October 22, 2004

Eileen J. O'Connor
Assistant Attorney General, Tax Division
U.S. Department of Justice
950 Pennsylvania Avenue, NW
Washington, DC 20530-0001

Dear Ms. O'Connor,

If he has not already done so, Floyd Miller (Assistant U.S. Attorney) will soon be presenting, for Tax Division approval, a proposed indictment against me and my wife for alleged tax-related offenses. I want to let you know that thousands of Americans are waiting to see whether the Tax Division will endorse that indictment.

Since I began researching the tax laws, my policy has been complete openness about what I am doing and what those in government are doing. The results have been quite informative for many thousands of Americans, who have seen that many in government (and in the IRS and DOJ in particular) routinely disregard the law and are willing to insult, threaten, demonize, harass, and even forcibly censor Americans who dare to question the "conventional wisdom" about the federal income tax. Even if those people are incorrect in their beliefs, to have our "public servants" devoting their energies to vilifying and silencing honest Americans is simply intolerable.

In DOJ press releases, you personally have called the 861 evidence (see www.861.info) a "frivolous scheme." Despite these kinds of insults from some in government, more and more Americans (including CPAs and attorneys) are studying the law for themselves and are concluding that the income of most Americans does not constitute "taxable income" subject to the federal income tax. (Subchapter N of the Internal Revenue Code and the related regulations show that the tax applies primarily to income from certain types of international trade, as further explained below.)

When citizens raise questions about the issue, or ask the government to state the specifics of its own position, those people are met with hostility and arrogance instead of answers and explanations. In July of 2002 and June of 2003, when dozens of Americans sent you letters asking six crucial questions about how they should determine their taxable income, you failed to respond at all. Does this mean you are qualified to run an organization that prosecutes people for determining their "taxable income" incorrectly, but are not qualified to tell those same people how they should determine their taxable income? What you decide concerning the proposed indictment in my case (and I know that you personally will be responsible for the decision) will, one way or the other, demonstrate what kind of person you are.

The reason I have been so vocal about what I am doing, even going so far as to invite the government to prosecute me, is to show the public how the government of this "land of the free" really functions.As expected, many in the IRS and DOJ have shown their utter contempt for the law and their utter contempt for the general public (whom they are supposed to be serving). For example, the IRS routinely refuses to grant administrative meetings to those who raise the 861 evidence, and the Tax Court fines anyone who brings up that "inconvenient" part of the law.

The thousands of Americans who have asked perfectly reasonable, perfectly polite questions concerning how they should determine their "taxable income" have been treated like criminals, threatened with fines or prosecution, and then told that the IRS will not respond to further inquiries about the matter (this despite the fact that the IRS "Mission Statement" includes helping Americans "understand" their tax responsibilities).But the government has gone even further, misapplying 26 USC § 6700 to shut down web sites (under the guise of enjoining "abusive tax shelters"), and using other legal tricks to get around the First Amendment, in an attempt to forcibly silence the issue.

Several years ago, the IRS began efforts to forcibly shut down my web sites on the ridiculous guise of stopping an "abusive tax shelter." After that failed, the IRS and DOJ began a fishing expedition to find anything which might be used to discredit me.Throughout this witch-hunt, the IRS has harassed former babysitters, a charity we give to, an aunt who loaned us money years ago, several people who used to work for us, etc., in the hope of digging up any possible "dirt" on us.The government has been rummaging through records, hoping to find hidden assets or anything that might make it look like we had something to hide (without any probable cause, since we do not do such things).The whole idea that our completely open and public actions require "investigating" is, in itself, absurd.

The ultimate act of government thuggery in this case (which I believe fits within the definition of "terrorism") was the armed invasion of my home on May 6, 2003, under the guise of a search warrant, during which the IRS confiscated all of my computers and financial records. Not only was the warrant ridiculously overly broad on its face and completely lacking in probable cause (the government still wants the affidavit on which the warrant was based to remain hidden from public view), but it openly sought to confiscate materials obviously protected by the First Amendment (e.g., Theft By Deception videos). That warrant was requested by Donald Pearlman at the IRS, approved by Floyd Miller at the DOJ, and signed by U.S. Magistrate Thomas J. Reuter, all of whom thereby displayed their complete disregard for the First Amendment (freedom of speech), the Fourth Amendment (unreasonable searches), and the Fifth Amendment (due process).

Since then, having found no evidence of an actual crime (since none was committed), the IRS and DOJ have engaged in a transparent attempt to demonize me, in public and in front of a grand jury. Following a motion I filed seeking to quash the search warrant, Floyd Miller filed a "response" devoid of any mention of the search, which instead consisted of character assassination and vilification, mischaracterizing my wife and me as "tax protestors" (an outright lie), mischaracterizing my Theft By Deception video as a "tax fraud scheme," and alleging that what I am doing is nothing more than a "get rich scheme."

This legally irrelevant and unprofessional slander continued when my wife and I spoke to the grand jury, at which time Mr. Miller again sought to impugn our motives and tried to stir up envy and resentment in the grand jurors based on the fact that our finances improved after we stopped filing and paying (having discovered that our income is not taxable).Prejudicing a grand jury with matters unrelated to any crime is of course improper, and is grounds for dismissal of an indictment.If Mr. Miller's proposed indictment is anywhere near as inflammatory and vindictive (and legally lame) as his record to date suggests, then no self-respecting attorney at the Tax Division would ever endorse such an indictment.But perhaps the law and the truth matter as little to Tax Division lawyers as they do to Mr. Miller. Time will tell.

When it comes to evidence of criminal wrongdoing, the government has no case, which is why they must resort to personal insult and demonization. As you know, it is not a crime for someone to fail to file a tax return unless he believed he was required to file, and failing to pay a tax is only a crime if the person believed he owed the tax (see Cheek v. U.S., 498 U.S. 192 (1991)).

Therefore, I cannot be guilty of any "willful failure to file" or "willful tax evasion" offense if I truly believe that my income is not subject to the federal income tax. However, it seems absurd to me to talk about my understanding of the law as if it is a mere "belief" (i.e. a matter of faith). I "believe" that 26 USC § 1 imposes a tax on anyone who receives "taxable income," and I also "believe" that 26 USC § 63 generally defines "taxable income" to mean "gross income" minus deductions, and that 26 USC § 61 generally defines "gross income" to mean "all income from whatever source derived , including compensation, interest, rents, etc. Every CPA and IRS employee I have talked to shares those "beliefs," but the law does not end there.

(All underline emphasis in citations below has been added.)

1) I "believe" that even very broadly worded statutes must be interpreted in light of the Constitution, in a way that keeps the application of the law within the Constitutional authority of the legislature which authored the statute.

"It is elementary law that every statute is to be read in the light of the constitution. However broad and general its language, it cannot be interpreted as extending beyond those matters which it was within the constitutional power of the legislature to reach." [McCullough v. Com. Of Virginia, 172 U.S. 102 (1898)]

2) I "believe" that in addition to the types of income Congress chose to exempt by statute, some other kinds of income are also excluded from the tax because of "fundamental law" (the Constitution).

"Certain items of income specified in section 22(b) are exempt from tax and may be excluded from gross income...No other items may be excluded from gross income except (a) those items of income which are, under the Constitution, not taxable by the Federal Government... " [26 CFR § 39.22(b)-1 (1956)]

"The tax imposed by chapter 1 is upon income. Neither income exempted by statute or fundamental law... enter into the computation of net income as defined by section 21." [26 CFR § 39.21-1 (1956)]

3) I "believe" that income which is exempt for federal income tax purposes cannot create a tax liability, and does not need to be reported on a tax return.

Gross income excludes the items of income specifically exempted by the statute and also certain other kinds of income by statute or fundamental law free from tax. Such tax-free income should not be included in the return of income and need not be mentioned in the return. " [Treasury Decision 3146 (Regulations 62, Article 71)]

4) I "believe" that the items of income listed in the general definition of "gross income" (compensation, interest, etc.) make up " classes of gross income ," which are in some cases excluded for federal income tax purposes.

"For purposes of this section, the gross income to which a specific deduction is definitely related is referred to as a 'class of gross income' and may consist of one or more items (or subdivisions of these items) of gross income enumerated in section 61, namely:

Compensation for services, including fees, commissions, and similar items;

   (ii) Gross income derived from business;

   (iii) Gains derived from dealings in property;

   (iv) Interest [26 CFR § 1.861-8(a)(3)]

See... paragraph (d)(2) of this section which provides that a class of gross income may include excluded income ." [26 CFR § 1.861-8(b)(1)]

5) I "believe" that certain foreign income of U.S. citizens, certain U.S. income of foreigners , and certain income from other international trade and trade in federal possessions is not exempt (i.e. is taxable) for federal income tax purposes.

For purposes of this section, the term exempt income means anyincome that is, in whole or in part, exempt, excluded, or eliminated for federal income tax purposes ." [26 CFR § 1.861- 8T(d)(2)(ii)]

(iii) Income that is not considered tax exempt. The following items are not considered to be exempt, eliminated, or excluded income and, thus, may have expenses, losses, or other deductions allocated and apportioned to them:

(A) In the case of a foreign taxpayer...

(B) In computing the combined taxable income of a DISC or FSC...

(C) ...the gross income of a possessions corporation...

(D) Foreign earned income... " [26 CFR § 1.861- 8T(d)(2)(iii)]

6) I "believe" that because Congress has the general taxing power, as well as specific jurisdiction over " commerce with foreign nations ," Congress therefore is authorized to impose an income tax on income which Americans receive from foreign commerce.

The plaintiff is a domestic corporation chiefly engaged in buying goods in the several states, shipping them to foreign countries and there selling them...The Constitution broadly empowers Congress not only 'to lay and collect taxes, duties, imposts, and excises,' but also 'to regulate commerce with foreign nations.' So... Congress undoubtedly has power to lay and collect such a tax as is here in question. " [William E. Peck & Co. v. Lowe, 247 U.S. 165 (1918)]

7) I "believe" that when U.S. citizens receive substantial income from foreign commerce (which is not otherwise excluded by law), they are required to report such income on a tax return and pay the tax.

"Profits of citizens, residents, or domestic corporations derived from sales in foreign commerce must be included in their gross income. " [26 CFR § 39.22(a)-1 (1956)]

You must report unearned income, such as interest, dividends, and pensions, from sources outside the United States unless exempt by law or a tax treaty. You must also report earned income, such as wages and tips, from sources outside the United States ."[Form 1040 Instruction Booklet (1996)].)

If you are a U.S. citizen, you must report income from sources outside the United States (foreign income) on your tax return unless it is exempt by U.S. law. " [IRS Publication 525, " Taxable and Nontaxable Income "])

8) I "believe" that if the law does not specifically point out that a certain source of income istaxable, one should conclude that it is not.

In the interpretation of statutes levying taxes it is the established rule not to extend their provisions, by implication, beyond the clear import of the language used, or to enlarge their operations so as to embrace matters not specifically pointed out. " [Gould v. Gould, 245 U.S. 151 (1917)]

9) I "believe" that, while 26 USC § 61 lists some common "items" of income which may be taxable, one should refer to 26 USC § 861 and its regulations for the specific rules concerning income from inside the United States.

Income from sources -      

  Within the United States, see section 861 of this title.

  Without the United States, see section 862 of this title. "

                           [Cross-reference under 26 USC § 61 (2000)]

""Gross income,
   Sources, Within U.S., 26 § 861"
"Sources of income,
   Within the U.S., 26 § 861"
 "Taxable income,
   Sources within U.S., 26 § 861"

10) I "believe" that 26 USC § 861 and following, and related regulations, give the rules for determining domestic and foreign "gross income" and "taxable income," and rules for dividing up deductions for those who have both foreign and domestic income.

"Rules are prescribed for determination of gross income and taxable income derived from sources within and without the United States, and for the allocation of income derived partly from sources within the United States and partly without the United States or within United States possessions. §§ 1.861-1 through 1.864. Secs. 861-864; ’54 Code.)" [Treasury Decision 6258]

11) I "believe" that 26 USC §§ 861(b) and 863(a) generally describe how to determine a taxpayer's taxable domestic income.

"Sections 861(b) and 863(a) state in generalterms how to determine taxable income of a taxpayer from sources within the United States after gross income from sources within the United States has been determined. " [26 CFR § 1.861-8]

12) I "believe" that a taxpayer should refer to the rules under 26 CFR § 1.861-8 to determine his taxable income, whether from sources within or without the U.S.

"(c) Determination of taxable income. The taxpayer's taxable income from sources within or without the United States will be determined under the rules of  Secs. 1.861-8 through 1.861-14T  for determining taxable income from sources within the United States." [26 CFR § 1.863-1(c)]

13) I "believe" that U.S.-source income (as described in 26 USC § 861) is taxable for nonresident aliens, foreign corporations, and some Americans who receive most of their income from federal possessions.

(a) In the case of a nonresident alien individual or of a citizen entitled to the benefits of section 262, the following items of gross income shall be treated as income from sources within the United States:

  (1) Interest on bonds, notes, or other interest-bearing obligations of residents, corporate or otherwise...

  (2) The amount received as dividends (A) from a domestic corporation...

  (3) Compensation for labor or personal services performed in the United States.

  (4) Rentals or royalties from property located in the United States...

  (5) Gains, profits, and income from the sale of real property located in the United States.

(b) From the items of gross income specified in subdivision (a) there shall be deducted the [allowable deductions] . The remainder, if any, shall be included in full as net income from sources within the United States. " [Section 217, Revenue Act of 1925 (predecessor of 26 USC § 861)]

(a) From the items specified in section 119(a) as being derived specifically from sources within the United States there shall, in the case of non-resident alien individuals and foreign corporations engaged in trade or business within the United States, be deducted the [allowable deductions]. The remainder shall be included in full as net income from sources within the United States. " [26 CFR § 39.119(b)-1 (1939) (predecessor of 26 CFR § 1.861-8)]

"(ii) Relationship of sections 861, 862, 863(a), and 863(b). Sections 861, 862, 863(a), and 863(b) are the four provisions applicable in determining taxable income from specific sources. " [26 CFR § 1.861-8 (3)(ii)]

"For purposes of this section, the term 'statutory grouping of gross income' or 'statutory grouping' means the gross income from a specific source or activity which must first be determined in order to arrive at 'taxable income' from which specific source or activity under an operative section. (See paragraph (f)(1) of this section.) " [26 CFR § 1.861-8(a)(4)]

"The operative sections of the Code which require the determination of taxable income of the taxpayer from specific sources or activities and which give rise to statutory groupings to which this section is applicable include the sections described below.
    (i) Overall limitation to the foreign tax credit... Accordingly, in this case, the statutory grouping is foreign source income...
    (ii)[Reserved]
    (iii) DISC and FSC taxable income...
    (iv) Effectively connected taxable income. Nonresident alien individuals and foreign corporations engaged in trade or business within the United States...
    (v) Foreign base company income...
    (vi) Other operative sections. The rules provided in this section also apply in determining--
(A) The amount of foreign source items...;
(B) The amount of foreign mineral income...;
(C) [Reserved] (D) The amount of foreign oil and gas extraction income...;
(E) The tax base for citizens entitled to the benefits of section 931 and the section 936 tax credit of a domestic corporation which has an election in effect under section 936;
(F) The exclusion for income from Puerto Rico...;
(G) ...income tax liability incurred to the Virgin Islands;
(H) The income derived from Guam...;
(I) The special deduction granted to China Trade Act corporations...;
(J) ...income of a controlled foreign corporation under section 952(b);
(K) The amount of income from the insurance of U.S. risks under section 953(b)(5);
(L) The international boycott factor...; and
(M) The taxable income attributable to the operation of an agreement vessel under section 607 of the Merchant Marine Act of 1936... " [26 CFR § 1.861-8(f)(1)]

(I also "believe" that the domestic income of a U.S. citizen living and working exclusively within the 50 states is not shown to be taxable by 26 CFR § 1.861-8, but it is of course impossible to quote something that a section does not say.)

14) I "believe" that if a part of the law specifies when U.S.-source income is taxable, and does not specify that my domestic income is taxable, I should conclude that it is not.

In the interpretation of statutes levying taxes it is the established rule not to extend their provisions, by implication, beyond the clear import of the language used, or to enlarge their operations so as to embrace matters not specifically pointed out. In case of doubt they are construed most strongly against the government, and in favor of the citizen. " [Gould v. Gould, 245 U.S. 151 (1917)]

You can probably see why I consider it odd to say that I "believe" those things, instead of saying that I know them. And that brings me to my question, a question which will be answered by your response to Mr. Miller's proposed indictment in my case:

Should someone be taken away from his family and friends and put in a cage for several years for "believing" and talking about the things listed above?

Please read that question carefully, and read it twice.  To be blunt, only a truly despicable tyrant would answer "yes" to that question.  Any honest prosecutor reviewing my case, even if he assumed that my conclusions are incorrect, would see that I have been completely open about my actions and the reasons for them, would see that I am doing exactly what I "believe" (i.e. what I know ) the law requires of me, would therefore conclude that no "willful" tax crime has occurred, and would not prosecute.

While I cannot make people do the right thing, I can publicize it when they do the wrong thing.  That is what I have done, and that is what I will continue to do, so that the actions of those who now hold power will forever be on the record so that the public can see the true nature of our "public servants." As Stanley Milgram's psychology experiments demonstrated to a horrifying degree, most people do not have the principles or courage to do the right thing when a perceived "authority" is telling them to do the wrong thing. Thousands of Americans are waiting to see if you are an exception to that unfortunate trait of human nature.

Sincerely,

Larken Rose
[address redacted]

(P.S. As those at the IRS and DOJ should know by now, intimidation and demonization tactics will never stop me from telling the truth; nor would imprisonment.)

cc: President George W. Bush
     The White House
     1600 Pennsylvania Avenue NW
      Washington, DC 20500

cc: Attorney General John Ashcroft
      U.S. Department of Justice
      950 Pennsylvania Avenue, NW
      Washington, DC 20530-0001

cc: Patrick L. Meehan
      U.S. Attorney, Eastern District of PA
      615 Chestnut Street, Suite 1250
      Philadelphia, PA19106