Tax & Financial Consulting Services
Last weeks Conference Call "Bankruptcy 101" received great reviews. Now, I'm continuing on the series for November, "Alternative Financial Thinking" month. Well, tonights call is a build up to the finale for the end of the month "The Creature from Jeckyll Island." If you didn't get the e-newsletter that was sent out the beginning of the week, "GOOD as Gold," please read the story below. The facts about the case and understanding the Gold Standard will be presented tonight. In short, there is something called "The LAW and then there is the SYSTEM."
Please pass this along, because being in the know is where you want to be especially in the realm of where our country is heading financially for the next several years to come.
Thursday, November 15, 2007
Tax & Financial Trng Call
November is Alternative Thinking Month
> Credit Repair
> Bankruptcy 101
> The State of "Your Financial Union"
> The Creature From Jeckyll Island
712-451-6100 pin 974124#
All Times are eastern standard time (please make adjustment for time zone
STORY BY MIKE ZIGLER
On a 106-degree May afternoon in 2003, government agents raided several
establishments belonging to Southern Nevada businessman Robert "Bobby" Kahre.
With guns drawn, officials held more than 20 handcuffed workers in the sun
without water as agents collected records and other materials.
Kahre hadn't committed a crime. He had upset the Internal Revenue Service by
paying his workers based on the face value of gold and silver coins, versus the
market value in the Federal Reserve system (the value of the coins in U.S. paper
dollars). Even though the coins were in circulation, displayed a face value, and
were regulated by Congress, the IRS's confusing and endless tax code did not
determine how to handle these gold and silver coins if used for payroll. The tax
code only references dollars. It does not distinguish between coined money and
Kahre didn't opt for the precious metal bullion system without first doing his
homework. He consulted monetary experts, engaged in extensive research, and even
met with congressmen. Kahre's conclusion was simple: While the currency in the
precious-metal system was greater in value than the currency in the other
system, as money and a medium of exchange, the law knows no difference between
the face value of both currencies.
The IRS expected Kahre to report his workers' earnings based on the coins'
market value in the Federal Reserve system. Instead, he didn't report or pay
anything at all because the face value of the coins fell below the reporting
threshold. The IRS alleged that Kahre and the other defendants paid at least
$114 million (based on the Federal Reserve system) to workers. The use of these
coins in trade is a direct challenge to the fiat money system now in place.
"Bobby Kahre is the only person in the world I know of with the courage to do
that," said Joel Hansen, a Las Vegas attorney who represented one of the nine
defendants in the case.
While the purpose of the case was to identify the intent of the defendants, the
trial that followed tested America's dual monetary system and further validated
that the U.S. greenback is quickly becoming more and more a worthless piece of
In 1985, Ron Paul and other congressmen challenged our country's currency
system, which was monopolized by Federal Reserve Notes (FRNs) — the familiar
greenbacks in American wallets. The congressmen successfully pursued the Gold
Bullion Coin Act, which required the U.S. government to mint and place gold
coins in denominations of $50, $25, $10 and $5 into circulation based on demand.
The coins are made of 91.67 percent pure gold.
The ultimate purpose of the act was to allow Americans to invest in gold.
However, it also brought sanity back to this country's monetary system by
establishing a dual system. Instead of the Federal Reserve solely providing the
money supply by endlessly printing FRNs, the U.S. government now minted and
circulated precious metal coins.
In the mid-'90s, Kahre began exercising this alternate system. He compensated
workers for their labor in the form of these gold and silver coins versus FRNs.
The workers calculated their income and tax liability based on the face value of
One gold coin with a face value of $50 currently equals $806 in FRNs.
If a worker earns a $50 gold coin each week, that person takes home an annual
income of $2,600 based on the precious metal system, which is below the
income-tax reporting threshold for an employee. However, the value of the coins
in FRNs — $41,912 — is not. That's the basic idea.
The IRS did not fancy Kahre's gold-and-silver payroll system, and after seven
years of operating his family businesses in this fashion, he and eight others
found themselves as defendants in a Las Vegas federal courtroom. Kahre was
charged with 109 counts of tax-related crimes, varying from tax evasion to
willful failure to file and conspiracy to evade taxes. Fifty-two other counts
were divided among the other defendants.
While the case was about the intent of the defendants, it raised several issues.
There was the issue of whether or not Kahre's workers were considered
independent contractors, who are responsible for paying their own taxes, or
employees, who have their taxes withheld by their employer each pay period. Then
there's the issue of America's dual monetary system. If there are two monetary
systems, and the value of one system's currency is greater than the other beyond
its face value, what is the standard for determining the value of taxable
No Federal Court of Appeals has ever ruled that the gold coins in question must
be reported to the IRS based on FRN market value.
"The defense showed that the defendants believed in good faith that a Federal
Reserve Note is not the standard because Congress created the dual monetary
system," Hansen said. "The defendants believed that gold and silver coins are
just as legitimate and legal as our other tender, the FRN."
Kahre certainly caught the attention of the IRS. In addition to operating his
businesses via the gold-and-silver payroll system, according to testimony at the
trial, he helped 35 other contracting companies do the same.
But even though Kahre and his colleagues followed the dual monetary system
mandated by Congress, the IRS didn't care. To America's most feared agency, the
bottom line was Kahre's workers weren't taxed enough for their labor.
Based partially on cases that pre-dated the 1985 Gold Bullion Coin Act, the
judge in the case did not allow defense attorneys to argue that Kahre was
justified to pay workers based on the face value of the coins. Based on case
law, the court concluded that income had to be calculated based on the FRN fair
market value, rather than upon the face value.
A flaw with some of those cases was that each referred to double-eagle gold
coins, which Franklin D. Roosevelt outlawed in 1934. Those coins are no longer
in circulation like the coins minted by the U.S.
government following the 1985 Act. The double-eagle coins were deemed to be
property for tax purposes in those old cases.
Of course, the judge's rule was binding upon the parties and was followed by the
defense attorneys at the trial. Hansen, under the good faith belief defense, was
able to present evidence that his specific client, Alex Loglia, who performed
research work for Kahre, did not have intent to commit tax crimes. This
interesting twist allowed jurors to still hear the argument that Kahre was
justified to pay workers based on the face value of the coins. The U.S. Supreme
Court had long before ruled, in the Cheek case, that a good defense in a
tax-evasion case is a person had good faith in not following certain tax laws.
"The Supreme Court said, if they don't have criminal intent, then they are not
guilty of tax evasion," Hansen explained. "That doesn't mean you don't have to
pay the tax, but it means you didn't commit a crime and won't go to jail for a
In 2005, Loglia penned a paper that earned him an 'A' from his law school
professor Jay Bybee (who just happens to also be a 9th Circuit
judge) on the gold-coin issue and the separation of powers. His paper took the
position that, under Article 1, Section 8, Clause 5 of the Constitution,
Congress alone had the power to coin money and set its value.
Loglia's position was that the judicial branch does not have this power.
"The judge applied those old court cases, but we were still able to make the
argument that Alex was not criminally liable because he believed in good faith
in the use of the face value of the gold and silver coins for tax purposes,"
Hansen said. "Loglia's 100-page legal paper was great evidence for the jury of
his good faith belief."
Beyond the courtroom, there is another significant issue with the Kahre case —
it gives attention to the ever-decreasing value of the Federal Reserve Note.
One Euro is now worth $1.45 in FRNs. A Chinese Yuan buys the same as
$1.34 in FRNs. Even the Canadian dollar is now more valuable than our paper
currency. Compared to the American buck, it'll buy seven cents more in goods and
"Because of how much stronger the Euro is compared to an American FRN, the
Federal Reserve just pumped up to $50 billion of FRNs into Federal Reserve banks
to prop up the banks," Hansen said. "But when they do that, every dollar that
you have in your pocket is now worth less."
However, America's other monetary system — gold and silver coins — does not
decrease in value. It becomes more valuable in terms of FRNs.
Americans, though, rely on the FRN, and its rapid decline will sooner than later
decimate the middle class, Hansen said.
Take socialist Karl Marx's theory, for example. He believed the most effective
way to obliterate the middle class involved a system of progressive taxation
coupled with inflation. In the Federal Reserve's case, if the bank continues to
inflate the currency so that everybody moves into higher and higher tax
brackets, eventually everybody will pay 30 to 40 percent of their income to
taxes in Federal Reserve Notes, all while the FRN decreases in value due to
"By using the gold coins, Kahre was beating Karl Marx, the socialists and the
liberals who want people to pay more and more so they can have bigger and bigger
government," Hansen said. "Kahre challenged the whole system and that's why the
IRS came down so hard on him and his associates.
"The IRS doesn't want this going on; they want you to use their fiat money and
be forced into higher tax brackets through progressive taxation coupled with
inflation. That way there's no limit on the money they can issue and inflate."
On Sept. 17, after four months of trial and days of deliberation, the Las Vegas
federal jury returned with its verdicts. The courtroom was crowded as the IRS
and Department of Justice filled the entire area on their side of the chambers
with its officials.
Hansen was uncertain of what to expect. He just hoped that the jurors listened
closely to the evidence presented.
"I could tell in the closing arguments, as I was watching the jury, that they
were sympathetic to what I was saying. But what they were going to do, I did not
know," he recalled. "I think the government, because it had packed the
courtroom, was confident they were going to get numerous guilty verdicts."
Rather, jurors delivered zero guilty verdicts. Three defendants, all workers,
were acquitted as well as Kahre's mother, who worked as a runner for her son's
businesses. Two other defendants were partly acquitted — the jury hung on one
count each. The jury also hung on all counts faced by Kahre, Loglia and Kahre's
sister, resulting in mistrials.
"I'm telling you that I have never seen such a dejected group of people leave a
courtroom in my life," Hansen said of DOJ and IRS officials. "They were shocked.
Of course, we were pleased.
"The thing is, they had 161 counts and they did not get a guilty verdict on a
single one. They got a big goose egg. We didn't get not-guilty verdicts for
everyone, but the government didn't get anything."
The IRS was supposed to notify the judge in late October if the agency intended
to retry the five defendants on the charges that resulted in a hung jury. The
government waffled, indicating they would pursue another grand jury and issue
superceding indictments. More information will be known by mid-November.
Looking back, Hansen recalls what may have been a key turning point in the
trial. The government called three accountants to testify. The defense asked
each one, "What is the proper way to calculate income for purposes of the
Internal Revenue Code if you are paid in a gold coin that has a $50 face value
on it?" All three of them responded, "I do not know; I'll have to research
"One of them had a masters degree in taxation!" Hansen observed, saying their
answers made it difficult to prove the defendants willfully committed tax
crimes. "If accountants and masters of taxation don't know the answer to this
question, how in the world can they expect anything different from an ordinary
person who is confronted with a dual monetary system created by Congress?"
Hansen believes it was uncalled for to prosecute Kahre and the other eight
defendants criminally. The case revolved around a complicating and confusing
legal issue. It should have been handled civilly, Hansen said, but the IRS
wanted to make an example of these defendants because the federal government
simply doesn't want anyone paying a lower tax than what the feds determine
should be paid.
"If a coin says it is a $50 gold piece, and it says 'In God We Trust,'
and the law says that it is legal tender, and it is in circulation, isn't it
reasonable for people to think that they can calculate their tax liability based
on that?" Hansen asks. "If a tax accountant can't answer that question, how can
a common worker be guilty of a crime?
The outcome of this case is a magnificent victory for those of us who believe
that the United States of Americashould have an honest monetary system."
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"The great end in life is not knowledge but action."
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