not apply to most of those who pay it.
He devotes some space to the argument in The Real Crash: America’s Coming Bankruptcy – How To Save Yourself And Your Country which he dedicates to his father.
Although there were many people and groups that I had considered for this dedication, I feel compelled to risk redundancy and once again credit my father, Irwin Schiff. As I re-read the material, the echo of his voice clearly resonates throughout. It would be disingenuous to avoid the fact that no single individual had a greater influence on the development of this material. Unfortunately, as a quasi political prisoner, he can’t speak for himself. I’m happy to be able to do it for him.
A Brilliant Legal Argument Or Frivolous Nonsense – You Decide
The argument goes pretty much like this. The 16th Amendment gave Congress the power to tax income, but it did not say what income was. There are several Supreme Court decisions within a decade or two on either side of 1913 that read together will have you conclude that “income” means “corporate profits” and nothing else. Since “income” is a constitutional term, only the Supreme Court can define “income”.
Personally, I do not find the arguments at all persuasive. I have taken the trouble to read the Supreme Court decisions and the most important thing to understand is that nobody was asking the Supreme Court to define “income” and whether things like wages were income. Rather they were asking things like whether gains from the sale of investment are income (That is a question because under probate accounting principles capital gains will be credited to principal rather than income) and whether stock dividends are income. If you think stock dividends are income, you might ask for a pizza to be cut into eight slices rather than four because you are feeling particularly hungry.
It is no longer legal for Irwin Schiff to sell The Federal Mafia – How The Government Illegally Imposes and Unlawfully Collects Income Taxes, but it is made available for free as a pdf. Schiff’s key argument is on page 42 where he quotes Merchants’ Loan & Trust Co v Smietanka, a 1921 Supreme Court decision.
there would seem to be no room to doubt that the word must be given the same meaning in all of 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.
He goes on from there to reason that since Corporation Excise Tax Act only applied to corporations, that individuals cannot have income.
Irwin Schiff manages to ignore that the Supreme Court ruled against the taxpayer in Merchants’ Loan and the quote a few paragraphs down.
In determining the definition of the word ‘income’ thus arrived at, this Court has consistently refused to enter into the refinements of lexicographers or economists, and has approved, in the definitions quoted, what it believed to be the commonly understood meaning of the term which must have been in the minds of the people when they adopted the Sixteenth Amendment to the Constitution.
You might wonder why since 1921, as lower courts have, in Irwin Schiff’s view, ignored this Supreme Court ruling, nobody has asked the Supreme Court whether wages, for example, are income. The answer is because it is a stupid question. Irwin Schiff’s lawyers who besides complaining about his bipolar disorder not being allowed as evidence of lack of willfulness were also complaining that much of Schiff’s material was excluded as evidence of his sincerity put forth one of the best analyses of his constitutional reasoning:
…even though these cases, properly understood, do not support Mr. Schiff’s professed beliefs, they do contain language which, if honestly misconstrued and read out of context, could lead someone without legal training to believe that taxable income is limited to corporate profits
Peter Schiff Is Still A Stand Up Guy
I have to say that Peter Schiff has me in his corner, if not his father’s. I am not generally an envious person, but there is one situation that I am rather envious of. That would be being in your fifties, as Peter Schiff is, and still having your father alive. I suffer from bipolar disorder myself and am troubled by the occasional embarrassment it must cause my son. Furthermore, Jack Townsend, who is a serious authority on tax crimes, has written that he thinks the Ninth Circuit was wrong on the bipolar issue. The Ninth Circuit had written
Given the extensive evidence that Schiff knew his views of the tax law were incorrect, he cannot establish that his Cheek good-faith defense was prejudiced by counsel’s decision not to raise on direct appeal the district court’s suppression of evidence of his bipolar disorder.
Jack Towsend’s comment was
Just taking this discussion on its face, I am not sure it is right. The reasoning, if I understand it correctly, is that Schiff knew he was violating the law and that is sufficient for conviction under the Cheek standard. However, it seems to me that the argument is that his bipolar condition prevented him from understanding the consequences of that knowledge, that the evidence should have been presented to the jury, and that failure to raise the issue on appeal was inadequate assistance of counsel. I just am not convinced that the Ninth Circuit’s stated reasoning engages that issue.
Irwin Schiff is rather persuasive and probably quite sincere, so it is perfectly understandable that his son will accept his quirky constitutional views. Here is Irwin Schiff as a still free man challenging people with varying levels of tax knowledge to refute him
I can’t blame Peter Schiff for sticking up for his dad. I would too, if I still had one.
You can follow me on twitter @peterreillycpa.
Afternote
The reason for the long gap between this and the original post is that it took me a while to receive some of Irwin Schiff’s books in the mail and to read Peter Schiff’s “The Real Crash”. I am thinking of doing a post on the latter, since it is a really great statement of free-market principles. It helped clarify my own thinking on the subject. Suffice it to say, that this Peter does not go as far as Peter Schiff in embracing low government and the free market, but I still think his book is a really good read.