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IRS Hits Oakland Pot Shop With $2.4M Tax Bill
My Fox New York ^ | uesday, 04 Oct 2011, 8:30 PM EDT | Ap

Posted on 10/05/2011 11:58:47 AM PDT by Smogger

SAN FRANCISCO (AP) - The federal government has found a new weapon in its war on marijuana — the tax man.

A San Francisco Bay area medical marijuana dispensary that promotes itself as the world's largest has been hit with a $2.4 million tax bill following an audit by the Internal Revenue Service, the dispensary founder said Tuesday.

The back taxes, penalties and interest levied against Harborside Health Center came after the IRS examined its returns for 2007 and 2008 and determined a 1982 tax code prohibiting cost deductions for businesses that traffic in illegal drugs applies to the dispensary.

Harborside is a spa-like fixture on Oakland's waterfront with 94,114 registered customers and 84 full-time employees that offers an average of 30 varieties of medical marijuana every day and has $22 million in annual sales.

"What kind of drug trafficking organization actually files a tax return? None of them do," said Harborside CEO Steve DeAngelo, who gave his auditor a personal tour of his posh apothecary. "The very fact that we filed a tax return and told the IRS all the details of what we are doing proves we are not a drug trafficking organization."

The IRS said the agency does not comment on individual audits.

(Excerpt) Read more at myfoxny.com ...


TOPICS: Government; News/Current Events; US: California; US: Colorado
KEYWORDS: irs; medicalmarijuana; pot; taxes

1 posted on 10/05/2011 11:59:00 AM PDT by Smogger
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To: Smogger

His business is going to pot...


2 posted on 10/05/2011 12:01:35 PM PDT by bcsco (A vote for Cain will cure the Pain!)
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To: Smogger

It’s hard to know who to root for in this story.


3 posted on 10/05/2011 12:03:36 PM PDT by Hildy ("When the debate is lost, slander becomes the tool of the loser." - Socrates)
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To: Smogger

They got Al Capone, so you ain’t gotta prayer, dudes..................


4 posted on 10/05/2011 12:03:40 PM PDT by Red Badger (Furthermore, I think Obama must be impeached....................)
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To: Smogger

I’ve never understood, aside from greed, why SCOTUS said it was okay to tax income from illegal activities. Doesn’t make sense, does it?


5 posted on 10/05/2011 12:04:40 PM PDT by Tublecane
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To: Smogger
has 22 million in annual sales

Sonny was right:

There's a lot a money in that White Powder Green stuff

6 posted on 10/05/2011 12:07:29 PM PDT by Michael.SF. (When you hear hooves, think horses, not zebras.)
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To: Smogger

Mans business has gone up in smoke. LOL


7 posted on 10/05/2011 12:08:00 PM PDT by org.whodat (Just another heartless American, hated by Perry and his fellow democrats.)
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To: bcsco

Pot ought to be decriminalized to take away the power of the federal government.


8 posted on 10/05/2011 12:08:41 PM PDT by Blood of Tyrants (Islam is the religion of Satan and Mohammed was his minion.)
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To: Smogger

What a buzzkill


9 posted on 10/05/2011 12:09:47 PM PDT by freedomlover (Make sure you're in love - before you move in the heavy stuff)
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To: Tublecane
why SCOTUS said it was okay to tax income from illegal activities. Doesn’t make sense, does it?

Al Capone is the perfect example of why this makes sense. You can't prove the crime, but the crooks can still do time.

"not guilty" does not always mean innocent.

10 posted on 10/05/2011 12:10:06 PM PDT by Michael.SF. (When you hear hooves, think horses, not zebras.)
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To: Smogger

And this is just income tax.

The Marijuana Tax Stamp Act or whatever it is called levied a $200 tax on each ounce sold, that was the original cannabis prohibition bill. I bet as soon as this income issue gets cleared, someone will be there asking for the tariff fees.


11 posted on 10/05/2011 12:16:05 PM PDT by DBrow
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To: Michael.SF.

“Al Capone is the perfect example of why this makes sense. You can’t prove the crime, but the crooks can still do time.”

That’s a different way of making sense.


12 posted on 10/05/2011 12:17:34 PM PDT by Tublecane
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To: Smogger
How can the government tax an illegal substance? Just say it's the income and not the means? I guess it worked for Capone, though.
13 posted on 10/05/2011 12:19:25 PM PDT by Gaffer
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To: Smogger

Lets see 1982 tax code for 2007 & 2008 taxes, hope it is still in effect and has not been repealed by the thousands of changes since then. Boy if the IRS streching things.


14 posted on 10/05/2011 12:24:36 PM PDT by Ratman83
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To: Tublecane
I’ve never understood, aside from greed, why SCOTUS said it was okay to tax income from illegal activities. Doesn’t make sense, does it?

The 16th Amendment says that Congress can tax income "from whatever source derived." That language certainly encompasses illegal sources. And it hardly seems fair for criminals to be treated more favorably than honest folks.

15 posted on 10/05/2011 12:31:21 PM PDT by Lurking Libertarian (Non sub homine, sed sub Deo et lege)
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To: Hildy
It’s hard to know who to root for in this story.

Well, let's see if we can work through this together:

On the one side, you have a group of people, who, regardless of how unsavory they may be, are engaging in a form of commerce that is highly regulated, but perfectly legal under the right conditions in the state of California.

On the other hand, you have federal bureaucrats whose character with regards to proper respect for the US Constitution is decidedly unsavory, who are using the Big Brother-esque IRS to intimidate, harass, and possibly steal from the people above, using a method that could easily be turned on any man, woman or child in this country, at any time, for any reason.

I would think the choice would be clear to any freedom-loving "conservative".

Let me put this another way: if the federal government thinks that it is entitled to outlaw intra-state pot use and growing (which it has), then why don't the feds simply mount up and arrest every single person in every dispensary in California and other states? Why sic the IRS on them? I'll tell you why - because they know they'd never get away with it. They are on shaky ground with regulating personal behavior as it is, and mounting such law enforcement operations in violation of the state's laws would be a direct challenge to California's sovereign authority under the Constitution, prompting a crisis that could very well lead to another FULL civil war. So, they take the back door route, the one that most slave-minded Americans will bend over and accept without question: they sic the almighty, all-powerful, you-dare-not-question-them IRS on these guys as a final means of intimidation and show of authoritarianism.

If your choice still isn't clear, I think you need to re-evaluate which side you're really on.
16 posted on 10/05/2011 12:32:02 PM PDT by fr_freak
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To: Smogger

I think this bazoo may have been smoking too much of his own product.

“Don’t Bogart that joint, my friend, pass it over to me...”

Very, very heavy story, man.

Now, where are the doobies?


17 posted on 10/05/2011 12:34:57 PM PDT by RexBeach (There is no such thing as a good tax - Winston Churchill)
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To: Smogger

The IRS just wants their cut of the action, they don’t care if they get paid from blood money or drug money.


18 posted on 10/05/2011 12:36:43 PM PDT by Razzz42
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To: fr_freak

Damned well said. Thanks.


19 posted on 10/05/2011 12:36:49 PM PDT by Lurker (The avalanche has begun. The pebbles no longer have a vote.)
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To: DBrow
The Marijuana Tax Stamp Act or whatever it is called levied a $200 tax on each ounce sold, that was the original cannabis prohibition bill. I bet as soon as this income issue gets cleared, someone will be there asking for the tariff fees.

From what I've read about it, the cost of the stamp was relatively modest. You just couldn't buy the stamps. To buy the stamps, you had to bring the hemp in to have it weighed. When you did, instead of selling you the stamps they busted you for posession of hemp without the proper stamps.

20 posted on 10/05/2011 12:43:28 PM PDT by tacticalogic
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To: Ratman83

Marijuana is legal in CA for medical purposes, but at the federal level it is illegal, so the IRS can bust them.
It’s probably better to go back to the old system. Sell the stuff on the streets, keep the cash and launder some of the cash through a restaurant.


21 posted on 10/05/2011 12:45:52 PM PDT by grumpygresh (Democrats delenda est)
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To: tacticalogic

I just looked it up, the MJ Tax Act was repealed in ‘69 after the Supremes knocked it down.


22 posted on 10/05/2011 12:52:18 PM PDT by DBrow
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To: fr_freak
“On the one side, you have a group of people, who, regardless of how unsavory they may be, are engaging in a form of commerce that is highly regulated, but perfectly legal under the right conditions in the state of California.”

Although I disagree with the case law, the Supremes have held that federal statues making pot illegal, even if grown in-state, are the law. So pot is not legal in the state of California. It would be more accurate to say it is not illegal under California law but quite illegal under federal law.

Until the Supremes reverse 40 years of commerce clause law, I can't say I agree with you.

23 posted on 10/05/2011 12:53:57 PM PDT by ModelBreaker
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To: Smogger
Who to side with? For me, it's easy.

An ever-growing and emboldened federal government will eventually use any extra powers granted to it to punish California pot markets on any law-abiding business or individual that they decide to punish in the future.

The biggest threat the pot heads pose is a revival of Pauly Shore's movie career.

24 posted on 10/05/2011 12:59:36 PM PDT by dead (I've got my eye out for Mullah Omar.)
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To: DBrow
I just looked it up, the MJ Tax Act was repealed in ‘69 after the Supremes knocked it down.

IIRC, it was struck down as a Fifth Amenement violation because the issuance policy made you legally obligated to self-incrimination.

25 posted on 10/05/2011 1:13:29 PM PDT by tacticalogic
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To: ModelBreaker
Until the Supremes reverse 40 years of commerce clause law, I can't say I agree with you.

The Supreme Court is an arm of the federal government. If we become convinced that the federal government is out of control, why would we be surprised that the rationalization wing of the federal government is out of control? The first step in getting ourselves ready to fight for our own freedom is to recognize that federal bureaucrats are not the final arbiters of which rights we have and don't have. We can all read the Constitution. We can all see what it says for ourselves. Simply because entrenched, partisan members of the court say that it is OK for the federal government to violate the Constitution, doesn't mean that it is OK for the federal government to violate the Constitution. It only means that one group of federal bureaucrats approves of the actions of another group of federal bureaucrats. We need to keep that in mind as we push forward.

The unreasonable Commerce Clause rulings have only persisted as long as they have because there hasn't really been a true challenge to them. Sure, petty court cases have made their way to the Supreme Court, but those cases occurred at a time when there was no direct conflict between state and federal law. In other words, the feds made pot use illegal, but there was nothing specific in California law that made pot use legal, and thus no direct opposition to the federal law, only the (relatively vague) idea that the Constitution did not grant the fed that power. Now, we have a case where the federal law, speciously justified at best, is in direct opposition to state law, and thus the Constitutional conflict now includes the 10th Amendment as well as the relevance of the Commerce Clause. I'm not a legal expert, obviously, but I think that puts us in new territory, assuming there are any of us left who still have faith in working within the system.
26 posted on 10/05/2011 1:14:42 PM PDT by fr_freak
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To: Smogger

.... and determined a 1982 tax code prohibiting cost deductions for businesses that traffic in illegal drugs applies to the dispensary.

*********************************************************

ALL drugs are “illegal” if not prescribed ,, therefore if the focus of the IRS clause is the “drug” itself then my neighborhood CVS is in violation also because the drugs COULD be illegal IF they were being sold to someone without a prescription... but in both the dispensary and my CVS example there has been no claim that the purchasers did not have legal prescrptions... and if the FedGov IRS is claiming that the California laws are not adequate then the STATE OF CALIFORNIA needs to step in to safeguard one of it’s only brightspots in commerce.

The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.


27 posted on 10/05/2011 1:20:41 PM PDT by Neidermeyer
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To: Tublecane
That’s a different way of making sense.

It was a flippant remark, but think of it in another way, one which happens on a daily basis: Plea bargaining.

A man is probably guilty of murder, but the DA doubts if the case can be proved, he then offers to accept a guilty plea for manslaughter.

Tax evasion laws serve a similar purpose.

28 posted on 10/05/2011 1:22:24 PM PDT by Michael.SF. (When you hear hooves, think horses, not zebras.)
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To: fr_freak

Why sic the IRS on them? I’ll tell you why - because they know they’d never get away with it.

********************************************

By using the IRS as their “big hammer” they bypass the constitution (see my post immediately above this) and route this into the seperate IRS Court system.


29 posted on 10/05/2011 1:23:59 PM PDT by Neidermeyer
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To: Blood of Tyrants
Pot ought to be decriminalized to take away the power of the federal government.

Do you think decriminalizing it will stop the taxing of it?

30 posted on 10/05/2011 1:30:54 PM PDT by MEGoody (Ye shall know the truth, and the truth shall make you free.)
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To: MEGoody

It will make it easier to tax. But then, most pot heads will grow their own.


31 posted on 10/05/2011 1:39:26 PM PDT by Blood of Tyrants (Islam is the religion of Satan and Mohammed was his minion.)
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To: MEGoody

Perhaps it can be taxed by selling growers a tax stamp. Make it $100 per year and a $1000 fine to grow without a stamp.


32 posted on 10/05/2011 1:47:13 PM PDT by Blood of Tyrants (Islam is the religion of Satan and Mohammed was his minion.)
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To: Razzz42
The IRS just wants their cut of the action, they don’t care if they get paid from blood money or drug money.

If that were true, I wouldn't have much of a problem with it. The 16th Amendment, for better or worse, says that Congress can tax income "from whatever source derived." But what makes this case worse is the law the IRS is relying on here. The dispensary in this case actually filed a tax return and paid the taxes they owed (or would have owed if they were in any other business.).

But here's the rub: Back in 1981, a drug dealer who got busted and was hit up by the IRS actually went to Tax Court and established that, even though he hadn't filed a tax return, he had a bunch of business deductions which he was entitled to claim which reduced his tax bill. The Reagan Administration threw a fit (this was back in the days of "Just Say No"), and got Congress to pass a law saying that drug dealers cannot claim business deductions on their taxes. I think a good argument can be made that that law is unconstitutional. Congress can tax "income," but not gross receipts.

33 posted on 10/05/2011 5:23:17 PM PDT by Lurking Libertarian (Non sub homine, sed sub Deo et lege)
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To: Lurking Libertarian

You have it partially correct but the 16th Amendment is so convoluted and vague now, that is it null and void.

Originally, only corporations (not private enterprise) which were under/using the protective wing of government to derive income were to be taxed along with government employees paid out of government funds. Now...your kid is on the hook for selling lemonade.

You have a separate court system interpreting tax law which those decisions then become tax law (expanding).

It’s Catch 22 for illegal markets filling tax documents. Sure you should be allowed deductions before arriving at gains but what’s a drug dealer to do about it (an unfavorable ruling) esp. when Congress passes a contrary law for illegal gains.

If there is going to be a tax, make it flat tax on consumption and do away with all the IRS silliness that ruins lives. Give the States, say...half (whatever) the taxes collected before forwarding the balance for Congress to fight over.

The entire system is demented at this point in time.


34 posted on 10/05/2011 6:18:35 PM PDT by Razzz42
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To: Hildy

“It’s hard to know who to root for in this story.”

In any story involving the ORS vs. humans, I make the obvious choice.


35 posted on 10/05/2011 10:05:04 PM PDT by BlazingArizona
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To: Hildy

“It’s hard to know who to root for in this story.”

In any story involving the IRS vs. humans, I make the obvious choice.


36 posted on 10/05/2011 10:05:16 PM PDT by BlazingArizona
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To: Razzz42
Originally, only corporations (not private enterprise) which were under/using the protective wing of government to derive income were to be taxed along with government employees paid out of government funds. Now...your kid is on the hook for selling lemonade.

Not true, although tax protestors like to claim that. There was a tax on corporations before the 16th Amendment was ratified, but since 1913, all private wage-earners were subject to the income tax. Most didn't have to pay anything for the first few years because the exemptions were so high, but that quickly changed.

You have a separate court system interpreting tax law which those decisions then become tax law (expanding).

Not exactly true. There is a specialized Tax Court, but you can also challenge the IRS in a regular federal district court if you pay first and sue for a refund. And even decisions of the Tax Court are always appealable to the regular, Article III, federal courts of appeals and from there to SCOTUS.

The current income tax situation is an abomination, no doubt, but it is (largely) constitutional.

37 posted on 10/06/2011 11:08:52 AM PDT by Lurking Libertarian (Non sub homine, sed sub Deo et lege)
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To: fr_freak
The unreasonable Commerce Clause rulings have only persisted as long as they have because there hasn't really been a true challenge to them. Sure, petty court cases have made their way to the Supreme Court, but those cases occurred at a time when there was no direct conflict between state and federal law. In other words, the feds made pot use illegal, but there was nothing specific in California law that made pot use legal, and thus no direct opposition to the federal law, only the (relatively vague) idea that the Constitution did not grant the fed that power. Now, we have a case where the federal law, speciously justified at best, is in direct opposition to state law, and thus the Constitutional conflict now includes the 10th Amendment as well as the relevance of the Commerce Clause. I'm not a legal expert, obviously, but I think that puts us in new territory, assuming there are any of us left who still have faith in working within the system.

Exactly such a challenge got to the Supreme Court in Gonzales v. Raich (2005), in which the marijuana at at issue was legal under California's medical marijuana law, and had been grown in California for the possessor's personal use (so it had never been sold, and therefore had never been in "commerce," and certainly never in "interstate commerce"). SCOTUS nevertheless held that federal law made its possesion illegal; Justice Scalia, of all people, wrote an opinion saying that Congress's power to ban sales of marijuana in interstate commerce includes the power to ban any possession of marijuana anywhere in the U.S. because someone could easily take it and sell it across a state line. Justices Thomas and Sandra Day O'Connor, to their credit, dissented.

38 posted on 10/06/2011 11:28:19 AM PDT by Lurking Libertarian (Non sub homine, sed sub Deo et lege)
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To: Lurking Libertarian

Now you getting down to the nuts and bolts of tax law: The definition of ‘income’. Typical definition will read something like....in exchange for labor or services...How can you have a gain if you exchange? Your labor is worth $0 and every payment is gain? Yeah, right.

Income was redefined for IRS standards to encompass everything on the planet.

When was the last time an IRS case made it to the Supremes?


39 posted on 10/06/2011 11:55:40 AM PDT by Razzz42
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To: Razzz42
Now you getting down to the nuts and bolts of tax law: The definition of ‘income’. Typical definition will read something like....in exchange for labor or services...How can you have a gain if you exchange? Your labor is worth $0 and every payment is gain? Yeah, right.

Wages and salaries were taxed as income in the Civil War income tax, and in every post-16th Amendment income tax starting in 1913, so that train left the station a while ago.

On a theoretical level, "income" is defined as the difference between gross receipts and cost, not value. If I buy stock for $10 and it goes up to $50 and I sell it for $50, I have made an "even exchange," because I sold stock worth $50 and I got $50 cash; but I still have $40 of "income," because my gross receipts exceeded my cash outlay.

When was the last time an IRS case made it to the Supremes?

Last one I recall was Mayo Foundation v. United States, decided January 2011. SCOTUS usually hears one to two tax cases every year.

40 posted on 10/06/2011 12:23:36 PM PDT by Lurking Libertarian (Non sub homine, sed sub Deo et lege)
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To: ModelBreaker

“Until the Supremes reverse 40 years of commerce clause law...”

I do believe there was a smidgen of retrenchment against the New Deal commerce clause in U.S. v. Lopez, the “gun free school zone” case. Shouldn’t be too hard to apply the same logic to weed cases, or anything else that doesn’t actually consist of interstate commerce.


41 posted on 10/06/2011 2:11:34 PM PDT by Tublecane
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To: Tublecane

“I do believe there was a smidgen of retrenchment against the New Deal commerce clause in U.S. v. Lopez, the “gun free school zone” case. Shouldn’t be too hard to apply the same logic to weed cases, or anything else that doesn’t actually consist of interstate commerce.”

It was but a smidge. :) But the Supremes refused to apply the logic in the interstate pot case.


42 posted on 10/06/2011 2:13:47 PM PDT by ModelBreaker
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To: Lurking Libertarian

You are a really smart guy and I can’t believe you don’t understand what you, yourself, is saying.

You are fundamentally flawed since you can’t differentiate between gain and labor (that’s income and wages). If you are relying on IRS language then you are going to be as vague as they are and take volumes to define simple statements especially when it comes to barter as the IRS wants to tax that transaction also using their own definitions.

Basically the IRS code is at odds with itself, mainly on definitions they call their own that conflict with long standing legal definitions.

The fact that the IRS code makes sense to you because it is legal is non sequitur.


43 posted on 10/06/2011 3:47:27 PM PDT by Razzz42
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To: Razzz42
I am a lawyer. One of the things I do for a living is to represent people who are litigating with the IRS. In order to do that, and hopefully to win, I have to accept the law as it is, not as I would like it to be.

You can sometimes beat the IRS in court, but not if you claim that "income from whatever source derived" doesn't include money you get paid for working.

44 posted on 10/06/2011 3:53:57 PM PDT by Lurking Libertarian (Non sub homine, sed sub Deo et lege)
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To: Lurking Libertarian

Counselor, I understand your position and dealing with a GSE that first places value on everything and then turns around and taxes that value then I would think doing estate and living wills will be more rewarding but I hope you are having some successes.

My favorite argument when paying fines and taxes that occasionally you might find some bench somewhere dismissed the case when the accused says, “What do you demand that I make payment in? Not what you accept but what you can legally demand?”


45 posted on 10/06/2011 4:36:26 PM PDT by Razzz42
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To: Razzz42
Not what you accept but what you can legally demand?

Could you please reveal to this non-laywer why that phrase sometimes results in dismissal?

46 posted on 10/20/2011 8:53:38 PM PDT by coloradan (The US has become a banana republic, except without the bananas - or the republic.)
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To: coloradan
Article I, Section 8, Clause 5: The Congress shall have Power…To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures. Article I, Section 10, Clause 1: No State shall…coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debt. So, from that we have: 1. The federal government can coin money. 2. States cannot coin money. 3. States have the authority of determining what can be used as a tender in payment of debts by default, because the federal government does not have that specific constitutional authorization. 4. States are then prohibited by the Constitution from making any Thing but gold or silver coin a tender in payment of debts. (Which also additionally proves that #3 is correct.) .....Took the above response from this Link......You can see where lately some States re-invoke this clause, it's nothing new even though the US has been taken off the gold standard....Don't expect to find to many published cases using this argument.
47 posted on 10/20/2011 9:25:21 PM PDT by Razzz42
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To: Razzz42

What keeps them from demanding that you pay them in silver and/or gold? (And, oh by the way, thanks for asking what we could legally demand you pay in.)


48 posted on 10/20/2011 10:10:57 PM PDT by coloradan (The US has become a banana republic, except without the bananas - or the republic.)
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To: coloradan

I already said, we were taken off the gold standard and Nixon made sure of it, so that’s why a Judge will dismiss the case, there is no legal tender coin available to demand.

Everything is so convoluted don’t bother trying to make sense out it or head will start spinning.


49 posted on 10/20/2011 10:46:24 PM PDT by Razzz42
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